Public Finance Management

It might not feel like it, but Britain is not unique in facing difficult budget choices. France and Germany have also seen governments destabilised or fall over attempts to pass budgets. Low growth, ageing populations and rising demands on the welfare state are putting pressure on public finances right across the continent. What is striking, however, is how some of the countries that were once held up as cautionary tales during the eurozone crisis (Portugal, Italy, Ireland, Greece and Spain) have responded. They undertook painful reforms: raising retirement ages, restructuring their welfare systems, making labour markets more flexible and, in some cases, linking pensions to life expectancy. As a result, they are now seeing stronger growth and lower borrowing costs than many of their northern neighbours. By contrast, there has been less urgency in the UK this past year. We are already on course to spend far more on benefits and debt interest in the next decade, even before additional pressures on the health and welfare systems are factored in. Simply opting for higher spending without confronting the underlying structure of the state is not a sustainable strategy. The lesson from Europe is not that reform is easy or popular. It rarely is. But it is better to confront these choices on your own terms than to wait for markets or external shocks to force them upon you. That is the debate we need to have in Britain: how to protect the most vulnerable while reshaping the welfare state and public spending so that our economy can grow and our finances remain credible. Read more in my column for today's Sunday Times here: https://lnkd.in/eTuWcNBK

Investment hates uncertainty—when tax rules change, investments change with them.   And a recent survey shows that this is particularly true in the energy sector   Last week, the American Council on Renewable Energy (ACORE) released their “Tax Stability for Energy Dominance” report which surveyed clean energy investors and developers representing over $15 billion in investments.   The good news is most investors expect to increase their investments over the next three years if there are no policy modifications to federal energy tax credits. This makes sense. Energy demand is rising, project costs are stable, and domestic clean energy supply chains are building out rapidly.   However, if tax policy shifts, investors will drift.   The ACORE survey finds that if tax credits go away or uncertainty is injected into markets, 84% of investors and 73% of developers anticipate decreasing their activity in clean energy.   And of course, this makes sense too. The deals, contracts, and investments that these investors planned were built on the expectation of stable policy. When that policy is changed, investors and developers will reconsider their actions.   To be blunt, America cannot afford to undercut clean energy’s momentum right now.   We are facing the largest increase in energy demand since World War 2, and we need every electron on our grid to meet this challenge. Pulling the rug out from under these projects will only reduce investment, destroy jobs, and raise energy costs.   Read more from this timely survey: https://lnkd.in/exzbR6Xy

Agricultural subsidies can feed progress – or problems. Each year, countries spend around $630 billion supporting food and agriculture. Nearly 70% of those subsidies are tied to production or inputs like fertilizer, feed, and fuel. The result: staples, dairy, and meat receive the bulk of support, while fruits, vegetables, and pulses, which are essential for healthy diets, are often under-supported or even penalized. These subsidies distort markets, encourage monocultures, exacerbate environmental degradation, and do little to improve nutrition. The challenge isn’t to spend more. It’s to spend smarter. Evidence shows that repurposing these subsidies could: - Lower the cost of healthy diets, especially if financial support is directed to consumers, rather than producers. - Promote diversification toward more nutritious foods and foods with smaller environmental footprints. - Reduce poverty and inequality, when paired with social protection and inclusive financing. Governments also need complementary action, including providing safety nets to protect vulnerable people from shocks and climate and energy policies to cut greenhouse gas emissions. They also need to manage political pressures and competing interests to move forward with reforms. It takes a whole-of-government effort. But it’s possible to align every dollar of agricultural support to advance the goals of nutrition, equity, and sustainability. SOFI 2022 “Repurposing Food and Agricultural Policies to Make Healthy Diets More Affordable” https://lnkd.in/ep9a9EDQ (Photo: Bernd Dittrich on Unsplash)

