Speech

A Good Opportunity to Strengthen Public Financial Management in Asia

June 4, 2018

Keynote Address at Tokyo Fiscal Forum 2018

Mitsuhiro Furusawa, IMF Deputy Managing Director

On behalf of my colleagues at the IMF, it is my honor and pleasure to welcome you to the fourth Tokyo Fiscal Forum.
I would like to thank Japan’s Ministry of Finance, and the Asian Development Bank Institute for co-hosing this conference.
The IMF appreciates Japan’s contribution to our capacity development activities, including this conference through the Japan Subaccount.

This year’s conference will address three broad themes:
innovations in fiscal rules, infrastructure governance, and digital innovations in public financial management.
Before addressing those topics, allow me to provide some context for our discussions with an overview of the economic outlook for the Asia-Pacific region.

Growth in Asia is forecast at 5.6 percent in 2018 and 2019.
Exports and investment will be supported by strong global demand, and reinforced by the U.S. fiscal stimulus.

This growth provides an opportunity to strengthen resilience in the region by rebuilding fiscal buffers and pursuing fiscal reforms that support potential growth.

In Asia’s emerging market and developing countries, public investment will serve as a catalyst for growth.
But to maximize the impact of public spending, it is crucial to maintain sound fiscal policies.

These challenges underline the importance of strong public financial management.

This leads to the today’s first topic, fiscal rules.

Fiscal rules are intended to help prioritize the demands on government spending and ensure sustainable levels of public debt. But, what makes rules more effective?

To answer that question, the IMF conducted an analysis of fiscal rules in over 90 countries.

We determined some of the features that contribute to more effective rules:

•  First, broad coverage is important to reduce loopholes. This means including sub-national governments and state-owned enterprises that pose significant fiscal risks.

• Second, good rules should also encourage building buffers in the good times and allow fiscal policy to support the economy in bad times.

• Third, successful fiscal rules should support enhanced fiscal transparency and accountability.

• Fourth, fiscal rules are most effective if countries design them to be simple, flexible, and enforceable in the face of changing economic circumstances.

• And finally, it is always essential to have political support for these fiscal policies

New IMF work will be presented during the conference intended to advance the debate and guide the design of new rules.

Let me now turn to our second theme: infrastructure governance.

In Asia, public investment in emerging and developing countries has helped spur some convergence between richer and poorer countries. But, there is still room to deliver more and better infrastructure. Sound fiscal management and good infrastructure governance can support this effort.

The IMF is committed to capacity development to strengthen this work.

We have developed an instrument to identify and address vulnerabilities in infrastructure governance.
It is called the Public Investment Management Assessment ­— or ‘PIMA’.
These assessments help countries identify needed reforms over the infrastructure investment cycle; from planning to allocation and implementation.

So far, PIMAs have been conducted in six Asian countries: Malaysia, Maldives, Mongolia, Sri Lanka, Thailand, and Timor-Leste.
The common outcome has been further reforms.
For example, in Mongolia, off-budget projects have been consolidated under the state budget, ensuring better control, and project appraisal and selection have been improved; in Malaysia, institutional capacity for analyzing and mitigating fiscal risks has been further developed.

Managing Public-Private Partnerships (PPPs) is also critical to infrastructure governance.
This is to make sure that PPPs are not used to avoid budget and debt constraints.

A sound PPP management framework and appropriate project risk analysis are necessary to avoid fiscal risks.
The IMF and World Bank have developed an analytical tool, the PPP Fiscal Risk Assessment Model, known as ‘PFRAM’. It helps countries identify and quantify costs and risks associated with PPP projects.
In Bhutan and Cambodia, the PFRAM was applied to large projects and provided options for better managing fiscal risks.

The third topic of the conference is digitalization.

Recently, digitalization has been used to improve tax compliance. Authorities have introduced pre-populated tax returns, electronic tax filing and the use of big data to assess taxpayers’ risks.

Digital technology also has been used to improve public services.
An excellent example is biometric technology in social programs that can reduce fraud and improve coverage.
India is now a leader in this area, with more than 1.2 billion citizens registered under a system of biometric IDs.

Digitalization can also facilitate stronger governance and fiscal transparency.
For example, Korea’s the web-based budget system, D-Brain, encourages public participation.

This conference should offer a good overview of the work being undertaken in this field.

Let me conclude by underscoring that the IMF is committed to supporting member countries’ efforts to strengthen public financial management through policy advice and capacity development.
More than one-third of our TA in fiscal areas goes to this area.
Last year, the IMF delivered 99 technical assistance missions and
25 workshops for public financial management globally.

I hope this year’s Tokyo Fiscal Forum will be a valuable opportunity to share Asia’s recent experiences and help policymakers develop better policy strategies.

I would like to thank you again for your participation, and wish you two productive days of discussions.

Thank you.