imf’s new fiscal transparency code and evaluation
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IMF’s New Fiscal Transparency Code and Evaluation. Peter Murphy Fiscal Affairs Department Presentation at the Regional Workshop on Financial Reporting and Management of Fiscal Risks in Astana, Republic of Kazakhstan, May 21-23, 2014. - PowerPoint PPT PresentationTRANSCRIPT
IMF’s New Fiscal Transparency Code and Evaluation
Peter MurphyFiscal Affairs Department
Presentation at the Regional Workshopon Financial Reporting and Management of Fiscal Risks
in Astana, Republic of Kazakhstan, May 21-23, 2014
2
New Draft Fiscal Transparency Code & Evaluation:Outline of the Presentation
I. Background and Context
II. Revising the Fiscal Transparency Code
III. The New Fiscal Transparency Evaluation
Japan IMF Sub Acc
I. Background : Lessons from the Crisisa. Progress in Adoption of Fiscal Reporting Standards
2004 20110
50
100
150
200
9863
16
33
22
10
4878
Coverage of Institutions(Number of countries)
General Government
Central Government
Budgetary Central Government
No Data Reported
2004 20110
50
100
150
200
146120
2952
9 12
Basis for Reporting Flows(Number of Countries)
Full AccrualPartial AccrualCash
2004 20110
50
100
150
200
136 126
2717
1227
9 14
Coverage of Assets & Liabilities(Number of Countries)
Financial & Non-Financial Assets
Financial Assets Only
Liabilities Only
No Balance Sheet Monthly96
Quarterly32
Semi-annually3
Annually37
Unknown16
Timeliness of Reporting in 2011(Number of Countries)
3
Institutional coverage has expanded… …and the shift from cash to accrual is underway…
…but few countries prepare full balance sheets … …and timeliness of reporting is still a problem.
I. Background: Lessons from the Crisisb. Lack of Transparency Exacerbated Problems
Sources of Unexpected Increase in General Government Debt(percent of GDP, 2007-2010)
FRA DEU NLD ESP PRT GBR USA GRC IRL ISL AVE*
Underlying fiscal position 1.7 3.2 -2.4 1.8 11.3 3.7 8.1 16.3 1.3 10.9 6.0
Revisions to 2007 deficit & debt 1.7 1.8 -0.9 -0.1 0.1 1.5 7.1 2.5 1.6 4.0 4.7
Changes to government boundary -0.7 1.4 -0.2 0.6 9.4 1.9 0.9 11.2 -0.1 2.5 1.1
Cash-accrual adjustments 0.7 0.0 -1.3 1.3 1.7 0.3 0.0 2.6 -0.2 4.5 0.2
Exogenous shocks 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
Policy changes 2.3 3.8 1.9 4.9 4.7 1.1 6.4 -8.0 -9.9 -4.3 4.7
Other factors 2.1 -0.3 6.5 1.9 3.7 6.2 8.3 -6.7 7.5 21.6 5.9
Total Unforecast Increase in Debt 14.4 19.5 20.2 24.0 27.8 28.0 29.1 41.7 59.1 67.7 26.4
* GDP-weighted average 4
Unreported Deficits
SoEs & PPPs
Arrears
Macroeconomic Risks
Contingent Liabilities
Stimulus / Consolidation
Issues Revealed by the Crisis
*Only includes Central Government SOE debt pre 2007
40
60
80
100
120
40
60
80
100
120
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
SOE & PPP reclassifications
Non-SOE & PPP General Government debt
SOE & PPP debt outside the General Government
General Government gross debt
Arrears
I. Background: Lessons from the Crisis c. Example: General Government Debt in Portugal
Quasi-fiscal Activity by SoEs
Revisions to Deficits
Macroeconomic Shocks
Unreported Flows
Exposure to Financial Sector
Exclusive focus on general government
Infrequent fiscal reporting
Bias in macroeconomic
forecasting
Losses on asset & liability holdings not
recognized
No recognition of contingent liabilities
Problem Weakness in Current Standards
I. Fiscal Transparency : Lessons from the Crisis d. Addressing Weaknesses in Forecasting/Reporting Standards
Publication of fiscal data for public sector
Monthly operational fiscal reports
Alternative macro-fiscal scenario
analysis
Recognition of doubtful debts in
summary aggregates
Recognition of quantifiable
contingent liabilities
Recommendation
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. Clarity of Roles and Responsibilityii. Open Budget Processesiii. Public Availability of Informationiv. 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
9
II. Revising the Fiscal Transparency Code: b. Architecture of the New Code
Pillar(Type of Report))
Fiscal Transparency
Indicators
Quality of Fiscal Reporting
Openness of Fiscal Decision-
making
I. Fiscal Reports
Size of unreported flows
Size of unreported liabilities
Average revisions to deficit
Institutional coverageAccounting for flowsValuation of assets &
liabilities
Timeliness of reportingIndependence of statistics agencyAudit of annual
accounts
II. Fiscal Forecasts
Average forecast error Source of forecast errorTiming of forecast error
Time horizonClarity of fiscal
objectivesSeparation of baseline
& new policies
Timeliness of budget submission
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
Three Pillars of the Revised Fiscal Transparency Code & EvaluationConstruction
10
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II. Revising the Fiscal Transparency Code: c. More Graduated Set of Practices
# DIMENSION PRINCIPLE PRACTICESBASIC GOOD ADVANCED
1 FISCAL REPORTING
Fiscal reports should provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance
1.1 Coverage Fiscal reports should provide a comprehensive overview of the fiscal activities of the public sector
1.1.1
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.
