## _wp03199

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### I. INTRODUCTION
- Purpose and methods:
  - Uses information from surveys and interviews (done by the Fiscal Affairs Department in February and March 2003) to assess financial market and civil society views of fiscal ROSCs.
  - Aims: assess initial impacts of the fiscal transparency initiative through these channels and identify how fiscal ROSCs might be improved.
  - Secondary objectives: obtain feedback on and publicize the fiscal ROSC initiative and related private sector and civil society activities.
- Expected benefits of greater fiscal transparency:
  - Improved access to international capital markets.
  - Earlier and smoother fiscal policy responses to changing economic conditions, reducing the incidence and severity of crises.
  - Enhanced oversight by civil society and the public, potentially reinforcing improvements in fiscal transparency.
- Preconditions for impact:
  - Market participants and civil society must be aware of, value, and utilize the information in fiscal ROSCs.

### II. THE ROLE OF THE IMF
- Leadership and standards:
  - The IMF, via the Code of Good Practices on Fiscal Transparency (introduced in 1998) and publication of ROSCs, has taken the lead in promoting fiscal transparency.
  - The Code represents practices that all countries should be capable of achieving over the medium to longer term.
- Evolution and format of fiscal ROSCs:
  - In 1999 the IMF started a program of assessments of country adherence to the Code.
  - The first fiscal ROSCs were experimental and very short; since 2000 the coverage has expanded to cover all elements of the Code and the format has been standardized.
  - Section II of each fiscal ROSC: factual description of country practices against the Code, prepared by IMF staff often using a standard questionnaire.
  - Section III of each fiscal ROSC: IMF staff commentary on the level of transparency achieved, acknowledgement of recent reforms, and prioritized recommendations for improving transparency.
- Voluntary nature and participation:
  - The ROSC program is voluntary; publication occurs with the consent of the country and after notification to the Executive Board.
- Coverage and targets (exact figures):
  - As of July 2003, 59 fiscal ROSCs were completed and 54 were published on the IMF’s web site.
  - The IMF intends to produce around 18-20 new fiscal ROSCs a year.
  - Over half of the sixty or so nonindustrial market access countries have chosen or plan to undertake a fiscal ROSC.
- Integration with IMF work and technical assistance:
  - Attempts are increasingly being made to integrate ROSC findings into technical assistance, Article IV surveillance, and program design.
  - In 2001, the Fund made standards one of the filters for prioritizing technical assistance requests.
- Related developments:
  - The Code was amended in 2000 to strengthen provisions relating to data quality.
  - The Fiscal Transparency Manual identifies a set of basic requirements and a set of best practices.

### III. Box 1 — Key Findings in Fiscal ROSCs (Main problems, risks, market reach)
- Main problems identified (as at end of October 2002):
  - Poor fiscal data quality (poor coverage and consistency, weak internal control and audit functions, unrealistic budgets).
  - Use of off-budget mechanisms (contingent liabilities and quasi-fiscal activities).
  - Lack of clarity in tax policy and excessive discretion in tax administration.
  - Poor definition of inter-governmental fiscal relations.
- Institutional implications and risks:
  - Underlying institutional weaknesses could lead to future fiscal or financial vulnerability and need sustained attention.
  - Most countries participating have undertaken or are undertaking significant reforms that increase transparency.
- Immediate practical improvements:
  - Immediate improvement often achievable by publishing information already available within government.
- Country group progress:
  - EU-accession countries have made particularly impressive progress.
  - Even industrial countries have significant areas for improvement.
- Market reach and relevance (selected observed facts and figures):
  - Only 30 countries had sovereign ratings in 1980; by early 2003 111 countries had sovereign ratings.
  - The number of emerging market sovereigns with rated foreign currency debt increased almost seven times in the 1990s.
  - Market interest expected greatest in sovereign bond and syndicated sovereign lending markets.
- Private-sector dissemination initiatives (selected examples):
  - Estandardsforum uses IMF fiscal ROSCs and Oxford Analytica reports to assign ratings for 83 countries using six categories and a 0-10 numeric scale summed across 12 standards and codes.
  - Oxford Analytica retained by CalPERS to assess fiscal transparency against the IMF Code in 27 emerging markets.
  - Credit Lyonnais Securities Asia (CLSA) produced a 2002 subscribers-only study based on IMF Code assessments.

### IV. Box 2 — Rating Agency Survey: Key Findings
- Respondents and methodology:
  - Twenty one analysts in the sovereign risk units of Standard and Poors, Moody’s, and Fitch responded (response rate 50%).
- Use and impact of fiscal ROSCs:
  - 71 percent had read a fiscal ROSC or some part of a fiscal ROSC.
  - Of those who had read a fiscal ROSC:
    - 93 percent said they had a better background understanding of the country’s fiscal position and fiscal risks.
    - About half had used information in the fiscal ROSC as a direct input into their rating assessment.
  - On a 1–5 scale (1 no impact, 5 major impact) mean response was 2.3; six respondents said a fiscal ROSC had a major impact (5); six respondents responded with a 4.
  - Around 90 percent indicated they may make more use in future of published material on fiscal transparency produced by the IMF or others.
- Analysts’ priorities and desired content:
  - Most important features: ease of accessibility; consistency and comparability across countries; information on fiscal management institutions and practices; inclusion of IMF staff recommendations on reforms.
  - Strong desire for more quantitative data and, to a lesser extent, a quantitative rating of fiscal transparency.
- Data adequacy and accounting basis:
  - Analysts consider fiscal data adequate and improved somewhat over the last 1-2 years.
  - Mean response on whether accrual reporting would improve assessment ability: 3.4 (scale 1–5).
  - Many stressed international comparability and need for reconciliation between accrual and cash numbers.
- Data priorities for assessing sovereign risk (highest priority items):
  - Off-budget expenditures; contingent liabilities; public debt net of financial assets; quasi-fiscal activities; medium term fiscal outlook; sensitivity of the budget to macroeconomic assumptions.
- Awareness of private sector assessments:
  - Only 33 percent were aware of private sector assessments.
  - Most considered private sector assessments complementary to fiscal ROSCs.

