Making predictions is hard, but one thing is certain – that the world will remain a risky place in 2022. This presents challenges for the Welsh economy, despite recent reports of business optimism.
Looking back, we’ve all learned huge lessons in our work and personal lives about how to manage risk over 2020 and 2021 due to the pandemic. We’ve had to adapt and show immense resilience. I am sure there will be more of that to come in 2022.
The Welsh Government has worked hard to support the economy and public health in the face of Covid-19 and the increased risk from the new variant Omicron. The economic indicators published by the government in mid-November showed that the Welsh economy had managed to keep pace with the rest of the UK. Unemployment in Wales fell slightly to 3.8% between July and September, according to the latest figures from the Office of National Statistics (ONS). Only the East and South West England had a lower unemployment rate than Wales during the most recent quarter. Business confidence in Wales also rose more than any other nation or region in the UK during November, according to the latest Business Barometer from Lloyds Bank Commercial Banking.
The additional £2.5 billion funding for Wales announced in the UK government’s Autumn Budget is welcomed, with a total settlement of £18 billion per year to enable the Welsh Government to continue to support the economy, education, health and public services, infrastructure and to achieve its Net Zero targets. We recently submitted our comments to the Senedd Finance Committee on areas of focus for when the forthcoming Welsh budget is scrutinised, including Government borrowing, reforms to local taxation, embedding green recovery and supporting skills and training. To do this, effective financial management will be critical – not just for the delivery of public services but also to pre-empt and manage the risks ahead.
The pandemic has led to lessons for many governments about what did and what didn’t work as well as expected. This is something we focus on in a new report called Rethinking public financial management.
Any government’s ability to do anything depends on the strength of its public financial management (PFM) system – how it prepares budgets, obtains financing, spends money, and keeps its accounts. Part of managing the public purse is about seeing the risks ahead and defining them as much as possible.
And to manage these risks, it’s essential that governments have the skilled people in place to manage the public finances. Success depends on having the right number and quality of public finance professionals, people who can advise on future financial and strategic decisions.
This means that governments may need to make a significant and sustained investment – not just in the technology and systems, but also in talent.
For our report, we asked 1500 ACCA members how they felt governments responded to the Covid-19 pandemic and how PFM must now evolve to deal with future crises. Respondents said that the four most commonly faced challenges by governments all over the world were:
- responding to the financial needs of individuals and businesses (45%)
- being able to transition to remote working (42%)
- having the necessary technological/ digital capacity (42%)
- maintaining accountability and transparency of government spending (41%)
Respondents offered three main areas for development of PFM – such as improving transparency and accountability of government spending; better prioritisation of resource allocation and intensifying the focus on risk management – all these are relevant for the Welsh Government as much as others around the world.
The accountancy profession has a huge role to play in effective risk management as a result of the global pandemic, environmental sustainability and economic turbulence.
That’s because regardless of the sector in which they work, accountants are the guardians of information, the experts who can help organisations large and small, in the public and private sectors to not only detect and better understand the emerging risks and opportunities facing them, but also cultivate the mindsets needed to think more long-term.
Risks can no longer be managed in isolation, and there isn’t a one size fits all approach to tackling these challenges. Each government and its policymakers will have their own fiscal and economic issues to solve. The path to return to the new normal will be different because each government is in a different place as a result of its Covid-19 responses. Here in Wales, the government’s focus is on building a stronger, fairer and greener Welsh economy and society, with grand challenges such as health and social care, infrastructure, education and skills, decarbonisation and addressing inequalities.
The Minister for Finance and Local Government, Rebecca Evans, has made the government’s ambition clear, saying earlier this year that “our focus as a Welsh Government remains on bringing forward our plans for an investment led recovery based on the needs of the people of Wales.” The recent Labour-Plaid co-operation agreement covers a wide range of areas and time will tell the extent to which some priority areas stall and others accelerate through the joint working arrangement and through the Welsh budget for 2022-23.
The long-term implications of Covid-19 spending means difficult policy and spending choices will have to be made, not just in Wales but right across the UK and indeed globally. We are all very aware of the sacrifices that had to be made in 2020 and 2021, and the personal loss experienced for many.
But as we approach 2022, I hope for positive change and for opportunities ahead for all Western Mail readers.
I wish you all a merry Christmas and a happy, healthy and prosperous New Year – Nadolig Llawen a Blwyddyn Newydd Dda i bawb.