Sound economic governance depends on strong civil service, IMF official says

13 Mar 17

Strengthening the notion of civil service as a vocation in developing countries is critical to building the institutions needed for sound economic governance, an International Monetary Fund official has told Public Finance International.

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The city of Dar es Saleem, Tanzania at night

The city of Dar es Saleem, Tanzania at night. Schwartz highlighed Tanzania as one country with a high proportion of public-private partnership arrangements, which require strong economic governance.

 

Many of the world’s poorest countries suffer from a dearth of skilled civil servants in areas like public accountancy, administration or financial management, with those that are trained in such roles quickly poached by the private sector.

Gerd Schwartz, deputy director at the IMF’s Institute for Capacity Development, added that underpayment and a lack of professionalisation meant that in some countries work in the public sector was viewed with disdain.

As a result, “people are not [in their roles] long enough to have an impact” and institutions suffer from constant disruptions to continuity – an effect compounded by the rapid political turnover in such nations.

He stressed that tackling these issues and building a vision of public service as a worthy career was key to sustainable institution and capacity building, which in turn is the foundation for other development work.

“I’m sometimes really surprised when you go to [donor] countries, how narrowly focused people are,” he said, highlighting that plans to support areas such as public investment abroad are often put in place with too little attention paid to the institutional strength needed to manage this in the long run.

He highlighted Germany’s recent ‘Marshall Plan for Africa’ – a development strategy focused on areas like trade, private investment, economic development and job creation and employment.

“What does it mean to foster private sector development in Africa?” he questioned. “It means you create a lot more contingent liabilities. And if you don’t build up public sector institutions to deal with this, you’re going to be in trouble in a few years time.”

Public-private partnerships (PPPs) – touted as one key to unlocking the trillions of dollars of investment needed every year to meet the Sustainable Development Goals (SDGs) – were one financing model he underlined as particularly risky.

They have also boomed in the last few decades, despite a sharp reduction following the financial crisis. In 2012, global PPP investment totalled $158bn, compared with $7bn in 1991.

This was previously driven by advanced economies. Today however, Schwartz said it is countries like Tanzania and Mozambique that have the most PPP deals in relation to their GDP.

He stressed caution: “One thing we know about PPPs is that they require very strong public governance institutions. Because the private sector has a lot of good lawyers, and you can be sure they will force the government to do things it hasn’t thought of.”

The contracts PPPs are based on often hold numerous troublesome clauses, he continued. For example, a government may have to agree to pay substantial sums if traffic volume falls below or above a certain threshold on a PPP-built road.

He urged countries, and donor governments, to take into account the risks involved. One method would be to use assessment tools such as the fund’s PPP Fiscal Risk Assessment Model.

“All these tools are only as good as the data one puts in,” he conceded, “but at least it forces you to think through certain issues before you agree to something.”

It would also help finance ministers to challenge, for instance, ministers of transport who are championing a PPP because it will deliver a ‘free’ road, he added.

Another method of assessing the long-term fiscal risks involved in such ventures is to account on an accrual rather than cash basis. However countries must build up substantial accounting capacity before they can successfully implement such a complex system, which has proven challenging for even the world’s most advanced economies.

“You don’t have to go to full blown accrual accounting [to take account of risks],” Schwartz noted. “There are many intermediate steps where you can introduce elements, or let others do that for you, such as through the IMF’s Fiscal Transparency Evaluation.

“You don’t get the full accrual accounting, but at least you’re more knowledgeable than you were before.”

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