Leveraging Technology to Improve Forecasting and Monitoring of Local Government Budgets

Guest blog written by Ruth Huette

Public budget uncertainty is a defining characteristic of the COVID-19 pandemic

Last week, governments of France and Germany announced that their countries would enter yet another phase of lockdown as new cases of COVID-19 were on a steep rise again. As Europe is grappling with a second COVID wave, other governments around the world are expected to make similar announcements soon. 

Although long expected by epidemiologists, the announcement took many smaller and medium sized companies by surprise. To help ease the impact on businesses forced to close during the lockdown, Germany’s finance minister, Olaf Scholz, promised that the government would compensate small firms with up to 75% of their revenue for the same time last year, thereby tearing yet another hole into already diminished public budgets. Not only in Germany but around the world have local governments taken a massive doublet hit in their budgets since the start of the COVID-19 pandemic, as tax revenues went down and social spending and economic support increased. Until a vaccine will be developed and widely distributed, this uncertainty on future public budgets will persist.

Data analytics can improve local government budgeting processes

To prepare for future phases of budget uncertainty local governments should take advantage of technology and replace manual processes and basic tools with specialized analytics systems. This will help them enhance prediction accuracy, improve data exchange between different government units, facilitate budget-related decision making through visualization and increase citizen participation in budgeting.

Enhancing the accuracy of forecasts

Already in normal times, local budgeting requires bringing together many moving parts – during a global pandemic even more so. In a time of unprecedented uncertainty, both short- and long-term local financial management has become ever more complex. Public health and safety predictions, complex economic scenarios, and accompanying public social spending forecasts are new sources of information, among others, that must now be incorporated into robust budget planning analyses. With increased complexity, manual manipulation of spreadsheets is even more prone to errors and can be difficult to replicate. Advanced data analytics tools offer the potential to improve government’s ability to extract value from various sources and large volumes of data.

Breaking up siloed data and coordinating systems

Data silos in budgeting can be the result of limited insights which the various institutions that help inform the budget planning process gain from their traditional Excel spreadsheets and ERP reports. During crisis times, even more and potentially unusual data sources from various sources need to be taken into account – including for example forecasts of future COVID-19 cases, of required government measures to curb the spread and of the measures’ expected impact on small businesses. This further complicates data transmission and analysis and increases the risk of loss of relevant information.

Continue reading Leveraging Technology to Improve Forecasting and Monitoring of Local Government Budgets

COVID Budgeting – Fiscal Response and Challenges

Guest blog written by Imaad Syed

Most governments across the world responded to challenges of the COVID-19 pandemic through fiscal and monetary support measures. Coordination and implementation issues aside, these measures have been instrumental in saving lives and livelihoods in the short-term. However, budgeting challenges remain given the massive outlays for the COVID response. In this blog post, we briefly overview the scale of fiscal response, types of fiscal measures, and budgeting challenges ahead.

Distribution

National governments were quick to deliver significant fiscal stimulus packages in response to the economic crisis due to coronavirus lockdowns. These packages varied in size and location (Figure 1). New Zealand had the largest fiscal response of any major country at 19.5% of its GDP (second overall behind Tuvalu at 29%), followed by Singapore (16.1%), Canada (12.5%), and the United States (11.8%).[1] Approximately 70% of countries had a fiscal response of 5% of their GDP or lower (Figure 2). Lesotho had the largest fiscal response among countries in Africa at 10.2% of its GDP, while United Kingdom (9.2%) and Chile (8.4%) had the largest fiscal response in Europe and South America, respectively.

Figure 1: Map of global fiscal response to COVID. Excludes Tuvalu to highlight differences among countries. (Source: IMF)

Figure 2: Distribution of global fiscal response to COVID (Source: IMF)

Measures

The fiscal response to COVID has largely centered around relief for taxes and fees, employment incentives, and economic stimulus.[2]

  • Taxes and fees relief: Most governments have extended filing deadlines and reduced tax rates to provide relief to individuals and businesses. Other measures include:
    • Deferring tax installment payments and writing off interest on late payments
    • Extending payroll tax exemptions and deferring sales tax remittances
    • Suspending increments in government fees and charges
    • Increasing corporate tax thresholds and rebates
    • Removing import tariffs on critical medical supplies
Continue reading COVID Budgeting – Fiscal Response and Challenges

Will Government Budgets in 2021 involve more COVID-19 ‘Whack-A-Mole’?

written by Matt Andrews

Governments started 2020, as they do every year, with budgets that set out plans for raising and spending public money. Then COVID-19 hit, disrupting even the best laid plans and forcing officials to shift from planning to triage mode in the face of rapidly changing crisis conditions. 

