## iftrgercvceseeea

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---

### Executive Summary — overview
- Purpose: Investigates how countries in Central, Eastern, and Southeastern Europe (CESEE) can improve fiscal transparency to raise government efficiency and reduce corruption vulnerabilities.
- Context: Analysis undertaken in the context of the 2018 Framework for Enhanced IMF Engagement in Governance.
- IMF tools referenced: IMF Fiscal Transparency Code and Fiscal Transparency Evaluations (FTEs).
- FTE coverage: IMF has published FTEs for 28 countries worldwide, including 12 European countries; FTEs assess 36 criteria grouped into three main pillars.

### Key empirical findings and fiscal risks
- Fiscal transparency is critical to effective fiscal management and accountability, reducing opportunities for corruption and raising political costs of unsustainable policies.
- Historical examples where transparency shortcomings contributed to macroeconomic stress:
  - Bank rescues in Ireland and Iceland caused sharp increases in public debt of 41 and 43 percentage points of GDP, respectively.
  - Portugal: general government debt increased by about 15 percentage points in the aftermath of the global financial crisis due to reclassifications of SOEs, calls on guarantees related to PPPs, and financial sector interventions.
  - Montenegro: phase one of the Bar-Boljare highway project was already costly at 23 percent of 2014 GDP; completion of phases 2–4 could cost another 25 percent of GDP.
  - Albania: a new government uncovered about 5 percent of GDP in central government arrears and large amounts of unbudgeted infrastructure contracts.
- IMF (2016b) survey of fiscal risks (1990–2014) average costs:
  - Government rescues of troubled financial institutions: about 10 percent of GDP.
  - Government compensation for legal cases: about 8 percent of GDP on average and 15 percent of GDP in the most extreme cases.
  - Subnational government rescues: 4 percent of GDP on average and 12 percent of GDP in extremis.
  - Government bailouts of troubled SOEs: 3 percent of GDP on average and 15 percent of GDP in the most extreme cases.
- Global COVID-19 fiscal measures (IMF (2020)):
  - Spending and revenue measures amount to $3.3 trillion.
  - Loans and equity injections total $1.8 trillion.
  - Guarantees and other contingent liabilities add up to $2.7 trillion.
  - Global public debt is projected to increase by 13 percent of GDP in 2020.
  - Public debt in Emerging Europe expected to increase by 7 percent.
- Cross-country correlations: fiscal transparency correlates with improved market access, lower financing costs, better efficiency of public investment and revenue collection, and improved corruption perceptions.
- Public perceptions: EU survey shows 33 percent of respondents see lack of transparency and accountability for public expenditure as one of the top three causes of corruption.

### Main policy priorities and recommendations
- Overall approach:
  - Adopt a risk-based approach to fiscal policy that starts with identification, quantification, and full disclosure of fiscal risks.
  - Publish regular fiscal risk statements.
  - Undertake macro-fiscal sensitivity analyses for major risks.
  - Consider establishing fiscal councils.
- Broaden fiscal risk management toolkit beyond blunt direct controls to include indirect tools (regulations and charges) and risk transfer instruments.
- Specific priorities by area:
  - Public investment management:
    - Publish cost-benefit analyses for major projects.
    - Establish open and competitive tenders for procurement by SOEs and local governments.
    - Publish the total value of each multi-annual investment project.
  - Subnational governments:
    - Link the degree of financial autonomy to performance, as recommended in IMF (2016b).
    - Grant the central government authority to liquidate assets and appoint administrators (where appropriate).
    - Strengthen monitoring, fiscal rules, and enforcement powers.
  - Government guarantees:
    - Implement risk-related charges and/or require collateral to align incentives.
    - Establish buffer funds and apply fiscal risk analysis.
  - State-Owned Enterprises (SOEs):
    - Make professional SOE management and independent boards the norm.
    - Set targets for operational performance and publish consolidated SOE reports.
    - Restrict noncommercial mandates and establish explicit limits on budget/SOE interactions.
- Legal and institutional measures: Implementing recommendations may require changes to existing legislation and can be supported by IMF assistance (Fiscal Transparency Evaluations and Public Investment Management Assessments).

### COVID-19 implications and urgency
- COVID-19 raised both the importance and urgency of improving fiscal transparency in CESEE due to rapid scaling-up of fiscal support on- and off-budget.
- Fiscal risks increased because:
  - Health-related public investment was boosted in many CESEE countries.
  - In some countries, subnational governments are responsible for public health spending and unemployment benefits.
  - Public guarantees were ramped up.
  - Financial health of many SOEs rapidly deteriorated.
- Off-budget measures are particularly risky because they typically do not add to recorded fiscal deficits and are not subject to the same scrutiny as on-budget measures; liabilities can be delayed or contingent.
- Operational guidance during COVID-19:
  - Initial focus should be on large risks with a high probability of materializing, considering both explicit and implicit contingent liabilities.
  - If ex ante controls are relaxed for rapid emergency response, strengthen ex post controls by supreme audit institutions, legislatures, and civil society.

### Data, FTEs, and econometric evidence
- FTEs focus on de facto practices and cover the entire public sector (including local governments and SOEs); Figure 2 shows Western European countries tend to rank better than CESEE countries on average.
- Data limitations: small country coverage and lack of time-series variation in FTEs lead to small sample sizes.
- Other data sources: Open Budget Survey (OBS/OBI) used where cross-section and time-series variation are important.
- Numerical correlations (selected):
  - Correlation between average FTE rating and Open Budget Index in 2017 for 7 European countries: Corelation = 0.78.
  - Correlation between average FTE rating and average credit rating for 12 European countries: Correlation = –0.43.
  - Correlation between average FTE rating and average CDS spread for 12 European countries: Correlation = –0.37.
  - Correlation between average FTE rating and average public debt for 12 European countries: Correlation = –0.28.
  - Correlation between average FTE rating and primary balance median forecast error for 12 European countries: Correlation = 0.39.
  - Correlation between average FTE rating and efficiency of public investment for 10 European countries: Correlation = 0.61.
  - Correlation between average FTE rating and revenue efficiency for 11 European countries: Correlation = 0.33.
  - Correlation between average FTE rating and control of corruption for 12 European countries: Correlation = 0.48.
- Econometric analysis on corruption perceptions:
  - Panel regressions cover 102 countries for 6 years: 2006, 2008, 2010, 2012, 2015, and 2017.
  - Dependent variable: Control of Corruption Index (WGI); fiscal transparency measured by Open Budget Index.
  - Controls: log per capita GDP (PPP), voice and accountability, political stability and absence of violence, rule of law, ease of doing business, commodity exporter dummy.
  - Number of observations: 539; Number of countries: 102.
  - R-squared values reported across specifications include: 0.402, 0.415, 0.464, 0.517, 0.430, 0.471, 0.502, 0.703, 0.421, 0.472, 0.402, 0.482, 0.601, 0.789.
  - Magnitude example: Improving a country’s Open Budget Index by one standard deviation (or 24 units) would increase the Control of Corruption Index (standard deviation about 0.86) by about 0.05.
  - Causality caveat: scatterplots and regressions establish correlation, not causation; omitted variables or reverse causality cannot be ruled out.

