INTERNATIONAL MONETARY FUND
Fiscal Transparency, Accountability, and Risk
Prepared by the Fiscal Affairs Department in collaboration with the Statistics Department
Approved by Carlo Cottarelli
August 7, 2012
Contents

Page

Executive Summary ...................................................................................................................3
I. Introduction ............................................................................................................................4
II. Why Fiscal Transparency? ....................................................................................................5
III. Fiscal Transparency and Fiscal Risks ..................................................................................9
IV. Strengthening Fiscal Transparency Standards and Practices .............................................12
A. Coverage of Public Institutions ...............................................................................13
B. Reporting of Assets and Liabilities .........................................................................19
C. Accounting for Transactions and Other Economic Flows ......................................24
D. Frequency and Timeliness of Fiscal Reporting.......................................................26
E. Fiscal Forecasting and Budget Planning .................................................................27
F. Aligning Budgets, Statistics, and Accounts .............................................................28
V. Strengthening Fiscal Transparency Monitoring and Incentives .........................................31
A. National and Regional Monitoring of Transparency ..............................................32
B. International Monitoring of Transparency ..............................................................34
C. Strengthening National and Regional Fiscal Transparency Institutions .................36
D. Updating the IMF Fiscal Transparency Code and Manual .....................................38
E. More Effective Multilateral Monitoring of Fiscal Transparency ............................39
F. Resource Implications .............................................................................................41
Figures
1. Fiscal Transparency and CDS Spreads ..................................................................................6
2. Sources of Fiscal Risk by Institution & Transaction ...........................................................12
3. Institutional Coverage of Government Finance Statistics ...................................................13
4. Outstanding Debt of Government-Related Enterprises (2008 and 2012) ............................14
5. Evolution of Government Balance Sheets (2007–10) .........................................................19
6. Change in General Government Financial Assets since 2007–11Q3 ..................................20
7. Reporting of Assets and Liabilities ......................................................................................21

2
8. Outstanding Government-Guaranteed Bonds ......................................................................23
9. Basis for Recording of Government Flows .........................................................................25
10. Frequency and Timeliness of Central Government Fiscal Reporting ................................27
11. Number of Fiscal ROSCs...................................................................................................36
Boxes
1. Definitions: Accounting, Reporting, Transparency, and Risk ...............................................5
2. Sources of Fiscal Shocks during the Crisis ..........................................................................11
3. Defining the Public Realm: Problems at the Border ............................................................15
4. Central Banks and Financial Sector Interventions ...............................................................18
5. Accounting for Government Interventions in the Financial Sector .....................................20
7. Aligning Accountability Documents in Australia, New Zealand, and the UK ....................29
8. Role of National Institutions in Promoting Fiscal Transparency.........................................33
Appendices
I. Results of FAD Survey on Fiscal Transparency and Risk ...................................................42
A. Overview of Countries Surveyed ............................................................................42
B. Institutional Coverage of Fiscal Data ......................................................................42
C. Timeliness of Fiscal Data ........................................................................................43
D. Reliability of Fiscal Data ........................................................................................43
E. Sources and Management of Fiscal Risks ...............................................................45
II. Review of Fiscal ROSCs in Crisis-Hit Countries ...............................................................46
Appendix Tables
A1. Institutional Coverage of Regularly Published Data on Fiscal Flows .............................42
A2. Periodicity and Reporting Lag of Regularly Published Fiscal Flows ...............................43
A3. Transactions and Institutions as a Source of Fiscal Risk ..................................................44
A4. Fiscal Risk Disclosure and Management ..........................................................................45
References ................................................................................................................................51

