Revitalizing the Fiscal Transparency Agenda

Posted by Min Zhu, Deputy Managing Director, IMF

The first public event of this year’s IMF-World Bank Spring Meetings was a seminar organized by the IMF’s Fiscal Affairs Department on the morning of Monday April 15^th which brought together experts from governments, academia, civil society, and international organizations to discuss how to work together to revitalize the fiscal transparency agenda in the wake of the recent crisis.

 

The timing of last Monday’s Fiscal Transparency Seminar at the start of a week of seminars, panels, roundtables, and other events underscores the importance that the IMF attaches to the issue of fiscal transparency. The number of people who turned up to listen to and participate in the discussion highlighted the breadth and depth of public interest in this topic. The need to improve government financial disclosure was a recurring theme in many of the discussions which I attended during the past very busy week. 

For those of you who could not join us at last week’s seminar, I would like to use this article to share with you the IMF’s latest thinking on fiscal transparency and present our work program in this critical area. In particular, I want to focus on three issues:

• first, I want to highlight the progress that has been made in promoting greater fiscal transparency over the past decade, thanks to the collective efforts of governments, civil society, academics, think tanks, international organizations, and others;
• second, I want to review some of the lessons that the recent crisis has taught us about the adequacy of existing fiscal transparency standards and practices; and
• finally, I’d like to outline the key elements of a revitalized fiscal transparency agenda, and how the Fund plans to support that agenda.

Can Arab Countries Improve Fiscal Transparency?

Posted by Manal Fouad

When people took to the streets in several Middle Eastern and North African (MENA) countries in early 2011, it was not only about social justice, but also to demand accountability from their governments. This means more information about how public resources are allocated, spent, and audited. Unfortunately, according to a recent publication by the International Budget Partnership, the MENA region records by far the lowest scores on transparency in the Open Budget Index, and most countries are still classified among those with scantest information about their budgets (only Jordan had a relatively good score of 57 in 2012, while Tunisia, Egypt, Algeria, Yemen are all in the bottom range of 0-20). Even more troublesome, Egypt has seen a significant worsening in its rating from 49 in 2010 to only 13 in 2012.

Yet, many of the demands from the youth who led the Arab revolutions were for increased fiscal transparency. These demands range from disclosure of very simple figures to more complicated issues. Such disclosures would answer many questions that are vibrantly present in the public debate. How much does the debt contracted by previous regimes cost in the budget? Are these levels of debt more or less than the government’s spending on health and education? Are the high levels of public subsidy provided on commodities such as food and fuel appropriate? Do these subsidies reach their intended beneficiaries? How much is the military apparatus spending on its wages, pensions and equipment? How much do loss-making public enterprises cost the budget? Is the government paying its salaries and bills to public and private suppliers on time? And more fundamentally: what is the government’s medium-term vision and objectives for the country? Does the budget reflect the country’s and society’s priorities? Is the budget constructed on the basis of realistic assumptions on the availability of resources and costs of programs, and does it include contingencies for unexpected economic conditions or uncertain events? Is public debt sustainable?

Chinese Social Media Support Fiscal Transparency

Posted by Qi Zhang and James L Chan[i]

In the past four years, the Chinese government has made unprecedented efforts to implement public access to government financial information. This new policy of fiscal transparency is part of a larger project of public disclosure of government information. The policy basically revoked the long-standing state secret status of government financial information contained in annual government budgets and year-end financial reports.

Under the direction of the Chinese Communist Party (CCP) and with the encouragement of the National People’s Congress (NPC, the Chinese parliament), the State Council (the cabinet) took a major step in 2007 to lift the veil of secrecy over a wide range of government information. The release of financial information is the center-piece of this new policy initiative. Under the leadership of outgoing Premier Wen Jiabao, the pace of implementation has accelerated in the past two to three years through a series of administrative directives. It is noteworthy that in addition to releasing official government finance statistics, the spotlight is on the so-called san gong jingfei (literally ‘three public expenditures’), expenditures for official cars, receptions and travel.

These hotbeds of waste and abuse, as well as outright fraud, have been the targets for public outcries against official corruption. They are also the usual subjects of investigations by the National Audit Office, whose reports over the past dozen years have kicked up annual ‘audit storms’. Since virtually all of this information is usually communicated in the Chinese language only, these ‘dirty linens’ are effectively shielded from the outside world. Similarly, the new fiscal transparency policy has also drawn little international attention.

How Can the Pace of Budget Transparency Be Increased? Examining the Results of the Open Budget Survey 2012

Posted by Vivek Ramkumar

The International Budget Partnership (IBP) and the World Bank Institute (WBI) are pleased to invite you to join practitioners in the fields of development and fiscal management in a discussion on how to increase budget transparency and participation around the world. The discussion will include a presentation of the results of the IBP’s latest round of the Open Budget Survey and then focus on indentifying innovative and practical suggestions for rapidly improving country performance on the Survey.

Date: 5 February 2013
Time: 9.30-11 am (Breakfast will be served from 9 am)
Venue: IFC Auditorium, 2121 Pennsylvania Avenue, Washington D.C.

There is growing interest in the role of open budgeting systems in development. An increasing body of evidence shows that the best way to manage public funds efficiently and equitably is through budget systems that are transparent, inclusive, and monitored through independent oversight institutions. Recent research studies also show that transparency can help to attract easier and cheaper international credit and thereby increase public revenues. On the other hand, lack of fiscal transparency can undermine fiscal discipline,increase borrowing costs, and promote opportunities for corruption and other leakages.