### CESEE survey findings — design and aggregate magnitudes
- Survey design:
  - 21 yes/no questions: 4 on public investment management; 10 on government guarantees; 6 on subnational governments; 1 on SOEs.
  - Responses normalized by the inverse of their cross-section standard deviation for comparability.
  - Countries grouped into three subregions: new EU member states (NMS), Western Balkan countries, and CIS+Turkey.
- Aggregate magnitudes and exposures:
  - Preliminary survey result: CESEE countries have a stock of government guarantees and SOE debt of about 3.2 4.8 percent of GDP, respectively (as presented in the source).
  - Public investment accounts for about 5.5 percent of GDP.
  - Public investment in Finland: on average 4 percent of GDP annually post-global financial crisis.
  - European Commission Guide to Cost-Benefit Analysis applies to all major infrastructure projects above EUR 50 million.
  - Disclosure example: about 85 percent of all tenders in Finland were conducted via open and competitive procedures in 2016–18.
- Self-assessment rating thresholds:
  - “Advanced”: more than 80 percent of good practices.
  - “Good”: 50–80 percent.
  - “Basic”: 15–50 percent.
- Regional and country performance snapshots:
  - NMS reported better practices on average, followed by CIS+Turkey and Western Balkan countries.
  - Latvia and Romania reported applying the largest share of best practices for the public investment survey.
  - Only two CESEE countries—Latvia and Bosnia and Herzegovina—reported public investment management practices consistent with an “Advanced” rating.
  - Majority reported a “Good” rating (Albania, Belarus, Bulgaria, Hungary, Kosovo, Lithuania, Montenegro, Poland, Romania, and Turkey).

### Public Investment Management — findings and recommendations
- Findings:
  - Few CESEE countries reported publishing CBAs for major projects prior to approval; only Bosnia and Herzegovina, Bulgaria, and Latvia require publication of CBAs for major investment projects prior to approval.
  - 12 out of 21 CESEE governments reported a requirement to publish a project list and the total costs of public investment in annual budgets and/or medium-term budget documents.
  - All CESEE countries reported requiring open and competitive tendering for major central government investment projects in principle, but procurement exemptions and variations exist for nonfinancial public sector entities (including local governments and SOEs).
  - Comparative outcome: Western Balkans reported the best practices on average for public investment management, followed by NMS and CIS+Turkey.
- Recommendations and COVID-19 implications:
  - Publish all public investment contracts.
  - Rely on open and competitive bidding where feasible; use emergency non-competitive procurement only with adequate control, auditing, and reporting.
  - Publish beneficial ownership information for companies awarded contracts.
  - Empower anti-monopoly agencies to monitor market conditions in critical sectors.
  - Foster cooperation with civil society on fiscal transparency and delivery of public goods and services.
  - Implement ex ante measures (e.g., publish plans for the use of emergency funding) and ex post measures (e.g., publish all procurement information and selectively audit procurement contracts once the crisis abates).

### Subnational governments — findings and recommendations
- Findings:
  - Most CESEE countries reported monitoring SNG financial performance against benchmarks in all but Hungary, Moldova, Serbia, and Ukraine.
  - Fiscal rules or limits on borrowing for SNGs reportedly exist in all but Bosnia and Herzegovina and the Czech Republic.
  - Annual reporting requirements for SNGs were reported in all CESEE countries.
  - Very few countries link financial autonomy of SNGs to performance; examples: Estonia links higher debt ceilings to better-performing local governments; Albania provides incentives through performance-based grants.
  - Risk transfer tools limited: only Slovakia reported having both no-bail-out clauses and authority to liquidate assets or appoint administrators; five other countries reported having one of those tools.
  - On average, CESEE countries reported applying just over half of surveyed risk management practices for SNGs (“Good” level).
- COVID-19 operational guidance:
  - For the duration of the COVID-19 epidemic, financing should not be the binding constraint on provision of health care or other critical services by subnational governments.
  - Central governments should be prepared to temporarily revise intergovernmental fiscal arrangements to ensure adequate financing for health care and other critical spending at subnational level.
  - Closer coordination with subnational governments is imperative.

### Government guarantees — disclosure and management (survey findings)
- Recommended measures:
  - Implement risk-related charges and/or require collaterals.
  - Establish buffer funds and apply fiscal risk analysis.
- Survey findings (YES/NO responses preserved as presented):
  - Does the government maintain a central registry of guarantees? YES
  - Does the government publish the stock of outstanding guarantees? YES
  - Does the government publish details of any new guarantees that are issued? YES
  - Is there a central authorizing entity for guarantees? YES
  - Is the maximum value of new guarantees or their total stock authorized by law? YES
  - Does the government charge risk-related fees for guarantees? YES
  - Does the government resort to partial guarantees? YES
  - Does the government require collateral when providing guarantees? YES
  - Do the authorities provision for expected calls of guarantees? YES
  - Have the authorities established a buffer fund for guarantees? NO

### SOEs — practices, risks, and recommendations (Slovenia case and regional lessons)
- COVID-19 increased fiscal risks related to SOEs; financial health of many SOEs deteriorated and governments channeled support measures through SOEs.
- Slovenia case (selected facts):
  - SOEs account for more than 10 percent of total employment and more than three times the OECD average (OECD 2015b).
  - SOEs receive government guarantees of about 13 percent of GDP.
  - Government ownership policy published but not updated since 2015.
  - Independent agency Slovenia Sovereign Holdings (SSH) provides financial oversight over nonfinancial SOEs; SSH sets annual financial return targets and is required to submit annual reports to parliament and publish them.
  - Not all SOEs are required to be audited by independent external auditors.
  - Cost of government interventions to address the 2013 banking crisis amounted to about 12 percent of GDP.
- Recommendations:
  - Establish and maintain consolidated financial reporting for the entire SOE sector.
  - Require audited financial statements for all SOEs and publish summary documents on sector performance.
  - Disclose contingent liabilities and guarantees related to SOEs in budget documents and fiscal risk reports.
  - Apply no-bail-out rules where appropriate and align with state-aid constraints.

### IMF role, assistance, and experience
- IMF assistance tools and roles:
  - Fiscal Transparency Evaluations (FTEs) to assess and improve budget openness and fiscal risk analysis and management.
  - Public Investment Management Assessments to strengthen public investment frameworks.
  - Integration of fiscal transparency and governance work into IMF surveillance for CESEE.
  - Provide capacity building and technical assistance where legislation and institutions need strengthening.
- IMF program conditionality and monitoring (selected findings):
  - 118 structural measures related to fiscal transparency identified in 14 European countries since 2008, including:
    - 16 on public investment management,
    - 14 on subnational government risks,
    - 26 on public corporation risks,
    - 1 on fiscal risks in general,
    - 61 on other fiscal transparency issues.
  - Positive relationship between structural conditionality in IMF programs and improvement in the Open Budget Index (OBI) between 2010 and 2017: correlation coefficient of 0.6.
  - Negative correlation between a country’s Open Budget Index in 2010 and total PFM technical assistance received since 2008: Correlation = −0.38.

