By Arturas Piliponis | 19 February 2013

Lithuania’s success in driving public finance management transformation holds many lessons for developing countries, suggests Arturas Piliponis

Public finance management has become one of the hottest topics in developing countries and developed economies, especially given the ongoing challenges surrounding fiscal sustainability and the debt crisis. With accountability and transparency increasingly perceived as key elements of sustainable public finance management, international public sector accounting standards (IPSAS) are now viewed as one of the key measures for obtaining transparent, comparable and complete financial information.

Lithuania has been one of the front runners in kick-starting the transition to IPSAS, with consolidated financial reports on both state and municipal levels being prepared based on these new accounting standards since 2010. The switch to this new system of financial reporting has been a big challenge and required precise and intensive preparation and coordination.

Partly, this is because the reforms did not encompass merely a change of accounting principles but also aimed to increase the effectiveness of the accounting function itself. With this in mind, policy-makers at both central and municipal levels began working on the reforms five years before they were implemented. This preparatory phase included pilot programs by several public sector organizations, as well as the development of regulations, detailed accounting manuals and instructions for transition. There was also extensive training for public sector accountants and the completion of standardized IT solutions and automated accounting related transactions. Another key initiative was the implementation of a centralized IT solution for national financial statements for more than 4,000 public sector organizations.

Given the far-reaching nature of these activities, it is perhaps not surprising that it did not prove to be a painless transformation process. The reforms, which demanded changes in the qualifications of all public sector accountants and initially resulted in greater workload, were treated with a high level of resistance at first. Although strong political support and firm leadership from the Ministry of Finance were crucial in ensuring their successful implementation, there was still a delay of one year from the original launch date. This was primarily due to a lack of preparation by a number of separate public sector organizations.

Now, though, the new system is firmly in place and there has already been two cycles of financial statements based on IPSAS. And to safeguard the reforms in the future, the Ministry of Finance is now focusing on amending and improving standards and other regulations. It is also deploying ongoing support to a call center set up to deal with IPSAS-related enquiries and delivering on site training and consultations to improve the quality and consistency of financial data steadily.

Implementation of these reforms has been only one step in the transformation of public financial systems, however. In order to maximize the potential advantages of this new system, a country needs to have a consistent vision on public finance reform as a whole, in both the short and long term. Lithuania, having implemented IPSAS, has strengthened the qualification of public sector accountants and moved toward optimizing the IT systems used for its government accounting. Although the process is ongoing and the country still faces many challenges, the successful implementation of IPSAS has given the country a crucial head start toward achieving long-term public finance excellence and efficiency.

Arturas Piliponis is a Partner with Ernst & Young Baltic UAB

This article first appeared in the January edition of Dynamics magazine