### V. Box 3 — Summary of Views of Civil Society
- Surveys and respondents:
  - Two surveys: one to CBPP’s International Budget Project groups, one to a broader group of international development CSOs.
- Main findings — international development CSOs:
  - Ten respondents: three aware of the Fiscal Transparency Code; two aware of fiscal ROSCs; one had read and used part of a fiscal ROSC.
  - All ten anticipate making more use in future of IMF-published fiscal transparency information.
  - Strong support for periodic Press Notices indicating fiscal ROSCs completed and in-country press notices upon publication.
- Main findings — CBPP survey:
  - Five respondents: four aware of the Code and fiscal ROSCs; one had read or used part of a ROSC.
  - Respondents reported little improvement in published budget and expenditure data and that it is insufficient.
  - Highest interest (4.4 average out of 5) in presentations to civil society groups and issuance of in-country press notices.
- Complementarities between Fund efforts and CSOs:
  - ROSCs take a broad macro view across all fiscal activities; CSO budget transparency studies can drill down on spending-side, sectoral, and program-level detail.
  - CSOs can assess sub-national government transparency and public participation in fiscal policy debates.
  - Cross-country rankings by CSOs may complement qualitative ROSC information.
  - Greater awareness of ROSCs among CSOs would enable leveraging ROSC findings in analytical and advocacy activities.

### VI. CONCLUSION — role and characteristics of Fiscal ROSCs
- Public good and users:
  - The IMF’s endorsement of the Code and ROSC program have the characteristics of an international public good.
  - Users include legislatures, civil society, the business community, academics, and international organizations.
- Impacts and diffusion:
  - ROSCs support demand for comprehensive fiscal data and encourage adoption of more transparent practices and higher–quality fiscal data.
  - The program may influence countries that have not undertaken a ROSC by affecting authorities’ willingness to amend policies or practices.
- IMF capacity and impartiality concerns:
  - IMF is well placed to exploit economies of scale and scope in ROSC production, but concerns exist about objectivity and independence because the IMF is both standard setter and assessor.
  - Recommendation for an independent review of the Code with wide consultation.
- Financial markets and civil society roles:
  - Financial markets play a key role in fostering adoption of fiscal transparency conditional on awareness and perceived value of ROSC information.
  - Surveys and interviews show considerable use of ROSCs by sovereign rating analysts; ROSCs are progressively incorporated into standard operating procedures.
  - Awareness appears relatively limited outside major rating agencies and major U.S.-based financial institutions; awareness among broader civil society groups appears very low.
- Complementarities with CSO studies:
  - CSO budget transparency studies offer independence, detailed knowledge of government–non-government interactions, and micro-level assessment (tax administration, procurement, arrears, practical availability of fiscal information).
  - Increasing overlap between countries with both ROSCs and CSO studies can enable technical and advocacy cross-use.

### VII. Recommendations to increase awareness and usefulness of fiscal ROSCs
- Content and presentation enhancements:
  - Differentiate more clearly between significant and minor nonobservances of the Code.
  - Pay particular attention to describing extent and quality of publicly available information on off-budget activities, contingent liabilities, and quasi-fiscal activities; cite quantitative assessments where produced.
  - Provide a clear assessment of the extent to which a country’s fiscal data are consistent with recognized international standards.
  - Provide better signposting of the ROSC contents to ease the task of infrequent readers or those interested only in the Executive Summary or IMF staff commentary.
  - Disclose the publication policy on the cover page.
  - Provide a contact point for inquiries.
- Mission practices:
  - ROSC missions should, with authorities’ permission, routinely meet in-country with legislative staff and officials, domestic business community, civil society organizations, and academics and researchers.
- Outreach and dissemination:
  - Regional seminars for officials or financial market representatives and forums with NGOs.
  - Presentations on the Code to legislators and civil society groups, especially in PRSP countries.
  - Publication of a plain-language press release with each completed ROSC aimed at nonspecialists, disseminated within the country and posted on the IMF’s website.
  - IMF missions and resident representatives proactively flag key issues identified in fiscal ROSCs in presentations and press conferences.
  - Translation of ROSCs into the national language for in-country dissemination.
  - An e-mail notification service informing interested parties when a new fiscal ROSC or ROSC update is published.
- Website and data services:
  - SDDS Bulletin Board on the fiscal sector could be supplemented with lines indicating whether contingent liabilities are disclosed and whether a fiscal ROSC is available.
  - Consider posting a periodic Fiscal Transparency Update summarizing fiscal ROSCs published in the previous period and developments relevant to fiscal transparency in recent IMF publications.
  - Publish further periodic analyses of fiscal ROSC findings, including cross-country comparisons, and make the fiscal ROSC database and search tools available on the external website.
- Research:
  - Produce and support new research on the impacts of fiscal transparency on fiscal and financial market performance and disseminate results widely.