ICGFM 2012 Winter Conference

Posted by Sailendra Pattanayak

The International Consortium on Governmental Financial Management (ICGFM) held its Winter Conference on Good Public Financial Management Practices in a Period of Global Adjustment in Washington, DC during December 10–12, 2012. This was co-hosted by the Fiscal Affairs Department (FAD) of the IMF. The Global Initiative for Fiscal Transparency (GIFT) also partnered with the ICGFM for this conference.

The conference was attended by high-level officials from ministries of finance, state audit institutions and other government ministries/agencies, and members of parliament of more than 25 countries, as well as representatives from international organizations, rating agencies, think tanks, the donor community, civil society groups, and academia. The welcome address was delivered by Ms. Linda Fealing, President, ICGFM, followed by opening remarks from Mr. Sanjeev Gupta, FAD Deputy Director. (Download ICGFM conference agenda Dec 2012.)

Two Richards Talk Fiscal Transparency

Posted by Rachel Wang

On November 1, 2012, the IMF’s Fiscal Affairs Department (FAD) published a policy paper entitled, “Fiscal Transparency, Accountability, and Risk”. The paper reviews the progress made in improving fiscal reporting since the late 1990s; considers what the global financial crisis has taught us about the adequacy of prevailing fiscal transparency standards, practices, and monitoring; and makes a series of recommendations for revitalizing the global fiscal transparency effort in the wake of the crisis. Richard Allen, a seasoned advisor on public financial management issues and former deputy division chief in FAD, sat down with Richard Hughes, the new head of FAD’s Public Financial Management Division I and co-author of the paper, to talk about its key insights and implications.

Richard Allen (RA): Can you tell me why it was decided to prepare a new IMF policy paper on fiscal transparency?

Richard Hughes (RH): There were really two motivations.

The first motivation was that the IMF has been in the fiscal transparency business for about 15 years. We started work in earnest in the wake of the Asian Financial Crisis with the development of the Fiscal Transparency Code (Code of Good Practices on Fiscal Transparency) and Manual (Manual on Fiscal Transparency) and the Fiscal ROSC (Reports on the Observance of Standards and Codes). So, 15 years on, we wanted to take stock of how much progress we have made in promoting greater fiscal transparency, review how these fiscal transparency instruments were performing, and look at how much work was left to be done.

Seeing Our Way Through The Crisis: Why We Need Fiscal Transparency

Posted by Carlo Cottarelli and previously published on iMFdirect

Without good fiscal information, governments can’t understand the fiscal risks they face or make good budget decisions. And unless that information is made public, citizens and their legislatures can’t hold governments accountable for those decisions.

Fiscal transparency—the public availability of timely, reliable, and relevant data on the past, present, and future state of the public finances—is thus to the foundation of effective fiscal management.

A new paper from the IMF on fiscal transparency, accountability, and risk considers the progress we have made in opening up the “black box” of fiscal policymaking over the past decade, the lessons of the recent crisis for current fiscal reporting standards and practices, and the steps we need to take to revitalize the global fiscal transparency effort.

Is Fiscal Transparency at Risk? Ten Questions for FAD’s Tim Irwin

Posted by Marco Cangiano

Tim Irwin is headquarter-based consultant in the Public Financial Management 1 Division of the Fiscal Affairs Department, headed by Marco Cangiano. He’s recently published a Staff Discussion Note on accounting devices and fiscal illusions and has several papers on fiscal transparency under development, including one on the history of the subject. Tim has worked on issues such as fiscal reporting, fiscal risks, and the governance of state-owned enterprises and public-private partnerships, in Iceland, Jordan, Mexico, and Portugal. Before joining the Fund, he worked at the World Bank, the New Zealand Treasury, and an economic consultancy.

Is fiscal transparency at risk now that fiscal consolidation and monetary stimulus are the primary policy tools being used to resuscitate European economies? Are countries less interested in fiscal transparency in the aftermath of the financial crisis, i.e. more motivated to hide the real goings on in the kitchen of government?

How Much Butter Are Those Guns Costing?

Posted by Benoit Taiclet and Greg Horman

We have read—and appreciated—a recent publication under the program, “The Transparency of National Defense Budgets,” by Mariya Gorbanova and Leah Wawro, on budget transparency around defense expenditures.

Defense and security establishments have traditionally been among the organizations least open to public or intra-governmental scrutiny. The secrecy that veils some defense activities often extends far beyond what is justified on security grounds, making the sector particularly vulnerable to corruption, anti-competitive behavior, and other illegal practices. Facilitated by excessively secretive budgets, corruption reduces the operational effectiveness of the armed forces and security services and reduces public trust in them. Corruption in defense and security establishments also wastes scarce resources that could be spent on other public services. International companies are less inclined to invest in countries where government or private-sector corruption is significant, impeding economic development. Thus, corruption not only harms defense institutions themselves, but also hinders a country’s economic and social development, undermines the integrity of the government, and reduces public trust in the authorities.

Accrual Accounting Essential for Government Transparency and Accountability!

Posted by Ian Ball [1]

In this post Ian Ball, CEO, International Federation of Accountants, argues that it is time for governments to take their accounting responsibilities seriously and to modernise their financial management practices. The eurozone debt crisis has highlighted widespread financial reporting failures and must lead to extensive reform, including adoption of accrual accounting and budgeting practices. Politicians and Ministries of Finance must be pressured to implement these reforms before the next crisis hits.  

The sovereign debt crisis has emphasised the seriousness of the results of poor financial management and financial reporting. Obviously, government actions to limit the impact of the global crisis have exacerbated their financial positions, as many governments acquired significant assets and liabilities, gave guarantees of various kinds, and engaged in massive fiscal stimulus programmes. But the situation now would not be as dire if so many governments had not already made commitments that they did not account for properly, and may not be able to meet.