### Conclusions — priorities and implementation
- Focus area: third pillar of fiscal transparency—fiscal risk analysis and management—should be prioritized.
- First steps: identification, quantification, and full disclosure of fiscal risks, with regular FRRs and macro-fiscal sensitivity analysis.
- Broaden tools: include indirect tools (regulations and charges) and risk transfer instruments alongside direct controls.
- Institutional actions: publish fiscal risk statements regularly; consider fiscal councils; establish consolidated SOE reporting; integrate PPPs into the budget process with clear ceilings and gatekeeper roles.
- Urgency: fiscal risks have increased following the policy response to COVID-19; initial focus should be on large, high-probability risks and strengthen ex post scrutiny if ex ante controls are relaxed.

*Source: Executive Summary of "Improving Fiscal Transparency in CESEE" departmental paper.*

### Executive Summary ������������������������������������������������������������������������������������������������������

### Executive Summary

### Overview
- Purpose: Investigates how countries in Central, Eastern, and Southeastern Europe (CESEE) can improve fiscal transparency to raise government efficiency and reduce corruption vulnerabilities.
- Context: Analysis undertaken in the context of the 2018 Framework for Enhanced IMF Engagement in Governance.
- IMF tools referenced: IMF Fiscal Transparency Code and Fiscal Transparency Evaluations (FTEs).
- FTE coverage: IMF has published FTEs for 28 countries worldwide, including 12 European countries; FTEs assess 36 criteria grouped into three main pillars.

### Key empirical findings and risks
- Fiscal transparency is critical to effective fiscal management and accountability, reducing opportunities for corruption and raising political costs of unsustainable policies.
- Historical examples of transparency shortcomings contributing to macroeconomic stress in Europe:
  - Bank rescues in Ireland and Iceland caused sharp increases in public debt of 41 and 43 percentage points of GDP, respectively.
  - Portugal: general government debt increased by about 15 percentage points in the aftermath of the global financial crisis due to reclassifications of SOEs, calls on guarantees related to PPPs, and financial sector interventions.
  - Montenegro: phase one of the Bar-Boljare highway project was already costly at 23 percent of 2014 GDP; completion of phases 2–4 could cost another 25 percent of GDP.
  - Albania: a new government uncovered about 5 percent of GDP in central government arrears and large amounts of unbudgeted infrastructure contracts.
- IMF (2016b) survey of fiscal risks (1990–2014) average costs:
  - Government rescues of troubled financial institutions: about 10 percent of GDP.
  - Government compensation for legal cases: about 8 percent of GDP on average and 15 percent of GDP in the most extreme cases.
  - Subnational government rescues: 4 percent of GDP on average and 12 percent of GDP in extremis.
  - Government bailouts of troubled SOEs: 3 percent of GDP on average and 15 percent of GDP in the most extreme cases.
- Global COVID-19 fiscal measures (IMF (2020)):
  - Spending and revenue measures amount to $3.3 trillion.
  - Loans and equity injections total $1.8 trillion.
  - Guarantees and other contingent liabilities add up to $2.7 trillion.
  - Global public debt is projected to increase by 13 percent of GDP in 2020.
  - Public debt in Emerging Europe expected to increase by 7 percent.
- Survey evidence and FTEs indicate CESEE countries face particular challenges under the FTE pillar on fiscal risk analysis and management, with significant risks related to public investment, subnational governments, public guarantees, and SOEs.
- Cross-country correlations: fiscal transparency correlates with improved market access, lower financing costs, better efficiency of public investment and revenue collection, and improved corruption perceptions.
- Public perceptions: a recent EU survey shows 33 percent of respondents see lack of transparency and accountability for public expenditure as one of the top three causes of corruption.

### Main policy priorities and recommendations
- Overall approach: Adopt a risk-based approach to fiscal policy that starts with identification, quantification, and full disclosure of fiscal risks; publish regular fiscal risk statements; undertake macro-fiscal sensitivity analyses for major risks; consider establishing fiscal councils.
- Broaden fiscal risk management toolkit beyond blunt direct controls to include indirect tools (regulations and charges) and risk transfer instruments.
- Specific priorities:
  - Public investment management:
    - Publish cost-benefit analyses for major projects.
    - Establish open and competitive tenders for procurement by SOEs and local governments.
  - Subnational governments:
    - Link the degree of financial autonomy to performance, as recommended in IMF (2016b).
    - Grant the central government authority to liquidate assets and appoint administrators.
  - Government guarantees:
    - Implement risk-related charges and/or require collateral to align incentives.
    - Establish buffer funds and apply fiscal risk analysis.
  - State-Owned Enterprises (SOEs):
    - Make professional SOE management and independent boards the norm.
    - Set targets for operational performance and publish consolidated SOE reports.
    - Restrict noncommercial mandates and establish explicit limits on budget/SOE interactions.
- Legal and institutional measures: Implementing recommendations may require changes to existing legislation and can be supported by IMF assistance (Fiscal Transparency Evaluations and Public Investment Management Assessments).

### COVID-19 implications and urgency
- The COVID-19 pandemic has raised both the importance and urgency of improving fiscal transparency in CESEE due to rapid scaling-up of fiscal support on- and off-budget.
- Fiscal risks increased because:
  - Health-related public investment was boosted in many CESEE countries.
  - In some countries, subnational governments are responsible for public health spending and unemployment benefits.
  - Public guarantees were ramped up.
  - Financial health of many SOEs rapidly deteriorated.
- Off-budget measures are particularly risky because they typically do not add to recorded fiscal deficits and are not subject to the same scrutiny as on-budget measures; liabilities can be delayed or contingent.

### Role of the IMF and tools for implementation
- IMF assistance tools and roles:
  - Fiscal Transparency Evaluations (FTEs) to assess and improve budget openness and fiscal risk analysis and management.
  - Public Investment Management Assessments to strengthen public investment frameworks.
  - Integration of fiscal transparency and governance work into IMF surveillance for CESEE.
  - Provide capacity building and technical assistance where legislation and institutions need strengthening.
- Suggested institutional reforms:
  - Publish regular fiscal risk statements.
  - Undertake macro-fiscal sensitivity analyses for important risk sources.
  - Consider establishing fiscal councils to mitigate fiscal risks.

*Source: Executive Summary of "Improving Fiscal Transparency in CESEE" departmental paper.*

### Introduction to the Data

### Introduction to the Data

### FTE Findings
- According to IMF’s Fiscal Transparency Evaluations (Figure 2), Western European countries (in red) tend to rank better than CESEE countries (in purple) on average.
- This illustrates the strong correlation between budget openness and income.
- FTEs focus on de facto practices and cover the entire public sector (including local governments and SOEs).
- Note that Figure 2 offers an unweighted average over the 36 FTE criteria for each country. However, some of these criteria are more macro-critical than others.
- In 2019, Russia became the first country to complete an FTE Update. See Box 7 for a summary of its findings.
- The rest of the figures in this chapter follow the same color convention.

