## _cr0567 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [_cr0567 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0567.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0567.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0567.pdf.json) --- ### Overall assessment of fiscal transparency — key findings - El Salvador complies with many standards in the Code of Good Practices on Fiscal Transparency. - Positive features: - Definition of the government sector is consistent with the Government Finance Statistics (GFS) Manual. - Relations between the government and the rest of the public sector have been substantially clarified. - Privatizations have been subjected to independent audits. - The regulatory framework for fiscal management is complete. - The annual general state budget (Presupuesto General del Estado (PGE)) and budgetary execution reports encompass practically the entire nonfinancial public sector. - Systems of internal control are subject to effective audits. - Full information is published on the level and composition of the public debt. - The Integrated Financial Management System (Sistema de Administración Financiera Integrado (SAFI)) includes an integrated accounting system that enables evaluation of payment arrears, generation of timely budgetary execution reports, and routine reconciliation of monetary and accounting data. - Significant transparency requirements have been built into public contracting. - El Salvador subscribes to the Special Data Dissemination Standard (SDDS) and provides information to the GFS Yearbook. - Remaining areas needing progress: - Clarifying intergovernmental fiscal relations. - Expanding and improving the content of budget documentation. - Redefining and strengthening oversight systems. - Strengthening budget preparation. ### Short-term actions recommended - Strengthen budget presentation: - Include a consolidation of central government consistent with the GFS. - Provide summary tables showing the derivation of the budget balance from the main fiscal aggregates and its financing. - Add an annex containing medium-term fiscal policy objectives and priorities. - Publish existing reports: - Publish existing monthly, quarterly, and biannual reports on the execution of the PGE and on the financial situation of the nonfinancial public sector (NFPS). ### Medium-term improvements recommended - Clarify intergovernmental fiscal relations between the central government and municipalities. - Extend SAFI to decentralized public institutions (DPIs) and subsequently to the municipalities. - Include in budget documentation: - Estimates of quasi-fiscal activities. - Fiscal risks. - Tax expenditures. - Prepare a multiyear expenditure framework to serve as a basis for preparing the budget. - Introduce a functional classification. - Carry out performance audits and make their conclusions and recommendations public. - Enhance private sector regulations. ### Clarity of roles and responsibilities — definition of government - The relevant definition of government for budgetary and fiscal reporting purposes is the NFPS, which consists of: - the general government sector (central government, 62 nonentrepreneurial DPIs and 262 local governments), and - four nonfinancial public enterprises (NFPEs). - The central government consists of: - the legislature (Legislative Assembly), the judiciary, 13 ministries, the public prosecutor’s department (Fiscalía General de la República, Procuraduría General de la República, and Procuraduría para la Defensa de los Derechos Humanos) and other bodies: the Office of the Comptroller General of the Republic (Corte de Cuentas de la República), the Supreme Electoral Tribunal (Tribunal Supremo Electoral), the Civil Service Tribunal (Tribunal del Servicio Civil), and the National Judicial Council (Consejo Nacional de la Judicatura). - Note: By excluding nonentrepreneurial DPIs, the concept of central government used in El Salvador is not strictly comparable with that proposed by the GFS Manual. ### Intergovernmental relations and municipal finance - Constitutional and legal framework: - Municipalities (municipios) have financial, technical, and administrative autonomy under the constitution. - The municipal code identifies 27 areas of municipal jurisdiction; central government intervention is allowed when local governments fail to exercise competencies or do so deficiently, and then only with municipal consent and coordination. - Practical issues: - Many competencies assigned to municipalities are shared with the central government; no clear delineation of functions for each government level. - Within certain limits, local governments can design and propose their own taxes, subject to legislative assembly approval. - No legal limits or reporting on municipal borrowing; municipalities require authorization to borrow only if they want to make use of a government guarantee. - Municipal financing: - Municipalities are financed largely through earmarked transfers from the central government, mainly channeled through the Economic and Social Development Fund (Fondo para el Desarrollo Económico y Social de los Municipios (FODES)). - FODES transfers are defined as a percentage of central government current revenues: - 6 percent until 2003, - increased to 6.5 percent in 2004, - will reach 7 percent in 2005. - Distribution of FODES is automatic through a pre-established formula and must be used basically for investment purposes. - Variables and weightings used for distribution: population (50 percent), equity (25 percent), poverty (20 percent) and geographic area (5 percent). - Of resources thus obtained, 80 percent must be used for investments and 20 percent for current expenditure by each municipality. - Transparency gap: - Absence of a legal requirement obliging municipalities to provide information on the use of FODES resources makes it impossible to know compliance with conditions or how a significant percentage of public revenues is being used. - Additional municipal statistics: - The share of local tax revenues in total municipal revenues was 21.3 percent in 2002 and 18.7 percent in 2003. - Local expenditure accounts for approximately 5 percent of general government expenditure. ### Relations between the government and the rest of the public sector - NFPEs and privatization: - NFPEs historically were regulators and administrators of legal monopolies and carried out significant quasi-fiscal activities. - Privatizations and reorganizations have reduced NFPE importance and clarified their relations with government: - ANTEL (telecommunications) and parts of CEL (electricity) were privatized in 1998 and 1999. - Regulatory and management functions were separated before privatization, increasing competition and lowering utility charges and quasi-fiscal activities. - Two of the three remaining NFPEs hold monopolies for water, port, airport and railroad services; only the water company carries out major quasi-fiscal activities. - ANDA generates losses largely because the average tariff it charges is 25 percent lower than its unit cost. - Central Reserve Bank (BCR): - The Central Reserve Bank of El Salvador (Banco Central de Reserva de El Salvador (BCR)) is legally independent of the government but performs fiscal functions on the government’s behalf. - BCR is a technically autonomous public institution run by a board of governors; the president of the board is appointed by the President of the Republic, and governors are appointed by the council of ministers. - The BCR cannot finance the government or the rest of the public sector, directly or indirectly, nor extend collateral, guarantees or sureties on obligations contracted by them, other than in exceptional circumstances legally identified and approved by the legislative assembly. - BCR’s services as government financial/fiscal agent and adviser are clearly regulated, but are not provided under market conditions. - The BCR undertakes significant quasi-fiscal activities, which undermine its net worth. Nonetheless, during the 1990s and up to 2001, the BCR was able to absorb the impact of these operations and maintain a positive operating balance; at the present time its financial position is sound. ### Key basic data (as reported) - Type of government: Republic - Fiscal year: Calendar - Population: 6.6 million (estimate) - GDP (2004): US$15.9 billion (estimate) - Debt/GDP (2004): 43.3 percent of GDP (estimate) --- ### Public financial sector, extrabudgetary activities, taxation, and procurement ### Public financial sector structure and fiscal implications - Financial public sector composition (2001 context): - Two banks accounted for 4.5 percent of the assets of the entire banking system: the Agricultural Development Bank (Banco de Fomento Agropecuario (BFA)) and the Mortgage Bank of El Salvador (Banco Hipotecario de El Salvador (BHS)). - Additional nonbank public financial institutions include FSV, FONAVIPO, BMI, FIGAPE, FOSOFAMILIA, CORPSAIN, IPSFA, FOSAFFI, and FEAGIN. - Specific institutional notes: - BFA is a credit DPI; BHS is a mixed ownership enterprise (the state owns 96 percent of the equity) and is audited by the superintendence of the financial system but not by the Comptroller General of the Republic. - FOSAFFI and FEAGIN were created to address problems of bank restructuring; their holdings and related arrangements generate returns below market rates. - BMI is a second-tier bank owned by the BCR; it has been funded with contributions and loans from the BCR up to 1999, supplemented by international financial institutions. BMI loans are low risk, automatically recovered through liquidity accounts that eligible banks hold at the BCR. - All public financial institutions are regulated by the superintendence of the financial system. IPSFA is supervised by the superintendence of the financial system (since it grants loans) but not by the superintendence of pensions, although it should be. - Legacy fiscal exposures and liabilities: - On December 31, 2001, state debts with the BCR were consolidated in a single bond of US$704 million paying the Libor rate plus 2½ percentage points. - FEAGIN certificates sold to private banks earn interest rates of 4.5 percent while the market rate was fluctuating between 10 percent and 11 percent at the time; FEAGIN pays interest but not principal; these liabilities amounted to US$81.7 million in 2001. - Over the last decade, the government has transferred about US$17 million on average per year to the BFA, and in 2000 it injected a further US$45.7 million. ### Extrabudgetary activities and oversight - Extrabudgetary activities: - Consist of resources not included in the PGE approved by the legislative assembly but their management and accounting adhere to SAFI procedures and are included in the Public Finance Management Report. - These activities represented 13.3 percent of total NFPS in 2003 and therefore escape scrutiny by the legislative assembly during the approval stage. - Main extrabudgetary categories: - “Extraordinary resources,” “special activity funds” and the budgets of autonomous bodies. - Extraordinary resources include: economic recovery budget, extraordinary institutional resources, and public investment budget. - Extraordinary resources accounted for about 4 percent of the PGE in 2002; in 2001 exceptional revenues and expenditure amounted to 16 percent and 11 percent of PGE income and expenditure, respectively. ### Taxation and tax administration - Legal and institutional framework: - Taxes can be created, modified, exonerated, or suppressed only by law; sanctions must also be established by law; all tax laws and regulations are published in the Official Gazette (Diario Oficial). - The new tax code (The Tax Code Decree Law (DL) 230 of December 14, 2000, and its regulation (DL 117 of December 11, 2001)) has significantly reduced discretion in the interpretation of tax laws. - Resolutions issued by the tax administration can be appealed to the appeals tribunal of the Directorate General of Internal Taxation (Dirección General de Impuestos Internos (DGII)); after administrative channels are exhausted, resolutions can be appealed before the Special Administrative Court (Jurisdicción Contencioso-Administrativa). - VAT specifics: - There are few VAT exemptions, but the evasion rate on this tax is relatively high. - Estimates by the DGII suggest that the average VAT evasion rate fluctuated between 30 percent and 40 percent during 1996–98. ### Public procurement - The Public Administration Procurement and Contracting Act (DL 868 of April 2000): - Unifies diverse laws, regulates procurement and contracting for civil works and goods and services by government institutions (including municipalities), and establishes public competitive tendering for contract awards in excess of a pre-established amount. - The law clearly identifies ineligible suppliers and requires public notice and publication of tender results. - Although the law should have been regulated within 90 days of promulgation, regulation has not been issued; in the interim the regulatory unit has produced three public handbooks (“Procurement and Contracting Handbooks”) and provided training and dissemination. --- ### Public availability of fiscal information, budget documentation, execution, and audit ### Coverage and publication of fiscal information - The PGE: - Covers practically all fiscal activities of NFPS and is made public; it contains information on fiscal activity of all central government primary units, nonentrepreneurial DPIs, and NFPEs. - Excludes budgets of certain autonomous institutions, extraordinary resources, and special activity funds; it gives no information on municipal budgets and includes only partial information on defense spending. - National defense spending includes expenditures executed by the National Ministry of Defense, the Armed Forces Social Security Institute, and the Armed Forces Pharmaceutical Center. The latter two have independent budgets amounting to 40 percent of the National Ministry of Defense budget; these are approved by their own authorities and are not included in the PGE. - Reporting gaps and publication practice: - There is no legal requirement to publish periodic reports on budgetary execution. The MOF prepares monthly and annual reports on budgetary execution, but they are not published; biannual reports are produced but not submitted to the legislative assembly. - Monthly reports include: “Budgetary Execution of the NFPS;” “Public Sector Investment Report;” and “Progress Report on the NFPS Investment Program.” None of these monthly documents is published. - Annual reports on budgetary execution include: (1) State Financial Management Report; (2) Monitoring and Evaluation Report on Central Government Budget Outturns; and (3) Progress Reports produced by ministries. Only the second is posted on the MOF website. - Commitment to international dissemination: - There is a commitment to publish fiscal data in accordance with the requirements of the SDDS (except for recording pension expenditure in the fiscal deficit). - The BCR announces advance release-date calendars for economic and financial data and publishes monthly information on revenues, expenditure, budgetary balance, and funding sources for multiple government aggregates. - The summary of economic and financial information agreed with the IMF is published monthly, in accordance with the SDDS; this information is published punctually and is readily accessible through the BCR website. ### Budget preparation, documentation, and comparisons with outturns - Documentation and medium-term framework: - Budget documentation contains a declaration of medium-term fiscal policy goals; there are no fiscal rules. - The preamble to the budget document includes fiscal projections for the budget year and two additional years, but: - No explanation is given on the assumptions and methods used to produce those projections. - No analysis is included on the sustainability of fiscal policy. - No quantitative and detailed medium-term expenditure framework has been prepared to serve as a basis for the annual budget. - The PGE does not contain a comprehensive and integrated macroeconomic framework or explanation of assumptions used; formulation is based on a macroeconomic framework prepared by the BCR but not included in budget documentation. - Budget documents do not distinguish between existing and new policies, nor identify and quantify existing fiscal risks; no sensitivity analysis of main fiscal aggregates is published. - The PGE lacks a representative indicator of the overall fiscal policy stance and does not contain a summary table showing the budgetary balance of central government and the NFPS based on revenues and