Transcript Workshop Session 1 - PFM blog

Budget Transparency &
Comprehensiveness
(AFE Regional Workshop)
Session 1:
Overview of Budget Transparency &
Comprehensiveness
Davina Jacobs
Public Financial Management Division
Fiscal Affairs Department, IMF
Zanzibar, October 20-22, 2009
1
Overview
I.
II.
Introduction
Definitions of Budget (or Fiscal) Transparency
& Comprehensiveness
III. The Fiscal Transparency (FT) Code
IV. Recent Developments in IMF’s work on FT
V. Results of FT Assessments
VI. Other FT Assessments
VII. Conclusions
2
I. Importance of Fiscal
Transparency
• Public right to know
• Promotes: accountability; market discipline; lower
corruption; good institutions; time-consistent behavior
and sustainable policy; macro and micro efficiency;
trust; fairness.
• Fosters: reform in public financial management, public
expenditure, tax administration, tax policy, macro-fiscal.
• Doesn’t: restrict government ‘decision space’
3
II. A Definition of Fiscal
Transparency
• Being open to the public about the structure
and functions of government, fiscal policy
intentions, and public sector accounts and
projections (Kopits and Craig).
• Providing ready access to reliable,
comprehensive, timely, understandable, and
internationally comparable information on
government activities (wherever performed).
4
What is Budget
Comprehensiveness?
The soundness of budget systems can be
judged by the following by its
comprehensiveness, for example:
– Is the coverage of government operations
complete?
– Are estimates gross or does netting take
place?
5
III. The Origins of the
Fiscal Transparency
Code
•
Following the Asian economic crisis in 1998 (and the earlier Mexico crisis),
the international financial institutions were encouraged to develop and promote
12 codes of practice of economic governance in public and private sectors
•
Three ‘transparency’ standards were developed by IMF: fiscal transparency,
monetary and financial policy transparency, and economic data.
•
Other standards covered accounting, auditing, etc.
•
A Code of Good Practices on Fiscal Transparency was formulated, which
was extended in 2001 and revised in 2007. Now identifies 45 good practices,
within four pillars
•
Reports on Standards and Codes (ROSCs) assess a country’s observance
of these codes and are intended to promote greater financial stability by:
assisting countries in strengthening economic institutions; supporting Fund and
Bank work; and informing the private sector.
6
The 4 Pillars of Fiscal
Transparency
Clarity of roles and responsibilities:
Structure and functions of government, responsibilities within government,
relations between government and the rest of the economy
Open budget processes:
Budget preparation, execution, and monitoring; timetable for legislature;
realism of estimates and medium-term framework; fiscal sustainability.
Public availability of information:
Specification of the coverage, detail and timing of fiscal information to be
provided to the public.
Assurance of integrity:
Quality of fiscal data, internal oversight, and external scrutiny.
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IV. The 2007 Revisions to
the FT Code
- Clarified many existing good practices.
- Introduced nine extensions:
•
•
•
•
•
•
•
•
•
Publish a periodic report on long-term public finances.
Distribute a clear and simple summary guide to the budget.
Provide time for consultation on broader policy changes.
Give legislature time to consider the draft budget.
Make all contractual arrangements publicly accessible.
Provide explicit legal basis for granting rights to use or exploit public assets
Present supplementary proposals in same form as original budget
Identify separately receipts from all major revenue sources.
Undertake and identify purchases and sales of public assets openly.
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Manual on Fiscal
Transparency
• Explains and provides context for all Good Practices of the
Code—now linked with the Resource Revenue Guide.
• Includes extensive country examples—OECD, emerging
market and developing economies.
• Also illustrates best practices and “basic requirements.”
• Available in many languages
• Revised and extended in 2007
9
What is a “Fiscal ROSC”?
