Along with the rising need for better risk management practices in the public sector, fiscal risk resilience becomes one of the critical agendas of countries around the world. It requires the respective government to have more effective fiscal risk resilience in respect of being able to address and capture more dimensions than what is currently practiced.
However, the existing studies of fiscal risk resilience use only one dimension in their model, either government’s income or government’s expenses or government’s debt. Therefore, it is insufficient to address and capture more dynamic and interconnected factors or elements that drive fiscal risk resilience in the current environment and context, barely in the upcoming new normal after the pandemic covid-19.
Based on such a perspective, it is reasonable to start looking for a measure that addresses a relevant combination of those factors, and hopefully, it is structured as an index. As a preliminary thought, we could consider having an index that captures the combination of critical elements holistically, e.g., government’s income, government’s expenses, government’s debt, and a relevant macroeconomic indicator such as GDP (Gross Domestic Products/Services). As such, the index would be useful as a basis to determine the current level of fiscal resilience of a country and provide a possibility for the government to have more forward-looking perspectives for decision-making purposes. Naturally, some academic studies are needed to validate the pre-assumptions above, and hopefully, the results can be used as a foundation for a basic model of the index.
Once it is available, the index would enable decision-makers to sufficiently monitor just one integrated indicator rather than working out numerous individual indicators one by one. As a result, the cohesiveness of the index could help interested parties to make a decision faster and thoroughly, especially the concerned government offices. Furthermore, since speed and thoroughness are becoming more critical and relevant in the current economy and near future, the availability of such an index might even stimulate faster government’s actions to address and overcome their fiscal risk resilience at the earliest, hence increasing the probability of keeping the economy welfare sustained.
However, this article is a preliminary thought that needs further academic study to validate the idea and simultaneously develop the index. Hopefully, the study could identify some relevant variables in building the index, including the understanding of their contribution and relationship. The contribution of those variables is in the sense of their respective weight, and the relationship is about the direction of the respective variable, whether it has a positive or negative direction toward the index formation.
By Dr. Antonius Alijoyo, 2 August 2021
Founder and Principal of Center for Risk Management and Sustainability
