## Costa Rica — Fiscal Transparency Assessment (October 2013) (_cr13316) ## Source details **Canonical URL:** [Costa Rica — Fiscal Transparency Assessment (October 2013) (_cr13316)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13316.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13316.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13316.pdf.json) --- ### Objectives and framework of the 2013 Fiscal Transparency Assessment (FTA) Code - Replaces the 1988 Fiscal Transparency ROSC Code (updated in 2007). - Basis for Fund assessments of 93 countries under the 1998 Code. - Objectives: - Enable authorities, international agencies, markets, and the public to better understand the most significant differences or discrepancies in fiscal data published by governments. - Provide a more comprehensive description of the main risks to governments’ fiscal forecasts. - Give a clearer picture of how countries’ fiscal information management practices compare with international standards. - Produce a more specific, sequenced action plan for addressing the main fiscal transparency weaknesses identified. - Structure: - Three pillars: (i) presentation of fiscal reports; (ii) development of fiscal projections and budgets; (iii) analysis and management of fiscal risks. - Divided into 38 dimensions. - Practice-based assessment levels per dimension: “LESS THAN BASIC” (red), “BASIC” (yellow), “GOOD” (light green), or “ADVANCED” (dark green). ### Summary assessment and scores - Advanced practices: 10 (27%) - Good practices: 7 (18%) - Basic practices: 13 (34%) - Less than Basic practices: 7 (18%) - Not Applicable: 1 (3%) - Total practices assessed: 38 (100%) ### Key strengths (selected) - Institutional coverage: - Annual consolidated budgetary information for the entire public sector; monthly information for the Executive Branch. - Tax expenditures: - Information produced and published regarding tax expenditures. - Auditor independence and timeliness: - Independent Office of the Comptroller General of the Republic (CGR) audits budget balances by May of the following year and provides an assessment of the credibility of the government’s fiscal forecast. - Budget frameworks and projections: - Medium-term budgetary framework and budgetary projections with forecasts of key macroeconomic variables and stated assumptions. - Budgetary Central Government budget submitted and approved on a timely basis. - Financial sector and public corporation transparency: - Annual publication by the General Superintendency of Financial Entities of extensive information on financial sector stability. - Wide disclosure of transfers between the government and public corporations. - Performance information: - Disclosure of performance data and program objectives. ### Persistent weaknesses and risks (selected) - Accounting and reporting basis: - Most fiscal and budgetary information is on a cash basis. - Reconciliation and comparability: - Insufficient reconciliation and comparability between accounting, budgetary, and statistical information and between revenue, expenditure, and financing forecasts. - Dual and fragmented budgetary system: - Dual approval: Legislative Assembly approves part of the budget (41 percent of expenditures) and the Office of the Comptroller General of the Republic (CGR) approves the remainder (59 percent). - Intra-year budget adjustments and targets: - Government does not revise the budgetary framework for the year in progress. - No statement of numerical targets for the main fiscal aggregates. - Horizon and coverage of fiscal projections and risks: - Fiscal projections cover only five years. - No single fiscal risk aggregate report covering macroeconomic risks, contingent liabilities, guarantees, concession contracts, and municipal indebtedness. --- ### I. Presentation of Fiscal Reports — Principal reports, coverage, frequency, quality, and reliability H3: Principal reports and responsibilities - Consolidation of public sector data — Responsible: MOF – Technical Secretariat of the Budgetary Authority. Content: Annual data on revenues, expenditures, primary and financial deficits of the public sector, in comparison with previous year. - Report on budget execution — Responsible: MOF – General Directorate of the National Budget. Content: Annual comparison between execution and budget authorized for the budgetary central government. - Report on physical outcomes of executed programs — Responsible: MOF - General Directorate of the National Budget. Content: Annual performance of budget compared to amounts authorized; overall progress in operational and strategic indicators. - Estimate of Tax Expenditure — Responsible: MOF – General Directorate of Finance, Fiscal Policy Division. Content: Annual estimate of tax expenditure by type of tax and economic sector. - Status of public debt — Responsible: MOF - Directorate of Public Credit. Content: Annual evaluation of public sector debt and placement strategy; projects financed with external debt; analysis of debt sustainability and risk. - Report evaluating the National Development Plan (PND) — Responsible: MIDEPLAN – Ministry of Planning. Content: Annual report on the degree of success in reaching the goals of the central government and other entities. - Annual report — Responsible: CGR – Office of the Comptroller General of the Republic. Content: Report on public finances, budget execution, evaluation of the PND, and management of general government. - Additional periodic reports: monthly financial data on central government; quarterly debt placement reports; semiannual monitoring and fiscal/budgetary development reports; semiannual PND evaluations. H3: Coverage — key findings and exact statistics - Coverage of institutions (1.1.1): - Consolidates 225 out of 229 public sector entities (99.7 percent of total expenditure) annually (ADVANCED). - STAP publishes end-June of the following year a report with budget execution figures based on GFSM 1986 economic classification and COFOG functional classification. - Coverage of revenues, expenditures and other flows (1.1.2): - Fiscal reports cover 99.7 percent of all public sector revenues and expenditures on a cash accounting basis (BASIC). - Exceptions: four superintendencies not consolidated in 2011 (0.3 percent of expenditures). - Public Sector: Total Revenue and Expenditure by Institutional Category — 2011 (Values in Millions of Colones) - Public Sector: No. of Institutions 225; Revenue 5,607,619; Expenditure 6,521,050; % Expenditure 99.7; %GDP 31.5 - General Government: No. of Institutions 197; Revenue 4,826,283; Expenditure 5,613,828; % Expenditure 85.8; %GDP 27.2 - Central Government: No. of Institutions 110; Revenue 4,626,601; Expenditure 5,387,097; % Expenditure 82.4; %GDP 26.1 - Budgetary Central Government: Revenue 272,844,267; Expenditure 2,706,528; % Expenditure 41.4; %GDP 13.1 - Deconcentrated Agencies: No. of Institutions 53; Revenue 267,161; Expenditure 448,541; % Expenditure 6.9; %GDP 2.2 - Non-corporation Decentralized Inst.: Revenue 301,515,174; Expenditure 2,232,029; % Expenditure 34.1; %GDP 10.8 - Local Governments: No. of Institutions 87; Revenue 199,682; Expenditure 226,731; % Expenditure 3.5; %GDP 1.1 - Public Corporations: No. of Institutions 28; Revenue 781,335; Expenditure 907,222; % Expenditure 13.9; %GDP 4.3 - Nonfinancial Public Corporations: No. of Institutions 15; Revenue 419,922; Expenditure 652,153; % Expenditure 10.0; %GDP 3.1 - Financial Public Institutions: No. of Institutions 13; Revenue 361,413; Expenditure 255,069; % Expenditure 3.9; %GDP 1.2 - Superintendencies: No. of Institutions 4; Revenue 18,978; Expenditure 18,978; % Expenditure 0.3; %GDP - - Total Public Sector: No. of Institutions 229; Revenue 5,626,597; Expenditure 6,540,028; % Expenditure 100.0; %GDP 31.5 - Source: Ministry of Finance – Consolidated Figures on Revenues, Expenditures, and Financing of the Public Sector - 2011 - Coverage of assets and liabilities (1.1.3): - Fiscal reports cover all financial assets and liabilities of the nonfinancial public sector (GOOD). - DGCN prepares consolidated financial statements at Executive Branch, Central Government, and Nonfinancial Public Sector levels; four balance sheets are prepared (net worth, financial performance, cash flow, changes in net worth). - Financial statements of the Executive Branch sent to the CGR on March 1 (60 days). CGR audits by end of year (12 months). - Public Sector: Assets, Liabilities, and Net Worth — 2011 (Values in Millions of Colones) - Banking Financial Public Institutions: Assets 11,995,602; Liabilities 12,387,359; Net Worth (391,756); %GDP 57.8 - Central Administration and Branches: Assets 14,136,860; Liabilities 7,635,447; Net Worth 6,501,414; %GDP 68.1 - Non-corporation Decentralized Institutions: Assets 3,536,006; Liabilities 399,085; Net Worth 3,136,922; %GDP 17.0 - National Nonfinancial Public Corporations: Assets 6,493,721; Liabilities 2,369,360; Net Worth 4,124,362; %GDP 31.3 - Nonbanking Public Financial Institutions: Assets 1,589,427; Liabilities 867,118; Net Worth 722,309; %GDP 7.7 - Municipal Public Nonfinancial Corporations: Assets 174,160; Liabilities 56,920; Net Worth 117,240; %GDP 0.8 - Municipalities: Assets 508,186; Liabilities 64,152; Net Worth 444,033; %GDP 2.4 - Total: Assets 26,438,360; Liabilities 11,392,082; Net Worth 15,046,280; Percent of GDP 127.45 4.97 2.5 (table formatting in source) - Note: Central Bank and specified banks publish audited statements on their websites; these audited statements are not part of consolidation. - Tax expenditure (1.1.4): - Total tax expenditure for 2011 estimated at 5.79 percent of GDP: 3.69 percent relates to the general sales tax, 1.8 percent to income tax, and 0.3 percent to other taxes. - For 2012 and 2013, tax expenditures estimated at 5.76 percent of GDP. - Estimates of Tax Expenditures as a Percentage of GDP 2010–13: - Sales: 2010 3.68; 2011 3.69; 2012 3.66; 2013 3.66 - Income: 2010 1.80; 2011 1.80; 2012 1.80; 2013 1.80 - Other: 2010 0.33; 2011 0.30; 2012 0.30; 2013 0.30 - Total: 2010 5.81; 2011 5.79; 2012 5.76; 2013 5.76 - Source: Ministry of Finance, Estimated Tax Expenditure for Costa Rica in 2010. H3: Frequency and timeliness (1.2) - Since 2010, fiscal reports on the Executive Branch’s budget execution published monthly and consolidated public sector report annually (ADVANCED). - No uniform publication schedule for other public sector entities; CGR publishes entity reports quarterly for municipalities and decentralized entities, semiannually for trust funds, and annually for private entities that receive public funds. - Timeliness of audited annual financial statements (1.2.2): - Annual financial statements of the Executive Branch published on March 1 of the following year (ADVANCED) but audited 12 months after the end of the fiscal year (BASIC). - All public entities submit budget execution reports to the CGR by March 1. The CGR prepares a report by May 30 and sends it to the Legislative Assembly. H3: Quality — classification and consistency (1.3) - Classification (1.3.1): Institutional and economic classifications partially coincide with international standards (BASIC). National sectorization differs from GFSM 2001 but does not prevent producing GFSM 2001 statistics. - Internal consistency (1.3.2): Fiscal reports do not include reconciliation of either aggregate flows or aggregate stocks (LESS THAN BASIC). No standard criterion for periodicity or sectoral division; multiple sources and manual processes impede cross-referencing and a common GFS database. - Historical consistency (1.3.3): Historical fiscal data not subject to material revisions but affected by methodological changes (ADVANCED). GFSM 1986 series exist since mid-1980s; series recalculated for last four years for consistency. - Comparability (1.3.4): MOF monthly execution report comparable to the budget; broader-level fiscal reports not readily comparable due to complex sectorization (BASIC). General Consolidated Financial Statements of the NFPS prepared annually but institutional coverage averaged 60 percent over last three years; not audited and not all notes published. H3: Reconciliation exercise — selected figures (as of December 2012) - TOTAL REVENUES - ACCOUNTING: 3,274,216.49 (14.43) - STAP: 3,271,868.09 (14.42) - DIFFERENCE: 2,348.40 (0.01) - TOTAL EXPENDITURE - ACCOUNTING: 4,227,830.56 (18.64) - STAP: 3,934,170.78 (17.34) - DIFFERENCE: 293,659.78 (1.29) - Selected subitems (ACCOUNTING / STAP / DIFFERENCE): - Tax: 3,007,922.21 / 3,007,360.13 / 562.08 (13.26 / 13.36 / 0.00) - Wages and Salaries: 1,356,388.34 / 1,138,212.60 / 218,175.74 - Purchase of Goods and Services: 87,843.89 / 280,280.94 / (192,437.05) - Interest: 473,460.09 / 471,765.80 / 1,694.29 (2.09 / 2.08 / 0.01) - Transfers (expenditure): 2,300,028.11 / 2,001,144.17 / 298,883.94 (10.14 / 0.82 / 1.32) - Financial Investment: 905,199.10 / 1,293.29 / 903,905.81 (3.99 / 0.01 / 3.98) - Purchase of Land: 881,159.82 / 629.36 / 880,530.46 (3.88 / 0.00 / 3.88) - Source of reconciliation data: DNCP and STAP. H3: Integrity and audit (1.4) - Development and preparation of fiscal statistics: responsibility of a collegial unit using GFSM 1986 rules (BASIC). - CGR audit framework (1.4.2): Annual fiscal reports audited by CGR; audit adheres to ISSAI 1 and 2 (GOOD). CGR oversight covers all public sector entities and private entities receiving public funds (Law 7428 of 1998). - Reliability (1.4.3): CGR issues opinions on financial statements but in recent years has refrained from expressing an opinion on the reasonableness of accounts (BASIC). CGR identified objections regarding 13.49 percent of assets and 2.6 percent of liabilities; many fixed assets not incorporated; inconsistencies with SIBINET. - Principal accounts and amounts questioned by the CGR (Financial Statements of the Executive Branch 2011) - ASSETS — Group total: 1,776,981 Millions of C - Financial: Unsupported accounts receivable: 259; Posted amounts that correspond to another account: 1,540,443; Accruals corresponding to the year 2012 and later years: 1,266; Incorporation of accounts with a high degree of irrecoverability: 24,736; Recording of securities provided as collateral: 10,068; Goods recorded as assets and liabilities: 30,767; Provisions inadequately calculated: 1,473. - Nonfinancial: Assets not incorporated: 4,621; Assets without legal support: 42,354; Inconsistencies between records in accounts and the SIBINET: 106,917; Overvaluation in the updating of assets: 14,061; Other: 16. - LIABILITIES — Group total: 205,989 - Discrepancies between accounting and the primary source: 2,320; Balances that cannot be verified: 13,072; Accounts incorrectly classified: 15,174; Unrecorded amortization and interest on the debt: 3,524; Premiums and discounts on securities without cause: 9,404; Items not reclassified from long to short term: 162,494. --- ### II. Fiscal Forecasting & Budgets — scope, timeliness, policy