•
IMF Country report prepared on request
•
Part of the “Standards and Codes” Initiative (12 areas in total)
•
Ideally once every five years
•
Reviews current position and progress made against good practice standards:
systematic but tailored to country circumstances
•
Includes staff commentary with recommendations, including prioritization and
time–line
•
May lead to technical assistance
•
Usually published on Fund website and can be updated on request
•
So far, 19 completed in AFR – most AFE countries, except Ethiopia & Eritrea
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91 Countries have Published
Fiscal ROSCs
By IMF Department
By Level of Development
63.6%
83.3%
80%
60%
68.8%
48.6%
43.8%
60%
38.6%
40%
36.4%
46.7%
36.4%
40%
20%
20%
0%
0%
EUR
WH
MCD
AFR
APD
Transition
Economies
Emerging
Markets
Advanced
Economies
Developing
Economies
V. Mixed Performance by
Countries on Different Aspects
of Transparency
High Levels of Observance
•
•
•
•
•
Regular debt data
Timely fiscal data (not developing and resource-rich)
Statement of medium-term policy objectives
Comprehensive, integrated accounting system (not AFR and resourcerich)
Budget classification
Low Levels of Observance
•
•
•
Identification of fiscal risks (statement, contingent liabilities, etc)
Identification of quasi-fiscal activities of non-financial public
enterprises (OK for advanced)
External assessment of fiscal and macro forecasts.
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Attributes of Fiscal Transparency:
Global Averages
Forward Estimates
1.0
Realism of the Estimates
Tax Expenditure
Independent Expert
Contingent Liabilities
0.8
Forecast overview
External Audit
0.6
QFA-Financial Sector
0.4
QFA-NonFinancial
Public Enterprises
Final Accounts
0.2
Internal Audit
Debt
-
Mid term Report
Fiscal Data
Medium Term Quantitative
Macroeconomic Framework
Budget Coverage
Budget Classification
New Policies
Accounting System
Policy Objectives
Fiscal Risks
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Attributes of Fiscal Transparency:
Resource-Rich Economies
All
Realism of the Estimates
Independent Expert
Forecast overview
External Audit
Forward Estimates
1.0
0.8
Rich Resource Economies
Tax Expenditure
Contingent Liabilities
QFA-Financial Sector
0.6
0.4
QFA-NonFinancial
Public Enterprises
Final Accounts
0.2
Internal Audit
Debt
-
Mid term Report
Fiscal Data
Medium Term Quantitative
Macroeconomic Framework
Budget Coverage
Budget Classification
New Policies
Accounting System
Policy Objectives
Fiscal Risks
14
Source: IMF FTU
VI. Other Assessments of
Fiscal Transparency
• Open Budget Initiative (IBP); 59 countries
(2006); 85 countries (2008)
• Oxford Analytica surveys; 27 countries.
• Public Expenditure and Financial Accountability
program (PEFA); 80 aid recipients
• Extractive Industries Transparency Initiative
(EITI); potentially 28 candidate countries
15
Fiscal Transparency Indices:
Comparisons
Open Budget Initiative - ROSCs
Oxford Analytica - ROSCs
1.0
1.0
R2 = 0.57
0.8
Oxford Analytica
Open Budget Initiative
R2 = 0.51
0.6
0.4
0.8
0.6
0.2
0.0
0
0.2
0.4
0.6
0.8
1
0.4
0.1
0.3
0.7
0.9
ROSCs
ROSCs
Source: IMF FTU & OBI
0.5
Source: IMF FTU & Oxford Analytica
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Extractive Industry
Transparency Initiative (EITI)
• Revenue flow transparency is main focus.
• Full reconciliation of publicly accessible
information on tax revenues received and
payments made by companies is main aim.
• Requires credible audit of payments and
revenues; and comprehensive coverage.
• Civil society must be actively engaged.
• EITI Candidate status so far achieved by 15
candidate countries, and potentially 13 more.
• No country is yet “EITI compliant”
• IMF supports through Guide, TA, Training, etc.
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VII. Why is Fiscal
Transparency Important?
•
Openness about government structure and functions, fiscal policy intentions and
processes, and government accounts.
•
Citizens’ rights to information
•
Increase accountability (including to and by legislature) and reduce corruption
•
Improve decision-making and accelerate corrective action
•
Enhance credibility and support for policies
•
Mitigate surprises for markets
•
Reduce borrowing costs
•
Meet international obligations (donors, creditors)
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Fiscal Transparency and Credit
Ratings: Empirical Results
Residudals: Credit Ratings & Fiscal
Transparency
Credit Ratings: Regression Fit
24.0
4
3
Residual Ratings
GE: stand. variable
21.0
18.0
15.0
12.0
2
R2 = 0.11
1
0
-1
-2
-3
9.0
-4
-0.3
6.0
-0.2
-0.1
0
0.1
0.2
0.3
Residual Fiscal Transparency
6
Source: IMF FTU
9
12
15
18
21
24
Source: IMF FTU
ROSCs
19
0.4
Thanks!
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