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July 18, 2014

Fiscal Transparency and Accountability – Why Did so Many Countries Meet in Moscow Recently to Discuss it?

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POSTED BY: Elena Nikulina, PEMPAL Team Leader and Deanna Aubrey, PEMPAL Strategic Adviser (World Bank).   

On 27-29 May 2014, 179 people met in Moscow, Russia to discuss fiscal transparency and accountability. The meeting was held by the PEMPAL network[1] and was hosted by the Ministry of Finance of the Russian Federation and other key donors to PEMPAL including the World Bank, and the Swiss Government’s State Secretariat for Economic Affairs, SECO. 

The key objective of this meeting was to share information about the concepts and tools of fiscal transparency and accountability and how these can be applied from a central government finance agency perspective. The topic was chosen due to its relevance to central finance agencies and its potential to improve governance. The empirical evidence on the beneficial effects of fiscal transparency range from improved budgetary outcomes to lower sovereign borrowing costs and decreased corruption.[2]

Overview of Meeting

Official welcome statements were provided by the Minister of Finance of the Russian Federation, Anton Siluanov; the Minister of Open Government of the Russian Federation, Mihail Abyzov; and the World Bank Country Director for Russia, Michal Rutkowski. 

PEMPAL 1

Different international organizations gave presentations including the IMF, the OECD, the International Budget Partnership (IBP), and the Global Initiative for Fiscal Transparency (GIFT). The IMF presented its new fiscal transparency code and the OECD presented its draft principles for budgetary governance. In addition the IBP examined global performance of PEMPAL countries and GIFT presented its 10 high level principles on fiscal transparency, participation, and accountability.  Good practices from countries within and outside the PEMPAL region were showcased, including the Russian Federation, Turkey, Mexico and South Africa. A panel of Secretary-Generals from Albania, Kyrgyz Republic, and Bulgaria discussed the important roles played by financial reporting and internal and external audit in their countries. 

Group discussions were held on using budget and treasury portals, applying transparency frameworks, and country based plans to strengthen reforms. Most PEMPAL countries plan to ensure higher accessibility and transparency of budget information in the future. Some improvements have already been achieved through: IT and FMIS reforms; aligning information to international standards; and implementing program budgeting reforms to report on performance and results. Most countries had undergone some form of diagnostic assessments such as PEFA and OBI. Countries acknowledged their value in identifying improvements and good practices, although they also noted the limitations of these tools.

Detailed Discussions

The presentations by international organizations and experts highlighted a number of interesting findings and issues from recent research on transparency in the region. According to the 2012 Open Budget Index and available PEFA diagnostic assessments, the average performance of the region in transparency has slowed or declined when compared to 2010 (see Graph 1). The Index highlighted areas in need of strengthening specifically in the publication of citizens budgets[3], the provision of Mid-Year Review documents and the comprehensiveness of the Executive’s Budget proposals (see Table 1). It also stressed that the lack of sufficient coverage of institutions in the budget such as SOEs and off-budget funds continues to present serious fiscal risks. Citizen engagement in the budget process is also weak. (Global average for participation is very low at 19% with no country scoring above 50% in the PEMPAL region).  IBP recommends that countries adopt good participation practices such as: providing multiple mechanisms throughout the budget process; involving all parts of government (Executive, Legislature, Supreme Audit Institution and Ombudsmen); providing a legal basis for participation; publicizing purposes in advance and providing feedback.   (Source: Warren Krafchik, IBP).

   PEMPAL 2

Source: Warren Krafchik, International Budget Partnership, presentation to PEMPAL Cross-COP 29 May 2014 (Note: Only 15 of the 22 PEMPAL members participated in the survey)

However, significant improvements have been made by some countries in budget transparency, in particular the Russian Federation with other notable improvements from Kazakhstan, Kyrgyz Republic, and Albania.