guidance, credibility H3: Scope and presentation (2.1) - Unity: - Current practice: Budgetary legislation fragmented. Central Government revenues and expenditures are approved by the Legislative Assembly, while revenues and expenditures of entities attached to ministries, decentralized entities, financial and nonfinancial public enterprises, the central bank, municipalities, and social security are approved by the CGR (LESS THAN BASIC). - Gross budgeting: - Revenues and expenditures are presented on a gross basis in budget documentation (ADVANCED). - Macroeconomic forecasts: - BCCR prepares macroeconomic program in the first quarter with published projections and assumptions (GOOD). - Medium-term budget framework: - Budget documentation includes medium-term projections of revenues and expenditures aggregated by entity and financing (BASIC). H3: Timeliness (2.2) - Mid-year Fiscal Strategy Report: - MOF prepares and publishes an Executive Branch Budgetary Management Monitoring Report at mid-year and sends it to the Legislative Assembly for information (BASIC). It does not revise the macroeconomic and fiscal framework for the year in progress (LESS THAN BASIC). - Budget submission: - Budget is published and submitted to the Assembly and the CGR four months prior to the beginning of the year (ADVANCED). Government sends proposal on September 1; Assembly must approve by November 29. - Budget approval: - Budget law of the budgetary central government approved and published one month before beginning of year; other entities’ budgets approved and published by end of year (GOOD). - Timing milestones (from source): - Publication by Executive Order of general budgetary policy guidelines: March 30 - Communication of expenditure ceilings: April 15 - Receipt of drafts from government agencies: June 15 - Disclosure to entities of expenditure ceilings: August 30 - Submission of budget to the Legislative Assembly: September 1 - Approval of budget in the Assembly and forwarding to the Executive for approval: November 29 - Approval of other entities’ budgets by CGR: December 31 H3: Policy orientation (2.3) - Fiscal policy objectives (2.3.1): The government neither declares nor reports targets for the main fiscal aggregates (LESS THAN BASIC). MTBF presents consolidated table for previous year and next four years and a debt sustainability analysis for the budgetary central government; fiscal projections based on an expenditure ceiling defined on estimated revenues. - Degree of rigid expenditures: - "Some 44 percent of total expenditure is associated with legal obligations and some 52 percent is practically unavoidable, as in the case of expenditures for wages, interest, and pensions." - Table: Degree of Budget Rigidity as a Percentage of Expenditure (2010, 2011, 2012, 2013) - Based on legal or constitutional mandate: 40.1 40.1 42.0 43.5 - Unavoidable 1/ (wages, pensions, debt service): 54.6 54.7 52.2 51.6 - Other expenditures: 5.3 5.2 5.7 4.9 - Separation of existing and new policies (2.3.2): Budget documentation includes estimates of return/cost of most important policy decisions (GOOD). Example: 2011 tax reform proposal impacts. - Performance information (2.3.3): Budget documentation includes annual overall balance targets for each major policy area (ADVANCED). MIDEPLAN prepares the PND; PND monitored every six months and evaluated annually. Linkage between PND programs and budget not fully presented for all programs. - Fiscal sustainability analysis (2.3.5): Fiscal projections published over a five-year horizon (LESS THAN BASIC). MOF does not publish multiple-scenario projections over ten or more years including social security. Historical ratios: "In 2009, the debt/GDP ratio was 24 percent. It reached 43 percent in 2012 and is projected to reach 50 percent in 2013." H3: Credibility (2.4) - Independent evaluation (2.4.1): CGR evaluates credibility of government’s economic forecast and proposes changes in revenue projections (ADVANCED). CGR does not publish reports explaining deviations from projected revenues. - Supplementary budget (2.4.2): Supplementary budget required before executing sectoral budgetary expenditures; changes affecting Budgetary Central Government’s revenues and debt must be approved by the Legislative Assembly (GOOD). Law prohibits financing current expenditures with capital revenues and increasing current spending by reducing capital expenditures. - Forecast reconciliation (2.4.3): No successive versions are prepared of government’s revenue, expenditure, and financing forecasts (LESS THAN BASIC). Draft budget evaluates behavior of revenue, expenditure, and financing but does not explain material discrepancies in projections. - Table: Projected and Actual Revenue, Expenditure, and Financing (As a percent of GDP) - Projected (2010 2011 2012): - Total Revenues: 14.8 16.3 17.5 - Total Expenditures: 19.8 20.0 20.3 - Financing: 4.9 3.8 2.8 - Actual (2010 2011 2012): - Total Revenues: 13.6 13.5 13.5 - Total Expenditures*: 25.1 23.7 23.7 - Interest: 2.3 2.5 2.5 - Financing: 5.0 3.7 3.7 - Source: Medium-Term Budgetary Framework, 2009-2013, p. 39 - *Excluding interest --- ### III. Fiscal Risk Analysis & Management — risk identification, management, and coordination H3: Risk analysis — macroeconomic and specific fiscal risks (3.1) - Debt sensitivity and macro assumptions: - Budget documentation includes explanation on debt sensitivity but does not cover fiscal forecasts and key macroeconomic assumptions (BASIC). MOF publishes Annual Report on the Situation of Public Debt. - Economic growth and tax revenue elasticities (Table 24) - Change in Nominal GDP: 2009 7.60 2010 9.80 2011 12.50 2012 8.50 - Change in Tax Revenue (TR): 2009 -2.30 2010 9.70 2011 12.00 2012 10.10 - TR-GDP Elasticity: 2009 -0.30 2010 0.99 2011 0.96 2012 1.19 - Note: 1.19 in 2012 was the highest level achieved during this period. - Exchange rate: - Government has dollar-denominated securities equal to 19.6% of total debt in 2011; depreciation could increase cost of financing. - Short-term risks and policy interactions: - Overall fiscal deficit of the nonfinancial public sector (NFPS) averaged 3.9 percent of GDP between 2009 and 2013 (IMF staff projection). - 2008 recorded a surplus of 0.4%. - BCCR sets annual inflation goal of 5% (± 1 pp); that rate used to define public spending in the next budget regardless of projected revenues. - Fiscal multiplier estimated at 0.3 (IMF Article IV, 2012, page 17). - Domestic debt equal to 84 percent of total debt. - Financing to the government grew rapidly and nearly doubled between 2009 and 2012. - Pension systems: - Three actuarial studies with different scopes show divergent horizons: - PRODEFI (CCSS): no financial problems until 2025. - ILO projection: no financial difficulties until 2035. - Table 26 (selected): Average Premium Calculation for Pensions System (examples) - ILO: 25 years 7.56 50 years 16.67 - PRODEFI: 25 years 7.83 50 years 15.26 - Observation: differences magnified in second half of 50-year horizon (PRODEFI 15.26 vs ILO 16.67). - Oil prices: - Costa Rica totally dependent on imported oil; government fully passes international fuel price increases to domestic prices to avoid subsidies — reduces domestic fuel demand and can reduce tax collections. H3: Risk management — contingencies, assets/liabilities, guarantees, financial sector, long-term contracts (3.2) - Contingency reserves (3.2.1): - Budget does not include an allocation for contingencies. There is a fund for natural disasters partially financed with surpluses (LESS THAN BASIC). - Emergency fund (National Commission for Risk Prevention and Emergency Response): fund made up of 3 percent of the earnings of public corporations and the budgetary surplus of revenues not allocated to specific expenditures. In practice almost all funds have been used each year. - Table 27 (selected): Revenues and Expenditures (Billions of colones) — presented for 2009–2012 with balances small (e.g., 0.5 0.5 0.2 0.3). - Assets and liabilities management (3.2.2): - All assets and liabilities are authorized by legislation, reported, and managed according to a published strategy (ADVANCED). - All increases in domestic debt must be certified by the BCCR; external debt must be approved by the Legislative Assembly. - Government announces domestic debt placement strategy for upcoming six months and evaluates results from previous six months. - Guarantees (3.2.3): - Amounts guaranteed by the government published annually in Executive Branch financial statements; debt must be certified by BCCR with exceptions for municipalities, ICE, and universities (BASIC). - DGCN presents information on loans for which State acts as guarantor: at December 31, 2011 amount $417.37 million; 2012 amount $427.5 million. - Financial sector exposure (3.2.4): - Government’s potential fiscal exposure reported through quantified assessments; SUGEF publishes annual report with bank solvency indicators (ADVANCED). - Table 28 (selected): Asset Structure and Solvency of Financial Institutions in 2011 - Assets (millions of colones): Public Banks 8,441,636; Housing Sector 691,038; Private Banks 4,555,788; Nonbanking Financial Corporations 135,272; Savings and Loan Cooperatives 1,324,679 - Net Worth: 1,057,552; 101,524; 545,163; 16,914; 282,524 - Return on Equity as a %: 9% 9% 8% 9% 10% - Capital adequacy examples: 13,89%; 52,88%; 15.04%; 16.12%; 23.56% - Long-term contracts (3.2.5): - Government publishes total liabilities on long-term contracts each year but does not calculate associated financial risks (BASIC). - National Concessions Council (CNC) manages public-private partnership contracts: five current contracts total US$1.7 billion (3.5 percent of GDP). - Example table of PPPs (Table 29): San Jose – San Ramón Road Corridor 523.70025; San José – Caldera Highway 265,86025,5; Moín Containers Terminal 812,10033; Daniel Oduber Airport 35,00025; Terminal in Puerto Carrera 40,000; Total 1,676,660; Percentage of GDP (%) 3.5. - Example simulation (Table 30): Daniel Oduber contract — total simulated potential contributions over period total 7,607,758 (columns as presented) and simulation total potential cost 3,623,074. - Observation: If passenger volumes increase at 4 percent a year, government contribution close to US$3.6 million on Daniel Oduber contract. - Financial derivatives (3.2.6): - Central government does not operate with derivatives (NOT APPLICABLE). ICE has derivatives positions totaling US$650 million as of 12/31/2011. H3: Fiscal coordination — subnational governments and public corporations (3.3) - Subnational governments (3.3.1): - CGR compiles and publishes fiscal situation of municipalities quarterly (BASIC). - Municipalities contribute 4 percent of total effective public sector revenues, concentrated in seven municipalities (92%). Municipalities’ debt 33.346 billion colones (1.5% of GDP) as of December 31, 2012. - Public corporations (3.3.2): - All direct and indirect transfers between government and public corporations disclosed annually (ADVANCED). - MOF internal report covering 12 largest nonfinancial public corporations for 2012–2017 not published. - Public-private partnership investments needs estimated: investments amounting to 3.5 percent of GDP needed annually in transportation; annual investment deficits estimated at 2 percent of GDP. --- ### Selected recommendations and action plan (selected items and deadlines from Annex) - Coverage of flows, balances, and budgetary classification, accounting and statistics (1.1.2 and 1.3.1) - Complete implementation of the international public sector accounting standards for the public sector; harmonize accounting and budgetary classifications. - Deadline: 2021 - Consistency and reliability of budgetary, accounting, and statistical information (1.3.2, 1.3.3, and 1.3.4) - Reconcile fiscal reports and produce timely audit reports to ensure reliability. - Deadline: 2017 - Budgetary unit, proposal and approval of budget (2.1.1, 2.2.2, and 2.2.3) - Prepare budget reports with analysis of situation and outlooks by the end of the year for the public sector, with periodicity: - (i) approved budget report by the end of January; - (ii) quarterly execution report by 30 days after the end of the quarter; - (iii) annual consolidated execution report by April 1 of the following year. - Amend the Constitution to make the Legislative Assembly responsible for approving the budget for the entire public sector. - Deadlines: 2016 (first action), 2017 (constitutional amendment action) - Medium-term budgetary framework, report on fiscal strategy and fiscal policy objectives (2.1.4, 2.2.1, and 2.3.1) - In the MTBF document, summarize macroeconomic and fiscal developments since the last budget and a revised macroeconomic and fiscal framework for the year in progress over the medium term. Accurately state numerical targets for the main fiscal aggregates over time and the medium term. - Deadline: 2018 - Information on performance of programs (2.3.3) - Establish direct linkage between National Development Plan programs and the budget. Standardize concepts, programmatic structures, and performance indicators; identify priority programs; improve performance evaluations. - Deadline: 2016 - Fiscal sustainability analysis (2.3.5) - Expand debt trends analysis in the report on the Situation of the Debt by describing multiple scenarios for evaluating the main fiscal aggregates and including social security with a minimum of ten years and publish debt information on the consolidated public sector. - Deadline: 2018 - Analysis and management of fiscal risks (Pillar 3) - Ministry of Finance should prepare an annual document reporting on fiscal risks as part of the budget documents. The document should contain information on macroeconomic risks, public debt, public corporations, debt guarantees, contingent liabilities, concession contracts, natural disasters, financial institutions, municipal governments, and social security and health. - Deadline: 2017 H3: Action plan timeline (selected staged actions from Annex) - Accounting reform (implementation of international public sector accounting standards): - 2014: Modify the accounting standards and regulations to the international accounting standards. - 2015: Start recording the expenses in accordance with the accrual basis. - 2016: Record revenues according to the modified cash basis (tax settlement and recognition of the tax return). - 2017: Make provisions for major fiscal risks. Record revenues according to the accrual principle (1-3 years). - 2018: Record assets and long-term financial liabilities in accordance with the principle of amortized cost; record fixed and intangible assets; inventory and cost all physical assets, including infrastructure; final stage consolidation of public sector financial statements (2 years). - Reconciliation and audits: - Harmonize classification of accounts with IMF GFSM 2001; reconcile