expenditure. - Expenditure figures in the PGE are presented in gross terms and classified by institution, economic category, and sector, but there is no functional classification in line with international standards. - A physical and financial programming document contains physical and financial targets for each budgetary unit; this document does not accompany the PGE and no report on fulfillment of physical targets is provided to the legislative assembly or made public. - Coverage of contingent liabilities, tax expenditure, quasi-fiscal activities: - No published information on contingent liabilities, tax expenditure, or quasi-fiscal activities. Tax expenditures are described as negligible; quasi-fiscal activities are significant in public financial institutions. - Provision of information on contingent liabilities of public financial institutions is impeded by absence of relevant information in their financial statements. - Municipal information limitations: - No information is published on municipal budgets and borrowing. - The PGE includes only the percentage of current revenues the state is legally required to transfer to municipalities. - In late 2001, 33 percent of all municipalities (i.e., 85 out of 262) were using the government accounting system in varying degrees. ### Budget execution and internal controls - Internal control and audit arrangements: - Each budgeted entity must establish an internal control system in accordance with rules issued by the CCR. - Internal audit units audit effectiveness yearly and report directly to the highest authority in each entity; heads of internal audit units have full functional independence and can be removed only for legally established reasons, subject to prior report to the CCR. - Audits by internal audit units are essentially financial; their conclusions and recommendations are not made public. - SAFI and accounting: - The SAFI government accounting system records all stages of the expenditure process and generates information on foreign aid and payment arrears; payment arrears are reported not to be a problem in El Salvador. - SAFI is not operational in DPIs or local governments. - SAFI allows routine and timely reconciliation of public accounts: reconciliations relate to expenditures with budgetary appropriations, accounting data on revenues and payments with bank account debits and credits, and above- and below-the-line data. - Tax administration: - The DGII and the Directorate General of Customs (both attached to the MOF) are responsible for tax administration. - The DGII is legally an independent technical body. ### Reporting, timeliness, reconciliation, and audit outcomes - Timeliness and publication: - Final audited accounts are made available within seven months of the close of the fiscal year. - The government submits the State Financial Management Report to the legislative assembly within three months following the end of each fiscal year; the CCR has four months to scrutinize and audit the accounts. - The State Financial Management Report provides information on all extrabudgetary activities. - Execution performance and accounting disclosure: - The rate of execution of the modified central government revenue budget averages 95 percent for the last seven years. - Execution of the expenditure budget is weaker: 90 percent of total expenditure and under 75 percent of investment expenditure. - Supplementary budgets averaged 7 percent of the initial PGE during 1998–2000, and 18 percent in 2001 as a result of reconstruction expenditure. - Neither the budget nor the final accounts include a declaration of accounting policies. - Accounting principles and policies are contained in the LOAFI and in the 2001 Government Accounting System Manual (Manual del Sistema de Contabilidad Gubernamental 2001), but this manual is not published. - The PGE and final accounts of the NFPS are recorded on an accrual basis. The MOF approves principles and general rules of government accounting and modifications as necessary. ### Institutional oversight and audit - Statistical and audit institutions: - The BCR prepares most of the country’s economic statistics due to an antiquated National Statistical Service law (dating from 1955) and a largely inactive Directorate General of Statistics and Censuses. - The CCR carries out external audit of the public sector, exercises jurisdictional functions, and directs, regulates, and evaluates internal control and internal audit systems. - The CCR is independent of the executive branch; president and two judges of the Chamber of Second Instance are appointed by the legislative assembly and can only be removed by that body for legally justified reasons. - The CCR is independent in functions, management, and budget; it prepares its own draft budget for submission to the government for inclusion in the PGE. - The mandate of the president and judges lasts for just three years, subject to reelection. - Publication and use of audit reports: - The legislative assembly does not monitor external audit reports; conclusions and recommendations of CCR audits are not published. - Legally, internal and external audit reports are public documents, but there is no obligation to publish conclusions and recommendations; CCR states reports are public in the sense that anyone can access them on request. - Audit reports are sent to the assembly only if the assembly requests them. - Audit recommendations are legally binding; compliance is verified in subsequent internal and external audit reports. - CCR’s technical capacity to conduct audits is described as modest; it has made major efforts over the last three years to update auditing of central government bodies. --- ### IMF staff commentary and prioritized reforms ### Strengths (as summarized by IMF staff) - Definition of the government sector is consistent with the GFS Manual. - Relations between the government and NFPEs are clear; privatizations are subject to independent audits. - Regulatory framework for fiscal management is complete and complemented by manuals and instructions to facilitate PGE preparation and execution. - Coverage of the PGE and fiscal reports is quite complete; extrabudgetary activities are consolidated with budgetary activities and published at the end of each fiscal year. - El Salvador subscribes to the SDDS and supplies information for the Fund’s GFS on a timely basis. - Full information is disseminated on the level and composition of the debt of the central NFPS. - Budgetary data are presented in gross form and classified by institution, economic categories, and object of expenditure. - The SAFI contains an integrated accounting system allowing evaluation of payment arrears, timely reports on budgetary execution, and reconciliation of monetary and accounting data. - The legislative assembly receives final accounts audited by the CCR within one year of the end of the fiscal year. - Internal control systems exist; internal audit units monitor their effectiveness annually. - The new law on public procurements has introduced important transparency requirements in public contracting. ### Areas needing progress and recommended priorities - Improve coverage and presentation of the PGE and periodic budgetary execution reports, and enhance dissemination of fiscal data (immediately addressable). - Generalize the SAFI system to DPIs and local governments. - Clearly distinguish the fiscal roles of central government and local authorities. - Expand the content of budgetary documentation, including explanation of assumptions, methods, and sensitivity analysis. - Clarify and strengthen internal and external audit systems, and ensure publication and legislative review of audit conclusions and recommendations. - Improve budget preparation, including development of a quantitative and detailed medium-term expenditure framework. --- ### Section 42 — Specific, swift actions to improve fiscal transparency ### Enhancements to the coverage and presentation of the PGE (actionable items) - Include fiscal activities currently excluded from the PGE so the budget document contains information on the entire fiscal activity of all NFPS institutions, while maintaining exemptions for certain autonomous bodies where required. - Provide a consolidated central government budget consistent with GFS, in addition to the consolidated NFPS budget. - Include summary tables showing