Download Fiscal Transparency in Turkey

Fiscal Transparency in
Turkey
The Practical Consequences and
Costs of non-Transparency
Anand Rajaram, PRMPS
World Bank, 2001
Outline of Presentation
• Stylized sketch of political economy
• Definition and assessment of FT
• Some consequences of lack of FT
• Interaction of fiscal and financial
transparency
Four Points to Convey from
Turkey case
• Political/institutional factors play a major role in determining
the quality of fiscal information available
• Absence of comprehensive, accurate and timely fiscal
information is very costly to the economy and to the political
system
• Interactions between inadequate fiscal and financial
transparency compound the risks to the economy
• Fiscal Transparency is indispensable for domestic policy
makers and fiscal managers
Stylized facts on Turkey
• Some facts
– A political economy with short lived coalition governments (57 in
78 years) and a history of military interventions (1980, 1997)
– A volatile economy with periodic crises and high average inflation
• Some presumptions
– Short time horizons of decision makers
– Fragmentation of information and institutional responsibility is a
serious handicap to economic management
– Non-transparency is both a symptom of unstable politics as well
as a contributor to political and policy dissonance
Vicious cycle of political instability, fiscal policy
based on fragmented information, and
declining transparency
•Politicized Agencies and
•Technocrats
•Fragmented approach to
•Fiscal and sector policy
•Unstable Coalition Politics
•Periodic Economic Crises
Fiscal Transparency: Definition
• Code of Good Practices on Fiscal Transparency
– Clarity of roles and responsibilities in government
– Public availability of full information on government activities
– Open budget preparation, execution and reporting
– Independent assurance of integrity of fiscal information
• Ref. www.imf.org/external/np/fad/trans/code.htm
Turkey’s score card on self administered FT
questionnaire
• Clarity of roles
43%
• Public availability of information
47%
• Open Budget process
47.5%
• Integrity of Information
58%
• Total value
49%
• Specific problems identified
– Sustainability of fiscal policies
– Uncertainty re current liabilities and definition of fiscal risks
• FAD thought self-assessment was too critical!
IMF’s Fiscal Transparency Review, 2000
• “Turkey’s fiscal management practices still fall short ..of
the fiscal transparency code in a number of important
respects. Budget coverage is limited to the consolidated
central government; budget preparation and execution are
fragmented among a number of institutions, with none of them
having full ownership; budget preparation is not based on a
comprehensive costing of the government’s policies nor cast
against a medium-term macroeconomic framework; and
financial relationships between different levels of government
and between government and state-owned enterprises need
further clarification. Many quasi-fiscal operations are not yet
reflected in the budget. The presence of a large number of
budgetary and nonbudgetary organizations …hinders
transparency of fiscal operations.”
Transparency inadequate due to
• Roles and responsibilities
– Not clearly delineated due to quasi-fiscal operations and
offsetting debts to SOEs against tax obligations
– Divided responsibilities for fiscal management
– Central/municipal govt. roles ambiguous
• Availability of full information on fiscal activities
– Consolidated budget provides incomplete coverage of central
government
– EBFs, QFOs and contingent liabilities not reported until recently
• Budget preparation, execution and reporting
– Limited credibility, improved execution, disparate accounting
standards,
• Integrity of fiscal information
– audit coverage not comprehensive
Visible and hidden fiscal activities
Percent of GNP
Expenditure by
1996
1997
1998
1999
Net Consol.Budget
22.8
22.7
25.2
30.5
Non budget funds
1.9
2.6
2.4
2.7
Aut.Agencies
0.1
0.0
0.0
0.1
Social Sec.Inst.
5.5
6.3
6.7
8.4
Quasi-fiscal
8.9
7.9
7.8
13.3
Total
39.2
39.5
42.3
55.0
Consol Budget
26.3
27.2
29.1
35.8
Some consequences of low fiscal
transparency
• Government managers in central agencies are frustrated by
complexity of current fiscal reporting and “low visibility” of
forward conditions
• Acceptance of explicit and implicit contingent liabilities is not
constrained due to lack of information
• Line agency managers feel budget process is not credible and
feel compelled to resort to off-budget arrangements
• MOF view – contingent liabilities are UT problem
• SPO view – investments are essential, regardless of financing
• Health ministry unable to account for expenditure on health
sector
Compounding fiscal risks: low fiscal
transparency plus low financial
transparency
QFOs were non-transparent
fiscal (subsidy) policy
•
Delayed settlement of QF
obligations to state banks
affected their liquidity and
pushed them towards risky
borrowing and FX positions
Figure: “Duty Losses” of State Banks
14
12
10
(% of GNP)
•
8
6
4
•
•
•
More general problems of
inadequate financial regulation
which affected private banks
2
0
1995
1996
1997
Ziraat Bank
1998
1999
Halk Bank
Source: Undersecretariat of Treasury and WB estimates.
2000
Fiscal Costs of Lack of Transparency
• Estimated (?) cost of
banking sector cleanup is
US$40 billion
• Reversal of interest rate
decline over 1999-2000.
• Real and political costs to
economy.
90.00
40
80.00
35
70.00
30
25
60.00
20
50.00
15
40.00
10
30.00
5
20.00
0
10.00
-5
-
-10
1998
T otal Net Debt
1999
2000
2001
Marketable T reasury Securities
Source: Treasury, IMF and WB estimates.
2002
2003
Ex-ante Real Interest rates
Ex-ante Real Interest Rate (%)
• Public debt ratio will rise
from 58% of GNP in 2000
to 79% at end 2001.
(% in GNP)
Figure 5: Public Sector Net Debt and Real Interest Rates
To conclude on a positive note
• Strong commitment at technical level to fiscal
transparency (closure of EBFs and phase out of
QFOs, initiating a major PEM reform)
• Political level – commitment (?)
• Possible to make some gains on fiscal
transparency which will constrain political
choices
Conclusions
• Political/institutional factors play a major role in determining
the quality of fiscal information available (and vice versa)
• Absence of comprehensive, accurate and timely fiscal
information is very costly to the economy and to the political
system
• Interactions between inadequate fiscal and financial
transparency compound the risks to the economy
• Fiscal Transparency is indispensable for domestic policy
makers and fiscal managers – it is a mistake to view these as
IFI dictates
Some implications for PEM work
• Budget coverage is half the battle
(Sufi tale)
• QFOs, contingent liabilities and interaction with
financial or SOE sector may be a factor in some
countries
• Take implicit account of the political economy (as
far as possible)