Governments in general are clearly accounting very poorly for their financial performance and position. This could, and should, lead to significant reform. We saw how financial reporting failure in the private sector a decade or so earlier led to dramatic action, including the passage of the Sarbanes-Oxley Act 2002 in the United States, and the creation of regulatory bodies for private sector audits in most major countries.

Transparency and Participation in Public Financial Management: What Do Budget Laws Say?

Posted by Paolo de Renzio, International Budget Partnership, and Verena Kroth, London School of Economics

An increasing number of governments, as well as international and civil society organizations, are promoting the public disclosure of budgetary information, and calling for greater citizen involvement in budget processes. Most agree that fiscal transparency generates significant benefits, as it is an important precondition for better governance, improved economic performance and prudent fiscal policy, resulting in lower deficits and debt accumulation. Moreover, transparency functions as a political expression of democratic governance, giving citizens and taxpayers information that they are entitled to, and that they can use to hold their governments accountable.

Given its increasing importance, how can transparency and participation in public financial management be promoted or improved? As a possible avenue, it is interesting to look at the role of legislation in promoting both disclosure of budgetary information and opportunities for citizen engagement in the budget process. Key questions then are: (a) to what extent does budget legislation in different countries cover issues related to budget transparency and participation, and in what level of detail? and (b) does the degree to which legislation covers issues related to public disclosure of budget information seem to affect the actual level of budget transparency in different countries?

Rwanda: A Decade of Difficult but Sustained Public Financial Management Reforms

 

Posted by Lewis Kabayiza Murara

Only a decade ago Rwanda did not possess a properly articulated public financial management system, and there were few qualified staff to run the system, especially public accountants. Since then the government has put in place many of the elements required for a sound system of public financial management. Some weaknesses remain, in particular in relation to local accounting capacity, but the government of Rwanda appears firmly committed to establishing a modern, efficient, transparent and accountable PFM system. In 2006, the government put in place a Public Financial Management Action Plan aimed at strengthening several aspects of the existing public financial management system. In particular, the government sought to strengthen accounting capacity, improve the audit function, and put in place more robust financial controls and reporting procedures, new rules on fiscal and financial decentralization, and procurement reforms. Subsequently, and following the first-ever PEFA assessment on Rwanda in 2007, a comprehensive and ambitious five-year Public Financial Management strategy was prepared in 2008 and is now being implemented, with some degree of success as evidenced by a repeat PEFA assessment concluded in December 2010.

This blog post attempts to summarize salient features of Rwanda’s public financial management landscape, including a short paragraph on public procurement (which tends to be forgotten by IMF and other PFM specialists as a key area in public financial management and tends to be treated separately).

Transparency Versus Effectiveness in Public Financial Management

Posted by Sailendra Pattanayak

 
In recent years, there has been a resurgence of initiatives to promote transparency in fiscal policy decision making and implementation. Openness and clarity about the government’s policy intentions, policy formulation and implementation have been recognized as key elements of good governance. Comprehensive disclosure in a timely and systematic manner of all relevant information on management of public resources—their collection and use through a country’s public financial management (PFM) system to pursue policy goals—are seen as key to ensuring accountability.

Alongside transparency, the effectiveness of PFM systems and processes, including budget management methodologies and tools, is also important to manage public finances in a cost-effective manner. Budget reforms such as MTEF, program/performance budgeting, activity-based budgeting, cost accounting, etc. are primarily motivated to enhance the efficiency and effectiveness of allocating and managing public resources.

Global Aid Transparency Movement: A Call for Action?

Posted by Florence Kuteesa, former budget director of Uganda

 
A global aid transparency movement, bringing together several initiatives with a shared vision[1], has received increasing interest and attention since the 2005 Paris Declaration for Aid Effectiveness. The main thrust of the movement is to make information about aid spending easier to access and understand by promoting public disclosure of regular, detailed, and timely reports on volume, allocations, and, where available, results of aid spending.

The movement is premised on the understanding that joint commitment from both donors and recipient governments is required to enforce global aid transparency. The International Aid Transparency Initiative (IATI) advocates for one gateway to access information from different sources by setting up an online registry that records the location of information. Publish What You Fund conducted an assessment of donor transparency levels whose findings were published in the 2010 Aid Transparency Assessment Report and discussed below. A joint initiative[2] is underway to formulate common standards to determine what information participating donors will publish and formats in which it will be presented.

Fiscal Transparency in Cameroon: a Top Concern for the Government

Posted by Manal Fouad and Edouard Martin (IMF's Fiscal Affairs Department)

Cameroon's dialogue with the Fund on fiscal transparency issues goes far back. Hence, Cameroon was one of the two pilot countries to experiment with the fiscal module of Reports on the Observance of Standards and Codes (ROSC), when the Fund launched the initiative in 1999.

Eleven years later, a ROSC reassessment shows that Cameroon has made important strides to comply with the principles of the IMF Code of Good Practices on Fiscal Transparency. Such progress is the result of an active government engagement towards improving public financial management and transparency, which is now set as one of the objectives of the budgetary process. Consistent with this engagement, numerous reforms have been implemented to improve transparency, some with the help of development partners and with technical assistance from the IMF. For instance, Cameroon joined the Extractive Industries Transparency Initiative (EITI) in March 2005, creating in the process a platform for dialogue on public finance involving representatives of government, donors and lenders, and civil society. Also, a new budget system law, encompassing modern PFM techniques and generally in line with international good practices was promulgated in 2007; its provisions are expected to be fully in place by 2012. During its discussions in Yaoundé, the authors of the report met with the community of NGOs, journalists, and other stakeholders, who were outspoken and keenly interested in transparency issues and in working toward high standards for their country.