fiscal statistics to Financial Statements. - CGR to prepare audit of consolidated annual budget execution report within nine months from fiscal year end. - Audit annual consolidated financial statements of the NFPS. - Fiscal risk reporting: - Define MOF unit responsible for fiscal risk assessment, structure of fiscal risk report, pilot report, publish first fiscal risk report including macrofiscal risks and risks related to public enterprises and the financial sector; include PPPs, subnational governments, debt guarantees, and contingent liabilities in subsequent reports. --- *International Monetary Fund — Fiscal Affairs Department: Costa Rica Fiscal Transparency Assessment (October 2013). * ### 2013. The views expressed in this document are those of the staff team and do not necessarily reflect ### Costa Rica — Fiscal Transparency Assessment (October 2013) ### Objectives and framework of the 2013 Fiscal Transparency Assessment (FTA) Code - The FTA Code replaces the 1988 Fiscal Transparency ROSC Code, which was updated in 2007. - The 1998 Code was used as the basis for the Fund’s assessment of 93 countries. - Objectives of the new Code: - Enable authorities, international agencies, markets, and the public to better understand the most significant differences or discrepancies in fiscal data published by governments. - Provide a more comprehensive description of the main risks to governments’ fiscal forecasts. - Give a clearer picture of how countries’ fiscal information management practices compare with international standards. - Produce a more specific, sequenced action plan for addressing the main fiscal transparency weaknesses identified. - Structure of the new Code: - Divided into three pillars: (i) presentation of fiscal reports; (ii) development of fiscal projections and budgets; and (iii) analysis and management of fiscal risks. - Divided into 38 dimensions. - For each dimension, practice-based assessment levels are: “LESS THAN BASIC” (red), “BASIC” (yellow), “GOOD” (light green), or “ADVANCED” (dark green). ### Key findings — strengths in Costa Rica’s fiscal transparency practices - Institutional coverage: - Annual consolidated budgetary information for the entire public sector. - Monthly information for the Executive Branch. - Tax expenditures: - Information produced regarding tax expenditures. - Auditor independence and timeliness: - An independent Office of the Comptroller General of the Republic (CGR) audits budget balances by May of the following year. - The CGR provides an assessment of the credibility of the government’s fiscal forecast. - Budget frameworks and projections: - A medium-term budgetary framework and budgetary projections with forecasts of key macroeconomic variables and the assumptions on which they are based. - A Budgetary Central Government budget that is submitted and approved on a timely basis. - Financial sector and public corporation transparency: - Annual publication by the General Superintendency of Financial Entities of extensive information on financial sector stability. - Wide disclosure of transfers between the government and public corporations. - Performance information: - Disclosure of performance data. ### Key findings — persistent weaknesses and risks - Accounting and reporting basis: - Most fiscal and budgetary information is on a cash basis. - Reconciliation and comparability: - Insufficient reconciliation and comparability between accounting, budgetary, and statistical information and between revenue, expenditure, and financing forecasts. - Dual and fragmented budgetary system: - The budgetary system is very fragmented and dual: part of the budget is approved by the Legislative Assembly (41 percent of expenditures) and part is approved by the Office of the Comptroller General of the Republic (59 percent). - Intra-year budget adjustments and targets: - The government does not revise the budgetary framework for the year in progress. - There is no statement of numerical targets for the main fiscal aggregates. - Horizon and coverage of fiscal projections and risks: - Fiscal projections cover only five years. - No fiscal risk aggregate report is produced covering macroeconomic risks, contingent liabilities, guarantees, concession contracts, and the indebtedness of municipal governments. ### Prior assessment context and remaining issues - Costa Rica participated in a fiscal transparency ROSC assessment in November 2007 under the previous Code. - 2007 assessment highlights: - Clear specification of responsibilities of government authorities and levels. - Operational independence of the central bank. - Sound legal framework for public financial management processes. - Progress in debt management, centralization and management of financial resources, updating of accounting standards, and financial management systems. - Budget process was well defined and public; tax legislation and taxpayer rights were clear; internal and external audit frameworks were solid; the CGR was independent and technically strong. - Residual needs identified in 2007 that remain relevant: - Improve mechanisms for fiscal coordination with government institutions. - Improve coverage and quality of budget documents and fiscal reports. - Introduce a medium-term fiscal framework (noting a medium-term framework exists now, but other related gaps persist). - Prepare fiscal risk reports and analyses. - Specific areas for budget formulation and presentation improvement included: - Bringing autonomous government institutions within the scope of the budget. - Adopting a medium-term budgetary framework. - Developing a public investment program and clear principles for project assessment and approval. - Eliminating appropriated expenditure mandates. - Including a statement of fiscal risks in the budget documents. - Budget execution and fiscal reporting improvements included: - Harmonizing accounting standards and procurement processes across public institutions. - Presenting budget outturn reports within the general government budget execution cycle. - Improving parliamentary oversight of budget execution. ### Assessment summary and follow-up - The assessment confirms several excellent and sophisticated practices (see “Key findings — strengths”). - The assessment also identifies important shortcomings that require action (see “Key findings — persistent weaknesses and risks”). - Table 1 of the report provides a summary of the fiscal transparency assessment. - Table 2 of the report summarizes actions proposed to improve fiscal transparency in the weakest-performing areas. - A detailed action plan to implement recommendations is presented in the Annex. *International Monetary Fund — Fiscal Affairs Department: Costa Rica Fiscal Transparency Assessment (October 2013).* ### 1. Fiscal Reporting 2. Fiscal Forecasting & Budgets 3. Fiscal Risk Analysis & Management ### _cr13316 - 1. Fiscal Reporting 2. Fiscal Forecasting & Budgets 3. Fiscal Risk Analysis & Management ### Summary of Assessment Scores and Overall Findings - Advanced practices: 10 (27%) - Good practices: 7 (18%) - Basic practices: 13 (34%) - Less than Basic practices: 7 (18%) - Not Applicable: 1 (3%) - Total practices assessed: 38 (100%) ### Recommendations and Action Plan (selected, with deadlines) - Coverage of flows, balances, and budgetary classification, accounting and statistics (1.1.2 and 1.3.1) - Complete implementation of the international public sector accounting standards for the public sector, ensuring that accounting and budgetary classifications are harmonized. - Deadline: 2021 - Consistency and reliability of budgetary, accounting, and statistical information (1.3.2, 1.3.3, and 1.3.4) - Reconcile fiscal reports and produce timely audit reports to ensure the reliability of the information. - Deadline: 2017 - Budgetary unit, proposal and approval of budget (2.1.1, 2.2.2, and 2.2.3) - Prepare budget reports with analysis of situation and outlooks by the end of the year for the public sector, with periodicity: (i) approved budget report by the end of January; (ii) quarterly execution report by 30 days after the end of the quarter; (iii) annual consolidated execution report by April 1 of the following year. - Amend the Constitution to make the Legislative Assembly responsible for approving the budget for the entire public sector. - Deadlines: 2016 (first action), 2017 (constitutional amendment action) - Medium-term budgetary framework, report on fiscal strategy and fiscal policy objectives (2.1.4, 2.2.1, and 2.3.1) - In the MTBF document, summarize macroeconomic and fiscal developments since the last budget and a revised macroeconomic and fiscal framework for the year in progress over the medium term. Accurately state numerical targets for the main fiscal aggregates over time and the medium term. - Deadline: 2018 - Information on performance of programs (2.3.3) - Establish direct linkage between National Development Plan programs and the budget. Adjustments: standardization of concepts, programmatic structures, and performance indicators; identification of priority programs; improved performance evaluations. - Deadline: 2016 - Fiscal sustainability analysis (2.3.5) - Expand debt trends analysis in the report on the Situation of the Debt by describing multiple scenarios for evaluating the main fiscal aggregates and including social security with a minimum of ten years and publish debt information on the consolidated public sector. - Deadline: 2018 - Analysis and management of fiscal risks (Pillar 3) - The Ministry of Finance (MOF) should prepare an annual document reporting on fiscal risks as part of the budget documents. The document should contain information on macroeconomic risks, public debt, public corporations, debt guarantees, contingent liabilities, concession contracts, natural disasters, financial institutions, municipal governments, and social security and health. - Deadline: 2017 ### I. Presentation of Fiscal Reports — Principal Reports and Responsibilities - Consolidation of public sector data - Responsible: MOF – Technical Secretariat of the Budgetary Authority - Content: Annual data on revenues, expenditures, primary and financial deficits of the public sector, in comparison with previous year. - Report on budget execution - Responsible: MOF – General Directorate of the National Budget - Content: Annual comparison between execution and budget authorized for the budgetary central government. - Report on physical outcomes of executed programs - Responsible: MOF - General Directorate of the National Budget - Content: Annual performance of budget compared to amounts authorized; overall progress in operational and strategic indicators. - Estimate of Tax Expenditure - Responsible: MOF – General Directorate of Finance, Fiscal Policy Division - Content: Annual estimate of tax expenditure by type of tax and economic sector. - Status of public debt - Responsible: MOF - Directorate of Public Credit - Content: Annual evaluation of public sector debt and placement strategy; projects financed with external debt; analysis of debt sustainability and risk. - Report evaluating the National Development Plan (PND) - Responsible: MIDEPLAN – Ministry of Planning - Content: Annual report on the degree of success in reaching the goals of the central government and other entities. - Annual report - Responsible: CGR – Office of the Comptroller General of the Republic - Content: Report on public finances, budget execution, evaluation of the PND, and management of general government. - Additional periodic reports: monthly financial data on central government; quarterly debt placement reports; semiannual monitoring and fiscal/budgetary development reports; semiannual PND evaluations. ### 1.1 Coverage — Key Findings and Statistics - Coverage of institutions (1.1.1) - Each year fiscal statistics at the budget execution level consolidate 225 out of 229 public sector entities (99.7 percent of total expenditure) and are widely available to the public (ADVANCED). - STAP publishes end-June of the following year a report with budget execution figures based on GFSM 1986 economic classification and COFOG functional classification. - Only four entities (superintendencies) were not included in 2011; for 2012 all entities to be included in consolidated report. - Coverage of revenues, expenditures and other flows (1.1.2) - Fiscal reports cover 99.7 percent of all public sector revenues and expenditures on a cash accounting basis (BASIC). - Exceptions: four superintendencies not consolidated in 2011 (0.3 percent of expenditures). - Table: Public Sector: Total Revenue and Expenditure by Institutional Category — 2011 (Values in Millions of Colones) - Public Sector: No. of Institutions 225; Revenue 5,607,619; Expenditure 6,521,050; % Expenditure 99.7; %GDP 31.5 - General Government: No. of Institutions 197; Revenue 4,826,283; Expenditure 5,613,828; % Expenditure 85.8; %GDP 27.2 - Central Government: No. of Institutions 110; Revenue 4,626,601; Expenditure 5,387,097; % Expenditure 82.4; %GDP 26.1 - Budgetary Central Government: Revenue 272,844,267; Expenditure 2,706,528; % Expenditure 41.4; %GDP 13.1 - Deconcentrated Agencies: No. of Institutions 53; Revenue 267,161; Expenditure 448,541; % Expenditure 6.9; %GDP 2.2 - Non-corporation Decentralized Inst.: Revenue 301,515,174; Expenditure 2,232,029; % Expenditure 34.1; %GDP 10.8 - Local Governments: No. of Institutions 87; Revenue 199,682; Expenditure 226,731; % Expenditure 3.5; %GDP 1.1 - Public Corporations: No. of Institutions 28; Revenue 781,335; Expenditure 907,222; % Expenditure 13.9; %GDP 4.3 - Nonfinancial Public Corporations: No. of Institutions 15; Revenue 419,922; Expenditure 652,153; % Expenditure 10.0; %GDP 3.1 - Financial Public Institutions: No. of Institutions 13; Revenue 361,413; Expenditure 255,069; % Expenditure 3.9; %GDP 1.2 - Superintendencies: No. of Institutions 4; Revenue 18,978; Expenditure 18,978; % Expenditure 0.3; %GDP - - Total Public Sector: No. of Institutions 229; Revenue 5,626,597; Expenditure 6,540,028; % Expenditure 100.0; %GDP 31.5 - Source: Ministry of Finance – Consolidated Figures on Revenues, Expenditures, and Financing of the Public Sector - 2011 - Coverage of assets and liabilities (1.1.3) - Fiscal reports cover all financial assets and liabilities of the nonfinancial public sector (GOOD). - DGCN prepares consolidated financial statements at Executive Branch, Central Government, and Nonfinancial Public Sector levels. Four balance sheets are prepared: (i) statement of net worth including assets, liabilities, and net worth; (ii) Statement of Financial Performance and Statement of Economic Result; (iii) cash flow; and (iv) changes in net worth. - Financial statements of the Executive Branch are prepared and sent to the CGR on March 1 (60 days). The CGR audits the statements by the end of the year (12 months). - Audited financial statements of public banking corporations and the