India's Budget 2024-25: Agriculture and Rural Development!! The Indian government's Budget Estimates (BE) for 2024-25 reflect a strategic emphasis on economic growth and resource efficiency, with total expenditure estimated at ₹48,20,512 crore. Capital expenditure is set at ₹11,11,111 crore, marking a 16.9% increase over the previous year's Revised Estimate (RE). Effective capital expenditure, which includes investments to stimulate economic activity, is projected at ₹15,01,889 crore, an 18.2% rise from the last fiscal year. These allocations underscore a strong focus on infrastructure and development projects aimed at driving economic growth. Transfers to states in BE 2024-25 amount to ₹22,91,182 crore, including devolution of state shares, grants, loans, and releases under Centrally Sponsored Schemes. This represents a ₹4,82,766 crore increase over the actual transfers in FY 2022-23, highlighting the central government's commitment to enhancing the fiscal capacity of states. These increased transfers are expected to enable states to invest more in critical sectors such as healthcare, education, and infrastructure, fostering localized economic growth and improved public services. Subsidies have seen a mixed approach in the budget. The fertilizer subsidy has been reduced by 13.2%, and the food subsidy under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been cut by 3.3%. These reductions aim to promote efficient resource use and sustainable agricultural practices. However, they raise concerns about the financial impact on farmers and food security. Overall, the rationalization of subsidies reflects an effort to reallocate resources towards more productive sectors while maintaining essential support mechanisms. Allocations to key sectors such as agriculture and rural development have generally increased. The agriculture sector sees an 8% increase in funding, with significant hikes for specific programs like the Rashtriya Krishi Vikas Yojna (22.8%) and the Pradhan Mantri Krishi Sinchai Yojna (32.8%). Rural development allocation has increased by 11.2%, while funding for schemes like the Mahatma Gandhi National Rural Employment Guarantee (MGNREG) and Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) remain flat. These targeted increases aim to boost agricultural productivity, support farmers' incomes, and enhance rural infrastructure, contributing to sustainable and inclusive economic growth. In the article "Bharat's Budget 2024-25: Balancing Growth and Efficiency with Strategic Allocations for Rural Economy!! we assess the union budget presented by Nirmala Sitharaman.

Are our #Pension systems prepared for the demographic shift? 👴👵 By 2050, the global population aged 65+ is set to nearly double—from 857 million to 1.58 billion. This means there will be 26 retirees for every 100 working-age individuals, compared to 16 today. In this context, one pressing question emerges: Can public pension systems withstand the strain of demographic change? 💰🏦 🔎 At Allianz, our Pension Index (API) assesses 71 pension systems worldwide, evaluating their sustainability, adequacy, and fiscal resilience against aging populations. The findings are clear: ⬇️ 🔹 Average API Score: 3.7 (on a scale where 1 = no need for reform, 7 = urgent need for reform) – signaling sustained high pressure for reform. 🔹 Well-prepared countries (e.g., Denmark, Netherlands, Sweden) embraced funded systems early and show resilience. 🔹 Urgent reform needed in countries like Malaysia, Colombia, and Nigeria, where limited pension coverage leaves many workers unprotected. 🔹 Pay-as-you-go systems in Europe (e.g., Germany, France, Italy) face growing pressure due to rapid aging and limited funding mechanisms. The path forward? Comprehensive labor market reforms, stronger capital-funded pension provisions, and policies enabling older workers to stay active longer. Without timely action, pension systems risk becoming a driver of inequality rather than a pillar of stability. https://lnkd.in/ebjj554A #PensionReform #AgingPopulation #RetirementSecurity #Insurance #EconomicPolicy