### VIII. Appendix highlights — survey methodologies and key quantitative results
- Survey distribution and response context:
  - Separate surveys developed for financial institutions, budget analysis CSOs, and broader civil society groups; distributed by email.
  - Sent to Standard and Poors, Moody’s Investor Services, and FitchRatings; to selected US-based investment banks and financial institutions; to around eighty members of the IIF economics advisory group (response rate too low for meaningful data); and to Oxford Analytica, Estandardsforum, and the Economist Intelligence Unit.
  - Interview schedule included representatives from Standard and Poors, Moody’s, Fitch Ratings; Citibank/CitiGroup, JP Morgan, Bank of New York; Oxford Analytica, Estandardsforum, Economist Intelligence Unit; Institute for International Finance.
- Appendix II — Summary of Private Sector Survey (key figures):
  - Table 1 based on 29 different responses; overall response rate 52 percent.
  - Familiarity with Fiscal Transparency:
    - 88 percent aware of the Code.
    - 88 percent aware of ROSC reports.
    - 68 percent had read part of a ROSC.
  - Use of Fiscal ROSCs:
    - 94 percent of respondents who answered felt they had a better understanding after reading a ROSC.
    - Mean response for direct use of ROSC information: 0.5 (about half).
    - Average impact on assessment (1–5): 2.3.
  - Strengths and weaknesses:
    - 47 percent strongly agree ROSCs should include more quantitative data.
    - 41 percent strongly agree ROSCs should include a rating of fiscal transparency.
  - Sources and quality of fiscal data (means and priorities):
    - Average adequacy rating of published fiscal data: 3.1 (1–5 scale).
    - Average response on improvement in last 1–2 years: 2.9 (1–5 scale).
    - Data types rated 5 (very important) by majority included:
      - public debt net of public financial assets (mean 4.28);
      - guarantees and other contingent liabilities (mean 4.59);
      - off-budget expenditures (mean 4.66; 72 percent chose 5);
      - sensitivity of the budget to macroeconomic risks (mean 4.34);
      - medium term outlook and broad macroeconomic policy (mean 4.45);
      - quasi-fiscal activities by public and private financial institutions (mean 4.38) and by NFPE (mean 4.14).
    - Over 80 percent make some adjustments to reported data on the fiscal balance and public debt (mean 0.85 where 0=No, 1=Yes).
    - Widespread use of accrual basis reporting expected to have somewhat of an impact: mean 3.29 (1–5 scale).
  - Private Sector Assessments:
    - Awareness of private sector transparency assessments: 44 percent.
    - 91 percent indicated they will make more use of fiscal transparency material produced by IMF and others in future (mean 0.91 where 0=No, 1=Yes).
    - 75 percent favored a short summary (mean 0.75 where 0=No, 1=Yes).
- Appendix IV — Civil Society Surveys (key figures):
  - IBP survey:
    - 5 responses (response rate ~10 percent).
    - 4 out of 5 aware of the fiscal transparency code and ROSCs; 1 out of 5 had read part of a ROSC.
    - High interest (average 4.4 out of 5) in presentations to civil society groups and in-country press notices.
  - CSO survey (broader civil society):
    - 10 responses (response rate ~17 percent); 6 from developing country CSOs, 4 U.S.-based.
    - 2 out of 10 were aware of the fiscal code and fiscal ROSCs.
    - All respondents anticipate making more use in future of fiscal ROSCs.
    - Highest interest (average 5 out of 5) for issuance of in-country press notices and periodic public information notices indicating all ROSCs posted on the IMF website in the previous period.
    - High interest (average 4) for presentations on fiscal transparency to civil society groups and open-forum discussions.

*Source: _wp03199 - References (IMF Fiscal ROSC paper excerpts).*

### References..............................................................................................................

### _wp03199 - References

### I. INTRODUCTION
- The IMF’s Code of Good Practices on Fiscal Transparency was introduced in 1998 in the aftermath of the Mexican and Asian crises.
- The IMF, in conjunction with the World Bank, commenced a program assessing adherence to standards, codes, and principles in 11 areas, including the Fiscal Transparency Code, in the form of country reports known as ROSCs (Reports on the Observance of Standards and Codes), which are published with the authorities’ permission.
- Expected benefits of greater fiscal transparency:
  - Improved access to international capital markets.
  - Earlier and smoother fiscal policy responses to changing economic conditions, reducing the incidence and severity of crises.
  - Enhanced oversight by civil society and the public, potentially reinforcing improvements in fiscal transparency.
- Preconditions for civil society and market impact:
  - Market participants and civil society must be aware of, value, and utilize the information in fiscal ROSCs.
- Purpose and methods of the paper:
  - Uses information from surveys and interviews (done by the Fiscal Affairs Department in February and March 2003) to assess financial market and civil society views of fiscal ROSCs.
  - Aims: assess initial impacts of the fiscal transparency initiative through these channels and identify how fiscal ROSCs might be improved.
  - Secondary objectives: obtain feedback on and publicize the fiscal ROSC initiative and related private sector and civil society activities.
  - After presenting survey and interview findings, the paper examines the relative roles of the IMF, financial markets, and civil society organizations (CSOs) in assessing and promoting fiscal transparency, complementarity among those roles, and possible ways to make the IMF’s fiscal transparency initiative more effective.

### II. THE ROLE OF THE IMF
- Leadership and standards:
  - Through standard setting and publication of assessments (ROSCs), the IMF has taken the lead in promoting fiscal transparency.
  - The Code represents a level of practices that all countries should be capable of achieving over the medium to longer term.
- Evolution of the fiscal ROSC program:
  - In 1999 the IMF started a program of assessments of country adherence to the Code.
  - The first fiscal ROSCs were experimental and very short; since 2000 the coverage has expanded to cover all elements of the Code and the format has been standardized.
  - Section II of each fiscal ROSC: factual description of country practices against the Code, prepared by IMF staff on the basis of information provided by country authorities— increasingly by completing a standard questionnaire prior to the ROSC mission.
  - Section III of each fiscal ROSC: IMF staff commentary on the level of transparency achieved, acknowledgement of recent reforms, and prioritized recommendations for improving transparency that take into account the existing level of transparency and institutional capacity.
- Voluntary nature and participation:
  - The ROSC program is voluntary; countries indicate interest in participating, often in response to an IMF proposal.
  - Publication of completed ROSCs occurs with the consent of the country and after notification to the Executive Board of the IMF.
- Coverage and targets (exact figures preserved):
  - As of July 2003, 59 fiscal ROSCs were completed and 54 were published on the IMF’s web site.
  - The IMF intends to produce around 18-20 new fiscal ROSCs a year, and the target is to eventually cover most of the Fund’s membership.
  - Broad participation has included developed, developing, transition and emerging market countries, including a relatively high proportion of countries seeking access to international capital markets (over half of the sixty or so nonindustrial market access countries have chosen or plan to undertake a fiscal ROSC).
- Integration with IMF work and technical assistance:
  - Attempts are increasingly being made to integrate ROSC findings into technical assistance, Article IV surveillance, and program design.
  - In 2001, the Fund made standards one of the filters for prioritizing technical assistance requests.
  - A recent Fund-wide review found that fiscal ROSCs have in some instances helped raise the profile of institutional weaknesses and specific concerns over fiscal data quality in surveillance discussions with country authorities, as well as help focus technical assistance.
- Related developments and benchmarks:
  - The Code was amended in 2000, with the main change strengthening provisions relating to data quality.
  - The Fiscal Transparency Manual identifies two other benchmarks in recognition that one size does not fit all: a set of basic requirements, and a set of best practices.
  - The OECD has promulgated a set of Best Practices for Budget Transparency that focus only on central government and the budget sector rather than all fiscal activities; they are not intended to constitute a formal “standard,” and the OECD is not assessing adherence to them.
- Board encouragement:
  - The IMF Board decided at its 2001 review that where observance of standards is deemed poor or information available to the Board is insufficient, the Board would encourage countries to participate in a ROSC.
  - Since then the Board has explicitly encouraged three countries to volunteer for a fiscal ROSC and suggested fiscal ROSCs for members of the Eastern Caribbean Currency Union as a means of facilitating peer review of fiscal benchmarks.