3
EXECUTIVE SUMMARY
Fiscal transparency is a critical element of effective fiscal policymaking and the managementof fiscal risks. The last decade and a half has seen a concerted effort to develop a set ofinternationally accepted standards for fiscal transparency and to monitor and promote theimplementation of those standards at the national level. This period has also witnessed a
steady improvement in the comprehensiveness, quality, and timeliness of public financial
reporting in countries across the income scale.
Despite these advances, understanding of governments‘ underlying fiscal position and therisks to that position remains inadequate. This was demonstrated by the emergence ofpreviously unreported fiscal deficits and debts and the crystallization of large, mainly
implicit, government liabilities to the financial sector during the current crisis. These
shortcomings in fiscal disclosure are due to a combination of gaps and inconsistencies infiscal transparency standards, delays and discrepancies in countries‘ adherence to thosestandards, and a lack of effective multilateral monitoring of compliance with those standards.
A revitalized fiscal transparency effort is needed to address the shortcomings in standards
and practices revealed by the crisis and guard against a resurgence of fiscal opacity in theface of growing pressures on government finances. This requires action along three fronts.
First, fiscal transparency standards need to be updated to address gaps in and inconsistencies
between those standards. In particular, the standards need to ensure that published fiscal
reports (i) cover a wider range of public sector institutions; (ii) capture a broader range ofdirect and contingent assets and liabilities; (iii) recognize a wider range of transactions andflows; (iv) be published in a more timely manner; (v) take a more rigorous approach to fiscal
forecasting and risk analysis; and (vi) present forecast and actual fiscal data on a consistentbasis. Some standards also need to be supplemented by guidance on their implementation.
Second, the IMF needs to adopt a more modular, analytical, and calibrated approach toevaluating country compliance with fiscal transparency standards. This requires revisions to
the Fiscal Transparency Code and Manual to reflect the above refinements in standards andprovide a set of achievable milestones on the way to full compliance with those standards.
The more graduated Code and Manual would provide the basis for a more focused andsubstantive fiscal ROSC which would (i) cater for modular assessments focused on key areasof fiscal risk; (ii) include an assessment of the adequacy and reliability of public informationon the state of the fiscal accounts; and (iii) provide a comparable and actionable final report.
Third, national, regional, and international institutions need to strengthen incentives for
improvements in fiscal transparency practices. This could be done by: (i) fostering nationaland regional constituencies for transparency, such as supreme audit institutions, national
statistics agencies, fiscal councils, and regional surveillance bodies; (ii) strengthening theinstitutional relationships among international standard-setters; and (iii) providing regular
updates on the state of fiscal transparency practices across countries.

4
I. INTRODUCTION
1.
Fiscal transparency―defined as the clarity, reliability, frequency, timeliness,and relevance of public fiscal reporting and the openness to the public of thegovernment’s fiscal policy-making process―is a critical element of effective fiscal
management.1 Fiscal transparency helps ensure that governments‘ economic decisions are
informed by a shared and accurate assessment of the current fiscal position, the costs andbenefits of any policy changes, and the potential risks to the fiscal outlook. Fiscal
transparency also provides legislatures, markets, and citizens with the information they needto make efficient financial decisions and to hold governments to account for their fiscal
performance and their utilization of public resources. Finally, fiscal transparency facilitatesinternational surveillance of fiscal developments and helps mitigate the transmission of fiscal
spillovers between countries.
2.
In the wake of the recent economic and financial crisis, there is a need to reassessinternational efforts to promote fiscal transparency for three reasons. First, the crisis
revealed that, even among advanced economies, governments‘ understanding of their current
fiscal position was inadequate, as shown by the emergence of previously unrecorded deficits
and debts. Second, the crisis demonstrated that, in many cases, countries had substantially
underestimated the risks to their fiscal prospects, especially those emanating from thefinancial sector. Third, the sharp deterioration of the fiscal stance that accompanied the crisis,
and the related need for fiscal adjustment, have increased the incentives on governments toengage in activities which cloud the true state of their finances. A revitalized international
fiscal transparency effort is therefore critical both to reflect the lessons of the crisis itself andto prevent a resurgence of fiscal opacity in its wake.
3.
The rest of this paper is divided into five sections. Section II provides backgroundon the benefits of fiscal transparency and on international efforts to promote fiscal
transparency over the past decade; Section III explores the relationship between fiscal
transparency and fiscal risks; Section IV considers the adequacy of prevailing fiscal
transparency standards and practices in enabling governments to understand and manage
those risks; Section V assesses the existing international, regional, and national mechanisms
for monitoring and promoting compliance with fiscal transparency standards; and Section VI
suggests issues for discussion.

1

While this paper focuses on the public dissemination of fiscal information, many of its conclusions apply tothe availability of information for policymakers even if not made public. Publication of this information brings
the added benefits of improving its quality, compelling governments to confront its implications, and widening
the debate on how to respond. See Box 1 for definitions of fiscal accounting, reporting, transparency, and risk.