revenues, expenditure, budgetary balance and sources of financing of the NFPS, central government and each institutional group to identify contributions to the overall balance and budget constraints. - Add annexes containing medium-term fiscal policy goals, a comprehensive and integrated macroeconomic framework, medium-term fiscal policy objectives and priorities, and an explanation of methods and assumptions used to calculate macroeconomic and revenue forecasts. - Provide a comparison between the main budgetary aggregates and their outturns in previous fiscal years. - Make a clear distinction between current policies and new ones introduced by the budget. - Publish the physical and financial programming document containing physical and financial targets for budgetary units. ### Expand dissemination of fiscal data - Disseminate monthly reports on PGE execution and at least a quarterly report on compliance with physical targets and public investment execution, distinguishing between central government and the rest of the NFPS. - Disseminate State Financial Management Reports and audit reports prepared by the CCR; Monitoring and Evaluation Reports on Central Government Budgetary Outturns; and Activities Reports of the different public sector entities. - Disseminate accounting principles and rules and general accounts plan. ### Generalization of SAFI to DPIs and local governments - Make generalization of SAFI to the DPIs and local governments a major priority. - Expected improvements: - more effective preparation of the budget, and stricter control of its execution, - more reliable and timely information on central government as a whole; and - better information on the execution of municipal budgets and, in particular, on the use of FODES resources. - While seeking a more stable solution, improve the current sampling system used. ### Clarify distribution of functions between levels of government - Clarify distribution of functions between levels of government, particularly expenditure and tax roles. - Redefine borrowing faculties of municipalities and set limits on this. ### Improvements to budgetary documentation and fiscal risk disclosure - Provide a statement identifying and quantifying quasi-fiscal activities carried out by NFPEs and public financial institutions and include this information in entity accounting statements. - Provide a statement on fiscal risks, including contingent liabilities and the effects of changes in economic parameters on fiscal aggregates. - Provide an estimate of tax expenditures to identify indirect expenditures deriving from preferential tax treatments alongside direct budgetary expenditure. ### Redefine and strengthen control systems and publicize their actions - Establish clearer delineation of internal and external oversight functions while maintaining coordination with CCR. - Carry out performance audits. - Improve CCR staff endowments and information technology resources. - Publish conclusions and recommendations of audit reports. - Transfer jurisdictional functions from the CCR to the ordinary courts. ### Preparation and presentation of the budget - Develop a medium-term public expenditure scenario for a 3–4 year period to facilitate disciplined budget preparation, prioritize resource allocation, and introduce efficiency measures. - Improve public expenditure classifications: introduce a functional classification consistent with international standards, and consider whether classification by budgetary units adequately substitutes for a program-based classification. ### Improve transparency of the legal framework - Introduce a legal requirement for all new private sector regulations to be submitted to a hearing by affected parties, include estimation of impact, benefits and costs, and implement periodic evaluation. - Ensure more transparent application of the civil service act. - Develop the public procurement act from the regulatory standpoint. - Make the dissemination of fiscal information a legal obligation of the government. *Source: _cr0567 - EXECUTIVE SUMMARY (IMF).* ### EXECUTIVE SUMMARY ### _cr0567 - EXECUTIVE SUMMARY ### Overall assessment of fiscal transparency - El Salvador complies with many standards in the Code of Good Practices on Fiscal Transparency. - Positive features identified: - Definition of the government sector is consistent with the Government Finance Statistics (GFS) Manual. - Relations between the government and the rest of the public sector have been substantially clarified. - Privatizations have been subjected to independent audits. - The regulatory framework for fiscal management is complete. - The annual general state budget (Presupuesto General del Estado (PGE)) and budgetary execution reports encompass practically the entire nonfinancial public sector. - Systems of internal control are subject to effective audits. - Full information is published on the level and composition of the public debt. - The Integrated Financial Management System (Sistema de Administración Financiera Integrado (SAFI)) includes an integrated accounting system that enables evaluation of payment arrears, generation of timely budgetary execution reports, and routine reconciliation of monetary and accounting data. - Significant transparency requirements have been built into public contracting. - El Salvador subscribes to the Special Data Dissemination Standard (SDDS) and provides information to the GFS Yearbook. - Remaining areas needing progress: - Clarifying intergovernmental fiscal relations. - Expanding and improving the content of budget documentation. - Redefining and strengthening oversight systems. - Strengthening budget preparation. ### Short-term actions recommended - Strengthen budget presentation: - Include a consolidation of central government consistent with the GFS. - Provide summary tables showing the derivation of the budget balance from the main fiscal aggregates and its financing. - Add an annex containing medium-term fiscal policy objectives and priorities. - Publish existing reports: - Publish existing monthly, quarterly, and biannual reports on the execution of the PGE and on the financial situation of the nonfinancial public sector (NFPS). ### Medium-term improvements recommended - Clarify intergovernmental fiscal relations between the central government and municipalities. - Extend SAFI to decentralized public institutions (DPIs) and subsequently to the municipalities. - Include in budget documentation: - Estimates of quasi-fiscal activities. - Fiscal risks. - Tax expenditures. - Prepare a multiyear expenditure framework to serve as a basis for preparing the budget. - Introduce a functional classification. - Carry out performance audits and make their conclusions and recommendations public. - Enhance private sector regulations. ### Clarity of roles and responsibilities — definition of government - The relevant definition of government for budgetary and fiscal reporting purposes is the NFPS, which consists of: - the general government sector (central government, 62 nonentrepreneurial DPIs and 262 local governments), and - four nonfinancial public enterprises (NFPEs). - The central government consists of: - the legislature (Legislative Assembly), the judiciary, 13 ministries, the public prosecutor’s department (Fiscalía General de la República, Procuraduría General de la República, and Procuraduría para la Defensa de los Derechos Humanos) and other bodies: the Office of the Comptroller General of the Republic (Corte de Cuentas de la República), the Supreme Electoral Tribunal (Tribunal Supremo Electoral), the Civil Service Tribunal (Tribunal del Servicio Civil), and the National Judicial Council (Consejo Nacional de la Judicatura). - Note: By excluding nonentrepreneurial DPIs, the concept of central government used in El Salvador is not strictly comparable with that proposed by the GFS Manual. ### Intergovernmental relations and municipal finance - Constitutional and legal framework: - Municipalities (municipios) have financial, technical, and administrative autonomy under the constitution. - The municipal code identifies 27 areas of municipal jurisdiction; central government intervention is allowed when local governments fail to exercise competencies or do so deficiently, and then only with municipal consent and coordination. - Practical issues: - Many competencies assigned to municipalities are shared