Communication breakdown poses a potential threat to economic policy success

In a significant move towards improving public finance management (PFM) and unlocking opportunities for better fiscal, economic, and societal outcomes, OMFIF and EY have collaborated on a three-year project. This year's focus is on shifting the mindset from spending to investment for public funds.

The project emphasises the importance of public investment in the context of fiscal narratives, with a series of roundtable discussions scheduled as part of this year's programme. The results of these discussions will be compiled into a research report, due for publication in November.

One of the key recommendations from the project is the transition to accrual accounting and enhanced transparency. Moving from cash-based to accrual accounting is critical for providing a true picture of government financial positions, offering greater transparency and accountability, and enabling policymakers and the public to understand long-term fiscal sustainability rather than just cash inflows and outflows.

Strengthening institutional and legal frameworks is another crucial aspect of the project. Sound public financial management depends on robust legal and institutional frameworks that govern budget formulation, execution, fiscal rules, debt management, and transparency. Training government lawyers and officials in these areas ensures that public finance laws meet international good practices and adapt to emerging issues such as gender and climate considerations.

Expanding fiscal space through improved revenue and expenditure management is also a key focus. Governments should focus on expanding fiscal space by strengthening tax revenues via sound macroeconomic and sectoral policies that promote economic growth and tax buoyancy. Effective fiscal management entails improving budget execution, fiscal transparency, and public investment management, as well as rationalizing subsidies that crowd out more productive spending.

Applying strategic planning and prioritization in investment decisions is another essential strategy. Investment of public funds must align with clear strategic priorities, focusing on projects that yield the highest economic and social returns. This includes using evidence-based budgeting and capital finance codes to ensure investments improve growth, promote sustainability, and address pressing societal challenges.

The project also leverages tools and methodologies for better financial management. Practical tools such as the Public Expenditure and Financial Accountability (PEFA) framework help assess public financial management performance, identifying weaknesses and guiding improvements. Toolkits that guide the transition to modern PFM systems enable governments to implement reforms effectively.

By implementing these comprehensive reforms and leveraging recommended tools, governments can enhance transparency, accountability, and efficiency in public finance management, leading to stronger fiscal discipline, better economic performance, and improved societal outcomes.

In addition to the research report, podcasts on topics such as reframing public money and the evolution of sustainable government debt issuance are available as part of the project. The Draghi report, containing key messages for Europe's economy, is also part of the project.

Moreover, the project considers the potential economic policy risk of failure to communicate effectively, and Blockchain technology is being considered for public finance management within the project. Governments are encouraged to embrace technology as part of the project.

The future of public money is a focus of the project, with strategies and tools for better investment being explored. This year's project from OMFIF and EY is set to make a significant impact on public finance management, paving the way for a more sustainable and prosperous future.

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### Summary Table of Recommended Strategies and Tools

| Area | Strategies and Tools | |-------------------------------|---------------------------------------------------------------------------------------------------------------------| | Accounting & Reporting | Transition to accrual accounting; consistent accounting & auditing standards; skilled financial professionals | | Legal & Institutional Frameworks | Sound PFM laws and governance; training for legal and finance officials; adaptation to emerging issues | | Fiscal Space Expansion | Improve tax policy and administration; fiscal transparency; better budget execution; rationalize subsidies | | Investment Prioritization | Strategic planning; evidence-based budgeting; capital finance codes; focus on high-return and sustainable projects | | Diagnostic & Reform Tools | PEFA assessments; PFM toolkits for change management; project governance structures |

The project from OMFIF and EY emphasizes the importance of shifting the mindset from spending to investment for public funds, focusing on fiscal narratives.
Roundtable discussions are scheduled as part of the programme, with the results compiled into a research report, due for publication in November.
One key recommendation is the transition to accrual accounting for providing a true picture of government financial positions, enhancing transparency and accountability.
Strengthening institutional and legal frameworks is crucial, ensuring robust frameworks that govern budget formulation, execution, fiscal rules, debt management, and transparency.
Expanding fiscal space through improved revenue and expenditure management is essential, focusing on strategies like strengthening tax revenues, improving budget execution, and rationalizing subsidies.
Applying strategic planning and prioritization in investment decisions is necessary, with investments aligning with clear strategic priorities and focusing on high-return and sustainable projects.
Practical tools such as the Public Expenditure and Financial Accountability (PEFA) framework are leveraged to assess public financial management performance, identify weaknesses, and guide improvements.
The project explores strategies and tools for better investment, considering the future of public money, potential economic policy risks, and the possible use of Blockchain technology in public finance management.