How can you use international organizations and institutions to improve public finance?

Famously (mainly because of the Greece case), this is a double-edged sword. As those institutions can be detrimental to help with solvency issues and national crises, they usually come with "austerity" measures, which many economists consider to create a vicious circle. The austerity measures can include spending cuts, tax increases, or a combination of both, which consequently lead to a decrease in investment and therefore, a decline in growth and a lower chance to serve the debt.

A fundamental aspect to analyze is the dominant economic paradigm these institutions continue to promote for the past many decades. The neoclassical growth paradigm (and resulting policies) we are entrenched in has benefited a few at the cost of many. That’s the real discussion we must have. See Bridgetown initiative as well as President Ruto’s calls etc etc

Strengthening Public Financial Management (PFM) in low-income and emerging market economies is a fundamental requirement to enable these countries to more easily access international finance that should decrease reliance on any single donor. Improved PFM also enables countries to respond to climate associated risks and natural disasters more effectively. With fiscal recovery lagging economic recovery post-COVID, it is important for multilateral institutions and international organisations to provide both technical assistance and funding needed for low-income and emerging market economies to invest in best-in-class PFM systems, policies and procedures.

Multilateral International Financial Institutions (IFIs) such as the IMF and WB and other regional public development organizations have an important role in promoting transparency in the public budgeting and financing activities of developing countries. Very often the off-budget items and expenditures that have not been fully disclosed in the public domain may lead to challenges with public finance budget execution. This is an area where technical assistance from domestic and international organizations is very helpful. Additionally, with countries being signatory of Agenda 30 - Sustainable Development Goals and Paris Climate Treaty, citizens and investors benefit with standardization and transparency of technology enabled public finance.

People at these organisations need to have representation on the ground with subject matter expertise in areas of finance, debt, budgeting etc. a transfer of knowledge and training has to occur so these organisations can meet the agreed goals with the country in matter. This can only be done via a carefully thought out plan, with timescales, actionable steps and goals that need to be achieved in that time. Only once suitable training has been provided will these countries become more effective over the long run.

IFIs have another important role which is being depositories of knowledge. Being at the intersection of different international experiences in different policy arenas makes them in a unique position to offer more knowledge as institutions.

Based on my experience, I must say that technical assistance from international organizations can be particularly valuable for public finance in developed economies, economies in transition and developing countries, but this depends on two interconnected factors. The first is the specific methodology used, and the second is the experience of those who implement it. The most valuable methodologies are the ones that are technically sound, but also transparently promote shared policy objectives. The best experts/consultants are those who understand that any public policy must be tailored to the context to make it feasible.

PPPs can be costly to design and technical assistance can help governments do so by providing expert advice on the topic as well as sharing "lessons learned" that IFIs accrue in other geographies.

Leveraging international organizations, nations can fortify their public finance by developing sovereign funds modeled on examples like Norway's GPFG and Singapore’s GIC, which strategically invest in global technology sectors. Entities like the IMF and World Bank provide financial support, policy advice, and technical assistance, promoting adept management of revenues and strategic technology investments. This improves domestic financial stability and can accelerate the adoption of new technologies, ultimately helping public entities become more efficient and increasing the quality of life of the population.

While standards are important to achieve comparability of data and interoperability between systems, they must take into consideration the unique context for each country.

Unfortunately, international organizations have limited supranational authority over the domestic affairs of their member-states. The organizations exert more authority over the use of institutional resources; for example, members of the IMF may liberally exhaust their lower level tranches before conditionalities set in at advanced stages. Though collective action imposed by ratified treaties, such as the Convention Against Corruption, and antilaundering protocols, could aid the integrity and sustenance of public finance, the ultimate quality of public finance is contingent on the moral persuasions of those elected or appointed to hold public offices. Thus, it is not unusual for non-conforming officials to find subversive outlets.

Health of public finance (in an economy) rests on these key metrics - - Debt-to-GDP ratio - Tax-to-GDP ratio - Deficits (Subsidy, Fiscal, Curr. acc.) - Real Interest rates (vs. Inflation) - Job creation Example - US debt level is very high, India's tax ratio is relatively low, global interest & inflation has spiked up. An international FI should make a holistic view on capital allocation & policies regarding industry/ trade/ banking/ markets, etc. to ensure fiscal discipline around the above metrics. Example - Basel III (a worldwide standard on banking system) allows for a range of values vis-a-vis sovereign rating. However, often FIs like IMF apply standard template to a country which may not be relevant, leading to a vicious cycle.

