How do you ensure sustainability in public finance?

1 Define sustainability

Sustainability in public finance means that the government can meet its current and future obligations without jeopardizing its solvency or its ability to provide public goods and services. It also means that the government can maintain a stable and predictable fiscal policy that supports economic growth and social welfare. Sustainability can be measured by various indicators, such as the debt-to-GDP ratio, the primary balance, the fiscal gap, and the intertemporal budget constraint.

3 Adopt fiscal rules

Fiscal rules are numerical constraints on the fiscal aggregates, such as the budget balance, the debt level, the expenditure growth, or the revenue structure. They aim to enhance the credibility and discipline of the fiscal policy, and to prevent excessive or procyclical fiscal behavior. Fiscal rules can help ensure sustainability in public finance, by limiting the fiscal space for discretionary or opportunistic actions, by creating fiscal buffers for adverse shocks, and by signaling the commitment to fiscal prudence.

4 Implement fiscal reforms

Fiscal reforms are structural changes in the fiscal institutions, policies, or procedures that aim to improve the efficiency and effectiveness of the public sector. They can involve reforming the tax system, the public expenditure management, the intergovernmental fiscal relations, or the fiscal transparency and accountability. Fiscal reforms can help ensure sustainability in public finance, by increasing the revenue potential, reducing the spending pressures, enhancing the fiscal coordination, or strengthening the fiscal oversight and governance.

5 Engage with stakeholders

Stakeholders are the individuals or groups that have an interest or influence in the public finance issues, such as the taxpayers, the beneficiaries, the creditors, the media, or the civil society. They can affect or be affected by the fiscal decisions and outcomes, and they can provide valuable inputs or feedback for the fiscal policy design and implementation. Engaging with stakeholders can help ensure sustainability in public finance, by enhancing the legitimacy and acceptability of the fiscal measures, by fostering the participation and ownership of the fiscal goals, and by improving the communication and information sharing.

6 Evaluate fiscal performance

Fiscal performance is the assessment of the results and impacts of the fiscal policy on the economic and social objectives, such as growth, stability, equity, or efficiency. It involves collecting and analyzing relevant data and indicators, comparing them with the benchmarks or targets, and identifying the strengths and weaknesses of the fiscal policy. Evaluating fiscal performance can help ensure sustainability in public finance, by providing evidence-based feedback and learning, by enabling accountability and responsibility for the fiscal outcomes, and by supporting continuous improvement and innovation.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?