1.1.2 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.
1.1.3 Coverage of Stocks
Fiscal reports include a balance sheet of government assets, liabilities, and net worth.
Fiscal reports cover cash and all debt
Fiscal reports cover all financial assets and liabilities.
Fiscal reports cover all financial and non-financial assets and liabilities, and net worth.
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III. New Fiscal Transparency Evaluationa. 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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PracticesAdvanced
GoodBasic
Not Met
Costa Rica: Assessment Against Fiscal Transparency Practices
III. New Fiscal Transparency Evaluation:b. Summary Heatmap
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
Frequency of In-year Fiscal Reports
Fiscal Strategy Report Guarantees
Timeliness of Annual Financial Statements
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
Supplementary Budget
Forecast Reconciliation
-400 -300 -200 -100 0 100 200 300 400
Net Worth
Public Sector
Consolidation
Central Bank
Financial Public Corp
Non-Fin Public Corp
General Government
Reported
Unreported
Liabilities Assets
III. New Fiscal Transparency Evaluation: c. Fiscal Transparency Indicators: Fiscal Reporting
Coverage of Public Sector Entities(percent of expenditure)
Reporting of Assets and Liabilities(percent of GDP)
Ireland: Fiscal Transparency Indicators
Public corporations
remain outside fiscal reporting
Only a quarter of public sector
liabilities reported
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)
0
5
10
15
20
25
30
35
40
45
50
Wages and Salaries
Goods and Services
Misc Current Capex Total Error
30%
120%
17%
10%
Percent forecast error
23%
0
10
20
30
40
50
Tax Revenue Operating Revenue
Other Revenue Capital Revenue
Total Error
32%
111% 99%
31%
Percent forecast error 41%
Massive underestimation of
revenue in the budget
Means budgeted expenditure bears
little relation to actual outcomes
0
20
40
60
80
100
III. New Fiscal Transparency Evaluation: e. Fiscal Transparency Indicators: Fiscal Risk Analysis and Management
Selected Countries: Fiscal Risk IndicatorsAfrican Country: Contingent Liabilities
(percent of GDP)
Large exposure to the financial
sector
Contingent Liabilities are
large and diverse
Ireland: Uncertainty around forecast deficits(percent of GDP)
Significant macro and fiscal forecast
uncertainty6.1
16.3
15.3
37.6
0
10
20
30
40
50
60
70
80
Guarantees (Public)
Gurantees (Private)
Central Bank Liabilities of Finanical PCs
Ireland: Govt Guarantees related to financial crisis(percent of GDP)
0
5
10
15
20
25
Sub-national risks are small but relatively concentrated
Costa Rica: Distribution of Municipal Debt(percent of total)
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III. New Fiscal Transparency Evaluation: f. Targeted Recommendations
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
1.3 Coverage of FlowsBasic: 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 ExpendituresBasic: Estimated revenue loss from income tax expenditures is published at least annually
Medium: Some of the estimated 6% of GDP in revenue lost through tax expenditures not reported. Tax expenditures contributed to pre-crisis property boom.
3
1.5Frequency of In-
year 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
Ireland: Summary Assessment of Fiscal Reporting Practices
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III. New Fiscal Transparency Evaluation: g. Sequenced Action Plan
Ireland Fiscal Transparency Action PlanAction 2013 2014 2015 2016 2017
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
Incorporate Non-Commercial Semi-State Bodies into
budget documentation
Incorporate all central government entities in budget documentation
Integrate non-commercial semi-state bodies into
departmental votes
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
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 Non-Commercial Semi-State Bodies into
consolidated provisional Central
Government Financial Statement
Prepare comprehensive
consolidated Central
Government Financial Statement for audit by C&AG
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
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 statistics on gross
revenues and expenditures of
central, local, and general
government sectors
Publish monthly statistics on gross
revenues and expenditures of
central, local, and general
government sectors