Budget Transparency

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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

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Overview

1. Introduction
2. Definitions of Budget (or Fiscal) Transparency
   Comprehensiveness
3. The Fiscal Transparency (FT) Code
4. Recent Developments in IMFs work on FT
5. Results of FT Assessments
6. Other FT Assessments
7. Conclusions

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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.
• Doesnt restrict government decision space

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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).

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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?

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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
  countrys 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.

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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 Codenow linked with the
  Resource Revenue Guide.
• Includes extensive country examplesOECD,
  emerging market and developing economies.
• Also illustrates best practices and basic
  requirements.
• Available in many languages
• Revised and extended in 2007

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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 timeline
• 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
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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 resource-rich)
• 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 TransparencyGlobal Averages
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Attributes of Fiscal TransparencyResource-Rich
Economies
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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

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Fiscal Transparency IndicesComparisons
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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
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• Thanks!