with the central government; no clear delineation of functions for each government level. - Within certain limits, local governments can design and propose their own taxes, subject to legislative assembly approval. - No legal limits or reporting on municipal borrowing; municipalities require authorization to borrow only if they want to make use of a government guarantee. - Municipal financing: - Municipalities are financed largely through earmarked transfers from the central government, mainly channeled through the Economic and Social Development Fund (Fondo para el Desarrollo Económico y Social de los Municipios (FODES)). - FODES transfers are defined as a percentage of central government current revenues: - 6 percent until 2003, - increased to 6.5 percent in 2004, - will reach 7 percent in 2005. - Distribution of FODES is automatic through a pre-established formula and must be used basically for investment purposes. - Variables and weightings used for distribution: population (50 percent), equity (25 percent), poverty (20 percent) and geographic area (5 percent). - Of resources thus obtained, 80 percent must be used for investments and 20 percent for current expenditure by each municipality. - Transparency gap: - Absence of a legal requirement obliging municipalities to provide information on the use of FODES resources makes it impossible to know compliance with conditions or how a significant percentage of public revenues is being used. - Additional municipal statistics: - The share of local tax revenues in total municipal revenues was 21.3 percent in 2002 and 18.7 percent in 2003. - Local expenditure accounts for approximately 5 percent of general government expenditure. ### Demarcation of functions between branches of government - Executive and legislative roles: - Executive prepares the draft revenue and expenditure budget and must submit it to the legislative assembly at least three months before the new fiscal year begins. - The legislature may amend and approve the budget; it may reduce or reject appropriations requested, but never increase them. - The president holds the right of veto on laws passed by the assembly; the assembly can overturn the veto by a two-third majority. - Budgetary control and transfers: - The executive can transfer appropriations between budgetary items within a given sector of public administration, provided the appropriations are not classified as nontransferable. - Transfers of appropriations between different sectors, and any increase (reduction) of the overall budgeted level of expenditure (revenue), must be approved by the legislative assembly, specifying funding sources. - LOAFI (organic law on state financial management) establishes that appropriations voted for investment may not be used to cover current expenditure except in authorized cases. ### Relations between the government and the rest of the public sector - NFPEs and privatization: - NFPEs historically were regulators and administrators of legal monopolies and carried out significant quasi-fiscal activities. - Privatizations and reorganizations have reduced NFPE importance and clarified their relations with government: - ANTEL (telecommunications) and parts of CEL (electricity) were privatized in 1998 and 1999. - Regulatory and management functions were separated before privatization, increasing competition and lowering utility charges and quasi-fiscal activities. - Two of the three remaining NFPEs hold monopolies for water, port, airport and railroad services; only the water company carries out major quasi-fiscal activities. - ANDA generates losses largely because the average tariff it charges is 25 percent lower than its unit cost. - Central Reserve Bank (BCR): - The Central Reserve Bank of El Salvador (Banco Central de Reserva de El Salvador (BCR)) is legally independent of the government but performs fiscal functions on the government’s behalf. - BCR is a technically autonomous public institution run by a board of governors; the president of the board is appointed by the President of the Republic, and governors are appointed by the council of ministers. - The BCR cannot finance the government or the rest of the public sector, directly or indirectly, nor extend collateral, guarantees or sureties on obligations contracted by them, other than in exceptional circumstances legally identified and approved by the legislative assembly. - BCR’s services as government financial/fiscal agent and adviser are clearly regulated, but are not provided under market conditions. - The BCR undertakes significant quasi-fiscal activities, which undermine its net worth. Nonetheless, during the 1990s and up to 2001, the BCR was able to absorb the impact of these operations and maintain a positive operating balance; at the present time its financial position is sound. ### Key basic data (as reported) - Type of government: Republic - Fiscal year: Calendar - Population: 6.6 million (estimate) - GDP (2004): US$15.9 billion (estimate) - Debt/GDP (2004): 43.3 percent of GDP (estimate) *Source: _cr0567 - EXECUTIVE SUMMARY (IMF).* ### 8. Government activities are not always clearly distinguished from the activities of ### 8. Government activities are not always clearly distinguished from the activities of public financial institutions ### Public financial sector structure and fiscal implications - The financial public sector consists of two banks which in 2001 accounted for 4.5 percent of the assets of the entire banking system: the Agricultural Development Bank (Banco de Fomento Agropecuario (BFA)) and the Mortgage Bank of El Salvador (Banco Hipotecario de El Salvador (BHS)). - Additional nonbank public financial institutions include: the social housing fund (fondo social para la vivienda (FSV)), the national popular housing fund (fondo nacional de vivienda popular (FONAVIPO)), the Multisectoral Investment Bank (Banco Multisectorial de Inversiones (BMI)), the small business financing and guarantee fund (fondo de financiamiento y garantía para la pequeña empresa (FIGAPE)), the family microenterprise solidarity fund (fondo solidario para la familia microempresaria (FOSOFAMILIA)), the Salvadoran Investment Corporation (Corporación Salvadoreña de Inversiones (CORPSAIN)), the Armed Forces Social Security Institute (Instituto de Previsión Social de las Fuerzas Armadas (IPSFA)), FOSAFFI, and FEAGIN. - BFA is a credit DPI; BHS is a mixed ownership enterprise (the state owns 96 percent of the equity) and is audited by the superintendence of the financial system but not by the Comptroller General of the Republic. - FOSAFFI and FEAGIN were created to address problems of bank restructuring; their holdings and related arrangements generate returns below market rates. - Specific fiscal numbers and legacy exposures: - On December 31, 2001, state debts with the BCR were consolidated in a single bond of US$704 million paying the Libor rate plus 2½ percentage points. - FEAGIN certificates sold to private banks earn interest rates of 4.5 percent while the market rate was fluctuating between 10 percent and 11 percent at the time; FEAGIN pays interest but not principal; these liabilities amounted to US$81.7 million in 2001. - Over the last decade, the government has transferred about US$17 million on average per year to the BFA, and in 2000 it injected a further US$45.7 million. - The BMI is a second-tier bank owned by the BCR; it has been funded with contributions and loans from the BCR up to 1999, supplemented by international financial institutions. BMI loans are low risk, automatically recovered through liquidity accounts that eligible banks hold at the BCR. - All public financial institutions are regulated by the superintendence of the financial system. IPSFA is supervised by the superintendence of the financial system (since it grants loans) but not by the superintendence of pensions, although it should be. ### Relations between the central government and the private sector - Government equity ownership in nonbank private sector institutions is minimal; minor government shareholdings are usually held indirectly through public enterprises and are declared in corresponding balance sheets and audit reports. - Regulations governing the private sector are clear; although no legally established procedure exists for the preparation or modification of private sector regulations, these are usually given a public