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April 13, 2016

Peru Scores Well on Fiscal Transparency

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Posted by Geremia Palomba[1]

What do Peru, Finland, Romania, and the Philippines have in common? They all undertook an assessment of their fiscal transparency practices in 2015 and published the results.

The results for Peru were very positive. According to the IMF, the majority of the assessed practices met good or advanced standards. The outcome is close to the results of the assessments performed in advanced and emerging market countries. The IMF assesses countries’ fiscal transparency practices against the principles of its own Code of Fiscal Transparency and focuses on the three areas of fiscal reporting, fiscal forecasting and budgeting, and fiscal risk management. In the case of Peru, the IMF undertook an additional pilot assessment of the transparency practices in managing resource revenues, as they are critical for good budgeting and sound fiscal policymaking for the country. Over the last decade, revenue from natural resources in Peru represented about 13 percent of general government revenue and 40 percent of local government revenue.

Fiscal transparency practices in Peru have several strong features. The authorities publish an extensive set of fiscal information, including a balance sheet of the public sector. The country has a comprehensive budget supported by a solid fiscal framework, with clear policy objectives embedded in numerical fiscal rules. A good start has been made on assessing some fiscal risks. When it comes to the management of resources revenues, the country has established clear and comprehensive legal and fiscal regimes that underpin several good or advanced transparency practices.

In a number of areas, however, Peru could improve its current practices. Fiscal reports, for example, would be more informative if they had a uniform coverage and provided comparable information from one report to another. The coverage of the public sector balance sheet could be broadened, and internal consistency and external control enhanced. To improve current budgeting practices, the government should strengthen the link between macro-fiscal objectives, the annual budget and medium-term fiscal planning, as well as minimizing the use of automatic supplements to the budget. It would also help to make operational the already legislated independent fiscal council. Finally, in several respects, fiscal risk management is still in its infancy, including the analysis and management of risks deriving from large investment financing and the natural resource sector.

Looking ahead, the challenge is to strengthen Peru’s capacity to manage prudently its public finances by further improving its transparency standards.

The government is taking up this challenge and the Ministry of Finance is drafting an action plan for consideration of the new administration, building on the recommendations in the fiscal transparency report.

[1] Geremia Palomba is a Deputy Division Chief at the International Monetary Fund and led the Fiscal Transparency Evaluation in Peru.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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