States have historically played a critical role in the creation of public lending institutions, which can be utilized to pay for their operations and obligations. Effective public borrowing and fiscal management enable states to develop predictable payment mechanisms, increase credibility among citizens and contracted service providers and build resilience against market shocks. Sound public financial management is perhaps most important in fragile and conflict-afflicted states, where large sums of external funding lead to risks of corruption, mismanagement and further debt. It is therefore crucial that states not only effectively manage public finances, but also build transparency and accountability mechanisms to better serve citizens.
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