I am excited to share the second article in my series on pension reforms, titled "Deferred Dreams: Navigating Pakistan's Public Sector Pension Crisis" for Consortium for Development Policy Research. This piece goes a step deeper into Pakistan's escalating pension crisis and explores valuable lessons from global pension reform experiences that can benefit us. Pension reforms are complex and fraught with challenges everywhere, but more so in a context like ours, characterised by polarised politics and fiscal instability. However, as history has shown, transformative reforms are possible. By learning from countries that have successfully transitioned from unsustainable pay-as-you-go systems to financially stable contributory schemes, we can find a way forward. In this article, I examine the pioneering model of Chile, which was way ahead of its times and drastically transformed its pension landscape under the guidance of José Piñera in 1981. The article also looks into India's phased approach to pension reform and its establishment of a robust regulatory framework with the Pension Fund Regulatory and Development Authority (PFRDA). Key takeaways from these global examples include the importance of: - Shouldn’t be too hardwired or prescriptive: Implementing a flexible and evolving pension system - Blessing in disguise: Utilising periods of economic or fiscal crisis to drive reforms - Build trust: Establishing strong regulatory frameworks to protect pensioners' savings - Transparency is the key: Building consensus and trust through transparency and stakeholder engagement - Go for a multi-pillar structure: Combining public pension contributions, voluntary private savings, and occupational pensions to distribute financial risks Drawing on these lessons, I propose broad contours for overhauling Pakistan’s pension framework, ensuring it meets the needs of our rapidly growing public sector workforce. Stay tuned for the final piece in this series, where I will outline a new pension system structure tailored for Pakistan. Read the full article here: https://lnkd.in/gRxm3adG #PensionReform #PublicSector #FiscalSustainability #Pakistan #GlobalInsights #PolicyReform #EconomicGrowth -- Hasaan Khawar email: hasaankhawar@gmail.com | tel: +92 300 402 9997  Skype: hasaan.khawar | Twitter: @hasaankhawar

The headline that caught my eye this week was “Why the Draghi Report on EU Markets Matters.” Here's my take:   European productivity growth has lagged that in the United States over the past 15 years, and higher energy prices (following Russia's invasion of Ukraine) and complexities involving China as an export market have exacerbated Europe's economic challenges. On my recent trip to Europe, these issues (along with the U.S. election) were top of mind for business leaders. I have long admired Mario Draghi, whose career has spanned government, business, and academia, and who approaches complex issues with rigor and pragmatism. Draghi recently authored a lengthy report on how to boost productivity in Europe. His diagnosis: the EU is falling behind in the digital revolution, missing the AI wave, and struggling with fragmented capital markets that push promising startups toward US venture capital. The proposed solution — €800 billion in public investment, a stronger, centralized securities regulator, and a shift in attitudes on anti-trust policy — makes eminent sense and represents the type of boldness required. But implementing these reforms would require significant treaty changes and convincing member states to cede control of their financial markets to a European authority.   The reality is that while Europe needs this "radical change," the political appetite for such substantial reform is currently limited. But Europe can't escape its critical choice: maintain the status quo, with subdued growth prospects, or overcome political hurdles to forge a more competitive future. 

Among the Top 50 States, the Top 50 Plans The 50 largest public pension plans employ highly sophisticated, seasoned investment professionals with deep expertise in portfolio construction, risk management, asset management with advanced analytics, and robust governance frameworks that enable them to navigate complex markets to meet their long-term liabilities. Their institutional knowledge enables these plans to deliver strong risk-adjusted returns even during times of massive volatility like we are witnessing today. Their commitment to retirement outcomes for millions of beneficiaries ensures financial security and stability for future generations. PitchBook’s Top 50 Pensions shows the 10‑year return for the leading plans is ~7.4 %. Equable’s Research calculates that the large public plans are 80.2% funded, with unfunded liabilities of ~$1.3 trillion. Over the 10 and 20-years, the top 50 pensions have returned ~7.5% per year, the last 3-years generated ~4%. Most plans fiscal years runs from June 30, 2024, to June 30, 2025; since June 30, 2024, thru present (April 21, 2025) the S&P 500's total return is -5.57%. Public and private equity typically takes the greatest percentage of the plan’s capital allocation. Public equities are highly volatile, and over the long term tends to generate 7%, considerably less than Private Credit, which generates a more consistent return. The two workhorses of private credit are Direct Lending (Middle-Market DL) & Asset-Based Lending. They don’t offer moonshots yet do exactly what is needed to match liabilities: consistent returns with downside protection. Steady 10–12% Net IRRs through the cycle looks more appealing than ever in today’s volatile and uncertain world. Private Creidt looks especially appealing when compared vs. 10 & 20-year historical performance for the top plans: ~7.5%. According to Pensions & Investments, the 200 largest U.S. retirement plans increased private‑credit AUM by ~57 % last year, far outpacing growth in any other alternative bucket—a very astute decision. As pension plans revisit their strategic asset allocation for their new fiscal year, I suspect we will continue to see a tilt from equity strategies towards well‑structured Private Credit strategies. I’ve had the privilege of meeting dozens of brilliant CIOs and the highly talented investment teams and know how purposeful their work is. The investment teams, Board of Trustees, Investment Committees and Consultants deserve the credit—they do great work. Tariffs, geopolitical risks, growth assumptions, equity volatility are leading smart investors to the conclusion that a more meaningful allocation to Private Credit is warranted. Private Credit investment managers should be evaluated on merit: robust origination platform, rigorous underwriting standards, mandatory requirement to structure loans with tight covenants, proactive asset management, lowest loss rates, and strong Net IRRs/MOICs (with no excuses!).