hearing before approval. ### Legal and administrative framework for fiscal management - Constitutional rules highlighted: - Taxes can be imposed only by law. - Public funds can be committed only if an appropriation exists. - All public revenue is channeled to a single fund generally available to meet state obligations. - The PGE contains an estimate of all expected revenues, together with authorization of all expenditure, for each fiscal year. - The state financial management act (Ley Orgánica de Administración Financiera del Estado (LOAFI)) and its regulations govern public sector financial management and establish the SAFI, covering budget, treasury, public debt, public investment, and government accounting systems. - Each SAFI system is managed by a general directorate of the ministry of finance (MOF); an institutional financial unit is created in each budgeted entity, responsible for financial management and for undertaking all activities relating to budget, treasury, and accounting. - The legal framework is oriented toward fulfillment of financial objectives. ### Extrabudgetary activities and oversight - Extrabudgetary activities consist of resources not included in the PGE approved by the legislative assembly but their management and accounting adhere to SAFI procedures and are included in the Public Finance Management Report. - These activities represented 13.3 percent of total NFPS in 2003 and therefore escape scrutiny by the legislative assembly during the approval stage. - Main extrabudgetary categories: “extraordinary resources,” “special activity funds” and the budgets of autonomous bodies. - Extraordinary resources include: economic recovery budget, extraordinary institutional resources, and public investment budget. - Extraordinary resources accounted for about 4 percent of the PGE in 2002; in 2001 exceptional revenues and expenditure amounted to 16 percent and 11 percent of PGE income and expenditure, respectively. ### Taxation and tax administration - The tax system has an explicit legal basis; the new tax code (The Tax Code Decree Law (DL) 230 of December 14, 2000, and its regulation (DL 117 of December 11, 2001)) has significantly reduced discretion in the interpretation of tax laws. - Taxes can be created, modified, exonerated, or suppressed only by law; sanctions must also be established by law; all tax laws and regulations are published in the Official Gazette (Diario Oficial). - Resolutions issued by the tax administration can be appealed to the appeals tribunal of the Directorate General of Internal Taxation (Dirección General de Impuestos Internos (DGII)); after administrative channels are exhausted, resolutions can be appealed before the Special Administrative Court (Jurisdicción Contencioso-Administrativa). - VAT specifics: - There are few VAT exemptions, but the evasion rate on this tax is relatively high. - Estimates by the DGII suggest that the average VAT evasion rate fluctuated between 30 percent and 40 percent during 1996–98. ### Civil service and ethics - Selection and promotion criteria for civil servants are discretionary; wide variation exists in wage policy and job stability among public sector employees. - Pay and conditions are governed by the Civil Service Act, the wages act, and the labor code. - The Civil Service Act (DL 507 issued in late 1961) was reformed by DL 678 in December 2001, and by DL 705 in January 2002. - The act on unlawful enrichment of public sector officials and employees is DL 2833 of 1959. - Hiring and promotion procedures lack transparency; scant use is made of aptitude tests, examinations, or public contests. - There is no general ethical code for public servants; only the Office of the Comptroller General of the Republic (Corte de Cuentas de la República (CCR)) has an ethical code (approved in 2001). - Monetary sanctions in the act on unlawful enrichment are outdated and stated in nominal terms (for example the minimum fine is 100 colones or US$11). ### Public sector procurement - The Public Administration Procurement and Contracting Act (DL 868 of April 2000) unifies diverse laws, regulates procurement and contracting for civil works and goods and services by government institutions (including municipalities), and establishes public competitive tendering for contract awards in excess of a pre-established amount. - The law clearly identifies ineligible suppliers (e.g., public officials, employees of procuring institution, relatives, municipal employees) and requires public notice and publication of tender results. - Although the law should have been regulated within 90 days of promulgation, regulation has not been issued; in the interim the regulatory unit has produced three public handbooks (“Procurement and Contracting Handbooks”) and provided training and dissemination. ### Public availability of fiscal information - The PGE covers practically all fiscal activities of NFPS and is made public; it contains information on fiscal activity of all central government primary units, nonentrepreneurial DPIs, and NFPEs. - The PGE excludes budgets of certain autonomous institutions, extraordinary resources, and special activity funds; it gives no information on municipal budgets and includes only partial information on defense spending. - National defense spending includes expenditures executed by the National Ministry of Defense, the Armed Forces Social Security Institute, and the Armed Forces Pharmaceutical Center. The latter two have independent budgets amounting to 40 percent of the National Ministry of Defense budget; these are approved by their own authorities and are not included in the PGE. - There is no legal requirement to publish periodic reports on budgetary execution. The MOF prepares monthly and annual reports on budgetary execution, but they are not published; biannual reports are produced but not submitted to the legislative assembly. - Monthly reports include: “Budgetary Execution of the NFPS;” “Public Sector Investment Report;” and “Progress Report on the NFPS Investment Program.” None of these monthly documents is published. - Annual reports on budgetary execution include: (1) State Financial Management Report; (2) Monitoring and Evaluation Report on Central Government Budget Outturns; and (3) Progress Reports produced by ministries. Only the second is posted on the MOF website. - Commitment to international dissemination: - There is a commitment to publish fiscal data in accordance with the requirements of the SDDS (except for recording pension expenditure in the fiscal deficit). - The BCR announces advance release-date calendars for economic and financial data and publishes monthly information on revenues, expenditure, budgetary balance, and funding sources for multiple government aggregates. - The summary of economic and financial information agreed with the IMF is published monthly, in accordance with the SDDS; this information is published punctually and is readily accessible through the BCR website. *Source: _cr0567 - 8. Government activities are not always clearly distinguished from the activities of* ### 19. Budget documents do not compare the main fiscal aggregates with their outturns ### 19. Budget documents do not compare the main fiscal aggregates with their outturns ### Coverage and publication of fiscal information - Central government budgetary execution for 1997–2001 is presented in the State Financial Management Report of 2001, disaggregated by economic sectors in terms of revenues and expenditure. - No published information on contingent liabilities, tax expenditure, or quasi-fiscal activities. Tax expenditures are described as negligible; quasi-fiscal activities are significant in public financial institutions. - Provision of information on contingent liabilities of public financial institutions is impeded by absence of relevant information in their financial statements. - Detailed public debt information is published monthly; financial assets data are released annually. - The level and composition of public debt, both domestic and external, is posted on the BCR website on a monthly basis. - Information includes the balance of outstanding central government debt, internal and external, broken down among bonds, loans, and guaranteed debt; and the outstanding balance of external debt by debtor, creditor, and maturity. - The annual State Financial Management Report