central bank are not part of the consolidation but are published on respective websites. - Table: Public Sector: Assets, Liabilities, and Net Worth — 2011 (Values in Millions of Colones) — Source: MOF, General Directorate of National Accounting and Banking Financial Institutions - Banking Financial Public Institutions: Assets 11,995,602; Liabilities 12,387,359; Net Worth (391,756); %GDP 57.8 - Central Administration and Branches: Assets 14,136,860; Liabilities 7,635,447; Net Worth 6,501,414; %GDP 68.1 - Non-corporation Decentralized Institutions: Assets 3,536,006; Liabilities 399,085; Net Worth 3,136,922; %GDP 17.0 - National Nonfinancial Public Corporations: Assets 6,493,721; Liabilities 2,369,360; Net Worth 4,124,362; %GDP 31.3 - Nonbanking Public Financial Institutions: Assets 1,589,427; Liabilities 867,118; Net Worth 722,309; %GDP 7.7 - Municipal Public Nonfinancial Corporations: Assets 174,160; Liabilities 56,920; Net Worth 117,240; %GDP 0.8 - Municipalities: Assets 508,186; Liabilities 64,152; Net Worth 444,033; %GDP 2.4 - Total: Assets 26,438,360; Liabilities 11,392,082; Net Worth 15,046,280; Percent of GDP 127.45 4.97 2.5 (table formatting in source) - Note: Source lists Central Bank and specified banks for published audited statements. - Tax expenditure (1.1.4) - Tax expenditures are authorized by law; revenue losses are estimated by type of tax and usually published annually (GOOD). - Total tax expenditure for 2011 is estimated at 5.79 percent of GDP: 3.69 percent relates to the general sales tax, 1.8 percent to income tax, and 0.3 percent to other taxes. - For 2012 and 2013, tax expenditures are estimated at 5.76 percent of GDP. - Table: Estimates of Tax Expenditures as a Percentage of GDP 2010–13 - Sales: 2010 3.68; 2011 3.69; 2012 3.66; 2013 3.66 - Income: 2010 1.80; 2011 1.80; 2012 1.80; 2013 1.80 - Other: 2010 0.33; 2011 0.30; 2012 0.30; 2013 0.30 - Total: 2010 5.81; 2011 5.79; 2012 5.76; 2013 5.76 - Source: Ministry of Finance, Estimated Tax Expenditure for Costa Rica in 2010. ### 1.2 Frequency and Timeliness — Key Findings - Frequency of in-year fiscal reports (1.2.1) - Since 2010, fiscal reports on the Executive Branch’s budget execution have been published monthly and the consolidated public sector report annually (ADVANCED). - No uniform publication schedule for other public sector entities; CGR publishes entity reports quarterly for municipalities and decentralized entities, semiannually for trust funds, and annually for private entities that receive public funds. This heterogeneity impedes periodic consolidation of public sector budget execution. - Timeliness of audited annual financial statements (1.2.2) - Annual financial statements of the Executive Branch are published on March 1 of the following year (ADVANCED) but audited 12 months after the end of the fiscal year (BASIC). - All public entities submit budget execution reports to the CGR by March 1 of the following year. The CGR prepares a report by May 30 and sends it to the Legislative Assembly. The MOF prepares and submits the Executive Branch financial statements to the CGR by March 1; CGR audits them by December 31. ### 1.3 Quality — Classification and Consistency - Classification (1.3.1) - Fiscal reports include institutional and economic classifications that partially coincide with international standards and report budgetary revenues and expenditures separately (BASIC). - Institutional budgetary classifiers differ from the accounting and statistical classifiers of the GFSM 2001. Costa Rica sectorization: (i) Government of the Republic; (ii) rest of the public sector; (iii) nonfinancial public corporations. Government of the Republic includes Central Administration and Central Government per internal definition. - National classification has sectoral and conceptual differences versus GFSM 2001, notably considering as entities: (i) service of the public debt; (ii) system of pensions charged to the budget of the republic; and (iii) specific works — which on average represent 44 percent of approved budgets of the government of the republic in the last three years. - These differences do not prevent producing statistics according to GFSM 2001. - Sectorization mapping: GFSM 2001 versus Costa Rica’s classification (as presented in the source) - GFSM 2001 categories mapped to national equivalents for public sector, general government, central government, public corporations, financial public corporations, nonfinancial public corporations, local governments, social security funds, autonomous entities, state universities, etc. - Note in source: In STAP statistics, branches of government form part of the budgetary central government. *Source: _cr13316 - 1. Fiscal Reporting 2. Fiscal Forecasting & Budgets 3. Fiscal Risk Analysis & Management (IMF PDF chapter content provided)* ### 8. Budgetary classifiers are the same in all public sector institutions based on Law ### 8. Budgetary classifiers are the same in all public sector institutions based on Law 8131 of 2001, the Financial Management Act of the Republic and Public Budgets (LARFPP) ### Budgetary classifiers and chart of accounts - Revenue classifiers are based on the source of funds. - Expenditures have: - economic classifiers, - classifiers by purpose of expenditure, - functional expenditure classifiers, - classifiers by source of financing. - Budgetary classifiers: - Are broad and group under a single concept transfers, grants, and subsidies, which have different connotations under the GFSM 2001. - Do not detail account headings for securities held by the Treasury. - The General Chart of Accounts exists but is not used fully and uniformly by some public entities; its implementation, initially scheduled for 2012, has been postponed to 2016. - A conversion table designed by the General Directorate of National Accounting (DGCN) currently offsets the uneven implementation. - Some accounting classifiers (e.g., expenditures for global allocations) are inconsistent with the technical accuracy required in accounting. - The level of detail of the budgetary classifiers is not sufficient to meet requirements of the accounting classifiers and of the GFSM 2001, which: - makes it difficult to link and harmonize them, - limits aggregation and consolidation, - limits disclosure of consistent information. - Recommendation in the source: - Introduce a degree of harmonization of the budgetary and accounting classifiers and concepts with less disaggregation in the budget preparation phase and a more detailed breakdown for purposes of budget execution and its recognition in the accounts. - MOF reform: - Reform underway to implement accrual basis accounting and international public sector accounting standards. - Anticipated that use of the international standards will be mandatory in 2016 and will cover the entire nonfinancial public sector. - Banking financial institutions have already adopted the international standards for financial institutions (IFRS). - Table 8 presents a summary of the catalog of accounts included in the National Chart of Accounts, updated as at February 10, 2013, compared to the requirements of the GFSM 2001. ### Internal consistency (1.3.2) - Fiscal reports do not include reconciliation of either aggregate flows or aggregate stocks (LESS THAN BASIC). - There is no standard criterion in terms of periodicity or sectoral division for the submission of fiscal information. - Fiscal reports are prepared based on information from various sources; some processes are performed manually, with some adjustments. - Outcomes are processed and disclosed with respect to multiple sectors and without regular periodicity. - Consequences: - Impossible to cross reference information; - Impedes interpretation; - Hinders standardization and establishment of a common GFS database. - Suggested improvement: - Standardization of periodicities and coverage by sector to improve transparency and facilitate coordination and the establishment of a common GFS database. ### Historical consistency (1.3.3) - Historical fiscal data have not been subject to material revisions but have been affected by methodological changes (ADVANCED). - Statistical series according to the GFSM 1986 exist since the mid-1980s; financial statements published starting in 2007. - Series have been recalculated for the last four years to achieve historical consistency while keeping the original data. - Change in 2005: - Functional classification of expenditure under the GFSM 2001 specifying 10 sectors was adopted, replacing the classification based on social function broken down into five sectors. - This change affected the composition of spending (see Figure 4 in source). ### Comparability of fiscal reports (1.3.4) - The MOF’s monthly budgetary execution report is directly comparable to the budget. - Fiscal reports at broader levels are not readily comparable given the complexity of sectorization of the public sector (BASIC). - The General Consolidated Financial Statements of the Nonfinancial Public Sector (NFPS): - Prepared annually. - Institutional coverage has averaged 60 percent over the last three years. - Incorporates financial statements of nine of the largest nonfinancial corporations, including: - Costa Rican Electricity Institute, - Costa Rican Petroleum Refinery, - Costa Rican Social Security Fund. - Budgetary and debt-related information using the same institutional sectorization is not available, so fiscal reports are not easily comparable. - Not audited and not all accounting notes are published on the DNCP website. - Latest financial statements as of December 31, 2012 contain information on a mixed basis (cash and accrual). - Discrepancies between accounting reports (DNCP) and statistical reports (STAP) arise because: - STAP covers exclusively budgetary data while accounting data coverage is much broader. - Classification and basis (cash for revenue and accrual for expenditure) used are the same, but coverage differences cause discrepancies. - Specific entities issue differing records: - National Roads Council (CONAVI) and Costa Rican Social Security Fund (CCSS) record accounts receivable in the central administration using values pending transfer as assigned by law, which are not recorded as liabilities in the central administration. ### Reconciliation exercise and key figures (as of December 2012) - Reconciliation objective: - Use values recorded in accounts and in statistics for each heading to make necessary adjustments, agree on common criteria, and prevent greater discrepancies. - Selected figures from Table 10 — Reconciliation of Executive Branch Fiscal Figures as of December 2012 (COLONES MILLION and % GDP) - TOTAL REVENUES - ACCOUNTING: 3,274,216.49 (14.43) - STAP: 3,271,868.09 (14.42) - DIFFERENCE: 2,348.40 (0.01) - Tax - ACCOUNTING: 3,007,922.21 (13.26) - STAP: 3,007,360.13 (13.36) - DIFFERENCE: 562.08 (0.00) - Nontax - ACCOUNTING: 22,210.13 (0.10) - STAP: 20,700.32 (0.09) - DIFFERENCE: 1,509.81 (0.01) - Transfers (revenue) - ACCOUNTING: 170,000.70 (1.75) - STAP: 165,746.24 (0.73) - DIFFERENCE: 4,254.46 (0.02) - Capital Revenue - ACCOUNTING: 0.00 (0.00) - STAP: 3,977.95 (0.02) - DIFFERENCE: (3,977.95) ( (0.02) ) - Social Contributions - ACCOUNTING: 74,083.45 (0.33) - STAP: 74,083.45 (0.33) - DIFFERENCE: 0.00 (0.00) - TOTAL EXPENDITURE - ACCOUNTING: 4,227,830.56 (18.64) - STAP: 3,934,170.78 (17.34) - DIFFERENCE: 293,659.78 (1.29) - Wages and Salaries - ACCOUNTING: 1,356,388.34 - STAP: 1,138,212.60 (5.02) - DIFFERENCE: 218,175.74 (0.96) - Purchase of Goods and Services - ACCOUNTING: 87,843.89 (0.39) - STAP: 280,280.94 (1.24) - DIFFERENCE: (192,437.05) ( (0.85) ) - Interest - ACCOUNTING: 473,460.09 (2.09) - STAP: 471,765.80 (2.08) - DIFFERENCE: 1,694.29 (0.01) - Transfers (expenditure) - ACCOUNTING: 2,300,028.11 (10.14) - STAP: 2,001,144.17 (0.82) - DIFFERENCE: 298,883.94 (1.32) - Real Investment Capital Expenditure - ACCOUNTING: (19,557.57) 0.09 - STAP: 41,473.99 0.18 - DIFFERENCE: (61,031.56) (0.27) - Financial Investment - ACCOUNTING: 905,199.10 (3.99) - STAP: 1,293.29 (0.01) - DIFFERENCE: 903,905.81 (3.98) - Purchase of Land - ACCOUNTING: 881,159.82 (3.88) - STAP: 629.36 (0.00) - DIFFERENCE: 880,530.46 (3.88) - Purchase of Buildings - ACCOUNTING: 24,039.28 (0.11) - STAP: 663.93 (0.00) - DIFFERENCE: 23,375.35 (0.11) - Materials and Supplies - ACCOUNTING: 36,290.10 (0.16) - STAP: 0.00 (0.00) - DIFFERENCE: 36,290.10 (0.16) - Special Accounts - ACCOUNTING: 150.70 (0.00) - STAP: 0.00 (0.00) - DIFFERENCE: 150.70 (0.00) - Source of reconciliation data: DNCP and STAP. ### Integrity — Statistical independence (1.4.1) - Development and preparation of public sector fiscal statistics: - Responsibility of a collegial unit using GFSM 1986 rules (BASIC). - Budgetary Authority: - Collegial entity advising the Office of the President of the Republic. - Composed of the Minister of Finance, the Minister of Planning, and another minister appointed by the President (currently the Minister of Labor). - Prepares draft general and specific budgetary policy guidelines for the following fiscal year for Central Government agencies, Decentralized Government, and State-owned enterprises. - Guidelines examined by the Government Council and submitted to the President of the Republic for final approval. - Executive body: Technical Secretariat of the Budgetary Authority (STAP): - Responsible for monitoring compliance with guidelines and directives and for producing fiscal statistics. - Unit of Analysis and Fiscal Monitoring (UASF): - Agency responsible for compilation and dissemination of fiscal statistics. - Prepares and publishes: - (i) a monthly, cash basis, report on central government revenue, expenditure, and financing; - (ii) annual General Government Public Finance Statistics, which are sent to the IMF; - (iii) annual Consolidated Figures on Public Sector Revenue, Expenditure, and Financing (the statistical report with the broadest coverage in Costa Rica), with an analytical document prepared for internal use only. *Source: _cr13316 - 8. Budgetary classifiers are the same in all public sector institutions based on Law 8131 of 2001, the Financial Management Act of the Republic and Public Budgets (LARFPP)_* ### 17. The annual fiscal reports of the Executive Branch are subject to an audit ### 17. The annual fiscal reports of the Executive Branch are subject to an audit ### Audit framework and scope - The annual fiscal reports of the Executive Branch are subject to an audit performed and published by the country’s supreme audit institution, the CGR, an independent audit body. - The audit adheres to the International Standards of Supreme Audit Institutions (ISSAI) 1 and 2 (GOOD). - The CGR carries out its oversight work based on domestic regulations, the International Standards on Auditing (ISA), and the ISSAI issued by the International Organization of Supreme Audit Institutions (INTOSAI). - All public sector entities and private