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February 06, 2020

Why Fiscal Transparency Evaluation Updates are so Useful

Kenya blog
Posted by Vincent Tang[1]

Fiscal Transparency Evaluations (FTEs) have now been conducted by the IMF in 28 countries worldwide. They are widely regarded as the premier tool for assessing the transparency of a country’s fiscal systems and fiscal data. Almost half of the existing evaluations will soon reach their fifth birthday. As budget systems and processes evolve and change, and the amount and quality of fiscal data improves, the time has come to reevaluate the transparency of these systems. However, the first full ‘repeat’ FTE was completed in Kenya in 2019, updating the original FTE conducted in 2014.[2] The report received substantial attention from the media.

The Kenya report marks an important milestone for the FTE assessment framework, and the Fiscal Transparency Code (FTC) on which it is based. With a legacy stretching back to 1997, the framework was overhauled in the wake of the Global Financial Crisis, which laid bare the need for greater transparency and management of the public finances for countries at all levels of development. Demand for the disclosure of information on the public finances grew rapidly and in 2014 a refreshed FTC was published. The standards were further codified and elaborated upon by the Fiscal Transparency Handbook, published in 2018.  By 2020, the IMF’s FTE assessors had assigned over 1,000 scores across the 48 indicators in the Code. FTE diagnoses and recommendations have contributed to significant PFM reforms, from supporting Russia’s effort to publish its first Fiscal Risk Report in 2015, to prompting the UK to move towards merging the budget and other major fiscal announcements in 2017.

As the demand by countries, civil society, international rating agencies, the IFIs and other stakeholders for greater transparency continues to grow, what can be learned from the first FTE repeat assessment in Kenya?

  • The Fiscal Transparency Code provides a robust and stable assessment tool. Where transparency practices for a given indicator in Kenya were unchanged from 2014, the assessed score was the same as was awarded in the original FTE. About three-quarters of indicators were assessed as having the same scores as in 2014, with the remaining quarter reflecting real and often significant changes in reporting practices. The assessors—none of whom took part in the 2014 FTE—found that the Code and Handbook was invaluable in improving their precision and confidence in awarding scores and were consistent with FTEs conducted even before their publication.
  • Five years between repeat FTEs provided enough time to show clear progress in transparency practices. While reforms to reporting practices can take anywhere from months to even decades, the pace of change in Kenya over five years—which has been supported by the IMF and other development partners—was enough to illustrate substantial progress. Scores for five indicators were upgraded, mainly on fiscal reporting (Pillar I of the Code). For example, the coverage of annual consolidated financial reports increased from just 54% of the public sector in 2012-13 to 92% in 2017-18. In this respect, Kenya is amongst the best of any country that has so far undertaken an FTE. Of the 13 recommendations made in the original 2014 FTE, Kenya made ‘some’ or ‘good’ progress in 10.
  • Countries cannot rest on their laurels. Kenya’s scores fell back in four indicators—notably, the setting of and reporting against fiscal policy objectives—which have become less effective in the anchoring of fiscal policy over the medium term. Non-reporting of the budget contingency fund in several years, and shortcomings of in-year reporting of spending from the approved budget also led to a downgrade in scoring against the Code.

The Kenya experience points to the value of repeat FTE assessments in offering new perspectives, illustrating progress and the value of sustained support for capacity development, and showing where further reform efforts are needed.

The published assessment report of Kenya can be downloaded here.

 

[1] Vincent Tang is a Technical Assistance Advisor in the IMF’s Fiscal Affairs Department.

[2] Russia also underwent an FTE update in 2019 although it had a more selective focus.

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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