New Fiscal Transparency Code & Evaluation: Outline of the - PDF document

New Fiscal Transparency Code & Evaluation: Outline of the Presentation I. Background and Context g II. New Fiscal Transparency Code (Pillars I, II, & III) III. New Fiscal Transparency Evaluation IV Natural Resource Management (Pillar IV) IV. Natural Resource Management (Pillar IV) V. Next Steps 2 1

I. Background and Context: a. 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 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 3 I. Background and Context: b. Weakness of Old Fiscal Transparency 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 i. Clarity of Roles and Responsibility Clarity of Roles and Responsibility ii. Open Budget Processes iii. Public Availability of Information iv. 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 4 2

II. New Fiscal Transparency Code a. Architecture of the New Code Four Pillars of the New Code I. FISCAL II. FISCAL III. FISCAL RISK IV. RESOURCE REPORTING FORECASTING & ANALYSIS & REVENUE BUDGETING BUDGETING MANAGEMENT MANAGEMENT MANAGEMENT MANAGEMENT 3.1. Risk 2.1.Compre- 4.1. Legal & 1.1. Coverage Analysis & hensiveness Fiscal Regime Disclosure 1.2. Frequency 3.2. Risk 4.2 Fiscal 2.2. Orderliness & Timeliness Management Reporting 4.3. Fiscal 2.3. Policy 3.3. Fiscal Forecasting & 1.3. Quality Orientation Coordination Budgeting 4.4. Fiscal Risk 2.4. Credibility 1.4. Integrity Analysis & Management 5 II. New Fiscal Transparency Code: b. Differences between 2007 and 2014 Codes 2007 Code 2014 Code Objective Focus on outputs 31 of 36 principles focus on 30 of 45 principles were 30 of 45 principles were rather than quality or content of fiscal procedural in nature processes information Take account of “Code of Good Basic, Good, and Advanced different levels of Practices” Practice country capacity Greater emphasis on fiscal risk on fiscal risk 1 principle on fiscal risk 1 principle on fiscal risk 12 principles focused on 12 principles focused on disclosure and 5 others risk-related fiscal risk management Align with recent Institutions: General Government Institutions: Public Sector Stocks: Financial Balance Sheet Stocks: Full Balance Sheet advances in Frequency: Quarterly Frequency: Monthly Classification: GFSM 2001 Classification: GFSM 2014 standards & Accounting: GAAP Accounting: IPSAS practices Budgeting: N/A Budgeting: PEFA & OECD 6 3

II. New Fiscal Transparency Code: c. More Graduated Set of Practices PRACTICES # DIMENSION PRINCIPLE BASIC GOOD ADVANCED FISCAL FISCAL Fiscal reports should provide a comprehensive, relevant, timely, and reliable Fiscal reports should provide a comprehensive, relevant, timely, and reliable I REPORTING overview of the government’s financial position and performance Fiscal reports should provide a comprehensive overview of the fiscal activities of the public 1.1 Coverage sector and its sub-sectors according to international standards Fiscal reports Fiscal reports cover all Fiscal reports Fiscal reports consolidate consolidate all Coverage of entities engaged in public consolidate all all public sector entities 1.1.1 general government Institutions activity according to central government and report on each entities and report international standards. entities. subsector. on each subsector. Fiscal reports include a Fiscal reports include a Fiscal reports cover all Fiscal reports cover all Fiscal reports cover Fiscal reports cover Coverage of balance sheet of public financial and non-financial 1.1.3 all cash, deposits, all financial assets Stocks assets, liabilities, and net assets and liabilities, and and debt and liabilities. worth. net worth. Fiscal reports Fiscal reports cover Fiscal reports cover cash Fiscal reports cover all cover cash cash flows and flows ,accrued revenues, Coverage of public revenues, 1.1.2 revenues, accrued revenues expenditures, and Flows expenditures, and expenditures and expenditures, and financing, and other financing. financing. financing. economic flows. 7 III. New Fiscal Transparency Evaluation: a. Differences with Fiscal ROSC Fiscal Transparency Reform Objective Fiscal ROSC Evaluation More analysis of y coverage and Focus on assessing Quantitative fiscal reliability of fiscal reporting procedures transparency indicators data More accessible Long narrative accounts summary of Summary Heatmaps of strengths and strengths and highlight reform priorities weaknesses weaknesses Identify concrete Unprioritized list of Sequenced steps to address recommendations 5-Year Action Plan weaknesses More scalable Comprehensive, one- Modular evaluations of product size-fits-all assessment individual Code Pillars 8 4

III. New Fiscal Transparency Evaluation b. Piloting the New Evaluation FTE Results by Income Level BACKGROUND (Percent of total scores) Not Met Basic Good Advanced • 10 countries volunteered 100% 90% • Wide range of income levels Wid f i l l 80% 80% 70% – 3 advanced economies 60% – 5 emerging markets 50% 40% – 3 low income countries 30% 20% • Variety of regions 10% – 5 from Europe 0% Low-Income Emerging Advanced Overall – 2 from Africa FTE Results by Pillar – 2 from Latin American (Percent of total scores) Not Met Not Met Basic Basic Good Good Advanced Advanced – 1 from Asia-Pacific 100% 90% • 3 iterations of the Code tested 80% 70% 60% • 5 FTE reports published so far 50% 40% – Bolivia, Costa Rica, Ireland, 30% Russia, and Portugal 20% 10% 0% Fiscal Reporting Fiscal Fiscal Risk Overall 9 Forecasting and Analysis and Budgeting Management III. New Fiscal Transparency Evaluation: c. Initial Findings: Fiscal Reporting …with a more extensive balance sheet The “State” is bigger than we think… Ireland: Coverage of Fiscal Reporting Russia: Reporting of Assets and Liabilities (Percent of expenditure, 2012) (P f di 2012) (P (Percent of GDP, 2012) f GDP 2012) Reported Reported General Government Not Reported Not Reported Non-Fin Public Corps Reported Unreported Financial Public Corps Unreported (Pensions) Central Bank Liabilities Assets Central Government Central Government CG CG (47% of GDP) Consolidation Public Sector General Government GG (49% of GDP) Net Worth (excl pensions) Public Sector NFPS (61% of GDP) Net Worth (incl. pensions) -500 -400 -300 -200 -100 0 100 200 300 400 10 5

III. New Fiscal Transparency Evaluation: c. Initial Findings: Fiscal Forecasting and Budgeting Budgets are not always a reliable guide to future revenues and spending Bolivia: Year-ahead Revenue Forecast Errors Bolivia: Year-ahead Expenditure Forecast Errors (Percent of total forecast revenue, 2010-11) ( , ) (Percent of total forecast expenditure2010-11) ( p ) 50 50 45 Percent forecast error 99% 41% 111% 40 40 Percent 35 forecast error 30 30 32% 23% 17% 25 120% 20 20 30% 15 31% 10 10 10% 5 0 0 Tax Revenue Operating Other Revenue Capital Total Error Wages and Goods and Misc Current Capex Total Error Revenue Revenue Salaries Services 11 III. New Fiscal Transparency Evaluation: c. Initial Findings: Fiscal Risk Management Fiscal risks can come from a variety of sources Portugal: Sources of Increase in General Government Debt (Percent of GDP) 12 6