Fiscal transparency entails being open to the public about the government’s past, present, and future fiscal activities, and about the structure and functions of government that determine fiscal policies and outcomes. Such transparency fosters better-informed public debate, as well as greater government accountability and credibility. The IMF has developed a “Code of Good Practices on Fiscal Transparency,” a “Manual on Fiscal Transparency,” and a “Guide on Resource Revenue Transparency” to encourage greater fiscal transparency. Country reports are available at the IMF fiscal transparency web page.
Why is increased fiscal transparency desirable?
There is consensus that good governance is of central importance to achieving and sustaining macroeconomic stability and high-quality growth; and that sound fiscal management—including fiscal transparency—is a key aspect of good governance. Fiscal transparency allows for better-informed debate by both policymakers and the public about the design and results of fiscal policy, and establishes accountability for its implementation. In strengthening credibility and public understanding of macroeconomic policies and choices, fiscal transparency fosters more favorable access to domestic and international capital markets. It also helps to highlight potential risks to the fiscal outlook, resulting in an earlier and smoother fiscal policy response to changing economic conditions and thereby reducing the incidence and severity of crises.
What are good practices on fiscal transparency?
The Code of Good Practices on Fiscal Transparency (the Code) identifies a set of principles and practices to help ensure that governments are providing a clear picture of the structure and finances of government. Implementation of the Code thus provides assurance to the public that the soundness of fiscal policy can be reliably assessed. While all countries are encouraged to adopt the good practices proposed in the Code, implementation is voluntary.
The Code was developed in 1998 and updated in 2007 as one of the contributions of the IMF to the Standards and Codes Initiative, a set of guidelines on governance designed to support improvements to the architecture of the international financial system.
The Code is based on four general principles:
- Clarity of roles and responsibilities. There should be a clear distinction between government and commercial activities, and there should be a clear legal and institutional framework governing fiscal administration and relations with the private sector. Policy and management roles within the public sector should be clear and publicly disclosed.
- Open budget processes. Budget information should be presented in a way that facilitates policy analysis and promotes accountability. Budget documentation should specify fiscal policy objectives, the macroeconomic assumptions used in formulating the budget, and major fiscal risks—including those arising from government guarantees and contingent liabilities. Procedures for collecting revenue and for monitoring approved expenditures should be clearly specified.
- Public availability of information. The public should be provided with complete information on the past, current, and projected fiscal activity of government and on major fiscal risks. This should be readily accessible. Countries should commit to the timely publication of fiscal information.
- Assurances of integrity. Fiscal data and practices should meet accepted quality standards and should be subjected to independent scrutiny.
Most countries have scope for improvement in some aspects of fiscal transparency covered by the Code. Diversity across countries in fiscal management systems and in cultural and legal environments, as well as differences across countries in the technical and administrative capacity to improve transparency, inevitably imply that countries will move at different paces to implement the Code. For some countries, technical assistance will be critical to improving fiscal transparency.
How is the Code of Good Practices on Fiscal Transparency implemented?
The IMF publishes a Manual on Fiscal Transparency (the Manual)that elaborates the Code’sprinciples and practices in more detail and draws on experiences in member countries to illustrate good practices. Numerous references are provided to assist with the practical implementation of the Code. In addition, the Manual identifies some basic requirements of fiscal transparency to be given highest priority by those countries that would have difficulty meeting the overall standard of the Code.
The IMF also publishes a Guide to Resource Revenue Transparency (the Guide), which applies the principles of the Code to the unique set of problems faced by countries that derive a significant share of revenues from oil and mineral resources. The issues arising from the sheer size of such resources for many countries, combined with the technical complexity and volatility of the transaction flows, demand a more detailed set of guidelines. The Guide naturally complements initiatives, such as the Extractive Industries Transparency Initiative (EITI), which focuses more narrowly on the reporting of transactions between resource companies and governments.
As policymakers become increasingly aware of the importance of identifying and disclosing fiscal risks, the IMF is intensifying its efforts to help address the challenges posed by these risks. This has been done primarily through the issuance of recommendations on the identification, disclosure, and management of fiscal risks, and the delivery of technical assistance to a number of countries.
How is fiscal transparency assessed?
The Fund encourages all member countries to undertake an assessment of fiscal transparency (called a fiscal transparency module of the Reports on the Observance of Standards and Codes, or fiscal transparency ROSC).This documents a country’s current practices, assesses compliance with the Code, and establishes country-specific priorities for improving fiscal transparency. By identifying and raising awareness of important fiscal risks, fiscal ROSCs play a useful role in the surveillance process. Both the undertaking of a fiscal transparency ROSC and its subsequent publication are voluntary. An increasing number of fiscal transparency ROSCs now also include detailed assessments of resource revenue issues, based on advice in the Guide.
As of March 2013, 93 countries from all regions and levels of economic development had posted their fiscal ROSCs on the IMF's Standards and Codes web page. Updates can be undertaken at any time at the request of the authorities. Countries can also opt for a full ROSC reassessment. As of March 2013, 29 countries had undertaken updates or complete reassessments.
Transparency is also assessed in broad terms as part of the regular surveillance and program activities conducted by the IMF for member countries. Technical assistance missions by the Fiscal Affairs Department also help the authorities to improve fiscal transparency with regard to such practices as fiscal policy frameworks and fiscal rules, public financial management arrangements, resource revenue management, the assessment and disclosure of fiscal risks, or the integration of public corporations in fiscal accounts.
What are the implications of the recent crisis for fiscal transparency?
In a recent paper on fiscal transparency, accountability, and risk, the IMF reviewed the state of fiscal transparency in light of the experience of the crisis. While considerable progress has been made in enhancing the coverage, quality, and timeliness of public fiscal reporting since the late 1990s, the review found continued weaknesses in governments’ understanding of their underlying financial positions. These shortcomings in transparency are due to a combination of gaps and inconsistencies in existing fiscal reporting standards, delays and discrepancies in countries’ adherence to those standards, and a lack of effective multilateral monitoring of compliance with those standards.
To address these weaknesses, the IMF recommends the following:
- Improvements in fiscal reporting standards, including the IMF Code, to broaden the institutional coverage of fiscal reports; recognize a wider range of flows, assets, and liabilities; and incorporate new standards for fiscal forecasting and risk management;
- A more concerted effort to promote implementation of those standards. This requires action at the national level to strengthen support for transparency via legislatures, supreme audit institutions, and fiscal councils. At the international level, the IMF and other multilateral institutions need to provide more practical guidance on issues such as the implementation of accrual accounting and fiscal oversight of public corporations; and
- Enhanced international monitoring of country compliance with those standards. In particular, the IMF needs to replace the existing fiscal transparency Report on Observance of Standards and Codes with a more analytical, modular, and graduated approach to evaluating countries’ fiscal reporting practices and outputs.
Following a first round of consultation, the IMF is preparing a revised draft of the Code of Good Practices and Manual on Fiscal Transparency which will form the basis for a second round of public consultations during the spring of 2013. The IMF plans to submit final versions of the new Code and Manual to its Executive Board for approval and publication in late 2013.