PEMPAL 3
 Source: Warren Krafchik, International Budget Partnership, presentation to PEMPAL Cross-COP 29 May 2014 (Note: Only 15 of the 22 PEMPAL members participated in the 2012 survey)

The Russian Federation performed the best in the region in the 2012 OBI (coming 10th worldwide ahead of Germany, Spain and Italy).[4] Russia’s recent budget reforms have also brought most aspects of its fiscal reporting and budgeting into line with good or advanced practices and significantly improved the disclosure and management of fiscal risks, as assessed by IMF while piloting its new code in Russia.[5]   Further recommendations for improvement were also provided (see below).

  PEMPAL 4
Source: Richard Hughes, ‘IMF’s New Fiscal Transparency Code and Evaluation’, presentation made at PEMPAL Moscow Meeting, 27 May 2014

The Russian Federation also rated well in the World Bank’s study on FMIS and Open Budget Data, the results of which were presented at the meeting.[6] However, for most other PEMPAL countries, various FMIS platforms are operational, but there is little evidence on the web of the timely publication of public finance information from reliable FMIS databases.[7] In terms of current PEMPAL members’ good practices, only two countries scored ‘highly visible’, Russian Federation and Turkey. Survey results indicate that only a few countries are focused on publishing open budget data and FMIS platforms are not effectively used by the external audit organizations when monitoring the government’s financial activities or auditing the budget results. Further, there are still only limited opportunities for participatory budgeting. The World Bank recommends that possible improvements could be made through publishing regular updates (monthly/quarterly) on existing websites; promoting the publication of open budget data covering plans verses actuals for budget revenues and expenditures, and providing access to citizens and NGOs to monitor the budget performance (e.g. dissemination of budget performance and feedback on results/services through web sites and mobile applications).

PEMPAL 5

Countries agreed to consider these recommendations and the PEMPAL communities of practice identified a proposed supporting work program. This work program includes a proposed study visit to a high performing country in the OBI and also plans to examine forms and methods of citizen engagement in the budget process within the context of strengthening citizen budgets. There are also plans to continue work on supporting reforms related to IPSAS implementation and IT solutions for treasury systems. In addition, there are plans to establish a financial management control working group and hold a case clinic on internal audit engagement in transparency processes. 

Conclusions

In the closing summations, it was acknowledged that as one of the key stakeholders, central government agencies can play an important role in promoting and facilitating improvements in fiscal transparency and accountability. This has the potential to lead to positive development results for both governments and citizens. Information systems have become the foundation for information transparency and accessibility and the engagement of citizens is essential to promoting trust in government and to improving the quality of decision-making and service delivery. Political will and allies within government and society are needed to champion reforms which are not one-off initiatives but require ongoing focus and efforts.  The quality of information is essential, through aligning information to international standards, and ensuring processes and information are robust through internal and external audit. Usability of the information is also important with open budget data formats allowing reuse and analysis of the data, along with adoption of common reporting standards and easy to understand formats.  

However, there are limitations on systems and capabilities and governments need to develop a strategy for such reforms including identifying and managing the risks and challenges such as lack of internet coverage and the potential low financial literacy of stakeholders. Learning from international good practices and sharing information between countries is a key tool and PEMPAL plans to continue to support this work.

All materials can be downloaded from http://www.pempal.org/event/read/111



[1] The Public Expenditure Management Peer Assisted Learning network (PEMPAL) was established in 2006. Its current membership consists of central finance agencies from 22 of the 30 World Bank classified Europe and Central Asia countries. The network provides learning events, workshops, study tours and resource materials in accordance with member driven action plans in the three distinct thematic areas of budget, treasury, and internal audit.

[2] Wehner and Renzio, 2011

[3] Citizens Budgets are not common in the region with only Kazakhstan (and more recently the Russian Federation, Tajikistan, and Turkey) producing them although the information is readily available in different forms.

[5] Source IMF  2014 Fiscal Transparency Evaluation for Russia

[6] Defined as being budget related information that is published online which is editable and reusable and is free.

[7] The study reviewed 198 public finance websites and examined good practice in areas such as dynamic query options, visibility of FMIS, reliability of public finance data, presentation quality, and the effective use of open budget data. 

 

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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