Toward Better Fiscal Governance in Asia and the Pacific
Public finance plays an important role in the social and economic development of developed and emerging countries.
The role of public finance has been gradually expanding from a means of conventional macroeconomic policy to a last-resort policy tool to overcome economic crises, such as the global financial crisis in 2010 and the recent crisis induced by the coronavirus disease (COVID-19) pandemic, and to address the needs to cope with new challenges such as demographic transitions and climate change. Developing countries in Asia and the Pacific, in particular, have become more dependent on public finance due to their huge investment needs for health, pensions, education, infrastructure, and energy for sustainable development.
- Public finance plays an important role in economic development and the protection of people’s livelihoods, especially during times of crisis, such as in the COVID-19 pandemic. Expanded public finance, if not well managed, will result in sharp increases in fiscal deficit and public debt.
- Well-functioning fiscal governance can contribute to mitigating fiscal risks by strengthening efficiency, accountability, and transparency, as well as maintaining fiscal space.
- Fiscal governance has three intertwined and complementing components: (i) fiscal rules that help secure fiscal targets; (ii) a medium-term expenditure framework that makes fiscal management sustainable in the medium term, and (iii) fiscal institutions that enhance fiscal sustainability through checks and balances.
- Governments are encouraged to take appropriate steps to strengthen their fiscal governance, considering their unique policy environment as well as other countries’ experiences and international best practices.