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New Draft Fiscal Transparency Code & Evaluation:
Outline of the Presentation
I. Background and Context
Japan IMF Sub Acc
II. Revising the Fiscal Transparency Code
III. The New Fiscal Transparency Evaluation
2
I. Background : Lessons from the Crisis
a. Progress in Adoption of Fiscal Reporting Standards
Institutional coverage has expanded…
Coverage of Institutions
(Number of countries)
200
150
100
48
78
22
16
200
General Government
150
9
29
Basis for Reporting Flows
(Number of Countries)
12
52
Central Government
10
33
50
…and the shift from cash to accrual is underway…
Budgetary Central Government
Full Accrual
Partial Accrual
100
No Data Reported
Cash
146
98
120
50
63
0
0
2004
2011
2004
…but few countries prepare full balance sheets …
Coverage of Assets & Liabilities
(Number of Countries)
200
150
9
12
27
14
27
Financial & Non-Financial Assets
17
Financial Assets Only
Liabilities Only
100
136
50
126
0
2004
2011
2011
…and timeliness of reporting is still a problem.
Timeliness of Reporting in 2011
(Number of Countries)
Unknown
16
Annually
37
No Balance Sheet
Semiannually
3
Quarterly
32
Monthly
96
3
I. Background: Lessons from the Crisis
b. Lack of Transparency Exacerbated Problems
Sources of Unexpected Increase in General Government Debt
(percent of GDP, 2007-2010)
FRA DEU NLD
Underlying fiscal position
ESP
PRT GBR USA GRC
IRL
ISL AVE*
Issues Revealed
by the Crisis
1.7
3.2
-2.4
1.8
11.3
3.7
8.1
16.3
1.3
10.9
6.0
1.7
1.8
-0.9
-0.1
0.1
1.5
7.1
2.5
1.6
4.0
4.7
-0.7
1.4
-0.2
0.6
9.4
1.9
0.9
11.2
-0.1
2.5
1.1
0.7
0.0
-1.3
1.3
1.7
0.3
0.0
2.6
-0.2
4.5
0.2
8.4
12.8
14.2
15.4
8.1
17.0
6.3
40.0
60.2
39.5
9.8
Macroeconomic shocks
8.3
4.7
5.2
13.0
4.4
8.9
3.8
38.4
35.7
-3.3
6.0
Financial sector interventions
0.0
8.1
9.0
2.5
3.6
8.1
2.5
1.6
24.5
42.8
3.8
Contingent
Liabilities
Policy changes
2.3
3.8
1.9
4.9
4.7
1.1
6.4
-8.0
-9.9
-4.3
4.7
Stimulus /
Consolidation
Other factors
2.1
-0.3
6.5
1.9
3.7
6.2
8.3
-6.7
7.5
21.6
5.9
14.4
19.5
20.2
24.0
27.8
28.0
29.1
41.7
59.1
67.7
26.4
Revisions to 2007 deficit & debt
Changes to government boundary
Cash-accrual adjustments
Exogenous shocks
Total Unforecast Increase in Debt
* GDP-weighted average
Unreported
Deficits
SoEs & PPPs
Arrears
Macroeconomic
Risks
4
I. Background: Lessons from the Crisis
c. Example: General Government Debt in Portugal
120
Arrears
120
General Government gross debt
100
80
100
SOE & PPP reclassifications
SOE & PPP debt outside the
General Government
Non-SOE & PPP General
Government debt
60
80
60
40
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
*Only includes Central Government SOE debt pre 2007
40
I. Fiscal Transparency : Lessons from the Crisis
d. Addressing Weaknesses in Forecasting/Reporting
Standards
Problem
Weakness in Current Standards
Recommendation
Revisions to Deficits
Infrequent fiscal
reporting
Monthly operational
fiscal reports
Quasi-fiscal Activity
by SoEs
Exclusive focus on
general government
Publication of fiscal
data for public sector
Unreported Flows
Losses on asset &
liability holdings not
recognized
Recognition of
doubtful debts in
summary aggregates
Macroeconomic
Shocks
Bias in
macroeconomic
forecasting
Alternative macrofiscal scenario
analysis
No recognition of
contingent liabilities
Recognition of
quantifiable
contingent liabilities
Exposure to
Financial Sector
I. Background and Context:
e. Origins of the Global Fiscal Transparency Effort
•
A concerted effort to improve fiscal transparency since the late 1990s
– Asian crisis highlighted weakness in public and private financial reporting
– Also underscored the risks associated with undisclosed linkages between the two
•
New fiscal reporting standards were developed
–
–
–
–
•