Europe stands at a crossroads, facing pressure from geopolitical flashpoints and increasing protectionism, coupled with structural growth weaknesses. As we look ahead to 2025, Europe's top priority must be to strengthen its sovereignty in a shifting world order.   In my latest contribution to the World Economic Forum, I outlined four critical areas where Europe must take decisive action to maintain its place in the geo-economic showdown.    1️⃣ Europe must actively and pragmatically pursue free trade agreements. The recent breakthrough in the Mercosur deal presents a significant growth stimulus for the European economy and sends a strong message in favor of free, rules-based trade. What matters now is rapid implementation. 2️⃣ Europe needs to launch a strategic investment offensive for targeted funding of key technologies such as AI and quantum computing. Infrastructure investments for digital and green transformations are equally vital. 3️⃣ To effectively mobilize private capital, Europe must prioritize advancing the Capital Markets Union, enabling companies to access a wider array of European capital sources and enhancing economic sovereignty in an increasingly fragmented global economy. 4️⃣ Finally, we must simplify the regulatory landscape to facilitate faster project execution. This could involve implementing a “one in, two out” rule for new legislation and limiting the reappointment of retiring civil servants to one-third within the EU.   The path forward is clear: Europe's future geopolitical relevance hinges on a strong economy, necessitating massive investments and deregulation. It's time for Europe to step out of its comfort zone and prioritize its own interests to forge a stronger, more independent continent.   You can read the full article here: https://lnkd.in/eRC7VK6K   #WEF25 #Europe #RolandBerger

There was a time when traders focused mainly on the Federal Reserve. Now, many are watching the White House just as closely. In recent months, the Trump administration has started taking direct ownership stakes in several US-listed companies. The stated goal is to strengthen supply chains in industries considered strategically important, such as semiconductors, defense, and critical minerals. This approach represents a major shift in US economic policy. Previous administrations, especially Republican ones, avoided direct government participation in corporate ownership. The companies involved so far include Intel, MP Materials, Lithium Americas, and Trilogy Metals. Each time a new investment was announced, the company’s share price rose sharply as investors anticipated future government support and additional funding. For example, MP Materials’ shares increased by around 95 percent after the Pentagon acquired a 15 percent stake. As a result, traders and analysts are now trying to anticipate which firms might be next. Some are using artificial intelligence to analyse government documents and policy statements to identify potential targets. Supporters argue that these investments will help rebuild US industrial capacity and reduce dependence on China for key materials. Critics see it as a form of state capitalism that risks distorting markets, creating inefficiencies, and politicising corporate performance. For now, investors are treating government involvement as a bullish signal, but the long-term effects are uncertain. The key question is whether this experiment in government ownership strengthens national resilience or blurs the line between public policy and private enterprise.