With 17 “gold medals” Brazil beats Norway on the PEFA assessment!

Posted by Mario Pessoa

Gold medals are the objective reference for success in the world of sports. In PFM, you may measure success by the number of “A”s scored on the PEFA assessment. A recent World Bank PEFA report gives Brazil the lead with 17 A's! Even better than solid, dependable Norway! Is the PEFA representation accurate? Is Brazil world leader on PFM, or is reality a bit more complex?

Brazil has been reforming its public financial management systems since the 1980s. The implementation of the fiscal responsibility law (FRL) in 2000 can be considered the major landmark that put the country in the forefront of PFM good practices. The FRL improved substantially the coverage of the budget and fiscal reports, imposed macrofiscal safeguards on debt management and public expenditure, provided for the preparation of a fiscal risk analysis to support the budget process, and pushed for timely and reliable fiscal reports. The impact of the FRL is clearly perceptible in three of the six pillars of the PEFA assessment (credibility of the budget; comprehensiveness and transparency; and accounting; recording; and reporting). From 14 indicators in theses three dimensions Brazil scored “A” in 11.

Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?

Posted by Dimitar Vlahov

It’s common knowledge that today’s global economy is facing multiple challenges and imbalances. From the recent financial crisis, to concerns about distribution of wealth, to the ever-more-dangerous clashes between economy and environment, there are many reasons to pause and examine the whole system. Some experts have suggested that a large chunk of this ill condition can be attributed to the same cause – the problem of bad performance measurement. Businesses and governments alike, the argument goes, have been employing short-sighted measures of success that do not account for all medium- and long-term consequences of their organizations’ activities. Therefore, they need to expand their reporting to include social and environmental indicators of performance, and not just financial ones. With a better warning system, many of the present-day issues could be mitigated or avoided altogether. This post serves as a basic introduction to this approach and its main applications to date.

Social Control and Transparency in Brazil

Posted by Helio Tollini

The requirements of the Fiscal Responsibility Law (LRF), of May 2000, helped improve transparency of the public accounts at all levels of governments in Brazil. The advances in this area were testified by the International Budget Partnership (IBP), whose 2008 Open Budget Initiative ranked Brazil 8th in terms of the budget process transparency,[1] and by the Public Expenditure and Financial Accountability (PEFA) Initiative, whose report on Brazil, currently under finalization, places the country first among approximately 90 finalized assessments.

The LRF had never been changed until the recent approval of Complementary Law nº 131, of May 2009. The new law requires all federative units (which includes the municipalities) to make available “detailed information” on the Internet, in real time, of their budget and financial execution. According to the law, since May 28, 2010, the federal government, the states and the municipalities with more than 100,000 inhabitants are obliged to provide the required information on their own websites. The deadline is extended by one more year for municipalities whose number of inhabitants ranges from 50,000 to 100,000, while the municipalities with less than 50,000 inhabitants have three extra years to adjust, until May 2013. The law foresees sanctions for non-compliance, like the withholding of voluntary transfers from the federal government, which are very important for smaller states and municipalities.

Full Disclosure of Government Debt, and How it Can Go Wrong

Posted by Yang-Hyun Jin

The more the issue of fiscal adjustment comes to the attention of the public, the more important is the full disclosure of the government or public debt. Just in follow up to the previous post, government or public debt should not be confused with public sector debt which includes the debt of publicly-owned corporations. Government or public debt to GDP ratios are often used as targets of government fiscal policy or even part of fiscal rules that are  enshrined in law, Constitution or International Treaty. The Maastricht Treaty of course famously limits in principle government debt to GDP of eurozone members to a maximum of 60 percent. 

To have sufficient information on the exact amount of government or public debt is not only a starting point for fiscal adjustment but also a criterion for measuring the success of consolidation efforts. In some countries, the authorities adhere to the accepted standards of disclosure as fully as possible. In other countries, however, the authorities’ attitude toward full disclosure of public debt information is more evasive. This is especially the case when full disclosure has political or market consequences.

This blog argues that it is important to respect the criteria and definitions of government/public debt, and not evade full disclosure, but that evasion can and does take place. It examines the definition of public debt and how that information should be reported.

Interactive Financial Data and XBRL: the Way Forward?

Posted by Dimitar Vlahov

 

Today’s means of exchanging financial data have entered a process of global synchronization and standardization. Intuitively, this makes sense given the interconnected and interdependent nature of economic and business entities around the world, coupled with advances in computing power. In practice, the trend is evidenced by the rapid spread of XBRL, a novel set of programming rules for recording and reporting financial data electronically. Over the last several years this new freely-available open standard has been employed by more than 550 major companies, organizations and governments, including many central banks, finance ministries, the International Accounting Standards Board (IASB), the U.S. Securities and Exchange Commission (SEC), and the Tokyo Stock Exchange. A Forbes report estimates that XBRL encoding is used by companies representing more than 75% of the world's market capitalization. So popular has XBRL become that one can now even buy “XBRL for Dummies” on Amazon. This note provides a quick account of what XBRL is and why it is relevant for public financial management.

The Role of Independent Fiscal Institutions in Fiscal Management: The Perspective from an International Conference in Hungary

Posted by Dávid Mihályi[1]

On March 18-19, 2010, the Fiscal Council of the Republic of Hungary hosted a conference on independent fiscal institutions at the Hungarian Academy of Sciences, in Budapest. Speakers included heads of sister institutions, senior government officials, and academics from more than 20 countries. The principal objective of the conference was to examine the experience of independent fiscal institutions in promoting the transparency and sustainability in public finances.