5

Box 1. Definitions: Accounting, Reporting, Transparency, and Risk
This paper deals with the distinct but related concepts of government accounting, fiscal reporting, fiscal
transparency, and fiscal risk. For the purposes of the ensuing discussion:government accounting refers to the concepts, standards, rules, and systems used to generate the financial
information used in fiscal reporting;

fiscal reporting refers to the production of summary information about the past, present, and future state of
the public finances for both internal (management) and external (accountability) uses;public fiscal reporting refers to the publication and dissemination of this summary information about thestate of the public finances to citizens in the form of fiscal forecasts (in fiscal strategy or budget
documents), government finance statistics (fiscal reports produced in accordance with statisticalstandards), or government financial statements or accounts (fiscal reports produced in accordance withaccounting standards);

fiscal transparency refers to the clarity, reliability, frequency, timeliness, and relevance of public fiscal
reporting and the openness to the public of the government‘s fiscal policy-making process. Within this,clarity refers to the ease with which these reports can be understood by users, reliability refers to theextent to which these reports reflect the government‘s true financial position, frequency (or periodicity)refers to the regularity with which reports are published, timeliness refers to the time lag involved in thedissemination of these reports, relevance refers to the extent to which these reports provide users with theinformation they need to make effective decisions, and openness refers to the ease with which the public
can understand, influence, and hold governments to account for their fiscal policy decisions; andfiscal risks are factors that lead to differences between a government‘s forecast and actual fiscal position.

II. WHY FISCAL TRANSPARENCY?
4.
The degree of fiscal transparency has been shown to be an important predictorof a country’s fiscal credibility and performance. A growing body of empirical research
has highlighted the positive relationship between the degree of fiscal transparency andmeasures of fiscal sustainability (such as government deficits and debts), with a stronger
correlation among low and middle income countries than among high income countries(Figure 1a). Empirical evidence also points to a positive relationship between the degree offiscal transparency and market perceptions of fiscal solvency (such as credit default swap
spreads on sovereign debt, credit ratings, and foreign equity investment), this time with astronger correlation among high-income than middle-income countries (Figure 1b).2 Recent
2Hameed (2005), and Dabla-Norris and others (2010) find that more transparent developing countries havebetter credit ratings and better fiscal discipline. This is supported by Alt and Lassen (2006) who find that agreater fiscal transparency is associated with lower public debt and deficits in 19 advanced economies. Arbatli
and Escolano (2012) take this further by decomposing the relationship between transparency and credit ratings
into the direct impact (reducing current uncertainty over the fiscal position) and the indirect impact (improving
primary balance and gross debt over time), finding that the former dominates in developing countries, while thelatter dominates in advanced economies. To clarify the direction of causality between fiscal transparency andoutcomes, Glennerster and Shin (2008) use the publication of IMF fiscal data and reports to identify asignificant causal relationship between publication and quality assurance of fiscal information and lower
government bond yields.

6studies have also shown a positive relationship between fiscal obfuscation (such as the use ofaccounting stratagems to hide deficits and debts) and perceptions of sovereign default risk. 3
The recent loss of market confidence in governments with underestimated or hidden deficits
underlines the link between fiscal credibility and openness.
Figure 1. Fiscal Transparency and CDS Spreads1/
a. Fiscal Transparency & Government Debt

b. Fiscal Transparency & CDS Spreads

200

500
High Income

Low Income160

Linear (High Income)Linear (Middle Income)140

Linear (Low Income)120
R² = 0.2516
100
80

R² = 0.0057

60
40

Average CDS Spreads, 2008-11 (Basispoints)Average Debt/GDP Ratio, 1997-2007

High Income

Middle Income

180

Middle Income
Linear (High Income)400

Linear (Middle Income)300

R² = 0.1372

200

R² = 0.2875

100

R² = 0.2028

20
0

0
1

2

3

4

5

1

2

3

4

IMF Index of Fiscal Transparency

IMF Index of Fiscal Transparency

Sources: World Economic Outlook (Debt to GDP);
Staff estimates (Fiscal Transparency Index).1/

Source: Markit Five Year CDS (credit default swap)
Note: Four outliers with very high average CDS spreads(Argentina, Greece, Pakistan, and Ukraine) are excluded.