General: IMF’s Code & Manual on Fiscal Transparency
Budgeting: OECD Best Practices for Budget Transparency
Statistics: EU’s ESA 95, IMF’s GFSM 2001, & UN’s SNA 08
Accounting: IFAC’s International Public Sector Accounting Standards (IPSAS)
New tools for monitoring compliance with standards were introduced
– Multilateral: Fiscal and Data ROSCs, GDDS/SDDS, & PEFA
– Regional: Eurostat, WAEMU & CEMAC harmonization of fiscal reporting
– Civil Society: Open Budget Survey and Index, GIFT Principles
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I. Background and Context:
b. Weaknesses of the Existing Code & ROSC
•
Code & ROSC evaluate clarity of reporting procedures not quality of reports
– Code’s 4 “Pillars” reinforce focus on formal laws, institutions, and processes
i.
ii.
iii.
iv.
Clarity of Roles and Responsibility
Open Budget Processes
Public Availability of Information
Assurances of integrity
– ROSCs pay too little attention to the content of fiscal reports themselves
•
Code & ROSC adopt a “one-size-fits-all” approach to evaluating countries
– Do not take into account different levels of institutional capacity
– Do not provide milestones to full compliance with international standards
– Make it difficult to benchmark against comparator countries
•
ROSC assessments tended to be exhaustive rather than risk-based
– Place equal weight on all elements of the Code
– Difficult to judge relative seriousness of different fiscal reporting gaps
– Include a large number of unprioritized recommendations
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II. Revising the Fiscal Transparency Code:
a. Objectives of the Revisions
1. Emphasize the quality and reliability of published information
rather than clarity of reporting procedures
2. Update the principles and practices to reflect the lessons of the
recent crisis
3. Align the principles and practices with relevant international
standards (GFSM 2001, IPSAS, OECD Principles, PEFA)
4. Provide countries with a set of achievable milestones on the
way towards full compliance with international standards
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II. Revising the Fiscal Transparency Code:
b. Architecture of the New Code
Construction
Pillar
(Type of Report))
Fiscal
Transparency
Indicators
Three Pillars of the Revised
Fiscal Transparency Code & Evaluation
I. Fiscal Reports
Size of unreported
flows
Size of unreported
liabilities
Average revisions to
deficit
Institutional coverage
Quality of Fiscal
Reporting
Openness of
Fiscal Decisionmaking
II. Fiscal Forecasts
Average forecast error
Source of forecast error
Timing of forecast error
Time horizon
Accounting for flows
Clarity of fiscal
objectives
Valuation of assets &
liabilities
Separation of baseline
& new policies
Timeliness of reporting
Timeliness of budget
submission
Independence of
statistics agency
Audit of annual
accounts
Independent scrutiny of
forecasts
Supplementary budgets
III. Fiscal Risk
Analysis
Size of contingent
liabilities
Impact of exogenous
shocks
Average stock-flow
adjustment
Fiscal sensitivity
analysis
Reporting of contingent
liabilities
Long-term fiscal
projections
Approval of contingent
liabilities
Oversight of local
governments
Surveillance of public
corporations
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II. Revising the Fiscal Transparency Code:
c. More Graduated Set of Practices
DIMENSION
1
FISCAL
REPORTING
Fiscal reports should provide a comprehensive, relevant, timely, and reliable
overview of the government’s financial position and performance
Coverage
Fiscal reports should provide a comprehensive overview of the fiscal activities of the public
sector
Fiscal reports
cover all entities
engaged in
public activity
according to
international
standards.