In the wake of the global financial crisis, with public debt reaching historical heights, policymakers are exploring solutions to unprecedented problems with sovereign debt sustainability. As minor adjustments appear insufficient to ensure medium-term consolidation, many advanced and emerging-market economies have introduced, or are about to introduce, a comprehensive fiscal policy framework to strengthen their commitment to fiscal responsibility. This often includes setting permanent fiscal policy and procedural rules. In addition, as part of the framework, an increasing number of governments have established independent fiscal institutions to ensure the reliability of government accounts and projections, and to monitor compliance with fiscal rules. The conference provided a forum for discussing accumulated experience and emerging best practices in this area.

Webpage Provides Country Profile Based on Financial Codes and Standards

Posted by Mario Pessoa

Finding well-focused analytical information on countries’ finances in one single place has been a permanent challenge. To address this weakness the Financial Standards Foundation (FSF) created the eStandardsForum webpage. On this webpage you can access a well-organized country profile encompassing country-specific standard compliance index on twelve relevant international financial standards and codes (see list below). Each country page provides not only a summary of the assessments but also a standardized assessment index summarizing the results. [1]

Despite the potential shortcomings resulting from the conversion of qualitative assessments to quantitative ones, the FSF’s efforts to extract key information and to summarize it in a reader-friendly and appealing presentation, particularly for the user not well familiarized with public financial and banking jargon, are commendable.

According to the FSF composite index, the countries with better financial systems would be: The Netherlands, Italy, Denmark, Australia, UK, France, Norway, Portugal, Estonia, and Germany. Some of these countries are often recognized as leaders in these areas, but others may come as a surprise to our readers. A closer look at the profiles shows that higher ranking countries are the ones that embarked on a wide range of reforms over the last decade.

Gender Budgeting and Equity Issues in Fiscal Federalism Arrangements: Some Lessons from India

Posted by Davina F. Jacobs

Despite the growing recognition of gender factors in budget planning and execution, there have been relatively few attempts to translate them to the intergovernmental sphere. An interesting working paper by Lekha Chakraborty (attached below), drawing on her own analysis and that of an earlier study of the Indian National Institute of Public Finance and Policy (NIPFP), discusses this up to now often neglected area. The question discussed is basically can gender issues be incorporated into financial devolution approaches. She discusses these issues in the context of the policy agenda of the Thirteenth (and latest constituted) Finance Commission of India.

India has and continues to be a pioneer in institutionalizing gender budgeting within its Ministry of Finance. The process of gender budgeting in India gathered momentum with a NIPFP study in 2003. To provide the analytical framework for gender budgeting, this study constructed an econometric model to link spending on public education and health to the Gender Development Index (GDI), showing the positive effect of such spending on this indicator of gender inequality—see the development of the GDI as set out in Box 1, page 8, of Chakraborty’s paper. This approach did not refute the widely explored link between economic growth and (gender-sensitive) human development; rather it confirms this link through higher public expenditure, particularly through healthcare and education.

Petroleum Product Subsidies: Costly, Inequitable, and Rising

Posted by Justin Tyson

Petroleum product subsidies around the world have again started to rise with the rebound in international commodity prices. A recent Staff Position Note reviews the latest developments in subsidy levels and argues that it is necessary to reform the policy framework for setting petroleum product prices in order to reduce the fiscal burden of these subsidies and to address climate change.

In 2003, global consumer subsidies for petroleum products, measured as the difference between domestic retail prices and international prices adjusted for transport and distribution costs, totaled nearly $60 billion. They are projected to reach almost $250 billion in 2010. Including tax subsidies (the difference between “optimal” taxes to raise revenue and corrected for externalities and actual taxes), such subsidies are substantially higher. Taking an optimal tax in the range $0.30-$0.40 per liter, projected subsidies are estimated at between $740-$970 billion (or 1.0–1.3 percent of global GDP). Including producer subsidies for other fuels, such as subsidized coal for power plants, would drive these estimates even higher. G-20 countries account for over 70 percent of projected tax-inclusive subsidies, with emerging G-20 countries accounting for a sizable part of that. Halving tax-inclusive subsidies could reduce projected fiscal deficits by one sixth in subsidizing countries and could reduce greenhouse emissions by around 15 percent over the long run.

Budget Officials from East Africa Discuss Fiscal Transparency and Budget Comprehensivenes

Posted by Davina Jacobs

The IMF’s regional technical assistance center in East Africa (AFRITAC East) conducted a workshop on fiscal transparency and budget comprehensiveness, at the Bank of Tanzania Conference Center in Zanzibar during October 20-22, 2009. It was attended by 25 participants from seven countries (Ethiopia, Kenya, Malawi, Rwanda, Tanzania, Eritrea, and Zanzibar). The workshop was coordinated by AFRITAC East’s public financial management advisors (based in Dar-es-Salaam) and staff from the IMF’s Fiscal Affairs Department in Washington, DC. The workshop was opened by the Permanent Secretary of the Ministry of Finance of Zanzibar.

IMF Updates the Portal on Fiscal Transparency

Posted by Mario Pessoa

Fiscal transparency is one of the most relevant elements of a modern public financial management system. Because of that, starting in the late 1990s, the IMF developed a code of good practices in fiscal transparency and a specific framework to evaluate transparency practices in its member countries. The Fiscal Affairs Department developed a set of guides and manuals to help carry out a standardized evaluation. The Report on the Observance of Standards and Codes (ROSC) of Fiscal Transparency –often called the “Fiscal ROSC” is a voluntary exercise that has been already undertaken by more than 90 countries.