*Source: _wp03199 - References (IMF Fiscal ROSC paper excerpts).*

### Box 1. Key Findings in Fiscal ROSCs

### Box 1. Key Findings in Fiscal ROSCs

### Main problems identified by fiscal ROSCs (as at end of October 2002)
- ROSCs have identified a number of common problems that occur across a wide range of developing, emerging market and transition economies, in particular:
  - poor fiscal data quality (such as poor coverage and consistency of fiscal data, weak internal control and audit functions, and unrealistic budgets);
  - use of off-budget mechanisms (such as contingent liabilities and quasi-fiscal activities);
  - lack of clarity in tax policy and excessive discretion in tax administration; and
  - poor definition of inter-governmental fiscal relations.

### Institutional implications and risks
- Many of these issues are associated with a set of underlying institutional weaknesses that could lead to future fiscal or financial vulnerability, and these need to be addressed on a sustained basis.
- Not surprisingly given the voluntary nature of ROSCs, most countries participating in a fiscal ROSC have undertaken or are undertaking significant reforms that increase transparency.

### Immediate and practical transparency improvements
- Often an immediate improvement in transparency can be achieved simply by publishing information already available within government.

### Country group progress
- The EU-accession countries have made particularly impressive progress in increasing fiscal transparency.
- Even among the industrial countries there are significant areas where fiscal transparency can be improved.

### Market reach and relevance (selected observed facts and figures)
- Only 30 countries had sovereign ratings in 1980, while by early 2003 111 countries had sovereign ratings; the most rapid growth occurred in the 1990s, during which the number of emerging market sovereigns with rated foreign currency debt increased almost seven times.
- Market interest in fiscal transparency is expected to be greatest in the sovereign bond and syndicated sovereign lending markets because of the direct connection between a government’s cash flows and its ability to repay sovereign debt.
- The methodologies used by the sovereign rating agencies incorporate a large role for fiscal data (including public debt data), fiscal management capacity, and quasi-fiscal and off-budget activities.

### Private-sector dissemination and assessment initiatives (selected examples)
- The Estandardsforum (established in 2001) provides access to an internet database on countries’ observance across thirteen standards and codes based on publicly available information; IMF fiscal ROSCs and Oxford Analytica reports are used by the Estandardsforum as a basis for assigning a rating on adherence to the Code for 83 countries.
  - The Estandardsforum rating scheme uses six categories (full compliance; compliance in progress; enacted; intent declared; no compliance; and no assessment available) and assigns a numeric rating to each category on a scale of 0-10, then sums across the 12 standards and codes.
  - Oxford Analytica provides Estandardsforum with independent assessments and has been retained by CalPERS to produce assessments of fiscal transparency against the IMF Code in 27 emerging markets.
- Credit Lyonnais Securities Asia (CLSA) produced a subscribers-only 2002 study assessing how easy it is to understand the public accounts in each of twenty emerging market countries, based on IMF Code assessments and league-table ratings.

### Market awareness and use of fiscal ROSCs (survey and interview findings)
- Surveys found an initially low, but growing level of awareness and use of ROSCs; use of ROSCs was greatest amongst US-based institutions with large global networks, and least amongst Japanese institutions.
  - In one survey, around three quarters of the twenty three European respondents were aware of ROSCs, and over half had used ROSCs directly in risk assessment.
- The IMF surveyed three major sovereign rating agencies; about ten major US-based international banks and investment banks; around eighty institutions selected by the Institute for International Finance (IIF); and Oxford Analytica, the Estandardsforum, and the Economist Intelligence Unit. Interviews were also held in New York and England.
  - The largest number of responses was received from the rating agencies.
  - The surveys revealed a high level of use of fiscal ROSCs among rating agencies and that fiscal ROSCs are having some impact on sovereign risk assessment.
- From interviews:
  - Standard and Poors and Fitch have built the use of fiscal ROSCs into their standard operating procedures; Standard and Poors analysts consult the fiscal ROSC (where there is one) either before a country visit or prior to the rating committee meeting.
  - Moody’s leaves it up to individual analysts to decide whether to look at a fiscal ROSC; of the twenty survey responses, only four were from Moody’s.
- Market participants (rating analysts and US-based investment banks) look to ROSCs for:
  - whether the general government sector is defined in accordance with international standards (and thus whether fiscal data are comparable across countries);
  - information on off-budget activities, contingent liabilities, and quasi-fiscal activities, quantified wherever possible; and
  - an indication of the true underlying fiscal deficit or public debt in each country.
  - About half of all survey respondents strongly agreed that fiscal ROSCs should contain more quantitative data.
- Among selected major US-based international banks and investment banks, interest in the integrity of fiscal data has increased in part due to the new Basel Capital Accord requiring banks to develop internal country risk rating methodologies.
- The IIF survey response rate was too low to provide meaningful data on awareness and use of fiscal ROSCs outside the US and among a broader range of investor types.

*Source: Adapted from International Monetary Fund, 2003, Assessing and Promoting Fiscal Transparency - A Report on Progress, SM/03/86, Supplement 2, March 5, 2003.*

### Box 2. Rating Agency Survey: Key Findings

### Box 2. Rating Agency Survey: Key Findings

### Respondents and methodology
- Twenty one analysts in the sovereign risk units of Standard and Poors, Moody’s, and Fitch responded to the survey (response rate 50%).