Financial problems and public debt increase as small firms have difficulty repaying their loans, most bank loans cannot be repaid, and borrowers are secured with their personal assets. These inadequacies also negatively affect financial development, ultimately increasing public debt and negatively affecting the RGDP.

Sharing data, especially financial data, across institutional and national boundaries is fraught with legal complexities. International organisations vested with such authority can create anonymized big data sets that assess and forecast the negative and positive effects of different fiscal interventions. Example: profit sharing and poverty reduction, tax evasion and increased corruption, regional integration and GDP growth.

Financial problems and public debt increase as small firms have difficulty repaying their loans, most bank loans cannot be repaid, and borrowers are secured with their personal assets. These inadequacies also negatively affect financial development, ultimately increasing public debt and negatively affecting the RGDP.

The provision of financial support by international organizations is undeniably important to bolster public finance. Such support, ranging from grants to debt relief, plays a crucial role in navigating fiscal shocks and promoting sustainable development. However, it's important to keep in mind there is not a one-size-fits-all approach. While providing immediate relief for a country's fiscal challenges is important, the goal should be to build a country's capacity to enhance its own revenue over the longer term. More importantly, international organizations and institutions should help countries address the root causes of fiscal stress. The long-term success of financial support depends on a collaborative and transparent approach.

When it comes to PPPs, IFI and other international organisations can provide financial support through loans and grants to the government, but also the the private party involved in the project. IFIs can improve structuring and lower risks for the private parties, enabling the total cost of service to be cheaper thanks to an overall lower cost of capital for the project.

Financial support has historically been provided but what happens is that members of these organisations end up self-serving and the country that was initially given aid, end up in ever more unsustainable debt and their future GDP and population is burdened with more interest payments. The never ending debt cycle in Africa is one example of such things. Where finance is a workable solution is when it saves a countries currency from collapse and therefore millions of consumers and people stay in jobs - but even then, this is always a short term solution.

Financial support comes with exorbitant costs when the thresholds of accountability and debt (loans and concessional grants) repayment are very low and indulgent. Invariably, a proportion of public debt has become unfortunate leakages. However, sovereign debts transfer liabilities to subsequent generations with costs that could stagnate or regress the capacity of nations to attain sustainable development. The capacity of poorer nations to grow is somewhat compromised when the terms of debt repayments are inceptively impractical. Ironically, some borrowers have been net creditors to the rest of the world. Therefore, financial support must properly target sustainable development with assurances of capacity to avoid sovereign debt crisis.

Financial support is a strong pillar for those countries really in need. The long-term goal, however, should always be finding the right balance so that the country countributing accounts for local repercussions as well.

Monitoring and evaluation (M&E) by International Financial Institutions (IFIs) is vital for efficient public policy spending. IFIs ensure accountability, tracking fund usage and assessing policy effectiveness. M&E acts as a risk management tool, identifying and mitigating issues early on. It fosters knowledge sharing, refining future policies, and guides strategic resource allocation for maximum impact. The transparency it provides builds public trust, crucial for sustained support. Ultimately, the alignment of policies with development goals ensures impactful and successful economic and social development.

Education to important ministers and government members is the key way things will change. Without education and the right willpower, finances may be mid managed!

Collaborative efforts can lead to capacity building, improved governance, and access to global financial markets. Additionally, participation in regional integration initiatives and advocacy for fair trade policies can stimulate economic growth, ultimately strengthening public finances. These multifaceted strategies, tailored to each country's specific needs, can help African nations achieve more sustainable and effective public finance systems.

Capacity building is crucial for proper public fund management. However, role plays by the international organizations should be tailored made to countries specific. Some countries need financial assistance, while other need technical assistance.

Shouldnt we start this article by asking and analysing what it is in Public Finance that has to be improved? Is it debt? Income distribution? What is it that we resp. international organizations intend to make better?

Anti-corruption measures and safe guards to combat corruption in public finances. Working with organizations like transparency international to reduce costs, will greatly improve revenue collection and expenditure.