Keeping an Eye on the Long term

Posted by Guilhem Blondy

Many OECD counties face both short- and long-term fiscal pressures. While short- and medium-term fiscal projections are usually adequately presented in the budget, this is much less the case for long-term fiscal projections. The IMF and OECD have been advising ministries of finance and/or planning agencies to present long-term fiscal projections in the budget, or attached to it, for quite some time. As long as a decade ago the IMF Manual on Fiscal Transparency described as best practice for budget and fiscal transparency that governments publish a periodic report on long-term public finances. Yet the use of these long-term fiscal projections has remained limited to a relatively small number of industrialized countries.

Barry Anderson and James Sheppard presented a paper at the 30th OECD annual meeting of senior budget officials assessing practices in 12 countries : Australia, Canada, Denmark, South Korea, the Netherlands, New Zealand, Norway, Sweden, Switzerland the United Kingdom, and the United States (Anderson, Barry, and Sheppard, James, Fiscal futures, institutional budget reforms, and their effects : what can be learned?, 30th annual meeting of OECD senior budget officials, Paris, 4-5 June 2009).

Government Actions in Response to the Financial Crisis: An Emphasis on Transparency and Accountability

Posted by Abdul Khan

“Politicians will not be forgiven by future generations if liabilities and obligations incurred today are hidden from them today, but paid for tomorrow,” cautioned Mike Hathorn, the Chair of the International Public Sector Accounting Standards Board (IPSASB). Speaking at a seminar organized by the Fiscal Affairs Department of the IMF on May 22, 2009, he indicated that the IPSASB believes that transparency and accountability are crucial to explain to citizens the range of actions governments are taking in response to the financial crisis. In a frank assessment of the current state of affairs in public sector financial reporting, he said that, in his opinion, “most governments do not have the financial reports necessary to communicate to citizens in a transparent way….”

Open Budget Survey 2008

Posted by Eivind Tandberg.

Most of our readers are probably familiar with the Open Budget Survey results for 2008, which were published at the end of last year. For those who have not yet studied the very interesting results of this survey, we recommend that they access the website of the International Budget Partnership (IBP website) and take a look.

The survey includes a comprehensive evaluation of budget transparency in 85 countries. The main finding is that the state of budget transparency around the world is deplorable. According to IBP, this encourages inappropriate, wasteful, and corrupt spending and—because it shuts the public out of decision making—reduces the legitimacy and impact of anti-poverty initiatives. At the same time, the Survey shows that a number of countries have significantly improved their performance over the past two years. It also shows that many more governments could quickly improve budget transparency at low cost by making publicly available the budget information that they already produce for their donors or internal use.

A Window on Budget Transparency

By Jon Shields.

Beware, shy governments. You’re being watched. The less you tell your citizens about your country’s affairs, the more the Open Budget Index (OBI) will reveal to the world just what it is that you are not telling. And the OBI’s list of missing budgetary information (http://www.openbudgetindex.org/.) is detailed and sometimes shaming.

US Government Annual Financial Report

Posted by Eivind Tandberg

Comprehensive, transparent and reliable financial reporting is a cornerstone of good public financial management. The US Government financial report for fiscal year 2008 (October 2007 - September 2008) was released in December 2008. The report provides many examples of good international practices. However, the accompanying audit report from the US Comptroller General, which includes negative opinions for key government sectors, illustrates that it may be difficult to meet all requirements in this area, even for an advanced economy government with significant financial management resources.

Public Financial Management Performance Assessment Report for South Africa

Posted by Davina Jacobs

I. Assessment of the PFM strengths and weaknesses in South Africa

In a recent PEFA assessment Report (Download final_sa_pefa_report_2008.pdf,) South Africa scores well when viewed from the perspective of the three main objectives of a sound PFM system, namely aggregate fiscal discipline, strategic allocation of resources and the efficient delivery of services, especially in regard to aggregate fiscal discipline. The PFM systems in South Africa are capable of allocating resources in accordance with priorities. The utilization of a three year macro fiscal framework, with a definite budget calendar that facilitates the meaningful bottom-up participation by Departments, along with the very successful integration of cash management and debt management, and the achievement of predictable budget releases and effective payroll management all point to efficient delivery of services. However these positives are negatively impacted by some procurement and non salary expenditure management challenges.

Indonesia’s Fiscal Institutions Are Improving

Posted by Ian Lienert

A recent IMF report examines the improvements in Indonesia’s fiscal institutions over the past few years. Progress includes the establishment of a fiscal policy office; revisions in tax legislation; some improvements in tax administration; and the adoption of legal and administrative measures to improve public sector governance. Moreover, more fiscal information is disclosed to the public, thereby improving fiscal transparency.

Despite these improvements, the report notes that further reforms are needed to improve fiscal institutions and transparency, particularly concerning disclosures related to oil and gas revenue flows.

The Accra High Level Forum – a PEFA Perspective

Posted by Frans E. Ronsholt, Head of the PEFA Secretariat

In the 2005 Paris Declaration, partner countries committed to strengthening their national PFM systems while donors committed, to support partner countries’ efforts to enhance the capacity of such systems, and both parties committed to jointly implement harmonized diagnostic reviews and performance assessment frameworks in PFM. In other words, the Paris Declaration confirmed donors’ and partner countries’ commitment to the three main principles of the Strengthened Approach to Supporting PFM Reform, which constitutes the foundation for the PEFA Program. Donors also committed to using country systems to the extent possible and avoid parallel structures.

The PFM Performance Measurement Framework (PEFA Framework) provides a foundation from which to build reform programs to strengthen a country’s PFM system and to monitor progress towards reform targets. As the PFM system is strengthened, it will create an enabling environment for donors to increasingly use national PFM systems. The PEFA Framework also contributes to the Paris Declaration targets of reduced transaction costs in diagnostic work through harmonized analytical instruments and joint missions.