### Data Limitations and Coverage
- FTEs’ downside is the small country coverage and the lack of time-series variation, resulting in small sample sizes.
- Source: IMF, Fiscal Transparency Evaluations Database.
- Note: Purple bars denote CESEE countries.

### Figure 2 — Presented Items
- Title: Figure 2. FTE Ratings of European Countries
- Subtitle: Average FTE Ratings for 12 European Countries
- Listed countries (as presented):
  - Finland (2015)
  - Lithuania (2019)
  - UK (2016)
  - Malta (2018)
  - Portugal (2014)
  - Ireland (2013)
  - Austria (2018)
  - Russia (2014)
  - Romania (2015)
  - Turkey (2017)
  - North Macedonia (2018)
  - Albania (2016)
- Numeric entries shown (as presented): 1, 2.4, 1.6, 1.2, 1.4, 1.8, 2, 2.2

### Other Data Sources
- The Open Budget Survey provides another data source on budgetary transparency.
- The Open Budget Survey is a set of third-party indicators compiled by the International Budget Partnership, a US-based non-governmental organization established in

*Source: iftrgercvceseeea - Introduction to the Data (IFTRGERCVCESEEEA PDF).*

### 1997. It focuses on those

### iftrgercvceseeea - 1997. It focuses on those

### Survey instruments and coverage
- Fiscal Transparency Evaluations (FTE)
  - Focus: aspects of fiscal transparency that matter most for public accountability, such as the public availability of budget information, opportunities for the public to participate in the budget process, and the role and effectiveness of formal oversight institutions.
  - Based on a survey of 145 questions assessed by experts, and covers 115 countries dating back to 2006.
  - Strengths: broad coverage and time-series variation.
  - Shortcomings: focuses on central governments only (ignores subnational governments and public corporations); some questions address de jure aspects whose relation to de facto openness may be imperfect; assesses comprehensiveness and timely availability of budget information but not its credibility.
  - Many questions drawn from IMF’s Code of Good Practices on Fiscal Transparency, PEFA, OECD Best Practices for Fiscal Transparency, and INTOSAI Lima Declaration; governments invited to review draft replies.

- Open Budget Index (OBS / OBI)
  - Used in correlation and econometric sections when cross-section and time-series variation are important.
  - 2017 Open Budget Index for 24 European countries presented (scale 0–100, higher indicates better transparency).
  - OBI is correlated with income and with FTE ratings.
  - Correlation coefficient of about 0.8 for the seven European countries covered by both FTE and OBI.

### Correlation analysis: fiscal transparency and market/fiscal outcomes
- Market access and financing costs
  - More fiscal transparency is correlated with improved market access in Europe.
  - Better FTE rating correlated with better credit rating and lower CDS spreads (Figures 6 and 7).
  - Variables in Figures 6–12 are income-adjusted (residuals after regressing each variable on natural log of real per capita GDP, PPP-adjusted).
  - Correlations survive after filtering out income effects.
  - Reference empirical findings:
    - Choi and Hashimoto (2017): data transparency reforms reduce spreads of emerging market sovereign bonds by about 15 percent within one year (event study of 52 emerging market economies).
    - Kemoe and Zhan (2018): higher fiscal transparency reduces sovereign interest rate spreads and increases foreign holdings of sovereign debt (global panel of 33 EMDEs, 2005–16).
    - Keita, Leon, and Lima (2019): access to market-based external finance positively correlated with transparency of public finances (173 PEFA assessments for 89 EMDEs, 2005–16).

- Fiscal outcomes and efficiency
  - Better FTE ratings correlated with better fiscal outcomes (Figures 8 and 9).
  - Fiscal transparency negatively correlated with public debt (relatively weak correlation).
  - Lower fiscal transparency correlated with larger fiscal “slippages,” defined as primary fiscal balances falling short of WEO projections.
  - Fiscal transparency positively correlated with efficiency of public investment (Figure 10).
    - Public investment efficiency measure from IMF Investment and Capital Stock Dataset: transforms public investment input into physical and social infrastructure output (length of road network, electricity production, access to water, number of hospital beds, number of secondary teachers).
    - Efficiency measured relative to most efficient country with similar per capita income.
  - Fiscal transparency positively correlated with revenue efficiency (Figure 11).
    - Revenue efficiency is the average of PIT efficiency and VAT C-efficiency.
  - Fiscal transparency positively correlated with control of corruption (Figure 12).
    - Control of Corruption Index from Worldwide Governance Indicators (WGI), aggregates 30 sources on perceptions and experiences.
    - Correlation robust to other corruption measures (International Crisis Risk Group, Transparency International), but perception-based measures have well-known limitations (do not measure actual corruption; highly persistent; possible subjectivity and bias).

- Numerical correlations highlighted in figures (selected)
  - Correlation between average FTE rating and Open Budget Index in 2017 for 7 European countries: Corelation = 0.78.
  - Correlation between average FTE rating and average credit rating for 12 European countries: Correlation = –0.43.
  - Correlation between average FTE rating and average CDS spread for 12 European countries: Correlation = –0.37.
  - Correlation between average FTE rating and average public debt for 12 European countries: Correlation = –0.28.
  - Correlation between average FTE rating and primary balance median forecast error for 12 European countries: Correlation = 0.39.
  - Correlation between average FTE rating and efficiency of public investment for 10 European countries: Correlation = 0.61.
  - Correlation between average FTE rating and revenue efficiency for 11 European countries: Correlation = 0.33.
  - Correlation between average FTE rating and control of corruption for 12 European countries: Correlation = 0.48.

- Causality caveat
  - Scatterplots establish statistical correlation, not causation; omitted variables or reverse causality cannot be ruled out.
  - Intuitively plausible mechanism: more transparent public finances increase confidence among financial market participants, improving market access.

### Econometric analysis: panel regressions on corruption perceptions
- Data and specification
  - Panel regressions cover 102 countries worldwide for 6 specific years: 2006, 2008, 2010, 2012, 2015, and 2017.
  - Dependent variable: Control of Corruption Index (WGI).
  - Fiscal transparency measured by Open Budget Index (International Budget Partnership).
  - Additional controls: log per capita GDP (PPP-adjusted), voice and accountability, political stability and absence of violence, rule of law (WGI), ease of doing business (World Bank Doing Business Survey), and a dummy for commodity exporters (IMF WEO definition for EMDEs).
  - Estimators: fixed effects and random effects; all equations include time-fixed effects.
  - Robust standard errors reported.

- Main regression findings (summary)
  - Coefficients on Open Budget Index and other independent variables show expected signs and are almost always statistically significant.
  - Control of corruption positively associated with: per capita income, voice and accountability, political stability and absence of violence, rule of law, ease of doing business.
  - Control of corruption negatively associated with being an EMDE commodity exporter.
  - Robust link between fiscal transparency and control of corruption persists after conditioning on multiple drivers.

- Magnitude example from comprehensive specifications
  - Improving a country’s Open Budget Index by one standard deviation (or 24 units) would increase the Control of Corruption Index (whose standard deviation is about 0.86) by about 0.05.

