July 26, 2013Doug Hadden
FreeBalance Clients on the Road to Governance Success, Part 2
Carlos Lipari, FreeBalance Advisory Services
Sound Public Expenditures Management (PEM) and Government Receipts Management (GRM) are two of the major challenges that governments deal with. The less developed a country is, the harder it is to manage these dimensions and to have a tax base large enough to finance public expenditures. These factors combined with often high levels of tax evasion seriously jeopardize the ability that developing country governments have to generate revenues to invest in its economy without incurring large deficits. The lack of government revenue can result in “debt traps” as governments issue debt to overcome lack of tax revenues.
Most FreeBalance client come from developing countries. Only decade ago, these countries were experiencing combinations of high debt to GDP and low government revenue to GDP ratios. In other words, extremely high public debts and low government revenues in proportion to the GDP.
One big challenge that most of these governments had was to achieve sustainable substantial increases in government revenues. These increases should allow for fiscal deficits reduction while making it possible for strategic public expenditures and investments to be done. In developing countries, markets are usually highly imperfect. Infrastructure suffer from underinvestment and a gradual increase in the relative size of revenues in proportion to the GDP. Expenditures, if properly used, can positively promote economic development and social stability. Once revenues are collected, it is essential to have good Public Financial Management tools for such additional revenue to be well employed.
Governments using FreeBalance GRP solutions at the national/federal level have made considerable progress in terms of increasing government revenues. Overall, the simple average of governmental revenues in percentage of the GDP moved from about 25% of the GDP in 2004 to almost 35% in 2011.
The following histogram shows us that, according to the April 2013 IMF estimates, 53% of the governments of the world will have revenues of less than 30% of the GDP, while 77% will have revenues of less than 40% of the GDP. More than 3 out of 4 of the governments will have total revenues that are somewhere in between 20 and 50% of the GDP.
In comparison to the different World regions where FreeBalance clients operate, there seems to be evidence that the average level of government revenues increased modestly over the last decade. The five year average revenue of countries using FB solutions at the national/federal level increased from 30 to 33% of the GDP from the 2004-2008 to the 2009-2013 five year period.
Developing Asia and Latin America have seen the relative size of Government revenues increase over the last 10 years. Sub-Saharan African countries and Middle East, North African, Afghanistan and Pakistan countries have seen their average Government Revenues decrease. Advanced Economies, have kept them relatively stable.
Projections show that FreeBalance government customers are likely to collect more revenue per GDP than peer countries that are using alternative software for managing public finances.
- Introduction to the Study
- Government Revenue
- Government Expenditures
- Government Gross Debt
- Country Investment
- Real Investment Growth Rates
- Government Effectiveness