entities that receive public funds are subject to oversight (Law 7428 of 1998). - The CGR’s work focuses on ex-ante and ex-post supervision of budgetary execution and to a limited extent on financial audits; recommendation: autonomous entities use external auditors. ### Reliability (1.4.3) — CGR opinion and limitations - The CGR issues an opinion regarding the reasonableness of the financial statements, validating their reliability. - However, in recent years, the CGR has refrained from expressing an opinion on the reasonability of the accounts (BASIC). - The CGR’s withholding of an opinion was based on a lack of evidence regarding sufficient and appropriate audits. - The CGR identified general inconsistencies with respect to: - (i) weaknesses in the regulatory framework; - (ii) divergence from accounting principles; - (iii) failure to apply accrual accounting; - (iv) the omission of records. - There were objections regarding 13.49 percent of the total recorded under assets and 2.6 percent of liabilities. - Many fixed assets have still not been incorporated in the accounts. - Significant inconsistencies exist between the records of properties in the System for Administration of State Properties (SIBINET) and those disclosed in the accounts; reconciliation has not been possible. ### Principal accounts and amounts questioned by the CGR (Table 11 — Financial Statements of the Executive Branch 2011) - ASSETS — Group total: 1,776,981 Millions of C - Financial - Unsupported accounts receivable: 259 - Posted amounts that correspond to another account: 1,540,443 - Accruals corresponding to the year 2012 and later years: 1,266 - Incorporation of accounts with a high degree of irrecoverability: 24,736 - Recording of securities provided as collateral: 10,068 - Goods recorded as assets and liabilities: 30,767 - Provisions inadequately calculated: 1,473 - Nonfinancial - Assets not incorporated: 4,621 - Assets without legal support: 42,354 - Inconsistencies between records in accounts and the SIBINET: 106,917 - Overvaluation in the updating of assets: 14,061 - Other: 16 - LIABILITIES — Group total: 205,989 - Discrepancies between accounting and the primary source: 2,320 - Balances that cannot be verified: 13,072 - Accounts incorrectly classified: 15,174 - Unrecorded amortization and interest on the debt: 3,524 - Premiums and discounts on securities without cause: 9,404 - Items not reclassified from long to short term: 162,494 ### Recommendations (from D) - Complete the implementation of international public sector accounting standards, ensuring that accounting and budgetary classifications are harmonized. - Reconcile fiscal reports and produce timely audit reports to ensure the reliability of the information. ### Evaluation summary (selected items from Table 12) - 1.1 Coverage - 1.1.1 Coverage of Institutions: Each year fiscal statistics at the budgetary execution level consolidate 225 out of 229 public sector entities (99.7 percent of total expenditure) and are widely available to the public (ADVANCED). - 1.1.2 Coverage of revenues, expenditures, and other flows: Fiscal reports cover 99.7percent of all public sector revenues and expenditures on a cash accounting basis (BASIC). - 1.1.3 Coverage of assets and liabilities: Fiscal reports cover all financial assets and liabilities of the nonfinancial public sector (GOOD). - 1.1.4 Tax expenditure: Tax expenditures are authorized by law; revenue losses are estimated by type of tax and are usually published annually as part of the budget documents (GOOD). - 1.2 Frequency and timeliness - 1.2.1 Frequency of in-year fiscal reports: Since 2010, fiscal reports on the Executive Branch’s budget execution have been published monthly and the consolidated public sector annually (ADVANCED). - 1.2.2 Timeliness of annual financial statements: The annual financial statements of the Executive Branch are published on March 1 of the following year (ADVANCED) but they are audited 12 months after the end of the fiscal year (BASIC). - 1.3 Quality - 1.3.1 Classification: Fiscal reports include an institutional and economic classification that partially coincides with international standards (BASIC). - 1.3.2 Internal consistency: Fiscal reports do not include reconciliation of either aggregate flows or aggregate stocks (LESS THAN BASIC). - 1.3.3 Historical consistency: Historical fiscal data have not been subject to material revisions but have been affected by methodological changes (ADVANCED). - 1.3.4 Comparability of fiscal reports: The MOF’s monthly budgetary execution report is directly comparable to the budget; broader-level fiscal reports are not readily comparable given sectorization complexity (BASIC). - 1.4 Reliability - 1.4.1 Statistical independence: The development and preparation of public sector fiscal statistics is the responsibility of a collegial unit, which uses the GFSM 1986 rules (BASIC). - 1.4.2 External audit: The audit adheres to ISSAI 1 and 2 (GOOD). - 1.4.3 Reliability: The CGR issues opinions but has recently refrained from expressing an opinion on the reasonability of the accounts (BASIC). *Source: _cr13316 - 17. The annual fiscal reports of the Executive Branch are subject to an audit* ### 26. At mid-year, the MOF prepares and publishes an Executive Branch Budgetary ### _cr13316 - 26. At mid-year, the MOF prepares and publishes an Executive Branch Budgetary Management Monitoring Report, which it sends to the Legislative Assembly for information purposes (BASIC). However, it does not produce a revision of the macroeconomic and fiscal framework for the year in progress (LESS THAN BASIC). ### Mid-year Executive Branch Budgetary Management Monitoring Report - The MOF prepares and publishes a mid-year Executive Branch Budgetary Management Monitoring Report and sends it to the Legislative Assembly for information purposes (BASIC). - The report provides: - Information on actual budget execution by the Executive Branch over the first six months of the year on the basis of the budget. - Status of public debt. - A series of indicators for evaluating budgetary management. - Legal basis: responsibilities assigned to the MOF under Law 8131, Articles 55, 56 and amended Articles 73 and 74. - Limitations (LESS THAN BASIC): - It does not produce a revision of the macroeconomic and fiscal framework for the year in progress. - It does not present the execution of tax collections. - With reference to the debt, it reports only that "84 percent of the debt is of domestic origin." - Institutional indicators are reported in level of compliance, but no details on efficiency and effectiveness in the use of funds to achieve proposed goals. - It assesses macroeconomic and fiscal projections for the next six months but does not provide revisions of medium-term fiscal projections. ### Budget submission and approval - Budget submission (2.2.2): - The budget is published and submitted to the Assembly and the CGR four months prior to the beginning of the year (ADVANCED). - The government sends the proposal to the Assembly on September 1. - The Assembly must approve it by November 29 and forward it to the Executive Branch for sanction. - Information relating to other entities’ proposals is included in the CGR data system by August 30 and approved by the CGR by December 31. - Budgetary ceilings for Ministries and Branches of Government are set by the Directorate General of the National Budget. - Budget approval (2.2.3): - The budget law of the budgetary central government is approved and published by one month before the beginning of the year and the other entities’ budgets are approved and published by the end of the year (GOOD). - The budget proposal sent by the Executive to the Assembly is approved by November 29 while the CGR approves the other budgets by December 31. - There is strict compliance with these deadlines; no delays recorded in recent decades. - If submission does not occur by the date defined by the CGR, the budget from the preceding year is applied for entities with budgetary autonomy. - Timing elements from the submission/approval timeline: - Publication by Executive Order of general budgetary policy guidelines for the public sector: March 30 - Communication of expenditure ceilings: April 15 - Technical and methodological guidelines for formulation: April - Receipt of drafts from government agencies: June 15 - Disclosure to entities of expenditure ceilings defined by the budgetary authority: August 30 - Submission of budget to the Legislative Assembly: September 1 - Approval of budget in the Assembly and forwarding to the Executive for approval: November 29 - Approval of other entities’ budgets by CGR: December 31 ### Policy orientation - Fiscal policy objectives (2.3.1): - The government neither declares nor reports targets for the main fiscal aggregates (LESS THAN BASIC). - MTBF document accompanying the proposal presents consolidated table of revenues, expenditures, primary and overall balances for the previous year and the next four years, and a debt sustainability analysis for the budgetary central government. - Fiscal projections are based on an expenditure ceiling defined on the basis of estimated revenues. - Degree of rigid expenditures: - "Some 44 percent of total expenditure is associated with legal obligations and some 52 percent is practically unavoidable, as in the case of expenditures for wages, interest, and pensions." - Table 17. Degree of Budget Rigidity as a Percentage of Expenditure - Total expenditure: 100.0 100.0 100.0 100.0 (for 2010, 2011, 2012, 2013) - Based on legal or constitutional mandate: 40.1 40.1 42.0 43.5 - Unavoidable 1/ (wages, pensions, debt service): 54.6 54.7 52.2 51.6 - Other expenditures: 5.3 5.2 5.7 4.9 - Source: Submission of Draft Law 2013 and Medium-Term Budgetary Framework 2011. - Separation of existing and new policies (2.3.2): - Budget documentation includes estimates of the return on or cost of the most important policy decisions (GOOD). - MTBF analyzes economic measures adopted in prior years and presents qualitative and quantitative proposals for fiscal measures for the following year; these measures are included in fiscal projections. - 2011 tax reform proposal emphasized value added and income taxes; approved by the Assembly but declared unconstitutional by the Court due to procedural issues. - Table 18. Revenue Losses due to Failure to Approve the Tax Reform (percentage of GDP) - Value Added Tax: 1.2 1.2 1.2 - Income Tax: 1.1 1.1 1.1 - Corporate Tax: 0.3 0.3 0.3 - Casinos Tax: 0.3 0.3 0.3 - TOTAL % GDP: 0.3 1.8 2.9 1 2.91 (as presented in the source) - Source: Medium-Term Budgetary Framework 2013. - Performance information (2.3.3): - Budget documentation includes annual overall balance targets for each major area of governmental policy (ADVANCED). - Includes information on institutional objectives of each ministry, description and amount of budget programs, institutional strategic objectives with performance and output indicators, and breakdown by function, source of funds, and economic classification. - Ministry of National Planning (MIDEPLAN): - Prepares the PND and sends it to the Assembly on March 1 of the year following the start of the presidential term. - PND contains strategic actions, targets, and goals for four years, overall costs for the period, and identification of the executing entity; covers all segments of the public sector. - PND is monitored every six months; reports and assessment delivered to the Government Council. - Achievement of previous year’s goals evaluated in March each year; progress evaluated every two years. - Annual evaluation report sent to municipal councils and published on the web. - Linkages between resource allocations and achievement of PND goals are not presented for all programs in draft budgets; program concepts, goals, and indicators sometimes unclear or not uniformly applied. - Table 19. Funds Allocated to Relevant Goals of the 2011–14 PND for the Education Sector (selected entries) - Strategic Action: Evaluation of the improvement in the quality of education - Implementation of the National System for Quality in Education - Indicators: - % of educational centers; - Increase in gross rate of enrollment in diversified secondary education of 85% by 2014 - 2013 Funds: 2.2 (Billions of colones) - Strategic Action: Plan for improving infrastructure and equipment - Actual investment in construction projects: 90.3 billion colones - Actual investment in land purchases: 19.9 billion colones - Actual investment in furnishings: 6.9 billion colones - 2013 Funds: 30.5; 5.3; 1.6 (Billions of colones) - Strategic Action: Reduction of inequities in effective access to the right to education - Increase to 623,000 the number of students with food service - Grant 175,000 scholarships to students with limited resources - Increase to 96,000 the number of beneficiaries of free transportation - 2013 Funds: 57.1; 20.0; 23.9 (Billions of colones) - Source: Prepared by the CGR based on 2011–14 PND and the Draft National Budget. - Observations: In the education example, there are no performance indicators linked to strategic actions but rather for medium-term goals; no annual physical goals. - Distributional analysis (2.3.4): - The government provides detailed information to the public on progress in achieving goals (BASIC). - Annual PND Goals Achievement Report published in March of each year presents detailed information on progress in the preceding year. - The CGR provides a web page for public consultation regarding public sector budgets by institution, programs and goals, revenues and detailed expenditures. - MOF, sectoral ministries, and CGR appear before the Legislative Assembly to explain the proposed budget; Executive Branch authorities appear before sectoral committees when called. - Evaluation reports of the MOF have potential for improvement in transparency; information is not easily understood by the public or Assembly delegates. - Figure 8 (aggregate information on number of goals with satisfactory progress by sector for 2011 PND) lists sector counts: - productive sector 34 - labor 24 - education 23 - environment, energy, telecom 21 - foreign trade 12 - citizen security 11 - social well-being 10 - health 9 - housing 9 - others 47 - Fiscal sustainability analysis (2.3.5): - Fiscal projections are published and cover a five-year horizon (LESS THAN BASIC). - In 2012, the BCCR prepared and disseminated a study on fiscal sustainability considering shocks such as interest rate shock, exchange rate depreciation, and municipalities’ indebtedness. - MOF limitations: - Does not publish projections of main fiscal variables using multiple scenarios and time horizons of ten or more years. - No MOF studies projecting fiscal variables including social security, population changes, or changes in natural resources with a detailed discussion of assumptions over 30 years. - MOF has published studies on trends in