5

1/ Fiscal Transparency Index is based on data from two sources: fiscal ROSC reports (see Hameed, 2005) andDabla-Norris and others (2010). See Weber (2012) for an explanation of how it is constructed.

5.
The last decade and a half has seen substantial efforts to improve fiscal
transparency across advanced, emerging, and developing economies. While recent
history has seen a gradual improvement in fiscal transparency across countries, the Asiancrisis of the late 1990s highlighted shortcomings in financial reporting in both public andprivate sectors and regarding the linkages between the two (Lane and others, 1999). Since
then, there has been a concerted effort at the international, regional, and national level to:3

Weber (2012) identifies poor fiscal transparency as a key predictor of statistical discrepancies in publishedfiscal data as measured by stock-flow adjustments between general government net lending/borrowing and thechange in net debt. Irwin (2012) notes a positive relationship between the use of accounting devices andperceptions of sovereign credit risks as measured by credit default swap spreads. Gelos and Wei (2005) find that
fiscally more transparent countries tend to attract more foreign equity investment and are less vulnerable towithdrawals during times of stress.

7

develop a global architecture of fiscal transparency norms and standards. The
centerpiece of this normative architecture has been the IMF‘s Code of Good Practices
on Fiscal Transparency and accompanying manuals and guides (IMF 2007a, and2007b). These have been supported by detailed standards such as the IMF‘s
Government Finance Statistics Manual (GFSM 1986 and 2001) in the area ofstatistical reporting and the International Federation of Accountants‘ (IFAC‘s)International Public Sector Accounting Standards (IPSAS) in the area of accounting;4

strengthen monitoring of compliance with those norms and standards. At theinternational level, the Fiscal Transparency Report on Observance of Standards andCodes (ROSC) was the first comprehensive fiscal transparency diagnostic. The Fundhas conducted 111 ROSCs since 1999, covering 94 countries. The IMF, World Bank,and other international partners have also undertaken 285 Public Expenditure andFinancial Accountability (PEFA) assessments covering 135 countries, which have asignificant transparency component.5 At the regional level, institutions such as theEuropean Statistics Agency (Eurostat) have been a driving force behind theharmonization of fiscal reporting practices across EU member states. Within civilsociety, the International Budget Partnership (IBP) has developed its own instrument,
the Open Budget Survey (OBS), for assessing budget transparency which now covers
more than 100 countries;6 and

improve fiscal transparency at the national level. Since the late 1990s, there havebeen significant improvements in the comprehensiveness, quality, and timeliness of
public fiscal reporting in countries across the income scale in response tointernational, regional, and domestic pressures. According to the 2010 OBS,
87 percent of countries surveyed published their annual budgets in 2010 and thecontent of many countries‘ budget documentation has expanded. A growing numberof governments now produce accrual-based accounts or fiscal statistics based on

4

The first IPSAS—on Presentation of Financial Statements—was issued in May 2000. Since then 31 more
IPSASs have been issued covering a range of topics, including cash flows, financial instruments, presentation ofbudget information in financial statements, service concession arrangements (including public-private
partnerships), intangible assets, and contingent liabilities.
5

Of the 285 PEFA assessments, 133 are now public, 84 are final (endorsed by the lead agency but not yet madepublic) and 68 are in draft. Another 45 assessments are ongoing or planned. While around 40 percent of theinformation gathered through the fiscal transparency ROSC can also be derived from a PEFA evaluation, thePEFA does not provide a comprehensive assessment of fiscal transparency.
6

The IBP‘s 92 question Open Budget Survey (http://internationalbudget.org/what-we-do/open-budgetsurvey/full-report/) assesses the availability of eight key budget documents, the comprehensiveness of the datacontained in these documents, and the effectiveness of fiscal oversight provided by legislatures, supreme audit
institutions, and the public. Answers to these questions are then compiled to generate an Open Budget Index
value which is used to rank each country‘s relative level of transparency.

8international standards, including middle-income countries such as Colombia, thePhilippines, and Russia. More generally, synthetic measures of fiscal transparency
such as the IBP‘s Open Budget Index (OBI) show an increase in the average country
score from 46 in 2006 to 50 in 2010 (out of a possible 100).
6.

