“Excellence of execution” needed for governments to manage fiscal duties

Delegates from 27 governments and a broad range of other institutions gathered at the Global Government Finance Summit to debate fiscal responsibility and discuss best practices and solutions

The first Global Government Finance Summit was held in Singapore on September 28th and 29th, with over 250 delegates gathering to discuss the key challenges that governments and their agencies face in fulfilling their economic objectives in an era of economic challenges. The theme was best summarised by Lim Hwee Hua, minister in the prime minister of Singapore’s office and second minister for finance and transport, who noted in her opening keynote speech that “aggressive government bailouts and sizeable fiscal injections have undermined quite a few governments’ balance sheets, which in some cases, were already structurally weak at the onset.”

Noting how the recession separated resilient economies with health reserves from those hamstrung by weak fiscal positions and structural deficits, Lim said that “the role of fiscal responsibility goes beyond balancing the books and macroeconomic stabilisation in the immediate term. It entails creating opportunities for economic growth while meeting social needs and stepping in where there is market failure.” Discretionary stimulus should be temporary and accompanied by reforms and policies to increase productivity, Lim said.

Hiroko Ota, the former minister of state for economics and fiscal policy, reinforced Lim’s points by explaining that Japan has made the mistake of not making its spending temporary, nor following up with reforms. Speaking of her experience in the Japanese government, which has failed to solve the problem of the “economic stagflation” of the past 20 years, deflation and government debt, Ota explained that “public funds were invested in many inefficient public works such as under-utilized motorways. The effectiveness of the stimulus packages was limited.” These conversations laid the foundation for the conference’s two discussion streams, which covered governments’ access to capital markets and transaction banking and technology in public sector finance

Governments’ access to capital markets

A key theme at the two-day summit was how governments can develop their bond markets to stimulate their economies in the aftermath of the worst financial crisis in post war history. The speakers noted that deep local bond markets are important, not least because they aid governments in gaining access to cheap funds to support investments and debt levels, but also because they serve as benchmarks can split off into corporate and municipal bond markets. “Deep domestic markets for bonds have often lead to higher ratings than for peers with similar debt indicators,” said Elena Okorotchenko, managing director, Standard and Poor’s.

Gabriel Maklouf, deputy chief executive of the treasury of New Zealand, a country where bond issuance spiked in 2010 to over $6.4 billion to make up about 6.5% of GDP, talked about the country’s debt management strategy. It took measures such as increasing the frequency of tenders by moving from fortnightly to weekly bond tenders to align supply and demand, changing tender timing to encourage participation from investors in the Asian time zone, improving market consultation and promoting New Zealand’s investment prospects through marketing campaigns, he said. However, Nikolay Surikov, head of secretariat of the deputy chairman, accounts chamber of the Russian Federation, raised a word of caution for his country, explaining that his primary concern is over which capital market instruments and how to avoid the build up of risk.

Shailesh Venkatraman, director of capital markets origination in the Asia Pacific region at Citi, noted that the issuance in Asia of bonds denominated in US dollars, euro and yen is approaching a record year in 2010, with Indonesian and Philippines issuers leading the way. Developing nation issuers have sold $2.8 billion of local currency debt in overseas markets this year, including the Philippine government’s first global peso bonds, a $1 billion sale designed to cut the cost of funding a record budget deficit.

Transaction banking and technology in public sector finance

With governments implementing technology to help increase their efficiency and distribution channels, as well as mitigate the risks of their operations brought about by a more open and sometimes volatile global market, a great deal of focus is on identifying best practices. Filippo Sabatini, managing director and global public sector head for Citi’s global transaction services unit shared how financial institutions are helping governments streamline their collections, payments and transaction banking processes in order to provide a more agile infrastructure for the flow of capital within an economy. Michael Paulus, the head of Citi’s public sector group in its global banking division talked about ways to fight corruption, achieve greater transparency, and increase accountability and efficiency.  

Given that more people have mobile phones than either internet-connected PCs or bank accounts, governments are exploring the many ways to leverage technology for faster and more efficient government service delivery. Jaikishan Rajaraman, senior director of GSMA, a global association of the mobile communications industry, has said that in some countries the mobile phone represents a person’s identity and a person’s only access to micro transactions and payments in the absence of a bank account. The constant presence of mobile phones can also be utilised as an important channel for communicating important news alerts or announcements, ranging from natural disaster management with typhoon and tsunami warnings to general reminders such as income tax payment deadlines.

But governments need to have tools to respond to sudden crises as well as long-standing challenges. Pratyaya Amrit, secretary of the road construction department of the government of Bihar, India said that governments need quick access to funds in times of natural calamities and must have effective measures in place to ensure that both government relief efforts and the international outpouring of aid, in the form of monetary or basic supplies, are not hindered by the state’s inability to manage them. Governments should also ensure that financial institutions and citizens have access to calamity-triggered credit so that they may purchase their immediate needs.

The conference offered a broad range of discussion points, providing answers to key challenges that the delegates from 27 countries brought with them. It also set the tone for a broader discussions of these issues in a series of government finance conferences and meetings that The Asian Banker is planning over the next 12 months until the next annual Global Government Finance Summit.

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