Standardized information is likely to be a critical factor in generating the "building blocks" needed for informed decision making, especially when it comes to involving the private sector (both crossborder as well as domestic in origin) and removing the scope for game play between governments and private contractors, as well as between levels of government. Indeed, generating accountable governance is a complex problem, involving appropriate assignments as well as institutional arrangements that provide incentives to efficiently manage liabilities and not pass them on (see for example, Ahmad 2013).
The International Monetary Fund's (IMF's) revised standards in the Government Financial Statistics Manual (GFSM) provide a comprehensive measure for the coverage and reporting on public transactions, especially investments and recognition of liabilities. This is fully consistent with the System of National Accounts; hence, the linkages between financial flows and the real sector become clear. The full operation of the GFSM is difficult in many cases, involving a shift toward accruals and some complexity in both budget frameworks and the ability to track the flows through Government Financial Information Management Systems (GFMISs) and the concomitant management of cash flows either through a unique Treasury Single Account (TSA) or through nested TSAs (as might be needed in large multilevel countries such as China).
The absence of standardized information within and across countries, e.g., in the European Union (EU), makes it difficult for the private investors to judge the risks involved in particular countries. This leads to the possibility of their being able to "game the system"-especially if the downside risks are likely to be covered by higher levels of government-and may result in inefficient decisions such as overbuilding of tourist facilities as in Spain or Portugal.
In some federal countries, particularly Canada, subnational governments do not comply with the national standards of reporting, given the high degree of provincial autonomy.21 This was also the case in Brazil, until the economic crisis in the 1990s required the use of common standards to implement the fiscal responsibility legislation. While a step in the right direction, the Brazilian standards do not comply with the GFSM standards on the recognition of liabilities. In Germany too, the Länder have disparate systems, and the 2010 debt break legislation hopes to persuade them to conform to common standards and balanced budgets within a 10-year period.
Improvements in information technology (IT) systems and GFMIS technology now permit relatively easy and inexpensive web-based solutions that facilitate the creation of a central data repository with decentralized accounting and operating systems. This is clearly work in progress, including through a community of practice that involves a network of countries and international agencies, and could be supported by technical assistance from a new multilateral bank or existing agencies.
In Russia, the effort to introduce a new Treasury System, involving both GFMIS and TSAs, facilitated the comprehensive introduction of GFSM standards. The shift from legacy systems is not simple, especially when it comes to assets and liabilities.
The Chinese case is also of interest. In the early 2000s, the government decided to move to the GFSM framework as well as to create TSAs in the provinces as well as in the center. However, Chinese provinces are larger than many countries worldwide, and the issues relating to the full implementation of the GFSM framework at the sub-provincial level still remain to be solved, preventing full implementation. This reform has to run parallel with the reform of the budget law that prohibits the provinces from borrowing directly from the private sector, but allows state-owned companies (Urban Development Investment Companies (UDICs)) to borrow for investments (see Ahmad and Wang, 2013). Given that PPPs were creating liabilities that proved hard to manage at the local level, PPPs were reigned in after an initial spurt (see Figure 4). Similarly, indirect borrowing by UDICs expanded considerably, but has been reigned in during the recent past. Thus, while China has made considerable progress toward enacting the GFSM framework, full implementation to cover all potential investment-based liabilities remains to be addressed, and this would be among the preconditions-along with clarity of responsibilities and local own-source revenues-to ensure orderly access to the credit needed for a more balanced development strategy. Indeed, adequately using the efficiencies generated by private management with PPPs could be better utilized in China, provided that the supporting framework to recognize and manage local liabilities is also strengthened. The new budget law enunciated in 2014 permits local governments to issue general purpose and special bonds, subject to oversight and overall limits to be coordinated by the central government (State Council Communiqué, September 26, 2014).