Fiscal Transparency, Plans and PRSPs

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Fiscal Transparency, Plans and PRSPs

• Plans and PRSPs in East Asia
• April 2006
• Tom Dorsey, International Monetary Fund

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What Is Fiscal Transparency?

• Publication of Budget Plans and Outcomes
• Inclusion of All Public Expenditure
• (including any extrabudgetary funds)
• Budget Realism
• Fiscal Risks and Contingencies
• Medium-Term Fiscal Plans

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Fiscal Transparency Initiatives

• National Sunshine Laws
• Participation in PRSs and Other Plans
• Publications of International Institutions
• Code of Good Practices on Fiscal Transparency
• Extractive Industries Transparency Initiative
• Resource Revenue Transparency

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Publication of IMF Staff Reports

• An option since 2001, requires consent of member.
• IMF Article IV Staff Reports published for almost
  all Fund members (IMF, 2005b)
• Cambodia, Indonesia, Lao P.D.R., Mongolia, Timor
  Leste, and Vietnam all agreed to the publication
  of all papers for the Article IV consultation
• Fiscal information in these tables includes and
  overview and assessment, medium-term projections,
  background tables, and papers on special topics,
  including Indonesias public debt, revenue
  mobilization in Lao PDR, and an overview of
  fiscal issues in Mongolia.

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Fiscal Transparency and Poverty Reduction
Strategies

• Publications of plans and outcomes
• PRS documents are always published, most have
  information on outcomes, many have information on
  revised plans
• Inclusion of All Public Expenditure
• experience mixed data are often partial and not
  comparable to budgets
• sometimes are available only in a few broad
  categories

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Fiscal Transparency and Poverty Reduction
Strategies (cont.)

• Budget Realism and PRS documents
• Largely an area for future work.
• Project costs in PRS documents often far exceed
  available funding
• Loose links to budget documents and sometimes
  based on outdated information
• Fiscal Risks and Contingencies
• Some risk information
• Alternative scenarios reflecting risks and
  different aid scenarios

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Fiscal Transparency and Poverty Reduction
Strategies (concluded)

• Medium-term fiscal plans
• Experience differs widely, but this is an area
  for more work in most countries
• Some PRS processes have been merged with existing
  multi-year planning efforts (e.g., Timor Leste)
  other plans have close links (e.g., Vietnam)
• On the other hand, some countries have
  inconsistent PRSs, development plans, and
  medium-term budget frameworks

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PRS Budget Transparency in East Asia

• Almost all PRS documents are published in English
  and national languages
• All budgets and budget outturns are published
• Cambodia reports budget outturns in its Monthly
  Bulletin of Statistics in English and Khmer
• However, some countries publish only with very
  long lags (e.g. well after the budget year is
  over)

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Budget Transparency (cont.)

• Budgets that are consistent with PRS documents
• This is a chronic difficulty worldwide
• Timor Leste has gone further than most countries,
  in part by making the PRSP comprise the National
  Development Plan and public investment program
• Budgets that are consistent with budget outcome
• This an area for more work although for different
  reasons (e.g., some countries underestimate
  revenue while others overestimate it)
• Indonesia is making progress in this regard by
  using an unbiased oil price assumptions rather
  than an intentionally conservative one.

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Code of Good Practice on Fiscal Transparency

• 76 countries have had IMF assessments of
  adherence to Code of Good Practice and agreed to
  publication of the assessments.
• These include
• All G-7 countries
• 27 PRGF/IDA eligible countries
• 12 countries from South and East Asia and the
  Pacific (Bangladesh, Fiji, Hong Kong SAR, India,
  Japan, Korea, Mongolia, Pakistan, Papua New
  Guinea, the Philippines, Samoa, and Sri Lanka).

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Mongolias Fiscal Transparency Assessment

• Fiscal ROSC report first done in 2001
• Update of Fiscal ROSC completed in 2005
• Both reports frankly discuss strengths and
  weaknesses of Mongolias fiscal transparency.
• 2005 Update discusses improvements, but also
  areas where limited progress has been made.
• The Mongolian authorities agreed to the
  publication of both the 2001 and 2005 fiscal
  ROSCs on the Funds website.

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Prior to Fiscal Transparency ROSCs

• Fiscal Transparency Assessments are subject to
  resource constraints at the IMF and in
  governments.
• In some countries, there have been extensive
  discussions on public expenditure management with
  the Bank and Fund Staff.
• In such cases, it may be better to pursue the
  agenda on Public Expenditure Management first
• Lao P.D.R. is pursuing such a program the
  Public Expenditure Management Strengthening
  Program with the support of the World Bank

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Benefits of Fiscal Transparency

• Better informed decisions (in government and
  outside it).
• Better Access to Capital Markets
• Increased Accountability of Public Officials
• Easier to Detect Corruption

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Evidence of BenefitsEconometric Studies

• More fiscally transparent countries have better
  credit ratings, better fiscal discipline, and
  lower corruption (Hameed, 2005).
• Publication of IMF reports, ROSCs (including on
  fiscal transparency), and participation in SDDS
  is associated with lower sovereign spreads in
  emerging markets (Glennerster and Yongseok, 2003).

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Evidence of Benefits More Studies

• Fiscal transparency standards (along with data,
  banking supervision, and monetary and financial
  policies are those with greatest potential to
  influence sovereign ratings. There is a strong
  statistical relationship between upgrades and
  downgrade and the number of reports countries
  have a agreed to publish. (Price, 2002)
• Investment funds invest systematically less in
  less transparent countries herding among funds
  is more prevalent in less transparent countries
  (Gelos and Wei, 2006).

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Evidence of Benefits - Surveys

• Surveys of market participants indicate that the
  fiscal ROSC is second only to the Monetary and
  Financial Policies ROSC as a source of
  information out of 12 ROSC varieties (IMF 2005a).
• Surveys of developing country authorities
  indicated that the fiscal ROSC was second only to
  the data ROSC in its usefulness emerging market
  authorities rated it as most useful (IMF 2005a)

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For More Information

• All published fiscal ROSCs, Article IV and
  background reports, and IMF working papers are
  available at imf.org. Searches by country, topic,
  and type of report are possible.
• The most recent review (mid-2005) of the
  standards and codes initiative is available on
  the Fund and Bank websites The Standards and
  Codes Initiative--Is It Effective? And How Can It
  Be Improved?

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Bibliography

• Gelos and Wei, 2006, Behavior, forthcoming in
  Journal of Finance, also available as
  Transparency and International Investor Behavior,
  NBER working paper 9260 at www.nber.org
• Glennerster and Yongseok, 2003 Is Transparency
  Good for You, and Can the IMF Help? IMF Working
  Paper 03/132 Available at www.imf.org
• Hameed, 2005 Fiscal Transparency and Economic
  Outcomes, IMF Working Paper 05/255. Available at
  www.imf.org
• IMF, 2005a - The Standards and Codes
  Initiative--Is It Effective? And How Can It Be
  Improved? and Background Paper, Available at
  www.imf.org
• IMF 2005b Key Trends in Implementation of the
  Funds Transparency Policy Available at
  www.imf.org
• Price, 2002 Standards and Codes Their Impact
  on Sovereign Ratings, Special Reports, Fitch
  Ratings, 2002.