How Does the IMF Encourage Greater Fiscal Transparency?
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Fiscal transparency entails being open to the public about the government’s past, present, and future fiscal activities, and about the structure and functions of government that determine fiscal policies and outcomes. Such transparency fosters better-informed public debate, as well as greater government accountability and credibility. The IMF has developed a “Code of Good Practices”, a “Manual on Fiscal Transparency” and a “Guide on Resource Revenue Transparency” to encourage greater fiscal transparency, all of which were updated in 2007. |
Why is increased fiscal transparency desirable?
There is consensus that good governance is of central importance to achieving and sustaining macroeconomic stability and high-quality growth; and that sound fiscal management—including fiscal transparency—is a key aspect of good governance. Fiscal transparency allows for better-informed debate by both policy makers and the public about the design and results of fiscal policy, and establishes accountability for its implementation. In strengthening credibility and public understanding of macroeconomic policies and choices, fiscal transparency also fosters more favorable access to domestic and international capital markets, and reduces the incidence and severity of crises.
What are good practices on fiscal transparency?
The Code of Good Practices on Fiscal Transparency (2007) (the Code) identifies a set of principles and practices to help ensure that governments are providing a clear picture of the structure and finances of government. Implementation of the Code thus provides assurance to the public that the soundness of fiscal policy can be reliably assessed. While all countries are encouraged to adopt the good practices proposed in the Code, implementation is voluntary.
The Code was developed in 1998 as one of the contributions of the IMF to the Standards and Codes Initiative, a set of guidelines on governance designed to support improvements to the architecture of the international financial system. The Code was updated in 2007, based on assessments to date of country observance of fiscal transparency, relative to the good practices identified in the Code. In drafting the revised Code, views were sought from the general public, country authorities, development agencies, academics, and nongovernmental agencies working in the area of budget transparency.
The Code is based on four general principles:
• Clarity of roles and responsibilities. There should be a clear distinction between government and commercial activities, and there should be a clear legal and institutional framework governing fiscal administration and relations with the private sector. Policy and management roles within the public sector should be clear and publicly disclosed.
• Open budget processes. Budget information should be presented in a way that facilitates policy analysis and promotes accountability. Budget documentation should specify fiscal policy objectives, the macroeconomic assumptions used in formulating the budget, and identifiable major fiscal risks. Procedures for collecting revenue and for monitoring approved expenditures should be clearly specified.
• Public availability of information. The public should be provided with complete information on the past, current, and projected fiscal activity of government. This should be readily accessible. Countries should commit to the timely publication of fiscal information.
• Assurances of integrity. Fiscal data and practices should meet accepted quality standards and should be subjected to independent scrutiny.
Most countries have scope for improvement in some aspects of fiscal transparency covered by the Code. Diversity across countries in fiscal management systems and in cultural and legal environments, as well as differences across countries in the technical and administrative capacity to improve transparency, inevitably imply that countries will move at different paces to implement the Code. For some countries, technical assistance will be critical to improving fiscal transparency.
How is the Code of Good Practices on Fiscal Transparency implemented?
To provide guidance on the Code's implementation, the IMF publishes a Manual on Fiscal Transparency (the Manual) that elaborates the Code's principles and practices in more detail and draws on experiences in member countries to illustrate good practices. Numerous references are provided to assist with the practical implementation of the Code. In addition, the Manual identifies some basic requirements of fiscal transparency to be given highest priority by those countries that would have the greatest difficulty meeting the overall standard of the Code. Some best practice examples are also shown.
The IMF also publishes a Guide to Resource Revenue Transparency (the Guide), revised in 2007, which applies the principles of the Code to the unique set of problems faced by countries that derive a significant share of revenues from oil and mineral resources. The issues arising from the sheer size of such resources for many countries, combined with the technical complexity and volatility of the transaction flows, demand a more detailed set of guidelines than those provided in the Manual. The Guide naturally complements recent initiatives, such as the Extractive Industries Transparency Initiative (EITI), which focuses more narrowly on the reporting of transactions between resource companies and governments.
How is fiscal transparency assessed?
The Fund encourages all member countries to undertake an assessment of fiscal transparency (called a fiscal transparency module of the Report on the Observance of Standards and Codes, or fiscal transparency ROSC).This documents a country’s current practices and establishes country-specific priorities for improving fiscal transparency. Both the undertaking of a fiscal ROSC and its subsequent publication are voluntary. An increasing number of fiscal transparency ROSCs now also include detailed assessments of resource revenue issues, based on advice in the Guide. As of March 2009, 88 countries from all regions and levels of economic development had posted their fiscal transparency ROSCs on the IMF's Standards and Codes web page. Updates to published ROSCs can be undertaken at any time at the request of the authorities. Countries can also opt for a full ROSC reassessment after 5 years. As of September 2008, more than 25 countries had undertaken updates or complete reassessments.
Transparency is also assessed in broad terms as part of the regular surveillance and program activities conducted by the IMF for member countries.