According  to a recent informal survey we conducted, with 48 respondents from across the world, the COVID-19 effect is generally widespread and significant:

  • Over 75%  of respondents noted that their governments faced growing spending needs, which required revisions on the spending side of most budgets.
  • Over 90% of respondents noted that their governments faced declining revenues, which necessitated urgent efforts to access funds and fill gaps.
  • Over 90% of  respondents noted that public sector deficits grew in the year, which called for changes in fiscal policies, norms and even rules in many  places.

These pressures turned 2020 into a series of constant budgetary  revision and re-negotiation in most governments. Some officials I was in contact with, described the  experience as frustrating and exhausting; they were never able to keep up with all the problems that emerged.

In a sense, managing public  finances in 2020 was like a long game of ‘whack-a-mole’.

Now, in late 2020, governments need to think about how they budget for 2021 (and beyond) hoping that they can plan more effectively given what they now know about the impacts of COVID-19. 

Stated differently, can they budget in a way that fosters less COVID-19 ‘whack-a-mole’ in 2021?

We at the Building State Capability program are intent on helping in this process, by offering ideas about how governments can foster more stability in 2021 – both by preparing their 2021 budget plans differently and by developing strategies to engage with emerging pressures to those plans throughout 2021. We will offer a few blogs on this in the coming weeks – as many governments are in the final throes of preparing their 2021 plans – and will hold a one week executive education program on budgeting  through crisis from October 26th to 30th, 2020.

We have some amazing faculty members contributing to the executive program:

  • My colleague  Ricardo Hausmann will address – among other things – ways of thinking about the macro-fiscal uncertainties associated with COVID-19 and the difficult trade-offs governments are being forced to consider at this time (read some of his views in  this blog)
  • Teresa Curristine, the Deputy Division Chief in the IMF’s Fiscal Affairs Department, will lead a session on the difficulties of budgeting in a time of COVID-19 (see a blog on the topic she recently co-authored here).
  • Louise Sheiner, Policy Director of The Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, will address challenges in the United States context and speak to the tensions involved in programming different  kinds of social expenditures at this time (see a recent related blog here).
  • Sandra Naranjo Bautista, former Secretary of Planning and Interim Vice President in Ecuador, will  share her personal experience leading the public  finance response to Ecuador’s 2016  earthquake, including  discussing the  challenges associated with leadership at this time (something she references in two recent blogs, here and here).
  • Paolo de Renzio, Senior Research Fellow for the Open Budget Initiative at the International Budget Partnership, will reflect on the importance of communications, transparency and partnerships in developing and managing public budgets at this time (a topic he discussed in this blog).

If you, or anyone you know might be interested in participating in this program, please share this link with them. We would love to have you join us.

If  you can’t join the program, watch for more blog posts on the topic!

New Online Program: Budgeting in a Time of Crisis

Governments across the world are facing a major budgeting crisis in 2020 due to the COVID-19 pandemic. This crisis raises important questions:

  • How do governments manage revenue shortfalls?
  • How do you address new expenditure demands?
  • How do you forecast in the presence of multiple uncertainties?

All of these questions, and more, need to be addressed in the few months governments have left to develop their 2021 budgets. However, many of the processes and approaches to budgeting do not hold in this current circumstance. This means that new techniques and methods for budgeting in times of crisis are necessary.

Budgeting in a Time of Crisis, a new executive Education program at Harvard Kennedy School taught by Matt Andrews and Ricardo Hausmann, garners lessons from past crises, as well as cutting-edge thinking about the COVID-19 situation, to offer budgeting professionals new ideas and perspectives to apply in developing 2021 budget proposals.

These ideas relate to technical and political processes of delivering a budget (how do you forecast and build a budget technically in this trying time AND how do you communicate and engage with others about this budget) and also to the challenge of implementing that budget in coming years (what kind of flexibility might you need, what information do you need to collect, how can you manage expectations). To learn more, visit the course page.

Listen to Faculty Chair, Matt Andrews discuss the online program.