Risk continues to dominate the agenda: fiscal policy, recession, sustainability, security — all have contributed to a drive toward transformation — and with that drive comes opportunity.
Ernst & Young have created a report as part of a wider cross-sector piece of research that explores the top 10 business risks and opportunities globally and across seven sectors including power and utilities, banking, retail, government, oil and gas, health care and life sciences.
As in previous years, Ernst & Young have taken a “bottom-up” approach to our work, gathering opinions from leading industry-based and academic commentators, across the seven global sector groups.
The top 10 risks for government and public sector
- Triggering a double-dip recession through fiscal consolidation
Concerns about a second recession in the global economy following government bailouts stemmed largely from fiscal consolidation in Europe and the US. However, growth in the emerging markets and recovery in the developed economies is reducing the risk.
- Delaying climate control and sustainability initiatives: Public debate on sustainability has been sidetracked by the global economic crisis. The resulting policy uncertainty and failures to provide consistent price signals make it unlikely that the investments necessary for the development of a green economy will be made.
- Failing to manage debt and fiscal policy
As Europe recovers, the market pressures that are currently making management of debt and fiscal policy such a high stakes endeavor should ease as governments raise levels of accountability and transparency. That said, some panel members argued that due to long-term fiscal trends, even “safe haven” countries such as the US are at risk.
- Speculative financial attacks and sovereign debt downgrades
“The more strongly governments respond to this risk,” argued James Close of Ernst & Young, “the more they will impact speculators’ decisions on whether or not to short sell an economy based on perceived risk.” Yet an effective response often depends on a government’s ability to manage conflicting political and market imperatives.
- Insufficient public investment in education
A view of education as central to competitiveness is gaining currency. Yet, fiscal pressures are making it difficult for governments to provide the funding necessary. In order to prevent skills shortages and ensure economic growth, governments will have to develop coherent strategies to meet the demands of citizens and to secure the development of a skilled workforce.
- Inability to maintain delivery effectiveness due to reduction of resources and HR transformation needs
Two opposing trends are driving the escalation of this risk. On one hand, governments face a growing need to recruit and retain new talent in the public sector workforce; at the same time, governments in developed countries are facing significant budget reductions. Given the current business climate, the public sector will increasingly have to compete with the private sector for highly skilled employees.
- Failing to manage costs of pensions, health care and elderly care for an aging population
Governments are trying to increase spending efficiency on large budget items such as pensions, health care and elderly care, but there remains a serious risk that expenditure will race out of control, thus jeopardizing public finances.
- Inability to address international terrorism and border control issues
Terrorism and border control will remain key challenges for the public sector, as highlighted by recent EU efforts aimed at countering problems of illegal migration. Cyber terrorism is also a growing concern and addressing this threat will require governments to work more closely with the private sector. Also, cooperation on a regional and global level will prove crucial to enhance border controls, manage migration, and prevent and respond to terrorism and criminal activity.
- Failing to plan for long-term demographic shifts
If adaptation to demographic shifts is delayed up until the point when an untenable fiscal situation forces reform, drastic changes will be required. The world’s population could reach 10 billion by the end of the current century; and many geographies will face an unprecedented burden of aging. When devising their reform strategies, governments will need to take into consideration both long-term planning and proactive measures, thereby avoiding the tendency to manage only short-term issues and immediate objectives.
- Weaknesses in public governance and poor accountability
The risks associated with weak public governance and poor accountability are increasing at the same time as demands on government rise. Issues such as the financial crisis, aging populations and security concerns are increasing pressure on government’s agenda. Stepping up to these challenges will require better project management and an enforced attitude in favor of transparency and responsibility for the funding and outcomes of public programs.