By Min Zhu
In the last two decades, countries have come a long way in shedding greater light on their public finances. The global economic crisis has reminded us, however, that we need to do more to ensure fiscal policymaking is based on reliable data on fiscal outcomes, credible forecasts of fiscal prospects, and a comprehensive assessment of fiscal risks. Working with civil society, governments, and others, the IMF has just presented a revised draft of its Fiscal Transparency Code, and we would like to know what you think of it so we can improve it further. You can comment here.
An improving but incomplete picture of public finances
There is no doubt that the last two decades have witnessed important improvements in fiscal transparency. For example, until the early 1990s, the fiscal data of most countries covered only the central government’s budget. Now, over 40 percent of countries report fiscal statistics for the whole of the general government: that is, both central and subnational governments. A decade ago, the vast majority of countries provided information only about the government’s cash inflows and outflows. Now, about a third provide some accrual-based information (based on when claims arise, not when money changes hands), and nearly a quarter publish balance sheets of their financial assets and liabilities.
Yet, as the recent crisis has demonstrated, the coverage, quality, timeliness, and relevance of published fiscal data remain inadequate.
- First, information on fiscal outcomes is often unreliable, at least when first reported. For example, in Greece, but also elsewhere, reported pre-crisis debts and deficits turned out to be poor indicators of the underlying health of the public finances.
- Second, budgets and fiscal forecasts often fail to provide credible information about fiscal prospects. Sometimes they are not even presented on the same basis as the fiscal accounts or statistics that will be used to judge the government’s performance at the end of the year.
- Third, few governments publish good information on the fiscal risks they face, including the risks to public finances created by the financial sector.
A new draft Fiscal Transparency Code and Assessment
Our new draft of the Fiscal Transparency Code aims to address these issues. It sets demanding standards for the coverage, reliability, and timeliness of information on fiscal outcomes; requires budgets to provide a comprehensive overview of fiscal prospects and be comparable with fiscal accounts and statistics; and emphasizes the importance of analyzing, disclosing, and managing a wide range of fiscal risks, including those created by the financial sector.
The revised Fiscal Transparency Code also provides the basis for a new Fiscal Transparency Assessment which replaces the old fiscal ROSC (Report on the Observance of Standards and Codes) and evaluates whether a country’s fiscal data present a complete and reliable picture of its fiscal situation, outlook, and risks. These new Assessments improve on the old ROSCs by providing:
- a more accessible summary of a country’s strengths and weaknesses regarding fiscal transparency,
- more quantitative assessment of the gaps in a country’s reported fiscal data, and
- a prioritized and sequenced set of recommendations for how to address a country’s most pressing transparency issues.
The new Assessments have now been piloted in three low-income, emerging, and advanced countries. Feedback from the countries has been positive and has helped us improve the draft Code. I hope you will have a look at our new draft Fiscal Transparency Code and give us your own feedback so we can improve the Code further.
Filed under: Economic research, Emerging Markets, Finance, Financial Crisis, Financial regulation, Fiscal policy, IMF, International Monetary Fund, Politics, Public debt Tagged: | financial sector, fiscal policy, fiscal transparency, government, Greece, public finances