In the second half of 2008, the world saw the beginnings of the most significant economic disruption in more than 50 years. After initial problems in the global credit markets, the economies of most nations were negatively affected with recession becoming the norm.
The resulting challenges to public financial managers have been enormous. Faced with unpredictable economic flows and a demand for government response, governments had to assess the economic impact on their countries, evaluate policy options, and chart a course to counter immediate negative impacts while laying a foundation for future growth.
A new survey of global financial management leaders, conducted by the Grant Thornton LLP Global Public Sector on behalf of the International Consortium on Governmental Financial Management, examines both the impact and the responses to the economic upheavals of the last several years from a public financial management perspective. It seeks to provide insight into the choices made by government financial leaders and the tools employed to respond to the public financial management challenges that have arisen.
Turmoil in the financial markets that began in 2008 affected economies around the world, including more than half the countries included in this survey. For a majority of these countries, the impact was negative. Respondents pointed to adverse effects on economic growth, currency values and export revenue, among others. Some respondents saw a positive impact, and one such interviewee said, "The global financial crisis has forced and accelerated public financial management reform to reduce the cost of public administration." Another echoed, "We've put forth new public financial management regulations and solutions."
To respond to these negative consequences, public financial managers followed similar policy paths adopting economic stimulus programs. More than 60 percent of respondents indicated that stimulus programs had been adopted, and more than half of those pursuing stimulus programs believed them to have been successful.
By their nature, stimulus programs cannot go on indefinitely. Having opted to stimulate the economy through public expenditure, public financial managers must consider which economic triggers should serve as a benchmark for phasing out economic recovery programs. Most respondents indicated that improvements in economic growth should be the primary trigger, followed by improvement in general employment. The third most cited reason to phase out stimulus spending was a country's limit to debt capacity. For some countries, the ability to use public expenditures to boost economic activity is constrained by an inability to borrow at will to increase expenditures.
When adopting a spending program, public financial managers must determine the focus of additional spending. Infrastructure was given as the No. 1 area for increased investment. When asked what type of infrastructure was most critical, respondents ranked education, transportation and health care as the top three priorities. "Public Private Partnerships (PPPs) offer affordable practical solutions to the needs of governments and businesses," said one respondent, though "a lack of policy and guidance" was among the most cited reasons for not using PPPs.
Along with the adoption of extraordinary policies to combat the impact of the global financial crisis was also a commitment to increased transparency in public financial management, as indicated by more than three-fourths of all respondents. One method used to introduce greater accountability and visibility was adoption of international public-sector financial standards, including International Auditing Standards and International Public Sector Accounting Standards.
The full impact of the global financial crisis is not yet over, and headlines continue to be dominated by the resulting economic fallout. Ongoing impacts include localized debt crises, deficit sustainability and continued high unemployment.
Public financial managers face some of the most challenging times in decades in meeting their responsibilities, but they have faced them not only with a variety of policy measures but with an unprecedented commitment to transparency. Ë
David Nummy, a former chief financial officer at the Treasury Department, is an independent consultant focused on international public financial management. He serves as the International Consortium on Government Financial Management Program Steering Committee chairman and is an ICGFM conference moderator. Jason Levergood is a Grant Thornton International Global Advisory Services manager who leads survey development for the annual ICGFM/Grant Thornton international surveys. Richard Hudson, who contributed to this article, is a director with Grant Thornton Global Public Sector. For a copy of the 2011 global financial management leaders survey report, http://www.ICGFM.org">click here.