More information but less influence? A dilemma for government finance departments

By on 15/12/2022 | Updated on 20/12/2022
Morocco's Nourredine Bensouda: “Before, we were speaking more about budgets. Now, we’re speaking about the results and the impact on citizens."

Fast-increasing access to data gives treasuries the tools to provide better targeted services, more effective policies and more comprehensive reporting. But at the Global Government Finance Summit, senior leaders worried that even as their capabilities are growing, the pandemic’s political fall-out has weakened their clout. Matt Ross reports

“Sometimes finance leaders are brought in at the very beginning and the end of a process, to set budgets or sign off spending. But much more could be achieved by bringing finance leaders fully into the policymaking process – perhaps identifying opportunities, or looking at how the risks and benefits are calculated,” said Siobhan Benita, the former UK senior civil servant chairing the 2022 Global Government Finance Summit.

Benita was introducing the session entitled ‘finance as an enabler, not a constraint’ at the Summit, which brought senior leaders from treasuries and finance departments around the world to Estonia in June.

While the Summit is held in private, allowing finance leaders to openly debate the policy and operational challenges that they face in common, some participants have allowed us to publish their comments. Here we present the key points raised during the fourth session, which explored how finance leaders could help to improve decision-making on policy development and service delivery.

Healthy investments

Over recent years, the world has become ever more “hectic and volatile. Making public finance decisions, which requires forecasting and visibility, becomes a complex and difficult exercise in this context,” said Nourredine Bensouda, general treasurer of the Kingdom of Morocco. “But with the disruption of supply chains and rising prices of raw materials, good governance of public finances has become more important than ever”.

And for Bensouda, that good governance involves improving people’s health and skills. The huge social and economic costs of the pandemic, he believes, have illustrated the need for countries to invest in their human capital, boosting public resilience. “For a long time, many countries – including Morocco – were more concentrated on infrastructure, agriculture and so on. But with COVID, I think that many things changed,” he argued. “These two years of health crisis have clearly shown to those who still doubt that we fundamentally need more health and education spending. In short, spending centred on humans.”

Bensouda also championed government interventions to reduce inequality: income and wealth disparities, he argued, lead to higher public spending and foster discontent. “In countries where inequalities are too marked there is, for example, more infant mortality, more health and addiction problems, more school failures, and higher rates of incarceration,” he pointed out. “All these weaknesses will not only weigh on the public finances, but they represent a real threat to democracy. It has been observed that citizens have less confidence in their governments in the most unequal countries.”

John McCarthy, the chief economist of Ireland’s Department of Finance, agreed that income and wealth inequalities can drive up public spending. Investing in giving people a good start in life and improving public health, he noted, reduces spending on the services tasked with addressing social problems – such as courts, police and social services. “All of the evidence would suggest that you can get a better outcome by investing earlier in the likes of education. It’s almost like a saving over the long term for the public finances,” he said. And McCarthy also sees inequality as a drag on economic growth: “Addressing poverty and inequality is crucial, not just from a cohesion perspective but actually in terms of macroeconomic outcomes,” he argued.

John McCarthy

Building strong public services has another interesting effect, commented Bensouda. When people know that they’ll be protected in the event of illness or unemployment, they’re less driven to make money – weakening one of the drivers of inequality. “In countries where the citizen feels supported, cared for and protected by the community, he is less likely to seek the accumulation of capital,” he said. “He no longer feels the need!”

New data replaces old wisdom

“The old wisdom says: don’t try to fine-tune fiscal policy, don’t try to micro-manage the economy, because it won’t work: there are lags in information production, and a shortage of information,” said Dr Markus Sovala, director general of Statistics Finland and a former finance department economic policy chief.

Given that scarcity of reliable, recent data on the economy, he explained, it’s never seemed feasible to finesse economic policies. “But the amount of information, and the speed of its availability, is changing,” he continued. “Perhaps we need to rethink this old wisdom.”

Markus Sovala

During the pandemic, he explained, Statistics Finland began gathering a wide range of information “as soon as possible, not honouring any traditional ways to produce statistics: no control of quality of data, no lags, just putting raw numbers together”. It proved so useful in targeting COVID compensation policies that the government has now funded a “permanent service to provide information for evidence-based policies; to use micro-data for policy evaluation and planning”; and to inform departments’ research on social and economic changes.

