Fiscal Transparency, Fiscal Performance and Credit Ratings

By Julio Escolano, Elif C Arbatli Saxegaard

June 1, 2012

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Julio Escolano, and Elif C Arbatli Saxegaard. Fiscal Transparency, Fiscal Performance and Credit Ratings, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the effect of fiscal transparency on market assessments of sovereign risk, as measured by credit ratings. It measures this effect through a direct channel (uncertainty reduction) and an indirect channel (better fiscal policies and outcomes), and it differentiates between advanced and developing economies. Fiscal transparency is measured by an index based on the IMF’s Reports on the Observance of Standards and Codes (ROSCs). We find that fiscal transparency has a positive and significant effect on ratings, but it works through different channels in advanced and developing economies. In advanced economies the indirect effect of transparency through better fiscal outcomes is more significant whereas for developing economies the direct uncertainty-reducing effect is more relevant. Our results suggest that a one standard deviation improvement in fiscal transparency index is associated with a significant increase in credit ratings: by 0.7 and 1 notches in advanced and developing economies respectively.

Subject: Budget planning and preparation, Credit ratings, Fiscal stance, Fiscal transparency, Public debt

Keywords: Economy, Index, ROSC Index, Sub, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/156
Stock No:

WPIEA2012156
ISBN:

9781475504477
ISSN:

1018-5941

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