includes: - current status of long-term domestic public debt at year-end; - direct external public debt of the central government, DPIs (entrepreneurial and otherwise), and of the consolidated public sector, all in net terms; - financial reports for central government, decentralized institutions, and the consolidated nonfinancial public sector, with financial assets broken down into cash, advances, and financial investments. - No information is published on municipal budgets and borrowing. - The PGE includes only the percentage of current revenues the state is legally required to transfer to municipalities. - Municipalities are obliged to use the general government accounting system for these funds, but in practice only a small proportion do so: in late 2001, 33 percent of all municipalities (i.e., 85 out of 262) were using the government accounting system in varying degrees. - Monthly NFPS budgetary execution reports from the MOF contain information on municipalities relating only to expenditures financed out of the monthly 6 percent transfer. - The annual report contains sample-based data on total municipal budgetary execution; the BCR Quarterly Review publishes quarterly data on budgetary execution of the general government and the NFPS, including sample-based municipal data. - Debt note: guaranteed debt of NFPEs and the San Salvador City Hall amounts to just over 2 percent of the total public debt. ### Budget preparation and documentation - Budget documentation contains a declaration of medium-term fiscal policy goals; there are no fiscal rules. - Preparation follows procedures and handbooks, and tends to focus on the fiscal year timeframe; medium-term macroeconomic and fiscal predictions are produced. - The preamble to the budget document includes fiscal projections for the budget year and two additional years, but: - No explanation is given on the assumptions and methods used to produce those projections. - No analysis is included on the sustainability of fiscal policy. - Fiscal policy objectives and priorities for the medium term are defined in the government program for the legislature. - No quantitative and detailed medium-term expenditure framework has been prepared to serve as a basis for the annual budget. - The PGE does not contain a comprehensive and integrated macroeconomic framework or explanation of assumptions used; formulation is based on a macroeconomic framework prepared by the BCR but not included in budget documentation. - The preamble to the budget bill contains only the growth and inflation targets used in preparation; methods and assumptions for revenue forecasts are not explained in the PGE (though revenue forecasts are made public in MOF publications). - Budget documents do not distinguish between existing and new policies, nor identify and quantify existing fiscal risks; no sensitivity analysis of main fiscal aggregates is published. - The PGE lacks a representative indicator of the overall fiscal policy stance and does not contain a summary table showing the budgetary balance of central government and the NFPS based on revenues and expenditure. - The preamble includes: - the fiscal deficit and current saving of the NFPS, and - the fiscal deficit, primary saving, and current saving of central government — all expressed as percentages of GDP — but without explanation of calculations. - Expenditure figures in the PGE are presented in gross terms and classified by institution, economic category, and sector, but there is no functional classification in line with international standards. - Expenditures are classified between current expenditure, capital expenditure, and financial applications (debt amortization). - The expenditure classification in seven management areas is an aggregation of institutional classification, not a substitute for a functional classification. - A physical and financial programming document contains physical and financial targets for each budgetary unit; this document does not accompany the PGE and no report on fulfillment of physical targets is provided to the legislative assembly or made public. ### Budget execution and internal controls - Internal control procedures are effective in principle: - Each budgeted entity must establish an internal control system in accordance with rules issued by the CCR. - Internal audit units audit effectiveness yearly and report directly to the highest authority in each entity; heads of internal audit units have full functional independence and can be removed only for legally established reasons, subject to prior report to the CCR. - Audits by internal audit units are essentially financial; their conclusions and recommendations are not made public. - The SAFI government accounting system records all stages of the expenditure process and generates information on foreign aid and payment arrears; payment arrears are reported not to be a problem in El Salvador. - SAFI is not operational in DPIs or local governments. - Tax administration: - The DGII and the Directorate General of Customs (both attached to the MOF) are responsible for tax administration. - The DGII is legally an independent technical body. ### Reporting, timeliness, and reconciliation - Final audited accounts are made available within seven months of the close of the fiscal year. - The government submits the State Financial Management Report to the legislative assembly within three months following the end of each fiscal year; the CCR has four months to scrutinize and audit the accounts. - The State Financial Management Report provides information on all extrabudgetary activities. - The PGE is not a very good indicator of the budget as finally executed: - The rate of execution of the modified central government revenue budget averages 95 percent for the last seven years. - Execution of the expenditure budget is weaker: 90 percent of total expenditure and under 75 percent of investment expenditure. - Supplementary budgets averaged 7 percent of the initial PGE during 1998–2000, and 18 percent in 2001 as a result of reconstruction expenditure. - Neither the budget nor the final accounts include a declaration of accounting policies. - Accounting principles and policies are contained in the LOAFI and in the 2001 Government Accounting System Manual (Manual del Sistema de Contabilidad Gubernamental 2001), but this manual is not published. - The PGE and final accounts of the NFPS are recorded on an accrual basis. - The MOF approves principles and general rules of government accounting and modifications as necessary. - SAFI allows routine and timely reconciliation of public accounts: reconciliations relate to expenditures with budgetary appropriations, accounting data on revenues and payments with bank account debits and credits, and above- and below-the-line data. ### Institutional oversight and audit - The BCR prepares most of the country’s economic statistics due to an antiquated National Statistical Service law (dating from 1955) and a largely inactive Directorate General of Statistics and Censuses. - The CCR carries out external audit of the public sector, exercises jurisdictional functions, and directs, regulates, and evaluates internal control and internal audit systems. - These functions are established in the constitution and regulatory law. - The CCR is the governing body of the national public management oversight and audit system; it issues basic rules on internal control and guidelines for public audits; it receives audit plans and a copy of all audit reports filed. - The CCR is independent of the executive branch; president and two judges of the Chamber of Second Instance are appointed by the legislative assembly and can only be removed by that body for legally justified reasons. - The CCR is independent in functions, management, and budget; it prepares its own draft budget for submission to the government for inclusion in the PGE. - The mandate of the president and judges lasts for just three years, subject to reelection. - The legislative assembly does not monitor external audit reports; conclusions and recommendations of CCR audits are not published. - Legally, internal and external audit reports are public documents, but there is no obligation to publish conclusions and recommendations; CCR states reports are public in the sense that anyone can access them on request. - Audit reports are sent to the assembly