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Public Financial Management and Sustainable Growth


January 27, 2014

Doug Hadden, VP Products

The Economist recently identified the 12 fastest growing countries in the world. Max Fisher from the Washington Post points out that "economic growth is being driven by natural resources; often a single natural resource." Fisher goes on to describe the effects of the "resource curse" but suggests that countries like Mongolia have failed to achieve sustainable growth. Then he suggests that the results are all unpredictable.

It gets me wondering about what pundits would have said about the fur trade in Canada or the gold rush in California and whether there was sustainable development. One could argue that we haven't figured out sustainable development of oil, forestry or fisheries in North America.

There are two riddles of sustainable development that have been somewhat solved: the need for tax resource transparency from industry to government and the need for effective expenditure controls. Resource transparency, including the support for the Extractive Industries Transparency Initiative (EITI), is tracked by Revenue Watch. Government fiscal management quality is evaluated using Public Expenditure and Financial Accountability (PEFA) assessments.

Many high growth countries leverage government financial software from FreeBalance. The FreeBalance Accountability Suite supports the level of fiscal discipline and transparency needed as a foundation for sustainable growth. Half of these countries have purchased core financial software from FreeBalance. (Only one of the countries listed appears to use commercial Enterprise Resource Planning (ERP) software, but the project is not going very well, which is a consistent theme in high growth countries.)

High growth countries that use FreeBalance have shown improvements across multiple PEFA assessments. There are emerging Public Financial Management (PFM) good practices that can enable high growth countries to achieve sustainable growth:

  • Gradual improvement of fiscal discipline in concert with public service capacity building
  • Recognition that mimicry of "best practices" is rarely successful
  • Ability to adapt automated processes over time in response to legal reform
  • Revenue, budget and aid transparency
  • Fiscal discipline in budget execution that enables more credible and sustainable budgets
  • Strong cash and debt management

We'll see, in 10 years from now, what resource-dependent countries have diversified to other industries and have achieved equitable growth.

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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