The global financial crisis has ushered in a new era for ministries of finance worldwide. These bodies now must do more, and solve more complex problems, than at any time in recent economic history.
Booz & Company's survey of more than 60 finance ministers and senior staff at those ministries, along with other economic thought leaders, has revealed a new agenda that if implemented properly would lead to efficient and effective economic cycles. The survey results indicate what fiscal and economic measures are currently being implemented in these economies, and underscore the urgency of reforms.
The worst effects of the global financial crisis have been contained. However, the range of extraordinary steps required to accomplish that feat — from stimulus spending to asset purchases and guarantees — have transformed the mandate for ministries of finance, leaving these entities with responsibility for far more elements of economic management than they had in the past.
Many countries have taken steps to reform their economic and fiscal management. “Although laudable, these measures have been met with increasing political resistance — as well as varying degrees of success — since they represent isolated steps taken by finance ministries that continue to operate with the same institutional and operational setup they employed before the crisis,” says Dr. Jihad Azour, Senior Executive Advisor, Booz & Company. Instead, finance ministries need to make fundamental shifts in their operational and institutional models across four key mandate areas: public finance management, asset and liability management, economic management, accountability and transparency.
If finance ministries are to successfully lead the way in economic management in the post-crisis era, they must prioritize the challenges they now face across all four mandate areas so that those challenges can be addressed comprehensively, instead of through isolated, ad hoc policy changes, notes Booz & Company.
In developing a reform agenda, finance ministries will need to look not only to the external environment but to their internal strengths as well. Fundamentally, success in the post-crisis era will come from a holistic, capabilities-driven approach for transforming the means by which these ministries deliver on their expanded mandate.
Key to this transformation approach to reform are two elements — selection and focus. “Prior to the crisis, finance ministries had the luxury of being able to focus on a few initiatives at a time,” says Nabih Maroun, Partner, Booz & Company. “But in the post-crisis era, the size and complexity of the challenges have forced them to operate in all four mandate areas at once.” Finance ministries cannot choose their slate of responsibilities, and they cannot choose the economic cycle they find themselves in, but they can choose to focus on the capabilities that will make the biggest difference in how they manage those responsibilities.
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