public debt but: - Does not specify objectives of the budget policy to stabilize long-term public debt and budget balance. - The document maintains that the current public debt profile is not sustainable over the long term but suggests that debt may continue to grow without experiencing sustainability problems until it reaches 60 percent of GDP. - Fiscal policies to maintain sustainability of current debt profile are not established, considering the primary balance as the effort needed to halt growth and stabilize public debt. - Notes on historical ratios: - "In 2009, the debt/GDP ratio was 24 percent. It reached 43 percent in 2012 and is projected to reach 50 percent in 2013, suggesting that fiscal policy follows an upward trend." - Figure 9 indicates Long-Term Profile of Costa Rican Public Debt (De bt /GDP, as a %): - Data points include: 34, 41.07, 24.74, 34, 41, 43.91 and years 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 (as shown in source). ### Credibility - Independent evaluation (2.4.1): - The CGR, an independent entity, evaluates the credibility of the government's economic forecast and proposes changes in revenue projections as it deems necessary (ADVANCED). - Under Article 37-1 of Law No. 7428, the CGR must provide the Legislative Assembly with ongoing studies on fiscal efficacy of estimated current revenues. - The CGR discusses revenue projections with each entity but does not publish reports explaining deviations from projected revenues. - The Budgetary Authority (AP) is responsible for designing government budgetary policy; AP has a Technical Secretariat (STAP). - Neither the CGR nor the AP publishes reports analyzing the behavior of fiscal projections for either revenues or expenditures. - Supplementary budget (2.4.2): - A supplementary budget, which should not affect the overall budget, is required before executing sectoral budgetary expenditures (GOOD). - Changes affecting Budgetary Central Government’s revenues and debt must be approved by the Legislative Assembly during the year and constitute extraordinary budgets. - Law prohibits financing current expenditures with capital revenues and increasing current spending by reducing capital expenditures. - No significant changes to the Budgetary Central Government budget compared with amounts initially approved; in 2011 actual expenditure diverged from budgeted expenditure by 4 percent. - During the year, Executive Branch decrees may authorize: - (i) item transfers between subprograms within the same program, without changing the total amount; - (ii) revalidation of programs to be executed with external debt, as approved by the Assembly in prior years; - (iii) expenses for non accrued commitments (obligations not paid in the previous year) that compete with the amount authorized for the following year. - Most adjustments relate to internal changes approved by decree. - Table 20. Changes in the Annual Budget (Billions of colones) — selected entries as presented: - 2009: Total expenditure Law 4,125; Change 1854.54 - 2010: Total expenditure Law 4,720; Change 2064.4 - 2011: Total expenditure Law 5,485; Change 2284.1 - - revenues 2009: 2,950; -278 -9.4 2,804 60.2; 2011: 3,039 10.0 - - domestic debt 2009: 1,154; 44638.6 1,915 985; 2011: 2,446 00.0 - - external debt 2009: 21; 1781.00 102; 2011: 0 227 - Source: Annual Report of CGR, various years, Table 2.1. - Figure 10 shows number of legal documents needed to amend the budget with counts for 2009–2012: - 0 5 10 15 20 25 30 35 40 45 (chart axis) - 2009 2010 2011 2012 series: Executive Decrees and Extraordinary Laws (as depicted in the source). - Forecast reconciliation (2.4.3): - No successive versions are prepared of the government’s revenue, expenditure, and financing forecasts (LESS THAN BASIC). - The draft annual budget has a section that evaluates behavior of revenue, expenditure, and financing but does not explain material discrepancies in projections. - Reference is made to discrepancies in revenue certifications by the CGR although certifications do not point out material differences in fiscal projections. - The draft budget describes behavior of total public revenues by source during the previous year for illustration and details budget expenditure and financing. - The 2013 draft budget evaluated national and international factors that could affect fiscal collections, expenditure, and financing and behavior of macroeconomic variables, but did not use this information to explain discrepancies in fiscal projections. - The document does not detail changes in fiscal policy and their effects on macroeconomic variables; identification of material differences in fiscal projections is not reconciled. - Table 21. Projected and Actual Revenue, Expenditure, and Financing (As a percent of GDP) - Projected (2010 2011 2012): - Total Revenues: 14.8 16.3 17.5 - Total Expenditures: 19.8 20.0 20.3 - Financing: 4.9 3.8 2.8 - Actual (2010 2011 2012): - Total Revenues: 13.6 13.5 13.5 - Total Expenditures*: 25.1 23.7 23.7 - Interest: 2.3 2.5 2.5 - Financing: 5.0 3.7 3.7 - Source: Medium-Term Budgetary Framework, 2009-2013, p. 39 - *Excluding interest ### Recommendations (as listed in source) - Prepare budget reports with analysis of situation and outlooks by the end of the year for the public sector, with the following periodicity: - (i) approved budget report by the end of January; - (ii) quarterly execution report by 30 days after the end of the quarter; - (iii) annual consolidated execution by April 1 of the following year. - Amend the Constitution to make the Legislative Assembly responsible for approving the budget for the entire public sector. - In the MTBF document, the government should: - Summarize macroeconomic and fiscal developments since the last budget and a revised macroeconomic and fiscal framework for the year in progress over the medium term. - Accurately state the numerical targets for the main fiscal aggregates over time and the medium term. - Establish direct linkage between National Development Plan programs and the budget. Adjustments include: - Standardization of concepts, programmatic structures, and performance indicators; - Identification of priority programs; - Improved performance evaluations to measure the results of policies. - In the report on the Situation of the Debt, expand analysis of debt trends by: - Describing multiple scenarios for evaluating the main fiscal aggregates and including social security with a minimum of ten years; - Publishing debt information on the consolidated public sector. ### Conclusions - The source provides an overall assessment and grading of practices across: mid-year reporting, budget submission and approval, policy orientation, performance information, fiscal sustainability analysis, credibility, supplementary budgeting, and forecast reconciliation. - Summary assessment (Table 22 referenced): fiscal projections and budgets must clearly provide objectives and intentions of central government policies and exhaustive, timely, credible projections regarding public finances (full table and detailed grades are presented in the source). *Source: _cr13316 - 26. At mid-year, the MOF prepares and publishes an Executive Branch Budgetary Management Monitoring Report (extracted from the supplied PDF content).* ### 2.1 Scope ### 2.1 Scope ### 2.1 Fiscal forecasting and budgeting: scope and presentation - Unity - Revenues, expenditures, and financing of the central government are authorized by the legislature. - Current practice: Budgetary legislation is fragmented. Central Government revenues and expenditures are approved by the Legislative Assembly, while the revenues and expenditures of the entities attached to ministries, decentralized entities, financial and nonfinancial public enterprises, the central bank, municipalities, and social security are approved by the CGR (LESS THAN BASIC). - Gross budgeting - Revenues and expenditures are presented on a gross basis in budget documentation. - Current practice: All domestic and external revenues, except for tax refunds and exemptions, and related expenses are presented in gross terms (ADVANCED). - Macroeconomic forecasts - The macroeconomic forecasts on which the budget projections are based are disclosed and explained. - Current practice: The Central Bank of Costa Rica (BCCR) prepares the macroeconomic program in the first quarter in which the projections of the key macroeconomic variables are published and also reports on the assumptions supporting those variables (GOOD). - Medium-term budget framework - Budget documentation includes projections of revenues, expenditures, and financing over the medium-term. - Current practice: The budget documentation includes medium-term projections of revenues and expenditures aggregated by entity and financing (BASIC). ### Key statistics and ratings (from 2.1) - Presentation of consolidated approval: Legislative Assembly vs CGR (LESS THAN BASIC). - Gross presentation of revenues/expenditures (ADVANCED). - Macroeconomic program disclosure by BCCR (GOOD). - Medium-term projections by entity and financing (BASIC). --- ### 2.2 Timeliness ### 2.2 Provision of timely fiscal updates - Fiscal Strategy Report (mid-year) - Requirement: Government provides a mid-year report summarizing macroeconomic and fiscal developments and forecasts for upcoming budget. - Current practice: At mid-year, the MOF prepares and publishes an Executive Branch Budgetary Management Monitoring Report, which it sends to the Legislative Assembly for information (BASIC). However, it does not produce a revision of the macroeconomic and fiscal framework for the year in progress (LESS THAN BASIC). - Budget submission - Requirement: Legislature and public given adequate time to scrutinize and approve the annual budget before the start of the financial year. - Current practice: The budget is published and submitted to the Legislative Assembly and the CGR four months prior to the beginning of the year (ADVANCED). - Budget approval - Requirement: Approval and publication of the budget consistently provides adequate time for effective execution. - Current practice: The budget law of the budgetary central government is approved and published by one month before the beginning of the year and the other entities’ budgets are approved and published by the end of the year (GOOD). --- ### 2.3 Policy Guidance ### 2.3 Presentation to facilitate policy analysis and accountability - Fiscal policy objectives - Requirement: Government states and reports on clear and measurable objectives for the public finances. - Current practice: The government neither declares nor reports objectives for the main fiscal aggregates (LESS THAN BASIC). - Separation of existing and new policies - Requirement: Distinguish yield/cost of existing policies from fiscal impact of new measures. - Current practice: Budget documentation includes estimates on the return on or cost of the most important policy decisions (GOOD). - Performance information - Requirement: Budget documentation provides objectives and results achieved/intended under each major policy area. - Current practice: The budget documentation includes annual results targets for each major area of governmental policy (ADVANCED). - Distributional analysis - Requirement: Clear, accessible summary of financial implications of major policies for citizens. - Current practice: The government provides detailed information to citizens on progress toward achieving goals (BASIC). - Fiscal sustainability analysis - Requirement: Government regularly publishes projected evolution of public finances over the long-term. - Current practice: Fiscal projections are published and cover a five-year time horizon (LESS THAN BASIC). --- ### 2.4 Credibility ### 2.4 Measures to ensure credible forecasts and budgets - Independent evaluation - Requirement: Fiscal forecasts subject to independent evaluation where available. - Current practice: The CGR, an independent entity, evaluates the credibility of the government’s economic forecasts and proposes changes in the revenue and expenditure projections (ADVANCED). - Supplementary budget - Requirement: Any material changes to the approved budget authorized by the legislature. - Current practice: A supplemental budget is required before executing sectoral budgetary expenditures that should not affect the total budget (GOOD). - Forecast reconciliation - Requirement: Budget documentation and updates explain material changes to previous forecasts. - Current practice: Differences between successive versions of the government’s revenue, expenditure, and financing forecasts are not indicated at the aggregate level (LESS THAN BASIC). --- ### III. FISCAL RISK ANALYSIS AND MANAGEMENT ### A. Introduction — Fiscal Risks Reports (selected) - Medium-Term Estimates of Selected Decentralized and Deconcentrated Agencies: 2012-17 - Responsible: MOF – Technical Secretariat of the Budgetary Authority - Content: Analysis of medium-term deficit/surplus tendencies of principal decentralized entities and public corporations - Annual Report of the Central Bank - Responsible: Central Bank of Costa Rica - Content: Opinions certifying indebtedness of public entities - Annual Report of the SUGEF - Responsible: General Superintendency of Financial Entities - Content: Analysis of equity and solvency status of financial institutions ### B. Risk Analysis — Macroeconomic risks (3.1.1) - Debt sensitivity and macro assumptions - The budget documentation includes an explanation on debt sensitivity but does not cover fiscal forecasts and the key macroeconomic assumptions (BASIC). - The MOF publishes an annual report on the situation of public debt detailing risks of public debt. - Outside of that, macroeconomic risks are primarily discussed at ministerial level, especially interest rate and exchange rate risks. ### Economic growth - Recent pattern - After the 2008 crisis, Costa Rica experienced accelerated growth. Between 2009 and 2011, tax revenues grew less than GDP; in 2012 collections grew faster than GDP. - Tax revenue elasticities (Table 24: Specific Elasticity of CG Tax Revenues Relative to GDP) - Change in Nominal GDP: 2009 7.60 2010 9.80 2011 12.50 2012 8.50 - Change in Tax Revenue (TR): 2009 -2.30 2010 9.70 2011 12.00 2012 10.10 - TR-GDP Elasticity: 2009 -0.30 2010 0.99 2011 0.96 2012 1.19 - Note: 1.19 in 2012 was the highest level achieved during this period. ### Public debt - Reporting and analysis - The Annual Report on the Situation of Domestic and External Public Debt partially recognizes debt policy risks. - In the DCP, sensitivity analyses are conducted monthly or when significant macro variable changes occur. - Debt strategy is prepared on a half-yearly basis and is presented to the media and subject to sensitivity analyses; only the strategy is published on the MOF website. - Risks associated with monetary and exchange rate policies are not analyzed in the Macroeconomic Programming