## Fiscal Transparency, Fiscal Performance and Credit Ratings

_IMF Working Papers, June 1, 2012_

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**Canonical URL:** [Fiscal Transparency, Fiscal Performance and Credit Ratings](https://www.imf.org/en/publications/wp/issues/2016/12/31/fiscal-transparency-fiscal-performance-and-credit-ratings-25996)

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## Bibliographic details
- Authors: Julio Escolano, Elif C Arbatli Saxegaard
- Published: June 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475504477.001

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### Overview
- Objective: Investigates the effect of fiscal transparency on market assessments of sovereign risk, as measured by credit ratings.
- Channels analyzed:
  - Direct channel: uncertainty reduction.
  - Indirect channel: better fiscal policies and outcomes.
- Country groups differentiated: advanced economies and developing economies.
- Fiscal transparency measure: an index based on the IMF’s Reports on the Observance of Standards and Codes (ROSCs).

### Key findings
- Fiscal transparency has a positive and significant effect on credit ratings.
- Channel differences by country group:
  - Advanced economies: the indirect effect of transparency through better fiscal outcomes is more significant.
  - Developing economies: the direct uncertainty-reducing effect of transparency is more relevant.
- Magnitude: a one standard deviation improvement in the fiscal transparency index is associated with an increase in credit ratings by:
  - 0.7 notches in advanced economies.
  - 1 notches in developing economies.

### Methodology (as described)
- Exposure of interest: fiscal transparency index derived from ROSCs.
- Outcome: sovereign credit ratings (market assessments of sovereign risk).
- Analytical strategy: decomposes transparency’s impact into direct uncertainty-reduction and indirect effects operating through fiscal policies and outcomes; differentiates results for advanced versus developing economies.

### Policy implications and interpretation
- Improving fiscal transparency can enhance sovereign creditworthiness via two mechanisms:
  - Strengthening fiscal outcomes (particularly influential in advanced economies).
  - Reducing uncertainty perceived by markets (particularly influential in developing economies).
- Reforms to boost ROSC-based transparency indicators could yield measurable improvements in sovereign ratings, with potentially different priorities depending on country income/development status.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/fiscal-transparency-fiscal-performance-and-credit-ratings-25996_