ACCA, the World Bank and IFAC say better financial information and thinking must be applied to help manage public finances, and economic indicators need more clarity to provide a better picture of public sector finances in turbulent times.
The COVID-19 pandemic means government spending has increased immensely, with the IMF calculating it to be a staggering US$9 trillion. For ACCA, the World Bank and IFAC, the concern is that public sector fiscal commitment and interventions are not being captured accurately by governments due to the way they account for this.
In a new report published today, Sustainable public finances through Covid-19, the three organisations are calling for governments to use public sector balance sheets to properly manage their finances through the pandemic, paying attention to their public sector net worth. For some, this means a change in accounting methods from cash to accrual accounting.
Alex Metcalfe, author of the report and head of public sector policy at ACCA says: ‘This global pandemic crisis could be a catalyst for more governments to adopt this approach, which can improve decision-making, act as the benchmark for new fiscal targets, and support governments to rebuild economies for a more inclusive and greener future.’
By implementing a balance sheet approach, governments will benefit from:
The report asserts that governments need to avoid poor-value privatisations, which provide immediate cash but reduce public sector net worth. Governments also can minimise reliance on tax increases or austerity by taking a balance sheet approach to foster sustainable public finances.
Ed Olowo-Okere, Director, Governance Global Practice, World Bank Group says: ‘The pandemic requires that governments strike a balance between the standard fiscal discipline and control on the one hand, and speed and flexibility in public financial management on the other. To build back better, Ministries of Finance need a variety of tools for better management of public money to sustain the wellbeing of citizens.’
Alta Prinsloo, IFAC Executive Director, adds: ‘This is about global best practice. No one government can go it alone – the global nature of the pandemic makes this apparent. Part of this drive toward global best practice is to ensure that, as a profession, we discuss with colleagues and policymakers the future of financial reporting in the public sector. Professional accountants need to be giving non-finance expert decision makers a clear and trusted view of the sector’s unfolding financial position.’
Other recommendations for governments include:
And for finance professionals, ACCA, the World Bank and IFAC recommends:
Sustainable public finances through Covid-19 includes case studies that analyse the impact of fiscal policies introduced as a result of COVID-19 on the public sector balance sheets in 10 countries: Brazil, Canada, Indonesia, Italy, Japan, New Zealand, South Africa, Turkey, United Kingdom, and the United States. These show that New Zealand is the most fiscally sound country out of those analysed in the report, with a net worth of 53% of GDP in 2019, compared to the UK government’s net worth of negative 49% of GDP in 2019.
This report builds on an ACCA and IFAC report from February 2020 Is Cash Still King? which offers lessons learned from jurisdictions that have implemented accruals, with the intention that the current global transition to accruals creates real value and is more than a ‘compliance exercise.'
- ends -
For media enquiries, contact:
+44 (0)7725 498 654
Notes to Editors
The report is available here: Sustainable public finances through Covid-19
About ACCA: ACCA is the Association of Chartered Certified Accountants. We’re a thriving global community of 227,000 members and 544,000 future members based in 176 countries and regions that upholds the highest professional and ethical values. We believe that accountancy is a cornerstone profession of society that supports both public and private sectors. That’s why we’re committed to the development of a strong global accountancy profession and the many benefits that this brings to society and individuals.
Since 1904 being a force for public good has been embedded in our purpose. And because we’re a not-for-profit organisation, we build a sustainable global profession by re-investing our surplus to deliver member value and develop the profession for the next generation.
Through our world leading ACCA Qualification, we offer everyone everywhere the opportunity to experience a rewarding career in accountancy, finance and management. And using our respected research, we lead the profession by answering today’s questions and preparing us for tomorrow. Find out more about us at www.accaglobal.com