- Regression sample/fit indicators (selected)
  - Number of observations: 539 (in many models).
  - Number of countries: 102.
  - R-squared values reported across specifications (examples): 0.402, 0.415, 0.464, 0.517, 0.430, 0.471, 0.502, 0.703, 0.421, 0.472, 0.402, 0.482, 0.601, 0.789.
  - Significance notation: *** p , 0.01, ** p , 0.05, * p , 0.1.

- Interpretation and external consistency
  - Results consistent with prior literature (Haque and Neanidis 2009; Luna and Montes 2017; IMF 2019a).
  - While regressions mitigate omitted variables, causality remains unresolved; experimental and natural experiment evidence reviewed in IMF (2019a) suggests improved budget openness can increase government efficiency and reduce corruption opportunities, particularly with press freedom and digital access.

### Fiscal transparency challenges and survey of CESEE practices
- IMF Fiscal Transparency Code pillars
  - Three main pillars: (1) fiscal reporting, (2) fiscal forecasting and budgeting, and (3) fiscal risk analysis and management (the last introduced after global financial crisis).
  - A fourth pillar on resource revenue management introduced in January 2019, but available FTEs pre-date this addition.

- FTE coverage in CESEE
  - Fiscal Transparency Evaluations have been conducted for 6 out of 22 CESEE countries.
  - On average, the rating for fiscal risk analysis and management is the lowest among the three pillars.

- CESEE survey on fiscal risk analysis and management
  - Purpose: assess current policy practices on fiscal risk analysis and management, given limited FTE coverage.
  - Conducted in spring 2019; drew on IMF Fiscal Transparency Code and IMF Fiscal Affairs Department inputs.
  - Survey included 21 questions on analysis and management of fiscal risks related to public investment management, subnational governments, government guarantees, and SOEs.
  - Requested quantitative information to assess sizes of related fiscal risks.
  - Country practices were rated according to the share of good practices in place as reported by country authorities.
  - Distinction: survey is self-assessment by country authorities; FTEs are expert assessments by IMF. Survey responses were complemented with IMF country team assessments and flagged where notable discrepancies exist.
  - Analysis on SOEs drew extensively on IMF (2019b).

- Preliminary survey result (partial)
  - Survey results indicate that, on average, CESEE countries have a stock of government guarantees and SOE debt of about 3.2

*Source: IMF content unit iftrgercvceseeea - 1997. It focuses on those (PDF).*

### 4.8 percent of GDP, respectively, while public investment accounts for about

### iftrgercvceseeea - 4.8 percent of GDP, respectively, while public investment accounts for about

### Management and magnitude of fiscal risks in CESEE
- Public investment accounts for about 5.5 percent of GDP.
- SOE debt and government guarantees also represent material fiscal exposures; aggregate indicators on the size of public investment, guarantees, and SOE debt are presented as percent of GDP (Figure 14 in source).
- Risks can be larger when factors are interlinked, for example:
  - when SOEs or subnational governments execute capital spending; or
  - when public investment is carried out through PPPs which typically involve public guarantees.
- After the forceful public policy response to the COVID-19 pandemic, fiscal risks in these areas have increased.

### Survey design and regional performance
- The survey used 21 yes/no questions to capture current practices related to the analysis and management of fiscal risks in CESEE countries:
  - 4 questions on public investment management;
  - 10 questions on the risk management of government guarantees;
  - 6 questions on the risk management of subnational governments;
  - 1 question on SOEs.
- Survey responses were normalized by the inverse of their cross-section standard deviation for comparability.
- Countries grouped into three subregions: the European Union’s new member states (NMS), Western Balkan countries, and the Commonwealth of Independent States (CIS) + Turkey.
- NMS reported better practices on average, followed by CIS+Turkey and Western Balkan countries. Latvia and Romania reported applying the largest share of best practices.
- Self-reported rating categories:
  - “Advanced”: countries that reported applying more than 80 percent of the good practices covered in the survey;
  - “Good”: countries that fulfilled 50–80 percent of those criteria;
  - “Basic”: countries that fulfilled 15–50 percent of those criteria;
  - remainder grouped into “Not met.”

### Public Investment Management — findings
- Key principles (guided by the IMF’s Fiscal Transparency Code and Public Investment Management Assessment Framework):
  - Project appraisal: cost-benefit analysis (CBA) for major projects should be published, with clear guidelines and standardized methodology.
  - Project planning: financial commitments under multi-annual investment projects should be published and regularly updated to reflect uncertainties and materialized risks.
  - Project implementation: procurement processes should be open and competitive, with clear rules, consistently enforced standards, and appeal avenues.
- Findings on CBA and disclosure:
  - Few CESEE countries reported publishing CBAs for major projects prior to approval. Only Bosnia and Herzegovina, Bulgaria, and Latvia require publication of CBAs for major investment projects prior to approval.
  - Many countries reported conducting CBAs but not always publishing them (including Russia, Turkey, and most NMS countries).
  - The European Commission’s Guide to Cost-Benefit Analysis applies to all major infrastructure projects above EUR 50 million, but the EU does not require CBA publication prior to approval nor require CBAs for domestically financed projects.
- Disclosure of multi-annual obligations:
  - 12 out of 21 CESEE governments reported a requirement to publish a project list and the total costs of public investment in annual budgets and/or medium-term budget documents.
  - Some countries provide forecasts and details but do not publish total life-cycle cost or annual deviations of actual from planned costs.
- Procurement practices:
  - All CESEE countries reported requiring open and competitive tendering for major central government investment projects in principle.
  - Procurement exemptions and variations exist; some countries do not require open and competitive procurement for nonfinancial public sector entities (including local governments and SOEs).
  - Example: about 85 percent of all tenders in Finland were conducted via open and competitive procedures in 2016–18.
- Comparative outcomes:
  - Only two CESEE countries—Latvia and Bosnia and Herzegovina—reported public investment management practices consistent with an “Advanced” rating.
  - Majority reported fulfilling two out of three criteria (consistent with a “Good” rating): Albania, Belarus, Bulgaria, Hungary, Kosovo, Lithuania, Montenegro, Poland, Romania, and Turkey.
  - Western Balkans reported the best practices on average for public investment management, followed by NMS and CIS+Turkey.

### Public Investment Management — policy recommendations and COVID-19 implications
- To mitigate fiscal risks associated with increased public investment (including health sector spending during COVID-19):
  - Governments should publish all public investment contracts.
  - Rely on open and competitive bidding where feasible; use emergency non-competitive procurement only with adequate control, auditing, and reporting.
  - Publish beneficial ownership information for companies awarded contracts.
  - Empower anti-monopoly agencies to monitor market conditions in critical sectors.
  - Foster cooperation with civil society on fiscal transparency and delivery of public goods and services.
  - Implement ex ante measures (e.g., publish plans for the use of emergency funding) and commit to ex post measures (e.g., publish all procurement information and selectively audit procurement contracts once the crisis abates).