Fiscal reports cover all
entities engaged in public
activity according to
international standards.
Fiscal reports
consolidate all
central government
entities.
Fiscal reports
consolidate all
general government
entities and report
on each subsector.
Fiscal reports consolidate
all public sector entities
and report on each
subsector.
Coverage of
Flows
Fiscal reports cover all
public revenues,
expenditures, and
financing.
Fiscal reports
cover cash
revenues,
expenditures and
financing.
Fiscal reports cover
cash flows and
accrued revenues
and expenditures.
Fiscal reports cover cash
flows and accrued
revenues and
expenditures and other
economic flows.
Coverage of
Stocks
Fiscal reports include a
balance sheet of
government assets,
liabilities, and net worth.
Fiscal reports cover
Fiscal reports cover
all financial assets
cash and all debt
and liabilities.
1.1
1.1.1
1.1.2
1.1.3
PRINCIPLE
PRACTICES
GOOD
#
BASIC
ADVANCED
Fiscal reports cover all
financial and non-financial
assets and liabilities, and
net worth.
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III. New Fiscal Transparency Evaluation
a. Objectives of the New Evaluation
1.
Distinguish between more and less serious deficiencies in
countries’ fiscal transparency practices
2.
Provide countries with a clear picture of where their fiscal
reporting practices stand relative to comparator countries and
international standards
3.
Provide countries with a more targeted and sequenced action
plan for addressing the main transparency weaknesses
identified
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III. New Fiscal Transparency Evaluation:
b. Summary Heatmap
Costa Rica: Assessment Against Fiscal Transparency Practices
1. Fiscal Reporting
2. Fiscal Forecasting &
Budgets
3. Fiscal Risk Analysis &
Management
Coverage of Institutions
Unity
Macroeconomic Risks
Coverage of Flows
Gross Budgeting
Specific Fiscal Risks
Coverage of Stocks
Macroeconomic Forecasts
Contingency Reserves
Tax Expenditures
Medium-term Budget
Framework
Asset and Liability
Management
Fiscal Strategy Report
Guarantees
Budget Submission
Financial Sector Exposure
Classification
Budget Approval
Long-Term Contracts
Internal Consistency
Fiscal Policy Objectives
Financial Derivatives
Historical Consistency
Separation of Existing and
New Policies
Sub-National Governments
Comparability of Forecasts
& Outturns
Performance Information
Public Corporations
Statistical Independence
Distributional Analysis
External Audit
Fiscal Sustainability Analysis
Reliability
Independent Evaluation
Frequency of In-year Fiscal
Reports
Timeliness of Annual
Financial Statements
Practices
Advanced
Good
Basic
Not Met
Supplementary Budget
Forecast Reconciliation
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III. New Fiscal Transparency Evaluation:
c. Fiscal Transparency Indicators: Fiscal Reporting
Ireland: Fiscal Transparency Indicators
Coverage of Public Sector Entities
Reporting of Assets and Liabilities
(percent of expenditure)
(percent of GDP)
Public
corporations
remain outside
fiscal reporting
Only a quarter of
public sector
liabilities
reported
General Government
Reported
Non-Fin Public Corp
Unreported
Financial Public Corp
Central Bank
Liabilities
Assets
Consolidation
Public Sector
Net Worth
-400
-300
-200
-100
0
100
200
300
400
III. New Fiscal Transparency Evaluation:
d. Fiscal Transparency Indicators: Fiscal Forecasting and Budgeting
Bolivia: Source of Budget Forecast Errors
Revenue Forecast Errors
(Percentage point Contribution)
Expenditure Forecast Errors
(Percentage point Contribution)
50
50
45
Percent
forecast error
111%
40
99%
Means budgeted
expenditure bears
little relation to
actual outcomes
41%
40
35
Percent
forecast error
30
30
32%
17%
25
20
120%
20
30%
15
Massive
underestimation
of revenue in the
budget
31%
10
23%
10
5
0
10%
0
Tax Revenue
Operating
Revenue
Other Revenue
Capital
Revenue
Total Error
