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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 Overview Introduction

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budget transparency comprehensiveness afe regional workshop
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

overview
Overview
  • Introduction
  • Definitions of Budget (or Fiscal) Transparency & Comprehensiveness
  • The Fiscal Transparency (FT) Code
  • Recent Developments in IMF’s work on FT
  • Results of FT Assessments
  • Other FT Assessments
  • Conclusions
i importance of fiscal transparency
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’
ii a definition of fiscal transparency
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).
what is budget comprehensiveness
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?
iii the origins of the fiscal transparency code
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.
the 4 pillars of fiscal transparency
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.

iv the 2007 revisions to the ft code
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.
manual on fiscal transparency
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
what is a fiscal rosc
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
v mixed performance by countries on different aspects of transparency
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.
vi other assessments of fiscal transparency
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
extractive industry transparency initiative eiti
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.
vii why is fiscal transparency important
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)