Financial Crisis Will Change the Role of the Government
“Governments will likely respond to the crisis the way many of them have responded to past crises: by expanding certain domestic commitments on a deficit basis,” said Greg Pellegrino, Deloitte Touche Tohmatsu Global Public Sector Leader.
The difference with past crises is that a more global government coordination effort will emerge from this crisis. “The spread of credit difficulties from nation to nation, and the concerted effort in some quarters to erect firebreaks further puts to bed the idea that any nation is an island,” added Pellegrino, who mentioned the recent efforts by the British and French governments to spur preemptive action by the International Monetary Fund (IMF) on behalf of threatened currencies and stocks in Eastern Europe.
“Governments will have to implement rigorous cost reduction programmes, increase their operational efficiency, improve their controls, and discover new ways to do more for less, which in turn will spark innovation,” said Pellegrino. “Lean times demand new efficiency, while at the same time, a public under pressure is demanding more from its government. In fact, many of the more significant government transformations have occurred during previous major economic downturns.”
To improve the public sector’s effectiveness, operational models will be revisited. Solutions may lie in consolidation, shared services, cooperation among public services, integration of services across levels of governments, and integration of service provision models.
The relationship between public and private sector operations may also change as a result of the crisis. Public resources that currently return little value, such as abandoned land and buildings, may blossom into productivity under the contractual stewardship of private entrepreneurs. At the same time, an expanded public sector may be more attractive to investors who are looking for publicly financed private ventures, and who are better able to negotiate financing terms in some countries. Finally, governments will find themselves more willing to consider not only cost concessions but more contract models that peg rewards on the quality of service delivery.
Challenge To Attract Talent
Another example of the do-more-with-less challenge that characterises the global financial crisis will be to attract talent to work for the public sector because it will offer more challenges with fewer guaranteed comforts. This will make public service recruitment a transformative opportunity.
“Governments across the globe may emerge from this shift with a new generation of public servants at the helm, people who come to the profession with plans and expectations that differ from those of their predecessors,” said Pellegrino.
More Infrastructure Projects
Infrastructure will be the great beneficiary of the financial crisis as the asset class is the centre of attention of the financial industry. In fact, the crisis will have an immediate impact on infrastructure. With securitisation constrained, mono lines out of play, and private equity showing poor results, global investors will increase their focus on infrastructure, which is relatively resilient because of its risk profile. Infrastructure projects are large, tangible, stable and predictable in the long term, and revenues from infrastructure projects are fairly inelastic to the wider conditions in an economy as demand generally remains strong.
To keep pace with growth, governments may find that innovative financing strategies such as public-private partnerships (PPPs) provide a useful alternative. “However,” warns Pellegrino, “infrastructure projects should not just be launched to drive job creation but to invest in economic and sustainable growth.”
“Many of the trends mentioned above will also be relevant for the Czech Republic,” says Michal Petrman, OMP for Deloitte in the Czech and Slovak Republics. “The pressure on budgets, where income will be dropping while expenses will likely grow, will call for additional savings in the public sector. To provide for more effective state administration while maintaining or even improving service quality will be a big challenge for the Czech Republic. Yet, the crises brings along more interesting opportunities, such as the recruitment of talented people for the public sector given the downsizing trend in the private sector. Infrastructure projects will become even more attractive for both suppliers and lending institutions. The government should be able to negotiate substantially better terms during times of falling demand; however, finding a successful solution to these challenges will require greater political responsibility and stable governments as well as resistance to corruption.”