### Use and impact of fiscal ROSCs
- 71 percent had read a fiscal ROSC or some part of a fiscal ROSC.
- Of those who had read a fiscal ROSC:
  - 93 percent said they had a better background understanding of the country’s fiscal position and fiscal risks as a result of reading a fiscal ROSC.
  - About half of them had used information in the fiscal ROSC as a direct input into their rating assessment.
- On a question of how significant an impact a fiscal ROSC had had on a country risk assessment (scale 1-5, 1 indicating no impact, 5 indicating a major impact):
  - The mean response was 2.3.
  - Six respondents said a fiscal ROSC had a major impact (5) on the assessment.
  - Six respondents responded with a 4.
- Around 90 percent of respondents indicated they may make more use in future of published material on fiscal transparency produced by the IMF or others.

### Analysts’ ratings of fiscal ROSC features and desired content
- Analysts rated the most important features of fiscal ROSCs as:
  - ease of accessibility;
  - consistency and comparability across countries;
  - a source of information on fiscal management institutions and practices;
  - inclusion of IMF staff recommendations on reforms needed.
- Written comments especially reinforced the desire for international comparability.
- Analysts would most like to see more quantitative data in fiscal ROSCs, and, to a lesser extent, a quantitative rating of fiscal transparency.
- Analysts do not consider fiscal ROSCs to be too long, to lack candor, or to be up-dated too infrequently.

### Data adequacy and accounting basis
- Analysts consider fiscal data on the governments they monitor to be adequate, and to have improved somewhat over the last 1-2 years.
- Improved accessibility through posting of data on government web sites was mentioned by a number of respondents.
- On whether a more widespread use of accrual basis reporting would improve their ability to assess sovereign risk (scale 1-5, 1 indicating no impact, 5 indicating major impact):
  - The mean response was 3.4.
  - Many respondents were more concerned about having data that is internationally comparable than with which accounting basis is used.
  - A number stressed the need for full reconciliation between accrual and cash numbers.

### Data priorities for assessing sovereign risk
- Analysts place the highest priority on having data on:
  - off-budget expenditures;
  - contingent liabilities;
  - public debt net of financial assets;
  - quasi-fiscal activities;
  - the medium term fiscal outlook;
  - the sensitivity of the budget to changes in macroeconomic assumptions.
- Least interest was shown in non-financial performance information.

### Awareness of private sector assessments and complementarity
- Only 33 percent of respondents were aware of private sector assessments of fiscal transparency.
- Most respondents comparing fiscal ROSCs to private sector assessments considered them to be complementary to fiscal ROSCs, rather than potential substitutes.
- In interviews, some ratings analysts indicated they look particularly to fiscal ROSCs for information on off-budget and quasi-fiscal activities and on contingent liabilities, while relying on discussions with the authorities for information on the medium term fiscal outlook and macrofiscal sensitivity.

*Source: Box 2. Rating Agency Survey: Key Findings*

### Box 3. Summary of Views of Civil Society

### Box 3. Summary of Views of Civil Society

### Surveys distributed
- Two separate surveys were distributed: one to the groups participating in the CBPP’s International Budget Project, the other to a broader group of international development CSOs.

### Main findings from the survey of international development CSOs
- Of the ten respondents, three were aware of the Fiscal Transparency Code, two were aware of fiscal ROSCs, and one had read and used part of a fiscal ROSC.
- Of the ten respondents, three were aware of NGO budget transparency studies, and two had read some part of a study.
- All ten respondents indicated they anticipated making more use in future of information published by the IMF on fiscal transparency.
- Presented with possible options for the Fund to more actively disseminate information on fiscal transparency, most support was expressed for issuing a periodic Press Notice indicating fiscal ROSCs completed in the previous period; and issuing a Press Notice in-country when each fiscal ROSC is published.

### Main findings of the CBPP survey
- Of the five respondents, four were aware of the Fiscal Transparency Code and fiscal ROSCs, and one had read or used part of a ROSC.
- Respondents reported that there has been little improvement in budget and expenditure data published by the government and that it is insufficient for their needs.
- Asked about how the IMF could better publicize and disseminate its fiscal transparency initiative, most interest (4.4 average response out of 5) was shown in presentations to civil society groups and issuance of in-country press notices.

### Areas of complementarity between the Fund’s efforts and civil society
- While the Code and fiscal ROSCs take a broad view across all fiscal activities and focus more on the macroeconomic level, the budget transparency studies focus more narrowly on the spending side of the budget, where they have the capacity to go into detail on transparency and accountability at the sectoral and program level. In that sense they can drill down more deeply than fiscal ROSCs into the micro level issues that are more directly related to poverty alleviation – such as the design and monitoring of Poverty Reduction Strategies, and whether they are adequately integrated into national budgets.
- Reflecting the mandate of the Fund, the Code focuses on national government transparency, and covers some, but not all the transparency issues at the sub-national level. Important issues of fiscal transparency arise in many countries with respect to the broader activities of sub-national government, especially given the move in many countries to devolve responsibility for public spending. The CSO sector may have a potentially valuable complementary role to play in assessing budget transparency and accountability of sub-national governments – and many of the principles in the Code can be applied to sub-national governments.
- By assessing also the opportunities for, and actual level of, public participation in fiscal policy debates and budget allocation decisions, CSOs can help to assess the level of legitimacy of current fiscal policies, which is a factor in assessing the sustainability of fiscal policy.
- The cross-country rankings being produced by CSOs may be a useful complement to the qualitative information in fiscal ROSCs.
- There appears to be considerable scope, as the number both of CSO budget transparency studies and fiscal ROSCs expands, for civil society to leverage off fiscal ROSCs, both in terms of analytical and advocacy activities. This will require a greater level of awareness of the availability and usefulness of fiscal ROSCs amongst civil society. (Suggestions for increasing the level of awareness are made in the

*Source: _wp03199 - Box 3. Summary of Views of Civil Society*

### conclusion).

### _wp03199 - conclusion)

### V. CONCLUSION — role and characteristics of Fiscal ROSCs
- The IMF’s endorsement of the Fiscal Transparency Code and its program of fiscal ROSCs have the characteristics of an international public good.
- Fiscal ROSCs inform a diverse range of users: legislatures, civil society, the business community and the wider public within individual countries; academics and researchers; and international investment, civil society, and donor organizations.
- Fiscal ROSCs support demand for more comprehensive fiscal data and information on fiscal policies and the effectiveness of fiscal management; they encourage countries to adopt more transparent practices and to produce and publish higher–quality fiscal data.
- The fiscal ROSC program may have an impact on countries that have not chosen to undertake a fiscal ROSC by affecting the authorities’ willingness to amend policies or practices in line with the Code.