### Subnational governments — findings and best-practice coverage
- Rationale: SNGs can raise, spend, and sometimes borrow significant resources; off-budget activities and contingent liabilities can be significant and may involve explicit or implicit central government guarantees.
- Best-practice areas surveyed: quantification/identification, direct controls, indirect controls, and risk transfer.
  - Quantification: monitoring SNG financial performance against benchmarks (e.g., fiscal deficit or debt targets).
  - Direct controls: fiscal rules or quantitative limits on borrowing for SNGs.
  - Indirect controls: annual reporting requirements and linking financial autonomy to performance.
  - Risk transfer: existence of no-bail-out clauses and central government authority to liquidate assets or appoint administrators.
- Survey results:
  - Most CESEE countries reported monitoring SNG financial performance against benchmarks in all but Hungary, Moldova, Serbia, and Ukraine.
  - Fiscal rules or limits on borrowing for SNGs reportedly exist in all but Bosnia and Herzegovina and the Czech Republic.
  - Annual reporting requirements for SNGs were reported in all CESEE countries.
  - Very few countries link financial autonomy of SNGs to performance; examples:
    - Estonia links higher debt ceilings to better-performing local governments;
    - Albania provides incentives through performance-based grants.
  - Risk transfer tools are limited: only Slovakia reported having both no-bail-out clauses and authority to liquidate assets or appoint administrators; five other countries reported having one of those tools.
- Overall assessment:
  - On average, CESEE countries reported applying just over half of the surveyed risk management practices for SNGs, equivalent to a “Good” level.
  - Significant variation exists across countries, with about half the sample reporting “Good” practices and the remainder lower.

### Key statistics and specific numeric findings preserved from source
- Public investment accounts for about 5.5 percent of GDP.
- Public investment in Finland: on average 4 percent of GDP annually post-global financial crisis.
- Survey instrument: 21 yes/no questions in total (4 on public investment management; 10 on government guarantees; 6 on subnational governments; 1 on SOEs).
- Self-assessment rating thresholds: more than 80 percent (Advanced); 50–80 percent (Good); 15–50 percent (Basic).
- Disclosure example: about 85 percent of all tenders in Finland were conducted via open and competitive procedures in 2016–18.
- European Commission CBA threshold: EUR 50 million.

*Source: IMF staff survey and analysis as presented in the supplied content.*

### 1. Performance benchmarking?

### 1. Performance benchmarking?

### Summary findings on subnational government transparency and performance
- Four countries reported implementing five out of six surveyed criteria and were rated “Advanced”: Albania, Estonia, Russia, and Slovenia.
- Three countries received a “Basic” rating, reporting fulfillment of only two out of six criteria: Bosnia and Herzegovina, Moldova, and Serbia.
- Three countries (Croatia, Latvia, and Ukraine) submitted incomplete answers and were not rated.
- New EU member states in CESEE scored slightly better than CIS+Turkey or Western Balkan countries, but all three groups received the same average rating (“Good”).
- The survey is a self-assessment by country authorities; actual disclosure gaps can be larger than suggested by the survey (example: North Macedonia publishes quarterly municipal financial performance but does not disclose information required to assess the financial position of individual municipalities).

### Russia: practices and remaining gaps (Box 3)
- Russia’s subnational sector: more than 20,000 local governments (municipalities) and about 85 state (regional) governments.
- Russia assigned an “Advanced” rating for subnational fiscal transparency in IMF evaluations (2014 and 2019) and in the CESEE survey.
- Reporting and consolidation:
  - Individual regional and municipal governments required to publish financial information following national standards on at least an annual basis.
  - Ministry of Finance releases monthly and quarterly information on regional and municipal government debt aggregated by region.
  - Main in-year and annual fiscal reports cover consolidated accounts for central, regional, and municipal governments according to uniform budget classification, chart of accounts, and reporting format.
  - Federal Treasury publishes monthly information on budget execution by subnational governments.
  - The federal government submits to the legislature a forecast for key general government budget indicators; parliament approves the federal budget and extra-budgetary funds; subnational budgets are considered by sub-federal legislative bodies.
  - Consolidated budget presentation to the legislature occurs in October of each year.
  - Budgets at regional level cover the upcoming year and the two-year forward planning years; municipal budgets may cover the upcoming year and two consequent years or the upcoming year only. Information on future plans is provided at the same level of detail for all years.
  - The Ministry of Finance started piloting participatory budgeting at regional and municipal levels in 2019.
- Fiscal rules and limits:
  - Debt is limited to a ceiling equal to the subnational government’s annual budget revenue, net of federal grants.
  - Budget deficits limited to 15 percent of revenue net of federal grants for regions and 10 percent for municipalities.
  - Annual borrowing limited by deficit financing plus debt amortization.
  - Debt servicing costs must not exceed 15 percent of expenditures, net of those financed by subventions.
  - Tougher restrictions apply to regions and municipalities relying more heavily on federal grants; compliance monitored by the Ministry of Finance, with potential financial sanctions and imposed reforms for breaches.
  - A sensitivity analysis of subnational finances to macroeconomic parameters was covered in the 2015 Fiscal Risks Report.
- Remaining issues:
  - Limited information on subnational ownership of public corporations and related risks.
  - Guarantees provided by public corporations not monitored/controlled by the federal government are not subject to the same controls.
  - No established no-bail-out clause for subnational governments; existing legal mechanism for temporary financial administration has not been tested.
- Note: Subventions are earmarked, non-matching grants to finance devolved spending responsibilities.

### COVID-19 context and operational guidance for subnational financing
- The COVID-19 pandemic increased fiscal risks related to subnational governments, partly because some CESEE countries assign public health spending and unemployment benefits responsibilities to them.
- For the duration of the COVID-19 epidemic, financing should not be the binding constraint on provision of health care or other critical services by subnational governments.
- If necessary, central governments should be prepared to temporarily revise intergovernmental fiscal arrangements to ensure adequate financing for health care and other critical spending at subnational level.
- Closer coordination with subnational governments is imperative.

### Key statistics and ratings (subnational governance)
- Country group average rating: “Good” for new EU member states (NMS), CIS+Turkey, and Western Balkan groups (no differentiation in average rating).

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### Findings on performance benchmarking, monitoring, and tools
- Performance benchmarking responses were split between “Basic” and “Advanced” across surveyed countries (figure summary).
- Four of the six surveyed performance-linked criteria were more widely implemented in some countries, but overall room for improvement exists, especially in publishing granular financial information for individual municipalities.

*Source: Assessing Fiscal Transparency in CESEE (content unit iftrgercvceseeea - 1. Performance benchmarking?)*

### Box 5 discusses Slove-

### Box 5. Slovenia: Fiscal Transparency and SOEs

### SOE fiscal risks and COVID-19
- The COVID-19 pandemic has increased fiscal risks related to SOEs in CESEE countries.
- The financial health of many state-owned enterprises has rapidly deteriorated (for example, national airline companies).
- In many countries, governments have chosen to channel some support measures through SOEs.
- It is more important than ever to establish and maintain consolidated financial reporting for the entire SOE sector to facilitate a “whole-of-government” approach to managing public finances and fiscal risks, for example, in assessing the potential impact of new policy measures.
- As an example of a credible no-bail-out rule, the EU Bank Recovery and Resolution Directive (BRRD) aims to prevent the moral hazard in bailing out banks by requiring that any extraordinary public financial support will normally entail at least some bail-in of shareholders and creditors.

