Accounting Devices and Fiscal Illusions
Staff Discussion Notes, March 28, 2012
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- Accounting Devices and Fiscal Illusions
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Bibliographic details
- Authors: Timothy C Irwin
- Published: March 28, 2012
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781475502640.006
Summary
- This proposed SDN surveys the various accounting stratagems which governments have used to meet fiscal targets—thereby sidestepping the need for true adjustment—and suggests remedial actions to limit this type of fiscal non-transparency.
- The note highlights increased international scrutiny of these practices and stresses the importance of good fiscal reporting, accounting, and transparency to avoid unpleasant surprises, ensure government accountability, and contain fiscal vulnerabilities.
- Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.
Types and concrete examples of accounting devices covered
- Currency swaps to hide a debt build-up (as in Greece in 2001–07).
- Sale and leaseback of government property (for example, in the United States).
- Assumption of long-term pension obligations in exchange for short-term revenue (Argentina, Hungary, and other Eastern European countries).
- Use of public-private partnerships to defer the recognition of investment spending (for instance, Portugal).
- Reliance on non-cash compensation (such as pension rights) to reduce measured wage bills (in the United States, United Kingdom, etc.).
Key findings and implications
- These fiscal tricks allow governments to meet formal fiscal targets without undertaking true fiscal adjustments.
- Such practices increase fiscal non-transparency and can produce unexpected fiscal vulnerabilities.
- Strengthening fiscal reporting and accounting standards is essential for government accountability and for containing risks that stem from off-balance-sheet or deferred obligations.
Suggested remedial actions and policy implications
- Enhance fiscal reporting and accounting practices to reduce opportunities for creative accounting.
- Increase transparency around off-balance-sheet arrangements (currency swaps, sale-leasebacks, PPPs, pension exchanges).
- Scrutinize short-term revenue maneuvers that transfer long-term obligations to future budgets.
- Align fiscal targets and rules with comprehensive measures of liabilities and contingent obligations to avoid understatement of fiscal risks.
Content in this bundle
- _sdn1202 - Executive summary