publication. ### Exchange rate - Exposure and policy - Exchange rate variations pose a risk to government financing. - Current exchange rate policy: exchange rate that fluctuates within a band, which currently guarantees relative stability. - Government has dollar-denominated securities equal to 19.6% of total debt in 2011; depreciation could increase cost of financing. - A ready supply of external funds and high domestic yields usually allow external savings inflows, strengthening the exchange rate via reserve accumulation. ### Specific fiscal risks (3.1.2) - Explicit fiscal risks - Main explicit risks—pensions, natural disasters, lawsuits—are not explained in qualitative terms (LESS THAN BASIC). - Systemic risks include aging population affecting pensions and legal/constitutional rigidity in fiscal policy. ### Legal and budgetary framework - Earmarking and rigidity - Examples of earmarked targets (Table 25): - Special Fund to Finance Higher Education: 1.5 % of GDP - Judicial Branch: 6% of current revenues (Constitution, Art. 177) - National Roads Council (CONAVI), cantonal network: 75% of 29% of taxes received: fuels, vehicle ownership, and tolls (Law on Tax Simplification and Efficiencies, Law No. 8114, Art. 5) - CONAVI road network maintenance: 50% of taxes collected on vehicle ownership (Law Creating de CONAVI, Art. 20) - Municipalities: 25% of 29% of taxes received on fuels, vehicle ownership, and tolls (Paragraph b) Art. 5, No. Law 8114 on Tax Simplification and Efficiency) - Technical Civil Aviation Council: $12.85 of $26 (Art. 1, Law 8316, Regulating Duties on Departure from National Territory, as amended) - Election Spending: 0.11% of GDP (Art. 96(1) of the Constitution) - Dual budgetary system: Assembly responsible for only 41 percent of total public expenditures; some 80 percent of budgets sent to the National Assembly are linked to legal or constitutional mandates, limiting MOF and Assembly capacity. - Consequence: Very limited room to maneuver for fiscal rules, efficiency/effectiveness principles, and consolidated macro-fiscal policy-making. ### Short-term risks and policy interactions - Counter-cyclical policy and coordination - Authorities assess but do not disclose coordination risks between fiscal and monetary policy. - Example: Counter-cyclical fiscal expansion increased expenditure, closing the gap between potential and current output and generating inflationary pressures, inducing BCCR to slow demand. - Fiscal outcomes and costs - Overall fiscal deficit of the nonfinancial public sector (NFPS) averaged 3.9 percent of GDP between 2009 and 2013 (IMF staff projection). - By comparison, 2008 recorded a surplus of 0.4%. - BCCR sets annual inflation goal of 5% (± 1 pp); that rate is used to define public spending in the next budget regardless of projected revenues. - Fiscal multiplier is estimated at 0.3 (IMF Article IV, 2012, page 17). - Domestic debt currently equal to 84 percent of total debt. - Financing to the government grew rapidly and nearly doubled during the period between 2009 and 2012. - Higher interest rates to curb inflation increased government domestic financing costs and debt-service on domestic debt. ### Pension systems - Actuarial studies and projections - Three actuarial studies with different scopes/methodologies evaluate long-term commitments and funding. - Studies assume constant population growth and a five-year variation of ½ percent in contributions. - PRODEFI (CCSS) projection: no financial problems until 2025. - ILO projection: pension system would not face financial difficulties until 2035. - Differences in average premium calculations (selected horizons): - Table 26. Average Premium Calculation for Pensions System - Nathal: 25 years (blank) 43 years 14.00 100 years 16.34 - ILO: 25 years 7.56 50 years 16.67 - PRODEFI: 25 years 7.83 50 years 15.26 - (Source: CCSS, ILO, and Nathal Actuarios y Consultores) - Commentary in source: small premium differences first 25 years; second half of 50-year horizon differences magnified (PRODEFI 15.26 vs ILO 16.67 at 50 years). ### Oil prices - External dependence and transmission - Costa Rica is totally dependent on imported oil; international price fluctuations risk trade balance, balance of payments, and inflation. - Government price mechanism: increases in international fuel prices are fully reflected in domestic prices to avoid fuel subsidies. - Effects: reduced domestic fuel demand (affecting tax collections) and higher company costs (electricity), potentially reducing households’ purchasing power and tax receipts. - Recommendation in source: advisable for budget documents to include this aspect in risk calculations. ### C. Risk Management - Contingency reserves (3.2.1) — (section begins; content following this heading in source is not included in the supplied excerpt) *Source: _cr13316 - 2.1 Scope (excerpts) — IMF staff report content provided in the supplied PDF content.* ### 55. The budget does not include an allocation for contingencies. However, there is a ### _cr13316 - 55. The budget does not include an allocation for contingencies. However, there is a ### Contingency arrangements and disaster fund - The budget does not include an allocation for contingencies. - There is a fund for natural disasters that is partially financed with surpluses (LESS THAN BASIC). - Legislation established an emergency fund (National Commission for Risk Prevention and Emergency Response) for unforeseen events such as natural disasters and wars, but it does not cover other contingencies like those arising from macroeconomic effects on budgetary revenues or events of a legal nature such as judgments against the State. - The fund is made up of 3 percent of the earnings of public corporations and the budgetary surplus of revenues not allocated to specific expenditures. - In practice almost all of these funds have been used each year. - Table 27. National Commission for Risk Prevention and Emergency Response - Billions of colones - Heading 2009 2010 2011 2012 - Revenues 9.15.96.1 6.7 - Expenditures 8.65.45.9 6.4 - - administration 1.72.21.9 2.3 - - risk management 6.93.24.0 4.1 - Balance 0.50.50.2 0.3 - Source: Office of the Comptroller General of the Republic. ### Assets and liabilities management (3.2.2) - All assets and liabilities are authorized by legislation, reported, and managed according to a published strategy (ADVANCED). - All increases in domestic debt must be certified by the BCCR. - External debt must be approved by the Legislative Assembly and revalidated through Executive Branch decrees. - The government announces the domestic debt placement strategy for the upcoming six months and evaluates results from the previous six months compared to the previously disclosed strategy; the calendar of auctions, new projects, and schedule of swaps for the six-month period are reported. - The “Annual Report on the Situation of Domestic and External Public Debt” explains changes in key components of nonfinancial public sector and central bank debt, fiscal outcomes, project progress, and risks and debt sustainability analysis. - The government has no participation in private companies or openly traded public companies. - Financial assets are limited to funds deposited in the treasury single account administered by the National Treasury and deposited at the BCCR. - The Treasury was recently authorized by law to purchase securities in small amounts; management of the Treasury’s fund is limited by resources assigned to specific uses in the budget. - Transfers to deconcentrated and autonomous entities are carried out on the basis of an established schedule and independently of revenue collections. - Temporary cash shortfalls are covered with short-term debt that can be purchased by public institutions. - The BCCR does not pay interest on the treasury single account. - Aggregate financial and cash liabilities of the Treasury are consolidated by the MOF in the financial statements of the Executive Branch and sent to the CGR, which submits an annual evaluation report to the Legislative Assembly. - Figure 15. Trends in Maturity of Total Debt: Percentage Distribution (Source: MOF, Annual Report on the Status of Domestic and Foreign Public Debt). ### Guarantees (3.2.3) - Amounts guaranteed by the government are published annually in the financial statements of the Executive Branch and legislation requires debt be certified in advance by the BCCR, with exceptions for municipalities, the ICE, and the universities (BASIC). - Article 7 of Law 7010: no public institution of decentralized central government sector, or any company in which the State or its institutions hold more than fifty percent of the shares, may contract external or domestic debt without prior authorization of the project prepared by the Ministry of Planning and a favorable opinion from the BCCR as well as the authorization of the Budgetary Authority. - Article 80(d) of Law 8131 of 2011: Directorate of Public Credit is competent authority to recommend authorization by the Budgetary Authority for public sector debt requests. - Article 38 of Law 8131 of 2011: government must submit certification from the BCCR with respect to its borrowing capacity as part of budget documentation; municipalities are exempt following a court decision; the ICE and the universities are also exempt. - Law 8131: General Directorate of Public Credit (DGCP) must maintain control of domestic and external debt and prepares an annual public sector debt report sent to the CGR; no separate information on guarantees in that report. - BCCR summarizes certifications issued regarding new debt requests; in 2011 the BCCR issued 15 favorable opinions on loans. - DGCN presents information on domestic and external loans for which the State acts as guarantor: at December 31, 2011 the amount stood at $417.37 million and amounted to $427.5 million in 2012. ### Financial sector exposure (3.2.4) - The government’s potential fiscal exposure to the financial sector is reported through quantified assessments of the sector’s stability and disclosed at least annually (ADVANCED). - The General Superintendency of Financial Entities (SUGEF) supervises financial entities and publishes an annual report with detailed analysis of bank solvency indicators, including capital adequacy and loan payments with more than 90 days in arrears. - Financial institutions are generally well capitalized and profitable. - Table 28. Asset Structure and Solvency of Financial Institutions in 2011 - Areas / Indicator / Public Banks / Housing Sector / Private Banks / Nonbanking Financial Corporations / Savings and Loan Cooperatives - Asset Information – in millions of colones - Assets 8,441,636 691,038 4,555,788 135,272 1,324,679 - Liabilities 7,384,084 89,514 4,010,625 118,358 1,042,155 - Net Worth 1,057,552 101,524 545,163 16,914 282,524 - Earnings 95,903 9,483 45,398 1,604 28,378 - Return on Equity as a % 9% 9% 8% 9% 10% - Solvency Information - Capital adequacy - Capital adequacy 13,89% 52,88% 15.04% 16.12% 23.56% - Capital Equity commitment -0.92% -0.01% -0.43% -0.73% -2.48% - Assets Delinquency > a 90 days/Direct Portfolio 2.56% 0.90% 1.12% 2.20% 0.76% - Exp. Loss on Total Port./Total Portfolio 1.95% 0.95% 1.27% 0.99% 1.92% - Management Productive Assets/Liabilities with Cost 1.11V 1.49V 1.00V 1.02V 1.30V - Admin. Expense/Gross Earnings on Operations 67.39% 53.68% 67.04% 68.23% 58.87% - Development of Returns Quarterly Cumulative Profit or Loss 2.48% 1.75% 2.41% 1.38% 2.31% - Liquidity Volatility adjusted one-month match 1.82V 3.52V 1.91V 2.05V 2.41V - Volatility adjusted three-month match 1.18V 2.07V 1.34V 1.28V 1.35V - Projected effective flow at two months N/A 1.20V 1.91V - Sensitivity to Market Risks - Rate Risks N/A N/A 1.34V - Interest Rate Risks in colones 0.42% 1.92% 0.43% 0.05% 0.30% - Interest Rate Risks in Foreign Currency 0.26% 0.26% 0.22% 0.48% 0.48% - Exchange Risk 1.00% 0.09% 5.78% 2.71% 0.10% - Quantitative Rating 1.08 1.00 1.08 1.00 1.08 - Qualitative Rating 1.55 1.60 1.45 1.66 1.75 - Overall Rating 1.18 1.12 1.16 1.13 1.22 - Source: SUGEF, 2011 Annual Report, www.sugef.fi.cr ### Long-term contracts (3.2.5) - The government publishes total liabilities on long-term contracts each year but does not calculate associated financial risks (BASIC). - The National Concessions Council (CNC) manages public-private partnership contracts. There are five current contracts: two highways, two port terminals, and one airport passenger terminal. - Three of the contracts include a minimum guarantee on the volume of vehicles or passengers. - Contracts and concession documents are available on the CNC website. - So far the government has not had to provide funds to cover potential losses due to volumes lower than projected, but there is no assessment of risks associated with possible reductions in volume and no funds set aside to cover such risks. - The five contracts total US$1.7 billion (3.5 percent of GDP). - Estimated needs: investments amounting to 3.5 percent of GDP would be needed annually in transportation; annual investment deficits are estimated to be 2 percent of GDP. - The government did not establish a ceiling on the total amount of concessions or an annual ceiling on the risks of potentially having to cover guarantees provided to concession holders. - Table 29. Characteristics of Public-Private Partnerships - Concession / Total Value of Investment in Thousands of US$ / Concession Period (years) / Type of Guarantee - San Jose – San Ramón Road Corridor 523.70025 Minimum volume of vehicles for 10 years - San José – Caldera Highway 265,86025,5 Minimum volume of vehicles for 10 years - Design, Financing, Construction, Operation, and Maintenance of Moín Containers Terminal 812,10033 No guarantees - Daniel Oduber International Airport Passenger Terminal 35,00025 Minimum entry of passengers for 15 years - Terminal in Puerto Carrera 40,000No guarantees - Total 1,676,660 - Percentage of GDP (%) 3.5 - Source: National Concessions Council, www.cnc.go.cr - Table 30. Example of Simulated Calculation of Risk Associated with a Concession Contract for the Daniel Oduber International Airport Passenger Terminal - Year / Concession Contract Minimum Volume / 2% Simulation Volume / Potential Revenue / Cost / 4% Simulation Volume / Potential Revenue / Cost - 2009 208,500 1,459,500 208,500 208,500 - 2010 226,000 8.39 1,582,000 212,670 93,310 216,840 64,120 - 2011 243,000 7.52 1,701,000 216,923 182,536 225,514 122,405 - 2012 259,500 6.79 1,816,500 221,262 267,667 234,534 174,761 - 2013 275,000 5.97 1,925,000 225,687 345,190 243,916 217,591 - 2014 290,000 5.45 2,030,000 230,201 418,594 253,672 254,295 - 2015 304,500 5.00 2,131,500 234,805 487,866 263,819 284,767 - 2016 318,500 4.60 2,229,500 239,501 552,993 274,372 308,898 - 2017 331,500 4.08 2,320,500 244,291 610,463 285,347 323,073 - 2018 344,500 3.92 2,411,500 249,177 667,262 296,761 334,176 - 2019 356,000 3.34 