Fiscal Transparency, Fiscal Performance and Credit Ratings

Author/Editor:

Julio Escolano ; Elif C Arbatli Saxegaard

Publication Date:

June 1, 2012

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the effect of fiscal transparency on market assessments of sovereign risk, as measured by credit ratings. It measures this effect through a direct channel (uncertainty reduction) and an indirect channel (better fiscal policies and outcomes), and it differentiates between advanced and developing economies. Fiscal transparency is measured by an index based on the IMF’s Reports on the Observance of Standards and Codes (ROSCs). We find that fiscal transparency has a positive and significant effect on ratings, but it works through different channels in advanced and developing economies. In advanced economies the indirect effect of transparency through better fiscal outcomes is more significant whereas for developing economies the direct uncertainty-reducing effect is more relevant. Our results suggest that a one standard deviation improvement in fiscal transparency index is associated with a significant increase in credit ratings: by 0.7 and 1 notches in advanced and developing economies respectively.

Series:

Working Paper No. 2012/156

Subject:

Budget planning and preparation Credit ratings Fiscal stance Fiscal transparency Public debt

English

Publication Date:

June 1, 2012

ISBN/ISSN:

9781475504477/1018-5941

Stock No:

WPIEA2012156

Pages:

32

Please address any questions about this title to publications@imf.org