### IMF capacity, objectivity, and standard-setting
- The IMF is well placed to exploit economies of scale and scope in ROSC production, although there are concerns about the objectivity and independence of fiscal ROSCs.
- Given the IMF’s dual role as both standard setter and assessor, it is important to have an independent review of the Code itself, including wide consultation and opportunity for input on the detailed requirements.

### Financial markets, civil society, and the diffusion of ROSC findings
- Financial markets are expected to play a key role in fostering the adoption of greater fiscal transparency, conditional on:
  - awareness of private sector analysts of fiscal transparency assessments; and
  - the value they attach to this information.
- Survey responses and interviews show considerable use of fiscal ROSCs by sovereign rating analysts: ROSCs are being progressively incorporated into their standard operating procedures and are having some impact on sovereign risk assessment.
- Some in the US international investment community actively use fiscal ROSCs as inputs into credit assessment, investment allocation, and corporate risk management decisions.
- Market demand for information on fiscal transparency is also evident from production of independent assessments, assignment of country ratings, and initiatives to disseminate information on country compliance.
- Awareness of fiscal ROSCs appears relatively limited outside major sovereign rating agencies and major U.S.-based financial institutions; awareness among broader civil society groups appears very low.

### Complementarities: civil society budget transparency studies and private assessments
- Civil society budget transparency studies could complement and cross-check fiscal ROSCs, offering:
  - independence from government;
  - comparative advantage in intimate knowledge of government–non-government sector interactions;
  - key input for assessing fiscal transparency in tax administration, procurement, expenditure arrears, regulation, and practical availability of fiscal information to the public;
  - observation of congruence or mismatch between formal legal requirements and actual practices.
- Increasing overlap between countries with both fiscal ROSCs and budget transparency assessments can enable CSOs to draw on ROSC findings in technical and advocacy activities.
- Budget transparency and participation assessments can complement fiscal ROSCs by adding more detail on transparency of public spending at sectoral and program levels, and in-depth assessments of subnational government.

### Recommendations to increase awareness and usefulness of fiscal ROSCs
- Fiscal ROSCs should:
  - differentiate more clearly between significant and minor nonobservances of the Code;
  - pay particular attention to describing the extent and quality of publicly available information on off-budget activities, contingent liabilities, and quasi-fiscal activities. Where quantitative assessments of these have been produced (for example, in published IMF or World Bank reports), these should be cited;
  - provide a clear assessment of the extent to which a country’s fiscal data are consistent with recognized international standards;
  - provide better signposting of the contents of the ROSC to ease the task of infrequent readers or those interested only in the Executive Summary or the IMF staff commentary;
  - disclose the publication policy on the cover page; and
  - provide a contact point for inquiries.
- Fiscal ROSC missions should, with the permission of the authorities, routinely meet in-country with legislative staff and officials, and with representatives of the domestic business community, civil society organizations, and academics and researchers during their assessment.
- Greater outreach efforts, including:
  - regional seminars for officials or financial market representatives and forums with NGOs;
  - presentations on the Code to legislators and civil society groups especially in PRSP countries;
  - publication of a plain-language press release with each completed ROSC aimed at nonspecialists, disseminated within the country and posted on the IMF’s website;
  - IMF missions and resident representatives proactively flagging key issues identified in fiscal ROSCs in presentations and press conferences;
  - translation of ROSCs into the national language for in-country dissemination;
  - an e-mail notification service informing interested parties when a new fiscal ROSC or ROSC update is published.
- SDDS Bulletin Board on the fiscal sector could be supplemented with lines indicating whether contingent liabilities are disclosed and whether a fiscal ROSC is available.
- Consider posting a periodic Fiscal Transparency Update on the website summarizing fiscal ROSCs published in the previous period and developments relevant to fiscal transparency in recent IMF publications.
- IMF could publish further periodic analyses of fiscal ROSC findings, including cross-country comparisons, and make the fiscal ROSC database and search tools available on its external website to facilitate issue- or country-group searches.
- IMF should produce and support new research on the impacts of fiscal transparency on fiscal and financial market performance and disseminate results widely.

### Appendix I–III & IV highlights — survey methodologies and interview schedules
- Financial Institutions Survey:
  - Separate surveys were developed for financial institutions, budget analysis CSOs, and broader civil society groups; distributed by email.
  - Sent to Standard and Poors, Moody’s Investor Services, and FitchRatings; to selected US-based investment banks and financial institutions; to around eighty members of the IIF economics advisory group (response rate too low for meaningful data); and to Oxford Analytica, Estandardsforum, and the Economist Intelligence Unit.
- Interview schedule included representatives from:
  - Standard and Poors, Moody’s, Fitch Ratings; Citibank/CitiGroup, JP Morgan, Bank of New York; Oxford Analytica, Estandardsforum, Economist Intelligence Unit; Institute for International Finance.