Does Public Sector Efficiency Matter to Growth? Some New Evidence

Posted by Francois Michel

In a recent paper published in Public Choice, Konstantinos Angelopoulos, Apostolis Philippopoulos and Efthymios Tsionas provide a welcome addition to the empirical growth literature by enlarging the traditional focus on fiscal size to introduce measures of public sector efficiency. Two such measures of public sector efficiency are used.

The first one follows the “output-to-input” (or, as it might be more appropriately denominated, outcome-to-input) approach used by Afonso, Schuknecht, and Tanzi in two famous papers ("Public sector efficiency: an international comparison," Public Choice Volume 123, Number 3-4, June 2005; and "Public Sector Efficiency: evidence from new EU members states and emerging markets," ECB Working Papers number 581, January 2006) governements’ socio-economic outcomes are related to resources used, proxied by public sector spending, for major functions—limited by data availability, in the article’s case, to four basic roles of administration, education, infrastructures, and economic stabilization. The sample consists of 64 developed and non developed countries during four five-year periods between 1980 and 2000.

The second measure of government efficiency to which the model is applied is obtained by applying a stochastic production frontier approach as discussed in Lovell and Kumbhakar’s book (2000). The sample consists here of yearly data between 1995 and 2000 for 52 countries.

PEFA Training in Perspective

Posted by Franck Bessette, PEFA Secretariat

The PEFA Monitoring Report 2007 extensively documented a substantial increase in the overall quality of the PEFA performance reports. This trend has continued, contributing to a wide recognition of the PEFA Framework as the core assessment tool adopted in more than 90 countries for PFM performance measurement and reform monitoring.

The partners of the program were convinced from the start that only high quality assessments of PFM performance could lay the basis for a pool of information on PFM reform that would be shared by the donor community and the partner governments. Training has been considered, since the launch of the PEFA Framework in June 2005, as one of the main pillars of this quest for quality, along with a solid mechanism for report reviews, involving all stakeholders and the PEFA Secretariat. For this reason, a training strategy was prepared by the program and approved by the PEFA Steering Committee. This post would like to give a short overview of this PEFA training activity and some insight into its near future.

State Budget Control at your Fingertips--Financial Management Information Systems Have Modified Public Finance Management in the State of Sao Paulo - Brazil

Posted by Mario Pessoa

The Brazilian State of Sao Paulo has implemented a set of financial information systems in the 1990s and 2000s to enhance transparency and reliability of fiscal data. Two of the most relevant systems are: SIAFEM and SIGEO.

The first one is a typical integrated financial management information system (IFMIS) that encompasses all fiscal transactions from the budget preparation and execution to the preparation of the financial statements. SIAFEM is used by more than 5,000 civil servants of 800 entities. All budgetary transactions have to be done using the system. Additionally, SIAFEM is linked to a treasury single account. The general ledger is the core of the system that uses the same economic classification for both budget and accounting purposes. All reports regarding the fiscal responsibility law and the financial statements are generated by the system.

Extending Research on Corruption to Specific Features of PFM Systems

Posted by Francois Michel

If one wanted to summarize briefly how research on corruption has evolved in recent years, one could say that it has made progress in four different areas:

• The search for determinants of corruption and its transmission mechanism to growth and the exploration of linkages between corruption and other economic—GDP per capita, capital flows, aid, income distribution, inflation, etc.—or political variables. This is often achieved through panel data analyses;
• The improvement of transparency indexes—see Daniel Kaufmann and Aart Kraay’s recent article on "Governance Indicators: Where Are We, Where Should We Be Going?";
• Efforts to leverage insights from the corruption literature into sectoral, country-specific reform plans, and that have formed the core of the World Bank’s strategy in recent years. As the Bank’s recent flagship publication on corruption makes clear, public financial management reform are instrumental in tackling corruption;
• New microeconomic models explaining how corruption can originate in auctions of procurement contracts—e.g. on allowing ex-post collusion opportunities between the bureaucrat and one bidder.

IMF to prepare Guidelines for Fiscal Risk Disclosure and Management

Posted by Aliona Cebotari

On June 16, 2008, the Executive Board of the International Monetary Fund (IMF) held a seminar on “Fiscal Risks—Sources, Disclosure, and Management”. The topic has gained importance in many IMF member countries, as interest in promoting fiscal sustainability and transparency grows. The staff paper on which the discussion was based reviews the experience with fiscal risks in a wide range of countries and provides practical advice on risk identification, disclosure and management. This includes a set of Guidelines for Fiscal Risk Disclosure and Management, and a possible Statement of Fiscal Risks.

Ghana Aims for Firm Fiscal Discipline Before Oil Flows

Posted by Richard Allen and Jacques Bouhga-Hagbe

Today, we published a short article in the IMF Survey Magazine titled “Ghana Aims for Firm Fiscal Discipline Before Oil Flows.” This was based on a recent FAD technical assistance mission to Ghana. Here is a summary of the key points; the full text of the article is accessible by clicking here.

Ghana's authorities are contemplating far-reaching reforms designed to further strengthen fiscal discipline and transparency and make effective use of prospective oil and gas revenues.

Implicit Contingent Liabilities May Be Costly for the United States—New CBO study

Posted by Ian Lienert

In many countries, the true financial position of the public sector is obscured when there are off-balance sheet items that pose a threat to fiscal sustainability. Although there is increasing awareness of the potential budgetary consequences of contingent liabilities, “hidden deficits” have reared their ugly heads in a number of countries, resulting in unexpected government expenditure. Contingent liabilities can be explicit or implicit. Whereas the former are based on contracts, laws or clear policy commitments, the latter are political or moral obligations that arise from the expectation that the government will step in when the cost of not intervening is considered to be unacceptably high. The evidence suggests that implicit contingent liabilities can be particularly costly for government budgets.

