For many governments, the pandemic didn’t just pose new problems. Rather, it has exposed the weaknesses of institutions, particularly the public sector. At the centre of this economic downturn are lagging institutions, particularly its State-Owned Enterprises (SOEs).
The Role of SOEs in an Economy
State-Owned Enterprises have historically played a key role in the socioeconomic development of countries. Healthy SOEs have made significant contributions to employment creation, poverty alleviation, fiscal stability, development of a sector or geographical area and environmental protection. Despite their role in the economy across strategic sectors, the poor financial performance of SOEs has become a heavy fiscal burden with significant macroeconomic implications for many countries. The excessive reliance of SOEs on national treasuries to fund their losses has not only crowded out productive investments but has also weakened the financial system, and as a result, jeopardized macroeconomic.
Around the world, trillions of dollars have been spent on bailing out SOEs, but many have yet to become self-sustainable. These have continued to drain the national government of precious fiscal space that could have been used to invest on infrastructure and social protection programs. Good Public Financial Management (PFM) is not only the responsibility of the central or national governments. The ‘whole-of-government’, at all levels, needs to properly align their PFM systems.
Corruption and SOEs
State-Owned Enterprises are prone to corruption due to their ability to tap into government budgets along with the lack of transparency and accountability that is prevalent in these institutions. Corruption in SOEs can take many forms, including bribery, embezzlement, and nepotism. In some countries, SOEs are notorious for their corruption, with officials embezzling funds meant for development and service delivery.
In such countries, one of the issues is the state’s limited capacity to counter corruption. Implementing anti-corruption programs is important to stimulate the economy but without capacity this is not achievable. In addition, evidence of corruption decreases citizens’ trust in the government. Corruption is a function of a lack of transparency, questionable processes and a perceived lack or an actual lack of financial controls. Without adequate financial controls, SOEs will continue to experience leakages.
PFM Reform and SOEs
Countries beset with corruption need to strengthen their PFM processes related to accountability and transparency. In particular, SOEs need to curb unnecessary expenditures and exercise tight financial controls to stop corrupt processes. The first step in such a PFM reform journey would be to invest in an Integrated Financial Management Information System (IFMIS).
Government Resource Planning (GRP) solutions such as the FreeBalance Accountability Suite™ improve resource allocation and make financial reporting automated and more transparent. The FreeBalance Accountability Suite™ is a commercial off-the-shelf GRP solution that covers the entire budget cycle and manages all critical government fiscal systems. This massively configurable GRP has formed the backbone of many IFMIS implementations in governments and public sectors around the world. By integrating an IFMIS into the PFM reform roadmap of SOEs, they can accelerate their turnaround plans and demonstrate positive results to the National Treasury.
The Role of Revenue Management in SOEs
Revenue management is a critical aspect of running any business but in SOEs, it plays an even more important role. Effective revenue management in SOEs requires optimizing revenue streams, managing costs, and minimizing waste to increase revenue and profitability. This is particularly important for SOEs as they operate in a complex economic and political environment and are often subject to government intervention and regulation.
To achieve fiscal consolidation, one of the key strategies is to rationalize the subsidies and transfers to SOEs. Countries will need to re-evaluate the criteria for continuing their financial support to State-Owned Enterprises, particularly those that continue to lose money and have yet to become profitable.
How FreeBalance Helps SOEs Improve Revenue Management
Faced with reduced subsidies, SOEs will need to implement revenue management systems such as the (GRM) Government Receipts Management modules of the FreeBalance Accountability Suite™. Integrated and unified systems like these not only optimize collections but also institutionalize transparency and accountability. Revenue management is vital in SOEs to ensure financial sustainability, public trust, and long-term growth.
FreeBalance’s (GRM) Government Receipts Management software includes several modules to help SOEs manage their revenue efficiently. The software is designed to integrate all financial management functions into a single unified system. Key features include support for different types of tax such as income, property, custom, excise and sales taxes. Additionally, it helps manage citizen and corporate information and identity across revenue systems through customer and taxpayer management. The software also assists in managing the sales of all government assets and supports collection management by handling receipts, collections, invoicing, statements and dunning letters. Finally, (GRM) Government Receipts Management enables governments to manage all revenue collection processes, including permits, licenses, certifications, user fees and fines.
Good revenue management practices in SOEs can help prevent financial mismanagement, reduce the risk of corruption, and improve service delivery to the public. Additionally, revenue management in SOEs can help build trust and confidence in the public sector by demonstrating accountability and transparency in financial management.
Regardless of the size of a government’s budget or the country’s economy, a well-run PFM system puts the citizens’ wellbeing at the forefront; sustainable spending that uplifts the lives of citizens.