Containers at Dublin port, Ireland—one of the first countries to participate in the IMF’s new fiscal transparency assessment (photo: Newscom)
Public Spending & Accountability
Information on public finances is sometimes reported by governments in ways that do not provide a full and reliable picture of their financial position, outlook, and risks. Greater fiscal transparency helps to ensure governments make informed economic decisions and allows legislatures and citizens to hold governments accountable for their use of public resources.
The revised Code aims to strengthen fiscal reporting standards to reflect the lessons of the recent economic crisis, identify and eliminate gaps in published fiscal information, and promote greater fiscal transparency in countries at all income levels. The changes are designed to ensure that policymakers, legislators, citizens, and markets have a more complete picture of the state of public finances.
Over the past six months, the IMF consulted governments, civil society groups, academics, and financial market participants about how to strengthen fiscal transparency standards and evaluation tools. The comments from this first round of consultations are reflected in the draft revised Code released today. In this new round of consultations, the IMF asks for additional feedback that will go into the final version of the Code, which will be published before the end of 2013. A procedure is in place to field comments from the public.
The Fiscal Transparency Code over the years
Fiscal transparency—the comprehensiveness, clarity, reliability, timeliness, and relevance of published information about the past, present, and future states of public finances—is a critical element of effective fiscal policymaking. A growing body of empirical research has highlighted the positive relationship between fiscal transparency, fiscal performance, and perceptions of fiscal solvency.
Since they were first published in 1998 and last updated in 2007, the IMF’s Code of Good Practices on Fiscal Transparency and the accompanying Manual and Guide have been centerpieces of the global architecture of fiscal transparency standards. The Code also provided the framework for assessing adherence to the principles and practices in the Code across countries. Since 1999, the IMF has conducted 111 such assessments—called fiscal Reports on the Observance of Standards and Codes (Fiscal ROSCs)—in 94 countries.
While significant progress has been made since the late 1990s in improving the coverage, quality, and timeliness of fiscal reporting, the crisis that erupted in 2008 highlighted that significant gaps remain in understanding fiscal positions, prospects, and risks, even in advanced economies. A recent IMF policy paper emphasized the need to strengthen existing fiscal transparency standards and monitoring arrangements, including the Fiscal Transparency Code and assessment tools, to reflect the lessons of the crisis and prevent a resurgence of fiscal opacity in its wake.
Revised Fiscal Transparency Code
The proposed structure and content of the revised Fiscal Transparency Code differs from the existing Code in a number of ways. Specifically, the new Code:
• Has a greater focus on reported outputs: Many of the principles in the 2007 Code focused on the clarity of the legal, institutional, and procedural arrangements for fiscal reporting. The revised Code retains the majority of these principles but reformulates them to focus on the quality of fiscal reports themselves as a more objective basis for evaluating the degree of effective transparency. To this end, the revised Code is organized around three key dimensions of fiscal disclosure: (i) fiscal reporting; (ii) fiscal forecasting and budgeting; and (iii) fiscal risk analysis and management.
• Emphasizes issues critical to macroeconomic policymaking: The revised Code enhances the focus on fiscal transparency issues that are critical to macroeconomic policymaking, and, in doing so, to improve complementarity with the Public Expenditure and Financial Accountability (PEFA) assessment framework. For example, the revised draft Code places greater emphasis on the analysis and management of fiscal risks than the 2007 Code. At the same time, the principles in the 2007 Code that are related to, for example, public sector employment, procurement, and internal audit procedures do not appear in the revised draft Code as these more managerial issues are the subject to specific performance indicators within the PEFA framework.
• Reflects lessons of the crisis: The Code’s principles have been updated to reflect the lessons of the crisis, such as broader institutional coverage of fiscal reports, more comprehensive information about government balance sheets, more frequent and timely fiscal reporting, better analysis of fiscal risks, active fiscal oversight of sub-national entities and public corporations, and improved consistency between fiscal forecasts, in-year fiscal reporting, and year-end fiscal data.
• Offers graduated practices: While the 2007 Code set a single standard of good practice in each area, the revised Code differentiates between basic, good, and advanced practices for each of its 45 principles. This provides countries with achievable milestones on the way to full compliance with advanced international standards.
• Includes quantitative indicators: To allow for a more rigorous analysis of the quality of published fiscal data and the extent of any gaps in fiscal transparency practices, the revised Code incorporates a set of quantitative fiscal transparency indicators. These indicators include measures of the coverage of fiscal reports, credibility of fiscal forecasts, and size of unreported contingent liabilities.
A new Fiscal Transparency Assessment
The revised Fiscal Transparency Code will also provide the basis for a new Fiscal Transparency Assessment (FTA) which replaces the fiscal ROSC. Compared with a fiscal ROSC, the FTA provides countries with a more analytical, comparable, and actionable evaluation of their fiscal transparency practices. The key refinements reflected in the new FTA include:
• More accessible evaluation: FTAs have summary “heat maps” that provide countries with a clear picture of strengths and areas for development with regard to the fiscal transparency principles and practices in the Code, and thereby allow both benchmarking against comparator countries and identification of reform needs.
• More rigorous analysis: FTAs focus on the adequacy and quality of reported fiscal data and the magnitude of any gaps based on the quantitative fiscal transparency indicators included in the Code.
• Sequenced action plan: FTAs include an action plan that sets out the sequence of concrete steps that a country would need to take over the medium term to address key reform needs in the area of fiscal transparency.
• Modular assessments: FTAs have three self-standing modules (i) fiscal reporting, (ii) fiscal forecasting and budgeting, and (iii) fiscal risk analysis and management that can be completed independently. This allows for more targeted evaluations focused on the most pressing transparency issues in a country.
Over the past few months, the IMF has been piloting the new FTA in several advanced, emerging, and low-income countries in Europe and Latin America, the results of which have been used to refine further the principles and practices in the draft of the revised Code. With permission of the country authorities, the IMF expects to publish the final reports of these pilot assessments later in 2013. Further pilot assessments are planned later in the year.