### Slovenia: practices and challenges in managing SOE fiscal risks
- SOE presence and government exposures:
  - SOEs account for more than 10 percent of total employment and more than three times the OECD average (OECD 2015b).
  - SOEs receive government guarantees of about 13 percent of GDP.
- Government ownership policy:
  - Parliament has approved a government ownership policy, which is also published, but this policy has not been updated since 2015.
  - The number of companies classified as “strategic” and “important” is large, even in competitive sectors like manufacturing and tourism.
  - The flawed governance of a large bank with partial government ownership contributed to its failure in the 2013 banking crisis (IMF 2019b).
- Financial oversight:
  - An independent agency, Slovenia Sovereign Holdings (SSH), provides financial oversight over nonfinancial SOEs.
  - SSH has professional management, sets annual financial return targets, and is required to submit annual reports to parliament and publish them.1
  - However, not all SOEs are required to be audited by independent external auditors.
- Budget/SOE interactions:
  - There is no explicit legislation to provide noncommercial mandates for individual SOEs.
  - The stock of government guarantees provided to SOEs is provided in the budget document, which is subject to parliamentary approval and published.
  - The Ministry of Finance assesses the fiscal risks of SOEs that are likely to receive government funding, although the results are not published.
  - In the past, inappropriate lending from state-owned banks to SOEs created fiscal risks.
  - The cost of government interventions to address the 2013 banking crisis amounted to about 12 percent of GDP, resulting in a sharp increase in public debt that required significant fiscal adjustment.

1 SSH (2019).

### The IMF’s role in strengthening fiscal transparency in Europe (selected findings)
- IMF program conditionality and monitoring:
  - A total of 118 structural measures related to fiscal transparency were identified in 14 European countries since 2008, including:
    - 16 structural measures on fiscal risks related to public investment management,
    - 14 measures on risks related to subnational governments,
    - 26 measures on fiscal risks related to public corporations,
    - 1 measure on fiscal risks in general,
    - 61 structural measures on other issues related to fiscal transparency.
  - Country examples of program-supported reforms:
    - Albania: prioritized public investment projects, strengthened internal auditing, improved reporting of procurement and arrears by local governments, published quarterly financial statements of the largest public corporations, and established a fiscal risks unit at the Ministry of Finance.
    - Bosnia and Herzegovina: targeted restructuring and improved oversight of state-owned railway and telecom companies; strengthened SOE oversight and fiscal discipline at the subnational level.
    - Greece: structural measures made SOEs more financially transparent and facilitated their restructuring.
    - Hungary: supported restructuring of the state-owned railway company.
    - Iceland: targeted improvements in fiscal governance at the subnational level.
    - Kosovo: facilitated improved management of donor-financed capital projects.
    - Latvia: supported production of a register of public corporations and a strategy to improve their management.
    - Portugal: supported strengthening governance framework for subnational governments and compilation of a comprehensive SOE report.
    - Romania: prioritized public investment portfolio, improved reporting of arrears by local governments, and implemented SOE reforms.
    - Serbia: streamlined public investment management and strengthened governance for subnational governments and public corporations.
    - Ukraine: supported restructuring large SOEs and strengthening oversight over public corporations, including preparing a statement of fiscal risks related to SOEs.
- Correlation with budget transparency improvements:
  - Several Balkan countries implemented numerous structural measures related to fiscal transparency under IMF programs.
  - Romania and Albania implemented more structural measures than any other European countries in the sample.
  - There is a positive relationship between structural conditionality in IMF programs and improvement in the Open Budget Index (OBI) between 2010 and 2017, with a correlation coefficient of 0.6.
- IMF technical assistance (PFM TA):
  - Most PFM technical assistance has gone to program countries.
  - There is a negative correlation (Correlation = −0.38) between a country’s Open Budget Index in 2010 and the total amount of PFM technical assistance it has received since 2008, implying TA targeted countries with greater potential for improvement.
  - No significant correlation exists between the total amount of PFM technical assistance a country has received since 2008 and improvement in the Open Budget Index between 2010 and 2017.

### Case studies: Albania and Russia (selected lessons)
- Albania (IMF-supported program, 2014–17):
  - Albania implemented the largest number of measures alongside Romania but reforms have not delivered lasting improvements in several areas, particularly fiscal risk analysis and management.
  - Key reform area outcomes:
    - Fiscal risk unit (FRU) established in 2016 but lacked sufficient capacity and authority; FRU has yet to publish a comprehensive in-depth fiscal risk report despite a brief fiscal risks chapter in the annual budget memorandum since 2017.
    - Asset and liability management: central government arrears identified in 2013 (about 5 percent of GDP) were mostly cleared within two years but recurred, reaching 1.9 percent of GDP as of mid-2019, including 1.2 percent of GDP in VAT refund arrears.
    - PPPs: Organic Budget Law amended in June 2016 to integrate PPPs into the budgetary process and impose a ceiling on direct payments for PPPs (excluding contingent liabilities) at 5 percent of tax revenues for the previous year; MOFE was not given a clear gatekeeper role until 2019 and still has insufficient project-by-project information and limited capacity for assessing and monitoring costs and risks.
    - Subnational governments: consolidation of communes and municipalities into 61 units after mid-2015 local elections; annual transfers to local governments set at 1 percent of GDP; new law on local finances adopted; arrears at the local government level on a downward path though still present.
    - Public corporations (electricity sector): reduced distribution losses from 45 percent in 2013 to 23 percent in 2018; increased bill collection; a new power sector law passed in May 2015, but reforms remain partially implemented with continued arrears and vulnerability to drought years.
  - Lesson: In the absence of technical capacity and strong post-program follow-up, formal reforms may have limited lasting impact.
- Russia (IMF Fiscal Transparency Evaluations, FTE and FTE Update):
  - Russia volunteered for a pilot FTE in 2013 (published 2014) and underwent an FTE Update in 2019 showing substantial improvement, especially in risk disclosure and analysis.
  - Improvements since 2014:
    - Publication of a comprehensive fiscal risks report.
    - Publication of a long-term macroeconomic and fiscal forecast covering the next 17 years (until 2036) using central and conservative scenarios.
    - Official estimates of sub-soil reserves of natural resources published for the first time.
    - These reforms elevated Russia’s fiscal risk practices above the average for advanced European economies, though shortcomings remain.
  - Recommendations for further improvements:
    - SOE disclosure and oversight: Produce a summary document on the financial performance of the SOE sector and require all SOEs to publish audited financial statements.
    - PPPs: Publish annual estimates of the government’s total long-term obligations under PPP contracts (about 2,500 contracts worth more than 2 percent of GDP).
    - Fiscal risks report (FRR): Publish an updated FRR every 3 years and require the government to respond within 2 years; incorporate 30- to 50-year macroeconomic and fiscal projections into the FRR.
    - Natural resources: Publish annual estimates of the volume and value of Russia’s natural resource reserves under different price and production scenarios; consider evaluation against Pillar IV of the IMF Fiscal Transparency Code.

