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Managing budgetary pressures

25 April 2017

Budget managers are frequently confronted with changing circumstances during the fiscal year that disrupts even the best prepared budgets. Some routine pressures require no more than regular adjustments to plans, while others become chronic and have a great impact on public finances. Then there are extraordinary shocks, which can be sudden and significantly threaten budget stability and service delivery. The 2017 CABRI conference, held in Burkina Faso in March and attended by 69 officials from 26 African countries, examined how governments can better prepare for and manage such budgetary pressures without disrupting service delivery and incurring unsustainable debt.

The conference sessions drew on the experience of African countries in responding to extraordinary pressures. These arose from macro-economic shocks, as well as shocks on account of natural or ‘man-made’ disasters. The country case-studies included the following experiences in managing the impact of: oil price shocks in Nigeria; the global financial crisis in Lesotho; the outbreak of Ebola in Liberia; cyclones in Madagascar; political conflict in the Central African Republic; the wage bill crises in Cote d’Ivoire and Burkina Faso; and the tertiary education financing crisis in South Africa. The experience of these countries drew out insights from other participants.

Countries reported that pressures usually coincide, pushing them into budgetary crises. In Burkina Faso for example, the cost of agreed increases in public sector salaries coincided with decreased revenue due to lower gold and cotton prices, political instability and the impact of Ebola in neighboring countries on tourism. While budgets are often able to absorb a series of pressures, in many cases one additional crisis can present a tipping point at which the public finances are destabilised'. Building resilience therefore has to involve identifying and analysing sources of fiscal risk as part of budget preparation. These risks need to be monitored and assessed continuously and disclosed.

Countries reported that budget crises resulting from extraordinary pressures exposed their institutional weaknesses. In Liberia for example, the Ebola crisis laid bare the dependence on donor-supported human resources in the health sector, and weak co-ordination between the centre and the outlying areas. Crises however, create the opportunity and political space to address these weaknesses.

Across countries the response to budgetary crises were multi-faceted, including efforts to increase available resources, cutting expenditure elsewhere, and postponing or minimising the effects of the crisis. Countries however emphasised the need for good data and analysis so that finance ministries have and can weigh up options.

In the short-term countries found fiscal space by rebalancing their debt portfolios, cutting non-essential spending and mopping up idle cash balances. These short-term measures however, were complemented by longer-term interventions to prevent a recurrence or deepening of the crisis, and build fiscal resilience. Lesotho’s fiscal crisis, for example, led to efforts to diversify its revenue base and strengthen revenue collection. Besides strengthening budgeting and disaster risk management, Madagascar has opted to take out disaster risk insurance.

Finally, conference participants discussed the important role of finance ministries in mitigating the effects of budgetary pressures, given political pressure on budgetary decisions. Consensus was that finance technocrats have a duty to communicate trade-offs so that political decision makers are forced to confront pressures, make informed choices and be held accountable for the decisions they make. Political decision makers however, can only be held accountable if the trade-offs and choices are also communicated to those who hold them to account. At the same time, however, participants agreed that finance ministries cannot act alone. Identifying and collaborating with key players help finance ministries see the full picture of the problem, expose available options, and bring players together to implement a unified approach.

Overall, while the conference discussed various response options in times of crises, it also emphasised that the good public financial management systems that can help prevent extraordinary pressures, particularly those largely within a country’s control, are also essential to manage crises when they occur.

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