John McCarthy has also seen finance departments, central banks and statistics institutions tapping into new streams of real-time data, such as those generated by the tech giants. There’s been a shift in “the trade-off between timeliness and data quality,” he commented. In official statistics, quality is king – but weaker data, available immediately, proved invaluable as the pandemic hit. “We were prepared to sacrifice a little bit on the quality, in order to have up to date information on what’s going on,” he said.

In addressing a novel, fast-moving crisis such as COVID, concluded Sovala, “the timeliness of information is so crucial. It’s quite impossible to steer the country if your information is two years old”. For him, the solution is to “divide your information production into two separate lines. You have your official statistics, which are coming more slowly but give you the right description of the structure of the society and economy. And you’re also ready to use information which isn’t official statistics, but provides indicators published on a daily basis”.

New angles on finance data

As well as generating more timely information, finance and statistics leaders are also being asked to produce data on a wider range of topics – meeting elected leaders’ interest in taking a broader view of public wellbeing and economic goals. Today’s focus on “green accounting, or generational accounting, or the ‘beyond GDP’ statistics are all a reflection, I think, of a recognition that growth and wealth and welfare are not the same thing,” commented Jakob Wegner Friis, deputy head of cabinet of the European commissioner for economy. “Any modern politician will have to look beyond GDP. Our own statistical institute, Eurostat, is under immense pressure this year to produce more green statistics, because that is currently the number one priority in European policymaking.

Jakob Wegner Friis

Finding new data sources can also improve policymakers’ and finance leaders’ understanding of the outcomes of public spending. As Nourredine Bensouda pointed out, many governments focus closely on allocating funds – paying less attention to the fruits of their investments. “There are more discussions about budget acts than execution,” he commented. But this balance too is changing: “Before, we were speaking more about budgets,” he said. “Now, we’re speaking about the results and the impact on citizens – and this is the key indicator.”

Less influence, more collaboration

Finance departments played a key role in protecting national economies and people’s livelihoods through the pandemic – but participants argued that their influence on wider economic policymaking has actually weakened since COVID hit.

Generous government hand-outs, funded by public borrowing at low interest rates, “had the side-effect that for a while, society had the feeling that you don’t have to choose” between low taxes and generous subsidies, commented one finance leader. As a result, “the ministry of finance lost its power, because one of its usual main arguments – that you have to make choices – was gone for a while”.

Another participant agreed, commenting that for finance ministries “the traditional role of keeping care of the resources has been difficult, because the political atmosphere became that we are doing whatever is needed; the general understanding was that there are no limits”. 

“It will take time to get back to normality – but interest rates have increased, so maybe not that long,” commented one leader. “Very likely now the financial markets are going to teach the lesson again,” another responded.

As treasuries look to the future, though, one finance chief urged his colleagues to work closely together with other public service leaders – listening to their perspectives and encouraging departments to work together to realise public goals. “Sometimes you’re in office, and you think that you understand everything and have the power to do it alone, and that the other departments don’t understand,” he commented. In many finance departments, “the first thing that you learn is to say: ‘No’. But I think that we have to be more positive; to learn to say: ‘Yes’”.

“It’s about a mindset that is more positive, more cooperative,” he concluded. “About sharing something.”

This is our fourth report on the 2022 Global Government Finance Summit, which was held in Tallinn, Estonia in June. While the Summit is held in private, some participants have allowed us to publish their comments.

The first report covered an analysis of today’s inflationary pressures by John McCarthy, chief economist of Ireland’s Department of Finance; the second considered finance departments’ responses to the pandemic; and the third explored how finance leaders are supporting – and impeding – digital transformation. The final report looks at the role finance ministries can support environmental sustainability.

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About Matt Ross

Matt is Global Government Forum's Contributing Editor, providing direction and support on topics, products and audience interests across GGF’s editorial, events and research operations. He has been a journalist and editor since 1995, beginning in motoring and travel journalism – and combining the two in a 30-month, 30-country 4x4 expedition funded by magazine photo-journalism. Between 2002 and 2008 he was Features Editor of Haymarket news magazine Regeneration & Renewal, covering urban regeneration, economic growth and community development; and from 2008 to 2014 he was the Editor of UK magazine and website Civil Service World, then Editorial Director for Public Sector – both at political publishing house Dods. He has also worked as Director of Communications at think tank the Institute for Government.

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