only if the assembly requests them. - Audit recommendations are legally binding; compliance is verified in subsequent internal and external audit reports. - CCR’s technical capacity to conduct audits is described as modest; it has made major efforts over the last three years to update auditing of central government bodies. ### IMF staff commentary — strengths and areas for improvement Findings and strengths: - Definition of the government sector is consistent with the GFS Manual. - Relations between the government and NFPEs are clear; privatizations are subject to independent audits. - Regulatory framework for fiscal management is complete and complemented by manuals and instructions to facilitate PGE preparation and execution. - Coverage of the PGE and fiscal reports is quite complete; extrabudgetary activities are consolidated with budgetary activities and published at the end of each fiscal year. - El Salvador subscribes to the SDDS and supplies information for the Fund’s GFS on a timely basis. - Full information is disseminated on the level and composition of the debt of the central NFPS. - Budgetary data are presented in gross form and classified by institution, economic categories, and object of expenditure. - The SAFI contains an integrated accounting system allowing evaluation of payment arrears, timely reports on budgetary execution, and reconciliation of monetary and accounting data. - The legislative assembly receives final accounts audited by the CCR within one year of the end of the fiscal year. - Internal control systems exist; internal audit units monitor their effectiveness annually. - The new law on public procurements has introduced important transparency requirements in public contracting. Areas needing progress and recommended priorities: - Improve coverage and presentation of the PGE and periodic budgetary execution reports, and enhance dissemination of fiscal data (immediately addressable). - Generalize the SAFI system to DPIs and local governments. - Clearly distinguish the fiscal roles of central government and local authorities. - Expand the content of budgetary documentation, including explanation of assumptions, methods, and sensitivity analysis. - Clarify and strengthen internal and external audit systems, and ensure publication and legislative review of audit conclusions and recommendations. - Improve budget preparation, including development of a quantitative and detailed medium-term expenditure framework. *Source: _cr0567 - 19. Budget documents do not compare the main fiscal aggregates with their outturns* ### 42. The authorities could swiftly make significant changes on fiscal transparency in ### 42. The authorities could swiftly make significant changes on fiscal transparency in ### Enhancements to the coverage and presentation of the PGE - Include fiscal activities currently excluded from the PGE, referred to in footnote 26, to enable the budget document to contain information on the entire fiscal activity of all NFPS institutions, while still maintaining exemption from legislative approval for the budgets of certain autonomous bodies whose founding charters so require. - Provide a consolidated central government budget consistent with GFS, in addition to the consolidated NFPS budget. - Include a number of summary tables showing revenues, expenditure, budgetary balance and sources of financing of the NFPS, central government and each of the groups of institutions comprising it, to make it easy to identify the contribution of each of these groups to the overall balance, and their budget constraints. - Add annexes containing medium-term fiscal policy goals, a comprehensive and integrated macroeconomic framework, medium-term fiscal policy objectives and priorities, and an explanation of the methods and assumptions used to calculate macroeconomic and revenue forecasts. - Provide a comparison between the main budgetary aggregates and their outturns in previous fiscal years. - Make a clear distinction between current policies and new ones introduced by the budget. - Publish the physical and financial programming document containing physical and financial targets for the activities of budgetary units. ### Expand dissemination of fiscal data - Disseminate monthly reports on PGE execution and at least a quarterly report on compliance with physical targets and public investment execution, distinguishing between central government and the rest of the NFPS. - Disseminate State Financial Management Reports and audit reports prepared by the CCR; Monitoring and Evaluation Reports on Central Government Budgetary Outturns; and Activities Reports of the different public sector entities. - Disseminate accounting principles and rules and general accounts plan. ### Generalization of SAFI to DPIs and local governments - Make generalization of SAFI to the DPIs and local governments a major priority, given its relevance for additional progress in other areas. - Expected improvements from SAFI generalization: - more effective preparation of the budget, and stricter control of its execution, - more reliable and timely information on central government as a whole; and - better information on the execution of municipal budgets and, in particular, on the use of FODES resources. - While seeking a more stable solution, improve the current sampling system used. ### Clarify distribution of functions between levels of government - Clarify the distribution of functions between levels of government, in particular, their roles in terms of expenditure and taxes. - Redefine the borrowing faculties of municipalities and set limits on this. ### Improvements to budgetary documentation - Provide a statement which identifies and quantifies quasi-fiscal activities carried out by NFPEs and public financial institutions to assess the burden they place on the entities that carry them out and on the overall asset position of the public sector (this information should also be provided with the accounting statements of the entities that carry them out). - Provide a statement on fiscal risks, including contingent liabilities and the effects of changes in economic parameters on fiscal aggregates. - Provide an estimate of tax expenditures, making it possible in each case to identify, along with direct budgetary expenditure, the indirect expenditure deriving from preferential tax treatments. ### Redefine and strengthen control systems and publicize their actions - Establish a better delineation of internal and external oversight functions, maintaining the necessary coordination between these and CCR functions in supervising internal oversight systems and internal audit, but avoiding the dual dependency of internal audit units. - Carry out performance audits. - Improve CCR staff endowments and information technology resources. - Publish the conclusions and recommendations of audit reports on effective monitoring and application. - Transfer jurisdictional functions from the CCR to the ordinary courts. ### Preparation and presentation of the budget - Develop a medium-term public expenditure scenario, which would facilitate up-to-date estimates of current policies for a 3–4 year period. This is an instrument that has proven very useful for more disciplined preparation of the budget, improving resource allocation in accordance with the government’s political priorities, and introducing efficiency in resource use. - Improve public expenditure classifications: introduce a functional classification that is consistent with international standards, and consider the extent to which the classification of expenditure by budgetary units is a good substitute for a program-based classification. ### Improve transparency of the legal framework - Introduce a legal requirement for all new regulations in the private sector to be submitted to a hearing by affected parties, together with an estimation of impact, benefits and costs, and periodic evaluation to judge the convenience of maintaining, modifying or eliminating them. - Ensure more transparent application of the civil service act. - Develop the public procurement act from the regulatory standpoint. - Make the dissemination of fiscal information a legal obligation of the government. *Source: _cr0567 - 42. The authorities could swiftly make significant changes on fiscal transparency in* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr0567.pdf_