However, substantial shortcomings in fiscal transparency remain:First, there remain significant gaps and inconsistencies in fiscal transparency
standards in areas such as the coverage of public institutions, treatment of assets andliabilities, reporting of transactions and other economic flows, and the comparability
between forecast and actual data.

Second, governments’ implementation of international accounting and statisticalreporting standards has lagged behind the development of the standards
themselves. Although the first IPSAS was issued in 2000 and the revised GFSM waspromulgated in 2001, out of 182 countries, only 55 countries had fully adopted
GFSM 2001 for statistical reporting by 20107 and less than 20 countries have fully
adopted IPSAS, International Financial Reporting Standards (IFRS), or similar
standards for accounting (IFAC, 2008).



Third, the IMF‘s monitoring of fiscal transparency has waned in recent years.
After reaching a peak of 21 in 2002, the annual number of countries undergoing afiscal ROSC or update has fallen to just one in 2011. This reflected a combination offalling demand and a reduction in Fund resources devoted to this area. Moreover,monitoring of fiscal transparency by other institutions has not been sufficient toprevent the substantial underreported deficits and debt in some advanced economies.

7

According to IMF (2010b), 124 countries were able to transform their national presentation into GFSM 2001
format. However, only 55 compiled and reported GFSM 2001 data directly.

9III. FISCAL TRANSPARENCY AND FISCAL RISKS
7.
Fiscal transparency plays an important part in the evaluation and managementof fiscal risks. Fiscal risks are factors that give rise to differences between a government‘sforecast and actual fiscal position (Cebotari, 2008). These differences can be the result of(i) an incomplete understanding of the government‘s underlying fiscal position;(ii) exogenous shocks to the public finances; or (iii) endogenous changes in fiscal policy
settings. While improvements in fiscal transparency cannot eliminate these risks, they canhelp policymakers and the public to understand and respond to them. For example:more frequent and timely public reporting of fiscal developments can help ensure that
fiscal forecasts are based on the most up-to-date understanding of the current fiscal
position and facilitate rapid policy responses to shocks;

budget sincerity requirements,8 comparisons with independent forecasts, andalternative macro-fiscal forecast scenarios can help ensure that fiscal forecasts are
credible and fiscal policy settings are robust to a range of macroeconomic outcomes;

fiscal risk statements can raise awareness of the magnitude of potential shocks to the
public finances and encourage government to mitigate or provide for those risks;

expanding the institutional coverage of public fiscal reporting can reduce the scopefor off-budget fiscal activity whose costs can later rebound on the government;

implementation of international accounting and statistical standards can highlightotherwise hidden costs or obligations and encourage governments to budget for them;aligning the methodologies and standards for fiscal forecasting, budgeting, andreporting can help eliminate unexplained inconsistencies between forecasts andoutturns; andpublication of audit reports in accordance with internationally accepted standards canhighlight weaknesses in government financial control or accounting practices andprompt governments to address them.

8.
The recent crisis has revealed shortcomings in many governments’
understanding of their underlying fiscal position and potential shocks to that position.
Box 2 looks at the ten countries that experienced the largest unexpected increases in general
government gross debt as a share of GDP between 2007 and 2010 and identifies the factorsthat contributed to that deterioration. It finds that:
8

Legal provisions obliging governments to ensure that all budget documents are based on the most up-to-date
information about macroeconomic conditions and the cost of government policies.

10

23 percent of the increase was due to incomplete information about the
government’s underlying fiscal position. In particular, a lack of timely and reliabledata about the government‘s deficit and debt contributed to a collapse in market
confidence in Greece and Portugal. Hidden or implicit obligations to public
corporations and public-private partnerships (PPPs) outside the general government
perimeter rebounded on the government finances when the crisis struck in Greece,
Germany, Iceland, Portugal, and the US. In Greece, Portugal, and Spain,
governments‘ cash-based budgeting, accounting, and reporting systems failed tocapture and control expenditure commitments, resulting in an accumulation of
payment arrears before and during the crisis;

