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 is in the process of revising its Fiscal Transparency Code, along with the accompanying “Manual on Fiscal Transparency,” and “Guide on Resource Revenue Transparency” to encourage greater fiscal transparency.
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 better-informed debate by both policymakers and the public about the design and results of fiscal policy, and helps establish accountability for its implementation. In strengthening understanding of macroeconomic policies and choices, fiscal transparency can improve access to domestic and international capital markets. It also helps to highlight risks to the fiscal outlook, allowing an earlier and smoother fiscal policy response to changing economic conditions and thereby reducing the incidence and severity of crises.
The IMF’s work on fiscal transparency
Since 1998, the IMF has had a 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. While all countries are encouraged to adopt the good practices proposed in the Code, implementation is voluntary.
The Code is supported by a Manual on Fiscal Transparency (the Manual) that elaborates the Code’s principles and practices and draws on experiences in member countries to illustrate good practices. There is also 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 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.
The Fund encourages all member countries to undertake an assessment of fiscal transparency (which has been 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.
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.
The new fiscal transparency code and evaluations
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 recommended 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 has replaced the existing fiscal transparency Report on Observance of Standards and Codes with a new Fiscal Transparency Evaluation which takes a more analytical, modular, and graduated approach to evaluating countries’ fiscal reporting practices and outputs.
Following a first round of consultation, the IMF has prepared a revised draft of the Code of Good Practices and Manual on Fiscal Transparency which was published for a second round of public consultations in June 2013. The IMF has also begun piloting the new Fiscal Transparency Evaluation in a range of advanced and emerging market economies, as well as in low-income countries. In light of the feedback from the consultation and the results of the pilots, the IMF will submit final versions of the new Code and Manual to its Executive Board for approval and publication.
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 IMF staff also help the country officials 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.