### Appendix II — Summary of Private Sector Survey: quantitative results (key figures)
- Table 1 is based on 29 different responses from three respondent categories. The overall response rate was 52 percent.
A. Familiarity with Fiscal Transparency
- 88 percent of all respondents said they were aware of the Code on fiscal transparency.
- 88 percent were aware of ROSC reports.
- 68 percent had read part of a ROSC.
B. Use of Fiscal ROSCs
- 94 percent of respondents who answered felt they had a better understanding of a country’s fiscal position and risk after reading a ROSC.
- Mean response for direct use of ROSC information: 0.5 (about half had used ROSC information directly).
- On a scale of 1 (no impact) to 5 (major impact), average response for impact of fiscal ROSCs on assessment: 2.3.
- Six respondents said a fiscal ROSC had a major impact (5) on the assessment, and six others responded with a 4.
C. Strengths and Weaknesses
- Majority rated very important: ease of accessibility, uniformity across countries, and source of information on fiscal institutions and practices.
- 47 percent said strongly agree that ROSCs should include more quantitative data.
- 41 percent said strongly agree that fiscal ROSCs should include a rating of fiscal transparency.
D. Sources and Quality of Fiscal Data
- Average adequacy rating of published fiscal data: 3.1 on a 1–5 scale (1 very deficient, 5 meeting all needs).
- Average response on improvement in fiscal data in last 1–2 years: 2.9 on a 1–5 scale (1 no improvement, 5 major improvement).
- Data types rated 5 (very important) by majority included:
  - public debt net of public financial assets (mean 4.28);
  - guarantees and other contingent liabilities (mean 4.59);
  - off-budget expenditures (mean 4.66; 72 percent chose 5);
  - sensitivity of the budget to macroeconomic risks (mean 4.34);
  - medium term outlook and broad macroeconomic policy (mean 4.45);
  - quasi-fiscal activities by public financial institutions and public enterprises (QFA by public and private financial institutions mean 4.38; QFA by NFPE mean 4.14).
- Over 80 percent make some adjustments to reported data on the fiscal balance and public debt (Do you make adjustments: mean 0.85 where 0=No, 1=Yes).
- Widespread use of accrual basis reporting expected to have somewhat of an impact: mean 3.29 on 1 (no impact) to 5 (major impact).
E. Private Sector Assessments
- Awareness of private sector transparency assessments: 44 percent.
- Majority of those answering comparing IMF ROSCs and private sector assessments indicated private sector assessments were inferior, complementary, and necessary.
- 91 percent (mean response 0.91 where 0=No, 1=Yes) indicated they will make more use of fiscal transparency material produced by IMF and others in future.
- 75 percent of respondents favored a short summary (mean 0.75 where 0=No, 1=Yes).

Additional respondent comments (selected):
- ROSCs are used as a source of reference when starting country analysis, to better understand fiscal data and fill gaps.
- ROSCs help understand fiscal control, off-budget activities, and quasi-fiscal activities.
- Common user suggestions: increase country coverage, more frequent updates, include estimates of the true deficit and debt, indicate scale of off-budget transactions, include a standardized score or numerical rating, organize ROSCs according to the Code for comparability, include a summary compliance table or annex comparing groups of economies.

### Appendix IV — Civil Society Surveys (key figures)
- IBP (Budget-related CSOs) survey:
  - 5 responses (response rate ~10 percent).
  - 4 out of 5 aware of the fiscal transparency code and ROSCs; 1 out of 5 had read part of a ROSC.
  - Respondents reported little improvement in budget and expenditure data and that it is insufficient for their needs.
  - High interest (average 4.4 out of 5) in presentations to civil society groups and in-country press notices to publicize fiscal transparency initiatives.
- CSO survey (broader civil society):
  - 10 responses (response rate ~17 percent); 6 from developing country CSOs, 4 U.S.-based.
  - 2 out of 10 were aware of the fiscal code and fiscal ROSCs.
  - About one third were aware of CSO studies of fiscal ROSCs and had seen a CSO study.
  - All respondents indicated they anticipate making more use in future of fiscal ROSCs than currently.
  - Highest interest (average 5 out of 5) for issuance of in-country press notices and periodic public information notices indicating all ROSCs posted on the IMF website in the previous period.
  - High interest (average 4) for presentations on fiscal transparency to civil society groups and open-forum discussions.

*Source: conclusion section and appendixes of the document titled “_wp03199 - conclusion).”*

### References

### References

### Fiscal transparency, standards, and IMF work
- Allum, Peter F., and Mehmet Agca, 2001, “Economic Data Dissemination: What Influences Country Performance on Frequency and Timeliness?” IMF Working Paper 01/173 (Washington: International Monetary Fund).
- “Code of Good Practices on Fiscal Transparency: Declaration on Principles,” 1998, IMF Survey, April 27, pp. 122–24.
- Financial Stability Forum, 2000, “Report of the Follow-Up Group on Incentives to Foster Implementation of Standards,” presented at the fourth FSF meeting, Basel, September.  Available via the Internet: http://www.fsforum.org/publications/Report_Incentives01.pdf.
- Financial Stability Forum, 2001, “Final Report of the Follow-Up Group on Incentives to Foster Implementation of Standards,” presented at the sixth FSF meeting, London, September.  Available via the Internet: http://www.fsforum.org/publications/Final_Incentives01.pdf.
- Fölscher, Alta, ed., 2002, Budget Transparency and Participation: Five African Case Studies (Cape Town: Institute for Democracy in South Africa (IDASA))
- ———, Warren Krafchik, and Isaac Shapiro, 1999, Transparency and Participation in the Budget Process: South Africa:  A Country Report (Cape Town: Institute for Democracy in South Africa (IDASA)).
- Hemming, Richard, and Michael Kell, 2001, "Promoting Fiscal Responsibility: Transparency, Rules and Independent Fiscal Authorities," Fiscal Rules: Papers Presented at the Bank of Italy Workshop Held in Perugia, 1-3 February 2001 (Rome: Banca d’Italia).
- Hemming, Richard, and Murray Petrie, 2000, "A Framework for Assessing Fiscal Vulnerability," IMF Working Paper 00/52 (Washington: International Monetary Fund).
- International Monetary Fund, 1999, “Fiscal Transparency: An Experimental Report,” in Greece: Selected Issues, IMF Staff Country Report No. 99/138 (Washington).
- International Monetary Fund, 2001a, Manual on Fiscal Transparency (Washington). Available via the Internet: http://www.imf.org/external/np/fad/trans/manual/index.htm.
- International Monetary Fund, 2001b, “Assessing the Implementation of Standards—An IMF Review of Experience and Next Steps,” Public Information Notice (PIN) No. 01/17 (Washington). Available via the Internet: http://www.imf.org/external/np/sec/pn/2001/pn0117.htm.
- International Monetary Fund, 2002, “Quarterly Report on the Assessments of Standards and Codes—June 2002” (Washington). Available via the Internet: http://www.imf.org/external/pubs/ft/stand/q/2002/eng/062102.htm.
- International Monetary Fund, 2003a, “International Standards—Background Paper on Strengthening Surveillance, Domestic Institutions, and International Markets” (Washington). Available via the Internet: http://www.imf.org/external/np/pdr/sac/2003/030503s1.pdf.
- International Monetary Fund, 2003b, “Assessing and Promoting Fiscal Transparency: A Report on Progress” (Washington). Available via the Internet: http://www.imf.org/external/np/pdr/sac/2003/030503s2.pdf.
- International Monetary Fund and World Bank, 2003a, “Bank/Fund Collaboration on Public Expenditure Issues” (Washington). Available via the Internet: http://www.imf.org/external/np/fad/pubexpen/2003/021403.pdf.
- International Monetary Fund, 2003b, “International Standards: Strengthening Surveillance, Domestic Institutions, and International Markets” (Washington). Available via the Internet: http://www.imf.org/external/np/pdr/sac/2003/030503.pdf.
- Kopits, George, and Jon Craig, 1998, Transparency in Government Operations, IMF Occasional Paper No. 158 (Washington: International Monetary Fund).
- Petrie, Murray, 1999, “The IMF Fiscal Transparency Code: A Potentially Powerful New Anti-Corruption Tool,” paper presented at the 9th International Anti-Corruption Conference, Durban, October. Available via the Internet: http://www.transparency.org/iacc/9th_iacc/papers/day4/ws2/dnld/d4ws2_mpetrieimf.pdf.

