Meeting The Challenges Of Effective Public Financial Management

Ross Campbell, director – public sector at the Institute of Chartered Accountants in England & Wales, explains why GCC governments should look to professional accountants to strengthen their public finances

Governments spend nearly 50 per cent of global GDP, and in the GCC countries, higher oil prices helped finance rapid increases in spending.

During 2003 and 2014, the GCC region witnessed significant expansion in public infrastructure, public sector wage bills, and social transfers, which led to strong growth in non-oil activity. However, a healthy public sector is usually a critical factor in ensuring a healthy wider economy. Government spending, whether on education, infrastructure or research, underpins economic activity and government officials often set the rules within which businesses and markets operate.

As countries around the world grow and develop, and national incomes increase, the business of successfully managing both the economy and public finances becomes more complex.

Governments enter into long-term agreements such as public private partnerships and incur obligations that require them to have a more sophisticated understanding of the long-term consequences of decisions. Especially as these obligations often mean that future tax revenues are committed to meet expenditure for many years ahead.

In recent years, almost every jurisdiction has experienced slower economic growth and the global outlook for growth remains weak. If economies grow more slowly than the rising cost of public expenditure, there will be more pressure on public finances. Almost all governments will need to think much more carefully about the consequences of obligations they take on and how they will manage public expenditure on a sustainable basis.