Step 12: The Outcome of Recovery
The recovery process can have three possible outcomes: financial resiliency, financial sustainability, or relapse.
The most favorable outcome is financial resiliency. Here the government has recovered its financial stability and gone on to implement strategies, control mechanisms, budgeting techniques, and early warning systems to make sure it can withstand future financial shocks. A resilient government has eight essential characteristics.
- Diversity. Avoiding a single point of failure or reliance on a single solution.
- Redundancy. Having more than one path of escape.
- Decentrailzation. Centralized systems look strong, but when they fail, the failure is catastrophic.
- Transparency. Don’t hide your systems. Transparency makes it easier to figure out where a problem may lie. Share your plans and preparations, and listen when people point out flaws.
- Collaboration. Working together to become stronger.
- Fail Gracefully. Failure happens. Make sure a failure state won’t make things worse.
- Flexibility. Be ready to change when plans are not working. Don’t count on stability.
- Foresight. You can’t predict the future, but you can hear its footsteps approaching. Think and prepare.
- Financial sustainability is where structural balance has been achieved, but the institutional practices have not been adopted necessary to withstand future shocks. A sustainable system is balanced, but potentially brittle. For example, perhaps financial policies or budget reforms were not adapted to guard against the types of financial decisions that caused distress in the first place.
- A relapse can take place if a sufficient shock occurs a new economic downturn or new decision makers who do not have the benefit of experience from the recovery process. A relapse could also be caused by the use of unsustainable recovery strategies that simply deferred the financial reckoning day or failure to address looming long-term liabilities as part of the recovery process.