世界发展银行-An-Overview-of-the-Potential-Impact-of-the-COVID-19-Crisis-on-the-Accumulation-of-Government-Expenditure-Arrears_28页_6mb

Summary of the Potential Impact of the COVID-19 Crisis on the Accumulation of Government Expenditure Arrears

Core Content

This document provides an overview of how the COVID-19 pandemic has impacted government expenditure arrears, particularly in low-income countries. It discusses the definition and measurement of arrears, their drivers, economic consequences, and the early data on arrears accumulation and settlement in the context of the pandemic. The report also includes recommendations for preventing and managing arrears.

Main Points

Definition and Measurement of Arrears

• Government expenditure arrears are financial obligations that have not been paid by the due date.
• These include interest and penalties on overdue payments.
• Arrears can be categorized into:
  • Within the public sector: payments to public utilities, SOEs, statutory funds, subnational governments.
  • Outside the public sector: wages, salaries, debt service, payments to commercial contractors, transfers to households and businesses.
• PFM (Public Financial Management) weaknesses, including poor costing, unrealistic revenue estimates, weak commitment control, and corruption, contribute to the accumulation of arrears.
• Cash accounting systems may understate fiscal deficits due to delayed payments, while accrual accounting reflects revenues and expenditures as they occur.

Drivers of Arrears Accumulation

• Weak PFM systems are a major driver of arrears.
• Fiscal shocks (e.g., drops in revenue, unexpected spending needs) can lead to arrears even in countries with strong public expenditure management.
• Commodity price volatility, fixed exchange rate regimes, and limited fiscal space exacerbate arrears accumulation.
• Corruption and inflated invoices further compound the issue.

Consequences of Arrears Accumulation

• Arrears have corrosive effects on public finances and the broader economy.
• Delayed payments can lead to reduced business liquidity, unemployment, and economic instability.
• Loss of credibility with the financial sector and the public may result in reduced tax compliance and credit access.
• Governance risks increase due to administrative discretion in managing arrears, potentially enabling corruption.

Impact of the COVID-19 Crisis on Arrears

Early Data and Trends

• The pandemic caused sharp declines in GDP, government revenues, and commodity prices, increasing the risk of arrears accumulation.
• IMF projections suggest that in Sub-Saharan Africa, arrears could increase by more than 2% of GDP.
• Countries with weak fiscal institutions and commodity exporters are at higher risk of significant arrears accumulation.

Country-Level Observations

• 25 countries reported an increase in arrears since March 2020, mostly in Sub-Saharan Africa.
• Salaries, social contributions, pensions, and transfers have seen some reductions or maintenance of arrears positions.
• Supplier arrears have not seen significant increases, possibly due to deliberate policies to support small and medium-sized businesses.
• SOEs (State-Owned Enterprises) have experienced increased arrears, especially in energy, transport, and communications sectors.

Financial Sector Dynamics

• Some countries have securitized arrears, allowing creditors to trade claims and obtain liquidity.
• This may signal reliance on domestic financial institutions to absorb liquidity pressures.
• Securitization is only credible if new arrears accumulation has been stopped.

Key Recommendations

Preventing and Managing Arrears

1. Avoiding arrears accumulation:

   • Systemic reforms are needed to address structural weaknesses in PFM.
   • Short-term measures include updating revenue projections, costing policy measures, and assessing available fiscal space.
   • Adjustments in non-COVID-19 expenditures and additional borrowing can help create more fiscal space.

2. Prioritization of payments and cash management:

   • Establish clear prioritization criteria for payments.
   • Cash management committees should be used to manage liquidity and prioritize payments.
   • Consider fiscal multipliers to identify the most impactful categories of expenditure.

3. Strengthening monitoring of arrears:

   • Maintain a detailed inventory of arrears.
   • Monitor newly accumulated arrears by subnational governments, SOEs, and agencies.

4. Systematic settlement of arrears:

   • Follow good practices for arrears clearance, including comprehensiveness, verification, transparency, and realism.
   • Ensure credible measures to prevent further accumulation and resource availability for settlement.

5. Securitization of arrears:

   • Only consider securitization if new arrears have been stopped.
   • It can be a temporary measure to provide liquidity but should be part of a broader arrears clearance strategy.

Key Information

• PEFA (Public Expenditure and Financial Accountability Assessments) for 76 countries show that arrears are widespread, and monitoring is often weak.
• Sub-Saharan Africa has the highest levels of arrears and weakest monitoring systems.
• The IMF (2019) found that 70% of Sub-Saharan African countries had domestic expenditure arrears of about 3% of GDP in 2018.
• Fiscal shocks, such as those from the pandemic, may lead to increased arrears even in countries with strong PFM systems.
• Arrears are unilateral borrowing and may generate implicit claims on the government.
• Securitization is a market-based solution that can provide liquidity but requires preliminary arrears control.

Conclusion

The COVID-19 crisis has introduced tremendous fiscal pressures that are likely to increase government expenditure arrears, especially in low-income countries with weak PFM systems. The accumulation of arrears can have serious economic and governance consequences, including reduced credibility, increased financial vulnerabilities, and disruptions to public services. To prevent and manage arrears, systemic reforms, transparent monitoring, and systematic settlement strategies are essential. Governments should also consider temporary measures like payment renegotiation and securitization, but these must be part of a broader fiscal strategy.