2,492,000 254,160 712,878 308,631 331,583 - 2020 368,000 3.37 2,576,000 259,244 761,295 320,976 329,167 - 2021 379,000 2.99 2,653,000 264,428 802,001 333,815 316,293 - 2022 389,500 2.77 2,726,500 269,717 838,481 347,168 296,325 - 2023 399,000 2.44 2,793,000 275,111 867,221 361,055 265,618 - Total 32,847,500 7,607,758 3,623,074 - Source: CNC, concession contracts and simulation by the mission. - Example finding: If passenger volumes increase at a rate similar to GDP growth (4 percent a year), the government would have to contribute close to US$3.6 million on the Daniel Oduber contract (Table 30). - Recommendation: More sophisticated probability-based calculations are recommended to estimate reserve needs for potential guarantees; publish an annual report with concessions’ financial and operational performance and risk mitigation measures. ### Financial derivatives (3.2.6) - The central government does not operate with derivatives (NOT APPLICABLE). - Central government entities have no operations based on derivatives. - The Costa Rican Electricity Institute (ICE) has ten contracts with derivatives to cover exchange rate and interest rate risks. - The total amount involved in derivatives contracts was US$650 million as of 12/31/2011. - Market risk positions are disclosed in the annual financial statements of the ICE. ### Subnational governments (3.3.1) - The CGR compiles and publishes the fiscal situation of the municipalities on a quarterly basis (BASIC). - Costa Rican municipalities contribute 4 percent of total effective public sector revenues, concentrated in seven municipalities (92%). - The CGR approves municipalities’ budgets and exercises fiscal control; it compiles and publishes municipalities’ fiscal situation with budget settlement, revenues, and disbursements. - Municipality of San José’s revenues represent 36.7 percent of total local government revenues; its financial statements have been available since 2003 and on an accrual basis since 2009. - Financial statements are subject to external audits which have indicated reasonable representation of the municipality’s financial situation; the CGR has not issued any opinion on these statements in particular. - Municipalities’ debt is 33.346 billion colones (1.5% of GDP) as of December 31, 2012. - Except for San José, municipalities do not publish budgets and financial statements on their websites; budgets are available on the CGR website. - Figure 16. Distribution of Key Municipalities’ Debt in 2012 (Source: CGR). ### Public corporations (3.3.2) - All direct and indirect transfers between the government and public corporations, and the value of any quasi-fiscal activity, are disclosed annually (ADVANCED). - Financial transfers between the central government and public corporations appear in the annual budget submitted to the Legislative Assembly. - Public corporations have no legal obligation to pay dividends to the government when they have surplus earnings; they may accumulate surpluses. - The MOF conducts an internal study evaluating financial behavior of the public sector covering 12 of the largest nonfinancial public corporations over 2012–2017; conclusion: only one company has ongoing operational deficits and financial deficits are due to investments financed through specific loans. This report is internal and not published. - Public corporations engage in few quasi-fiscal operations; ARESEP authorizes regulated utility prices based on cost recovery. - Figure 17. 2012 Budgetary Execution of Nonfinancial Public Corporations shows total revenues in 2012 were almost enough to cover expenditures. - According to the CGR’s annual audit of the 2011 financial statements of the Executive Branch, no figures were included or disclosed with respect to the government’s ownership or participation in public corporations. ### Recommendations - The Ministry of Finance should prepare an annual document reporting on fiscal risks as part of the budget documents. This document should contain information on: - macroeconomic risks, - public debt, - public corporations, - debt guarantees, - contingent liabilities, - concession contracts, - natural disasters, - financial institutions, - subnational governments, and - social security and health. ### Conclusions (summary assessment) - Table 31. Summary Assessment of Risk Analysis and Management Practices (excerpt) - Item 3 Analysis and management of fiscal risks: Governments must analyze and manage fiscal risks and ensure effective coordination of fiscal decision-making of the entire public sector. - 3.1 Risks analysis: Government must publish regular reports on the risks to which their fiscal outlooks are subject. - 3.1.1 Macroeconomic risks: The government reports on how fiscal outcomes might differ from forecasts as a result of macroeconomic shocks. The budget documentation includes an explanation on the sensitivity of the debt but not on the fiscal forecasts and the key macroeconomic assumptions (BASIC). - 3.1.2 Specific fiscal risks: The government regularly reports on main sources of specific risks to its fiscal forecasts, such as contingent liabilities. The principal specific risks of fiscal forecasts, such as those related to pensions, natural disasters, and lawsuits, are not explained in qualitative terms (LESS THAN BASIC). *Source: Office of the Comptroller General of the Republic; MOF; SUGEF; CNC; CGR (as presented in the supplied content).* ### 3.2 Risk ### 3.2 Risk ### Contingency reserves (3.2.1) - Principle: The budget has adequate and transparent provision for contingencies that arise during budget execution. - Assessment: - The budget does not include an allocation for contingencies. However, there is a fund for natural disasters that is partially funded by financial surpluses (LESS THAN BASIC). ### Assets and liabilities management (3.2.2) - Principle: Risks relating to major assets and liabilities should be disclosed and managed. - Assessment: - All assets and liabilities are authorized by legislation, disclosed, and managed according to a published strategy (ADVANCED). ### Guarantees (3.2.3) - Principle: Government guarantees are regularly disclosed and actively managed. - Assessment: - The amounts guaranteed by the government are published in the financial statements of the Executive Branch and the legislation requires that debt be certified in advance by the BCCR, with the exception of the municipalities, the ICE, and the universities (BASIC). ### Financial sector exposure (3.2.4) - Principle: The government’s potential fiscal exposure to the financial sector is analyzed and managed. - Assessment: - The government’s potential fiscal exposure to the financial sector is reported through quantified evaluations of the stability of the sector and disclosed at least annually (ADVANCED). ### Long-term contracts (3.2.5) - Principle: The government’s rights and obligations under long-term contracts, including public-private partnerships and contracts for the exploitation of resources, are regularly disclosed and actively managed. - Assessment: - Each year the government publishes its total obligations based on long-term contracts. However, the associated financial risks are not estimated (BASIC). ### Financial derivatives (3.2.6) - Principle: The government’s derivative positions are regularly disclosed, assessed, and managed in the context of the overall balance sheet. - Assessment: - The government does not operate with derivatives (NOT APPLICABLE). ### 3.3 Fiscal coordination ### Subnational governments (3.3.1) - Principle: Consolidated and comprehensive information on the fiscal conditions of the subnational government is collected and published. - Assessment: - The CGR compiles and publishes the fiscal situation of the municipalities on a quarterly basis (BASIC). ### Public corporations (3.3.2) - Principle: Government oversees and regularly publishes comprehensive information on the fiscal performance of public corporations. - Assessment: - All direct and indirect transfers between the government and public corporations, as well as the value of any quasi-fiscal activity, are disclosed annually (ADVANCED). ### Annex: Recommendations and Action Plan to Improve Fiscal Transparency and Analysis of Fiscal Risks (selected items) - Coverage of flows, balances, and budgetary classification, accounting and statistics (1.1.2 and 1.3.1) - Complete the implementation of the international public sector accounting standards for the public sector, ensuring that accounting and budgetary classifications are harmonized. This reform can take from 6 to 12 years to be completed. - Actions by year: - 2014: Modify the accounting standards and regulations to the international accounting standards. - 2015: Start recording the expenses in accordance with the accrual basis. - 2016: Record revenues according to the modified cash basis (tax settlement and recognition of the tax return). - 2017: Make provisions for major fiscal risks. Record revenues according to the accrual principle (1-3 years). - 2018: Record assets and long-term financial liabilities in accordance with the principle of amortized cost (present value) (1-3 years). Record fixed and intangible assets. Inventory and cost all physical assets, including infrastructure. (1-3 years). The last stage is the consolidation of public sector financial statements (2 years). - Responsible: DGPN, DCP, DGCN, DG Tributación, DG Aduanas - Consistency and reliability of budgetary, accounting, and statistical information (1.3.2, 1.3.3, and 1.3.4) - Reconcile fiscal reports and produce timely audit reports to ensure the reliability of the information. - Actions: - Harmonize the classification of accounts with the IMF GFSM 2001. Develop fiscal statistics according to the IMF GFSM 2001, reconciled to the Financial Statements. - CGR should prepare audit of the consolidated annual budget execution report in a maximum period of nine months from the end of the fiscal year. - Adjust the financial statements as identified by the CGR to avoid abstention of the audit opinion. Reconcile cash flow statement with budgetary outcomes (IPSAS 24, paragraph 47). - Audit the annual consolidated financial statements of the NFPS. - Responsible: STAP, DGCN, Tesoro Nacional y CGR - Budgetary unit, proposal and approval of budget (2.1.1, 2.2.2, and 2.2.3) - Prepare budget reports with analysis of situation and outlooks by the end of the year for the public sector. - Actions: - Present individual annual budget execution reports before January 31. - Coordinate the timing of the budget execution statements of public entities to become quarterly for all entities. Prepare quarterly progress reports by 30 days after the end of the quarter. - Prepare the consolidated annual budget execution report by April 1 of the following year. - Amend the Constitution to make the Legislative Assembly responsible for approving the budget for the entire public sector. Conduct studies to identify legal alternatives for the unification of the budget. Discuss with the Assembly a proposal for constitutional change. Propose modification of the constitution and define transition period. Implement a unified budget approval to the entire public sector. - Responsible: Public Entities, STAP, DGCN; MOF and Legislative Assembly (constitutional amendment actions) - Medium-term budgetary framework, report on fiscal strategy and fiscal policy objectives (2.1.4, 2.2.1, and 2.3.1) - Improve the medium-term budget framework (MTBF). - Actions: - Strengthen macroeconomic analysis, preparation and publication of macroeconomic and fiscal projections. - Define fiscal rules to assure the stability of public finances in the medium and long term. - Include in the MTBF medium term information on the sectoral ministries. - Include in the MTBF information on programs for the medium term. Include operation and maintenance costs of investment projects in the multi-year projections. - Evaluate the MTBF. - Responsible: DGPN, DCP - Information on performance of programs (2.3.3) - Establish direct linkage between National Development Plan programs and the budget. Adjustments include: standardization of concepts, programmatic structures, and performance indicators; identification of priority programs; improved performance evaluations to measure the results of policies. - Actions: - Review the logical framework methodology and make adjustments in the programs of four pilot ministries. Send to the National Assembly prioritized public investments, which must be in line with proposed investments in the annual and multi-year budget. - Make adjustments in the programs of other four ministries. Start performance evaluation of five programs. - Gradually expand the coverage of the programs to complete the review of all programs. Continue the evaluation of the programs. - Responsible: MIDEPLAN, DGPN - Fiscal sustainability analysis (2.3.5) - In the report on the Situation of the Debt, the analysis of debt trends should be expanded by describing multiple scenarios for evaluating the main fiscal aggregates and including social security with a minimum of ten years and publish debt information on the consolidated public sector. - Actions: - Publish the consolidated public sector debt. In the annual budget define and publish public debt policy, which should include alternative scenarios. - Prepare multiple scenarios and analyze the debt dynamics in the debt report. - Expand the fiscal projections to 10 years and include social security. - Expand the fiscal projections to 20 years. - Expand the fiscal projections to 30 years. - Responsible: BCCR, DCP, DGPN - Analysis and management of fiscal risks (Pillar 3) - Prepare an annual document reporting on fiscal risks as part of the budget documents. This document should contain information on macroeconomic risks, public debt, public corporations, debt guarantees, contingent liabilities, concession contracts, natural disasters, financial institutions, municipal governments, and social security and health. - Actions and timeline: - Define the unit in the MOF that will be responsible for the preparation of the risk assessment. Define the structure of a fiscal risk report, identify the units responsible for the preparation of information, and prepare a pilot report to assess the methodology and consistency of the information. - Publish the first fiscal risk report that includes macrofiscal risks, and risks related to public enterprises and the financial sector. Define policies to mitigate those risks. - Include in the fiscal risk report information on public private partnership contracts, subnational governments, and debt guarantees. - Include in the fiscal risk report information on contingent liabilities such as pension funds and judicial demands. - Responsible: DGPN, BCCR, ARESEP, CNC, INS and other areas that manage potential fiscal risks. *Source: _cr13316 - 3.2 Risk* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13316.pdf_