In the United States, the mortgage-related financial crisis has activated the implicit contingent liabilities of the federal government. In particular, the implicit guarantee to bail out Government-Sponsored Enterprises (GSEs) involved in mortgage financing has recently been triggered. Although privately-owned, the U.S. federal government has proposed to provide temporary authority to the Secretary of the Treasury to purchase any amount of obligations and other securities issued by three GSEs, two of which are commonly known as Fanny Mae and Freddie Mac. The Congressional Budget Office (CBO) has estimated that the probability-weighted cost of the bail-out could be $25 billion in the next two years. The uncertainty in the estimates is high: the CBO study indicates that under optimistic assumptions there may be no cost to the federal budget; at the other extreme, there is a 5 percent chance that the cost could exceed $100 billion.

Egypt hosts OECD Budget Law Seminar

Posted by Ian Lienert

On May 28–29, Egypt’s Ministry of Finance hosted an OECD seminar on legal frameworks for budget and financial management in OECD countries. The main objective was to learn more of good international practices in budget law. At present, Egypt’s two main budget-related laws are: a 1973 Budget Law and a 1981 Accounting Law. [Download egypt_budget_law_1973.pdf ]

All aspects of the legal framework for budget and financial management systems were covered in the seminar. Difference in budget laws in OECD countries are very marked, reflecting not only differences in budget systems, but institutional differences in the role of parliaments and governments in budget-making, the extent of delegation of authority for budget management to ministers and senior officials in ministries and government agencies, as well as sharp differences in countries’ attitudes towards using law for reforming budget processes and public financial management.

Canada creates a Parliamentary Budget Office

Posted by Ian Lienert

In countries where the legislature is strongly independent from the executive, a strong case can be made for establishing an independent Budget Office, as it can assist the legislature to scrutinize the draft annual budget proposed by the executive and provide analytical support to the legislature for alternative budget proposals. In countries where parliament’s budgetary powers are limited, there is less incentive for members of parliament to scrutinize the governments’ draft budget proposals, since the “alternative budget” function is less, or possibly non-existent (in a few countries, parliament can make no changes in the draft budget without the authorization of the government). Even in these countries, parliament can still benefit from the existence of an independent office that provides analytical support for clarifying to parliamentarians the complexities embodied in a government’s draft budget.

With this in mind, legislation was recently adopted in Canada to create a Parliamentary Budget Officer, whose main mandates are to provide objective analysis to parliament on the government’s macro-fiscal estimates and analytical support on budget-related issues to members of parliament and certain parliamentary committees. Staffing of the new office is currently taking placing.

New EU-Supported Financial Information Management System Public Finance in Serbia

Posted by Michel Lazare

Here is a YouTube video presenting the key features of a new financial management information system introduced in Serbia with the support of the EU-European Reconstruction Agency.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 3)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the third part of this YouTube video; parts 1 and 2 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges ( Video 2)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the second part of this YouTube video; parts 1 and 3 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 1)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the first part of this YouTube video; parts 2 and 3 appear in other posts published today.

Public Financial Management Reform -- Trends and Challenges

Posted by Bill Dorotinsky

On June 18, 2008, I spoke on Public Financial Management Reform: Trends at the the International Consortium on Government Financial Management (ICGFM) monthly speaker series in Washington, D.C.

I took the opportunity to share my personal views on current trends and challenges in public financial management (PFM) reform, drawing on my experience across the globe and multiple institutions. (As I noted, these are not the views of the IMF, or any other institutions with which I have been associated.)

The presentation covered three broad areas:

1. Common PFM reform recommendations, seen across all donors, consultants, etc.
2. Information on what reforms countries have been implementing in recent years
3. Challenges ahead for improving PFM

The PowerPoint can be downloaded here Download public_financial_reform_trends_icgfm_June_2008.ppt

The ICGFM Blog also posted a summary and video of the presentation on their Blog (CLICK HERE).

Food Price Hikes: Equitable and Efficient Subsidies

Posted by Christian Schiller

On June 3 to 5, 2008, a United Nations sponsored conference on world food security took place in Rome Italy. A large number of world leaders were there, including my boss, the Managing Director of the IMF, Dominique Strauss-Khan. He warned that high food prices are a serious humanitarian concern as well as a source of macroeconomic instability affecting, among others, government budgets everywhere in the world. The MD told delegates that the Fund has already doubled financial assistance to four low-income countries affected by food and fuel price hikes and is discussing additional support with another 11 countries.

Mozambique’s Encouraging Progress on Fiscal Transparency

Posted by Teresa Dabán

In May 2008, the IMF published, on its external web site, a reassessment of Mozambique's fiscal transparency—i.e. a completely updated Report on the Observance of Standards and Codes- Fiscal Transparency Module ("fiscal ROSC"). The overall conclusion of the report is encouraging: although several weaknesses remain, Mozambique’s fiscal transparency has improved significantly since the first fiscal ROSC conducted in 2001. Aside from this positive result, Mozambique’s fiscal ROSC reassessment is of special interest and relevance. Why? Because (i) it has been one of the few fiscal ROSC reassessments conducted since the Fund’s fiscal ROSC was launched; (ii) it shows how the Fund’s technical assistance (TA), in close coordination with donors, contributed to improve fiscal transparency; (iii) it was conducted in close coordination with the PEFA Re-Assessment; and (iv) it provides guidance on how to strengthen transparency of future resource revenues.