### Policy priorities and recommendations for CESEE (summary)
- Overall conclusion:
  - CESEE countries can improve fiscal transparency, raising government efficiency and reducing corruption vulnerabilities.
  - Countries should focus on the third pillar of fiscal transparency—fiscal risk analysis and management—and adopt a risk-based approach to fiscal policy.
  - CESEE countries face significant fiscal risks that could compromise fiscal sustainability and macroeconomic stability; key risk areas include public investment management, subnational governments, government guarantees, and SOEs.
  - Identification, quantification, and full disclosure of risks are necessary first steps; fiscal risks have increased following the policy response to the COVID-19 pandemic.
- Broaden the fiscal risk management toolkit to include indirect tools (regulations and charges) and risk transfer instruments, alongside direct controls.
- Specific policy priorities by area:
  - Public investment management:
    - Make publication of cost-benefit analyses for major projects the norm.
    - Prepare guidelines and criteria and provide appropriate training.
    - Publish the total value of each multi-annual investment project.
    - Enhance public procurement using open and competitive tenders.
  - Subnational governments:
    - Link the degree of financial autonomy to performance as an indirect tool to mitigate fiscal risks, as recommended in IMF (2016b).
    - Strengthen fiscal risk management, monitoring, and transparency at the subnational level.
  - SOEs and related fiscal risks:
    - Establish and maintain consolidated financial reporting for the entire SOE sector.
    - Require audited financial statements for all SOEs and publish summary documents on sector performance.
    - Disclose government contingent liabilities and guarantees related to SOEs in budget documents and fiscal risk reports.
  - PPPs and long-term obligations:
    - Integrate PPPs into the budgetary process with clear ceilings and gatekeeper roles.
    - Publish annual estimates of total long-term obligations under PPP contracts.
  - Fiscal risk reporting and disclosure:
    - Publish comprehensive fiscal risk reports (FRRs) regularly (for example, every 3 years) and require government responses within a specified timeframe (for example, within 2 years).
    - Incorporate long-term macroeconomic and fiscal projections (30–50 years where appropriate) into FRRs to assess intergenerational fairness under different scenarios.

*Source: iftrgercvceseeea - Box 5 discusses Slovenia’s experience (PDF chapter/section).*

### Conclusions and Policy Recommendations

### Conclusions and Policy Recommendations

### Risk-transfer instruments and crisis powers
- Grant central government the authority to liquidate assets and appoint administrators to strengthen the risk management toolkit for large fiscal exposures.
- Consider risk transfer instruments to manage contingent liabilities more effectively.

### Government guarantees — transparency and cost recovery
- Implement risk-related charges and/or require collaterals to enhance transparency and efficiency in managing guarantees.
- Establish buffer funds and apply fiscal risk analysis to mitigate risks stemming from guarantees.
- Survey findings on guarantees:
  - Does the government maintain a central registry of guarantees? YES
  - Does the government publish the stock of outstanding guarantees? YES
  - Does the government publish details of any new guarantees that are issued? YES
  - Is there a central authorizing entity for guarantees? YES
  - Is the maximum value of new guarantees or their total stock authorized by law? YES
  - Does the government charge risk-related fees for guarantees? YES
  - Does the government resort to partial guarantees? YES
  - Does the government require collateral when providing guarantees? YES
  - Do the authorities provision for expected calls of guarantees? YES
  - Have the authorities established a buffer fund for guarantees? NO

### State-Owned Enterprises (SOEs) — ownership, oversight, and fiscal interactions
- Ownership policy: professional SOE management and independent boards should become the norm.
- Financial oversight: set targets for operational performance and publish aggregate SOE results.
- Budget/SOE interactions: restrict non-commercial mandates and establish explicit limits on such interactions.
- Survey findings on SOEs:
  - Does the country follow the EU state-aid rules that constrain bail-out of SOEs? Or in countries that do not follow EU state-aid rules, have the authorities established explicit no-bail-out clauses for SOEs? YES

### Subnational governments — monitoring, rules, and enforcement powers
- Strengthen central monitoring and fiscal rules for subnational governments.
- Link financial autonomy of subnational governments to their performance.
- Impose annual reporting requirements and credible no-bail-out clauses.
- Preserve central authority to act in cases of subnational distress where appropriate.
- Survey findings on subnational governments:
  - Do the authorities (central government or parliament) monitor the financial performance of subnational governments against benchmarks, such as fiscal deficit or debt targets? YES
  - Do the authorities have in place fiscal rules or limits on borrowing for subnational governments? YES
  - Do the authorities link the degree of financial autonomy of subnational governments to their performance? YES
  - Have the authorities imposed annual reporting requirements on subnational governments? YES
  - Have the authorities established credible no-bail-out clauses for subnational governments? YES
  - Do the authorities retain the authority to liquidate assets of subnational governments or appoint administrators for them? NO

### Risk-based fiscal policy, disclosure, and analysis
- Adopt a risk-based approach to fiscal policy: identify, quantify, and fully disclose fiscal risks.
- Publish regular fiscal risk statements and undertake macro-fiscal sensitivity analyses for the most important sources of risks.
- Consider IMF assistance tools such as Fiscal Transparency Evaluations and Public Investment Management Assessments.
- Implement legislative changes where necessary to enable better fiscal risk management.
- Establish fiscal councils to help mitigate fiscal risks.

### COVID-19 implications — urgency for better fiscal transparency and controls
- The COVID-19 pandemic has increased both the importance and urgency of improving fiscal transparency in CESEE.
- Governments rapidly scaled-up fiscal support, both on- and off-budget, raising fiscal risks:
  - increased health-related public investment in many countries;
  - in some countries, subnational governments are responsible for public health spending and unemployment benefits;
  - public guarantees have been ramped up;
  - the financial health of many SOEs has rapidly deteriorated.
- Initial focus should be on large risks with a high probability of materializing, considering both explicit and implicit contingent liabilities.
- If ex ante or upstream controls are relaxed for rapid emergency response, strengthen ex post controls by supreme audit institutions, legislatures, and civil society to preserve transparency, accountability, and good governance.
- Given heightened uncertainty about the economic impact of COVID-19, ensure citizens understand policy packages, the associated medium-term risks, and bolster market confidence through clear disclosure.

### Public investment management — survey findings
- Does the government require all major projects to be contracted via open and competitive tender? YES
- Does this apply to the entire non-financial public sector, including projects undertaken by subnational governments and SOEs? YES
- Does the government regularly disclose the value of its total obligations under multi-annual investment projects? NO
- Does the government regularly subject all major projects to a published cost-benefit analysis before approval? NO

*Conclusions and Policy Recommendations — IMF departmental paper content*

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_Source: https://www.imf.org/-/media/files/publications/dp/2020/english/iftrgercvceseeea.pdf_