### Sovereign ratings, credit risk, and market behavior
- Bhatia, Ashok Vir, 2002, “Sovereign Credit Ratings Methodology: An Evaluation,” IMF Working Paper 02/170 (Washington: International Monetary Fund).
- Credit Lyonnais, 2002, “Unravelling Public Finances: Gordian Debt,” (Hong Kong: Credit Lyonnais Securities Asia).
- Gelos, R. Gaston, and Shang-Jin Wei, 2002, Transparency and International Investor Behavior, IMF Working Paper 02/174 (Washington: International Monetary Fund).
- Levich, Richard M., Giovanni Majnoni, and Carmen M. Reinhart, eds., 2002, Ratings, Rating Agencies, and the Global Financial System (Boston: Kluwer Academic Publishers).
- Price, Lionel, 2002, Standards and Codes—Their Impact on Sovereign Ratings, FitchRatings Special Report, 10 July 2002. Available via the Internet: http://216.239.39.104/search?q=cache:4chLA7oW8S8J:www.fitchratings.es/Informes/Standards%2520%26%2520Codes%2520-%2520Their%2520Impact%2520on%2520Sovereign%2520Ratings.pdf+Standards++and+Codes--their+impact+on+Sovereign+Ratings&hl=en&ie=UTF-8.
- Standard and Poor’s, 2002a, Sovereign Credit Ratings: A Primer. Available via the Internet: www.standardandpoors.com.
- Standard and Poor’s, 2002b, Global Financial System Stress Appendix 5: Financial System Stress and Sovereign Credit Risk.  Available via the Internet: www.standardandpoors.com.

### Institutional arrangements, governance, and country studies
- Chambers, John, 2002, “The Importance of the IMF’s Work on Standards and Codes,” speech delivered at the “Standards and Transparency” seminar at the IMF/World Bank 2002 Annual Meetings, Washington, September.
- European Central Bank, 2002, “Recent Developments in International Co-Operation,” ECB Monthly Bulletin (February), pp. 53–65.
- Guerrero, Juan Pablo, and Helen Hofbauer, 2001, “Index of Budget Transparency in Five Latin American Countries: Argentina, Brazil, Chile, Mexico and Peru,” International Budget Project (Washington: Center on Budget and Policy Priorities). Available via the Internet: http://www.internationalbudget.org/resources/1-10-02ibp-pr.htm.
- Institute of International Finance, 1999, Report of the Working Group on Transparency in Emerging Markets Finance (Washington: IIF).
- Institute of International Finance, 2002, “Action Plan of the IIF Special Committee on Crisis Prevention and Resolution in Emerging Markets” (Washington).
- Jeunemaître, Alain, 1997, Financial Markets Regulation: A Practitioner’s Perspective (Houndmills, Basingstoke, Hampshire: Macmillan Press).
- Lazere, Ed, 2002, “Improving the Transparency of the DC Budget,” (Washington: District of Columbia Fiscal Policy Institute).
- Misiag, Wojciech, and Adam Niedzielski, 2001, “Openness and Transparency of Public Finance in Poland in the Light of International Monetary Fund Standards,” IBnGR Working Paper No. 29/2001, (Warsaw: Gdansk Institute for Market Economics). Available via the Internet: http://www.internationalbudget.org/resources/library/Poland.pdf.
- Mosley, Layna, 2003, Global Capital and National Governments (Cambridge: University of Cambridge Press).
- Pope, Jeremy, ed., 2000, National Integrity Systems: The TI Source Book 2000 (Berlin: Transparency International).
- Schneider, Benu, 2002, “Issues in Implementing Standards and Codes,” paper presented at the Overseas Development Institute conference “International Standards and Codes: The Developing Country Perspective,” London, June. Available via the Internet: http://www.g24.org/schnetgm.pdf.
- Stein, Ernesto, Ernesto Talvi, and Alejandro Grisanti, 1998, “Institutional Arrangements and Fiscal Performance: The Latin American Experience,” IADB Working Paper 367, Washington: Inter-American Development Bank). Available via the Internet: http://www.iadb.org/res/publications/pubfiles/pubWP-367.pdf.

### Public finance, budget transparency, and related analyses
- Guerrero, Juan Pablo, and Helen Hofbauer, 2001, “Index of Budget Transparency in Five Latin American Countries: Argentina, Brazil, Chile, Mexico and Peru,” International Budget Project (Washington: Center on Budget and Policy Priorities). Available via the Internet: http://www.internationalbudget.org/resources/1-10-02ibp-pr.htm.
- Hemming, Richard, and Michael Kell, 2001, "Promoting Fiscal Responsibility: Transparency, Rules and Independent Fiscal Authorities," Fiscal Rules: Papers Presented at the Bank of Italy Workshop Held in Perugia, 1-3 February 2001 (Rome: Banca d’Italia).
- Mathieson, Donald, and Gary Schinasi, 1999, International Capital Markets: Developments, Prospects, and Key Policy Issues, World Economic and Financial Surveys (Washington: International Monetary Fund).

*Source: _wp03199 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2003/_wp03199.pdf_