Systemic Risk Management as Building Resilience a Living Standards Perspective

Transcription

1 Systemic Risk Management as Building Resilience a Living Standards Perspective Girol Karacaoglu The Treasury

2 OUTLINE 1.Living Standards Framework 2.Focus of Policy: Sustainable and Shared Wellbeing 3.Risk Management as Resilience Building 4.Systemic Risks and General-Resilience Investments 5.Prioritisation 6.Funding 7.Gaining Traction and Implementation 2

3 LIVING STANDARDS: THE HEART OF OUR POLICY ADVICE The Treasury Assess the impact of policy across key living standards dimensions Potential Economic Growth Potential Economic Growth Does this improve the opportunities or incentives for higher incomes or greater economic growth? Does this remove obstacles that hinder resources moving to their most efficient use, or enhance the ability of people to take up new opportunities? Sustainability for the Future Does this impact on the capital stocks for future use (e.g. physical capital, human capital, or the sustainability of the environment)? Resilience ECONOMIC CAPITAL NATURAL CAPITAL SOCIAL CAPITAL HUMAN CAPITAL Sustainability for the Future Equity Does this impact on the distribution across society (both intra and intergenerational)? Does this improve opportunities for people to improve their position? Social Cohesion Does this impact on core institutions that underpin our society (e.g. trust in the rule of law, democracy, Crown-Māori relationship, cultural identity)? Does this impact on the trust and connections between people? Social Cohesion Equity Resilience Does this impact on NZ s ability to withstand unexpected systemic shocks? Considering these five key aspects when developing your policy advice will ensure Treasury consistently embeds Living Standards in our advice. It is an adjunct to, not a replacement for, a good evidenced-based process for developing free and frank advice. 3

4 Purpose Enhance the quality of policy advice towards increasing collective wellbeing on a sustainable basis Integrated economic, environmental and social policy advice Collaborative / joined-up advice across government agencies Encourage focus on complementarities, instead of tradeoffs Not anti-growth but pro-growth because, in the absence of such a holistic framework, we are unable (for example) to have a reasoned discussion on making most use of our natural resources 4

5 PROSPERITY Economic growth INCLUSIVENESS Social inclusion Increasing equity Economic Capital Human Capital Natural Capital Social Capital SUSTAINABILITY Sustainability for the future Resilience 5

6 Summary of our advice on policy priorities Inclusion: lifting outcomes for disadvantaged New Zealanders Sustainability: moving to export and investmentled growth Short-term Medium-term Long-term Reducing child poverty and supporting inclusion: expanding smart social sector investment and helping those on the lowest incomes. A continued shift towards investment in effective social sector interventions that improve long-term outcomes, reduce long-term economic, social and fiscal costs and focus on those most in need. Sustaining economic performance Managing pressure on interest and exchange rates in the upswing through fiscal restraint. Microeconomic and state sector reform Increasing the responsiveness of housing supply, improving natural resource management and lifting state sector effectiveness. Environmental and fiscal challenges Managing the risks and costs to New Zealand of climate change and demographic fiscal pressures. Internationallycompetitive business productivity Long-term Prosperity: boosting environment Tertiary education and productivity Continued strengthening of infrastructure are two and international connections key priorities for longterm productivity international and behind the border policy settings. performance. connections 6

7 Living Standards Assessment: Risk Management as Building Resilience to Systemic Risks Method: Increasing the freedoms of individuals to enjoy desired lifestyles Elements: Economic Human Social Natural Capital Capital Capital Capital Risks Earthquakes Crime Welfare dependency Climate Change e.g. Floods Ill health Economic crises Biodiversity risks Eruptions Skill Deficiency Education failure Erosion Infrastructure disrepair Civic society failure Mitigations Insurance; Education Policy Welfare Reform Emissions Crown Balance Sheet; Trading Macro-prudential Policy 7

8 Risk and Resilience The Treasury Risk: The combination of the probability of an event and its negative consequences. Resilience: The ability of a system (economic, ecological or other), community or society exposed to a hazard to resist, absorb, accommodate to, and recover from the effects of a hazard in a timely and efficient manner, including through the preservation and restoration of its essential basic structures and functions. 8 8

9 Risk Resilience Continuum The Treasury Dark grey represents pre-event preparedness activities, while light grey represents post-event response activities. 9 9

10 Managing Risk, Building Resilience, The Treasury Enabling Sustainability Risk Management Resilience (Adaptability) Sustainability (Future Generations) Known Knowns - Known variables and behaviour Known Unknowns - Limitations, assumptions Unknown Unknowns - Black swan, - Threats where you have an adversary - Complex system risks with dynamic interdependencies 10

11 Platforms for General Systemic-Resilience Building strong institutions Maintaining diversity and redundancy Managing connectivity Managing slow variables and feedback Fostering complex adaptive-systems thinking Encouraging learning Broadening participation (incl private business sector) Promoting polycentric governance systems 11 11

12 National Systemic-Risk-Resilience Programme: Key Steps and Challenges The Treasury Identifying key systemic risks through public consultation Developing a national risk register Establishing governance through stakeholder networks (incl private business sector) Establishing risk appetites viz key systemic risks Assessing levels of residual key systemic-risk exposures Prioritising resilience-building investments via public consultations (and/or measuring public s preferences a la Au, Coleman and Sullivan) Dealing with menu without prices via CBA Funding through PPP s Ongoing monitoring, governance and management of residual systemic risks through the established stakeholder governance networks 12 12