Wages and
Salaries
Goods and
Services
Misc Current
Capex
Total Error
III. New Fiscal Transparency Evaluation:
e. Fiscal Transparency Indicators: Fiscal Risk Analysis and Management
Selected Countries: Fiscal Risk Indicators
Ireland: Uncertainty around forecast deficits
(percent of GDP)
African Country: Contingent Liabilities
(percent of GDP)
80
70
Contingent
Liabilities are
large and
diverse
60
50
37.6
15.3
40
Significant macro
and fiscal forecast
uncertainty
16.3
30
20
6.1
10
0
Guarantees
(Public)
Ireland: Govt Guarantees related to financial crisis
(percent of GDP)
60
Liabilities of
Finanical PCs
Costa Rica: Distribution of Municipal Debt
(percent of total)
Large exposure
to the financial
sector
20
15
40
10
20
5
0
Central Bank
25
100
80
Gurantees
(Private)
0
Sub-national
risks are small
but relatively
concentrated
III. New Fiscal Transparency Evaluation:
f. Targeted Recommendations
Ireland: Summary Assessment of Fiscal Reporting Practices
Principle
Assessment
Importance
Rec
1.1
Coverage of
Institutions
Good: Fiscal statistics
consolidate all general
government institutions
High: Publicly-controlled entities
with net expenditure of 12% of
GDP outside fiscal statistics.
1
1.2
Coverage of
Stocks
Good: Fiscal reports cover all
financial assets and liabilities
High: Public liabilities of 279%
of GDP outside fiscal reports
2
Coverage of Flows
Basic: Fiscal reports cover all
cash revenues and
expenditures
High: Accrued general
government expenses of 1.1%
of GDP outside fiscal statistics
3
1.4
Tax Expenditures
Medium: Some of the estimated
6% of GDP in revenue lost
Basic: Estimated revenue loss
through tax expenditures not
from income tax expenditures is
reported. Tax expenditures
published at least annually
contributed to pre-crisis property
boom.
1.5
Frequency of Inyear Fiscal
Reports
Advanced: In-year fiscal
reports are published on a
monthly basis
Low: Fiscal reports are
published within 2 days
1.9
Historical
Consistency
Basic: Material revisions to
historical fiscal data are
reported
Low: Revisions to historical
debt data are -0.5% of GDP on
average
1.3
3
17
III. New Fiscal Transparency Evaluation:
g. Sequenced Action Plan
Ireland Fiscal Transparency Action Plan
Action
2013
2014
2015
2016
2017
Incorporate NonCommercial SemiState Bodies into
budget
documentation
Incorporate all
central government
entities in budget
documentation
Integrate noncommercial semistate bodies into
departmental votes
1. Expand Institutional Coverage of Budgets, Statistics, and Accounts
a. Present all gross
revenues and
expenditures of
central government
entities in budget
documentation
Incorporate NPRF
into budget
documentation
b. Combine Finance
and Appropriation
Accounts into a
consolidated Central
Government Financial
Statement
Combine the
information in the
notes to the
Appropriation
Accounts to
produce a
summary report
c. Provide an overview
of the gross revenues
and expenditures of
the general
government and its
subsectors
Reconcile gross
revenues and
expenditures of
Exchequer and
general
government in
budget
Combine Finance
and Appropriation
Accounts into a
partial Central
Government
Financial Statement
based on existing
accounting policies
Incorporate SIF and
NPRF into partial
Central Government
Financial Statement
Incorporate NonPrepare
Commercial Semicomprehensive
State Bodies into
consolidated
consolidated
Central
provisional Central
Government
Government
Financial Statement
Financial Statement for audit by C&AG
Provide summary of
gross revenues and
expenditures of
central government
in budget
Provide summary of
gross revenues and
expenditures of
central, local, and
general government
in budget
Publish quarterly
Publish monthly
statistics on gross
statistics on gross
revenues and
revenues and
expenditures of
expenditures of
central, local, and
central, local, and
general
general
government sectors government sectors
18