37 percent of the increase was due to an underestimation of the likelihood andscale of shocks to the government’s fiscal position. In particular, the fiscal impactof the unexpected fall in output was an important factor in all countries and theprincipal reason for the unexpected surge in government liabilities in five. Emergency
support to troubled financial institutions was the second largest shock overall and thelargest source of fiscal risk in Germany, Iceland, the Netherlands, and the UK. Whilea number of countries modeled alternative fiscal scenarios before the crisis, none
envisaged such a large and sustained fall in output or recognized the scale of theirimplicit exposure to the private financial and housing sectors;9

18 percent of the increase was attributable to discretionary policy measures
introduced in the wake of the crisis. Their net impact varied across countries
depending on whether their overall aim was to stimulate the economy (France,
Germany, Netherlands, Portugal, Spain, the UK, and the US) or consolidate the fiscal
position (Greece, Iceland, and Ireland); andthe remaining 22 percent of the increase was due to other factors.

9

Indeed, it is unlikely that any of the standard fiscal risk assessments conducted before 2007 which focused onmodeling shocks of one or two standard deviations would have caught the magnitude of the exposure to risks.
Nevertheless, more analysis of macroeconomic and financial sector risks would have at least highlighted someof the exposure to shocks and the channels through which they would play out and, in any case, would be usefulin case of more ordinary shocks.

11

Box 2. Sources of Fiscal Shocks during the Crisis
For the ten countries that experienced the largest unanticipated increase in general government gross debt between 2007
and 2010, the table below decomposes the unforecast increase into three main factors:an incomplete understanding of the country’s underlying fiscal position on the eve of the crisis as revealed by(a) revisions in the general government deficit and debt in 2007, (b) revisions due to the inclusion of hidden or
implicit obligations to public corporations, PPPs, and other public entities that were previously outside thegeneral government perimeter, and (c) cash-to-accrual accounting adjustments to capture arrears and other net
payables that were not captured in initial cash-based forecasts of revenue and expenditure;

an insufficient appreciation of the scale and likelihood of exogenous shocks to the government’s fiscal
position including (d) unexpected changes in macroeconomic conditions (including output, interest payments,
and the exchange rate), and (e) crystallization of implicit contingent liabilities to the financial sector; and

endogenous shocks to the government’s fiscal position in the form of (f) unforecast policy measures either tostimulate output or consolidate the fiscal position in the wake of the crisis.
Sources of Unanticipated Increases in General Government Debt between 2007 and 2010
(percent of 2010 GDP)
‡

Fra

Ger

Neth

Spn Port

UK

US

Grc

Ire

Ice

WeightedAve*

2007 FORECAST FOR 2010 GROSS DEBT

62.4

59.8 39.4

31.2 61.2

42.5 64.2

73.2

23.4

28.5

58.8

Underlying fiscal position (a+b+c)

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 and debt (a)Changes to the general government perimeter (b)†Cash to accrual adjustments (c)Exogenous shocks (d+e)
Macroeconomic factors (d), of which:

1.7

1.8

-0.9

-0.1

0.1

1.5

7.1

2.5

1.6

4.0

4.7

-0.7

1.4

-0.2

0.6

9.4

1.9

0.9

11.2

-0.1

2.5

1.1

0.7

0.0

-1.3

1.3

1.7

0.3

0.0

2.6

-0.2

4.5

0.2

8.4

12.8 14.2

15.4

8.1

17.0

6.3

40.0

60.2

39.5

9.8

8.3

4.7

5.2

13.0

4.4

8.9

3.8

38.4

35.7

-3.3

6.0

Output shock

7.8

6.3

6.3

13.9

4.4

8.3

5.2

34.6

30.3 -18.8

6.9

Interest payments

0.5

-1.6

-1.1

-0.9

-0.2

0.6

-1.4

3.8

5.4

3.5

-0.9

Exchange rate

0.0

0.0

0.0

0.0

0.2

0.0

0.0

0.0

0.0

12.0

0.0

0.0

8.1

9.0

2.5

3.6

8.1

2.5

1.6

24.5

42.8

3.8

2.3

3.8

1.9

4.9

4.7

1.1

6.4

-8.0

-9.9

-4.3

4.7

6.5

1.9

3.7

6.2

Financial sector interventions (e)Policy changes (f)Others factors (g)

2.1

-0.3

8.3

-6.7

7.5

21.6

5.9

HIGHER THAN EXPECTED DEBT (a+b+c+d+e+f+g)

14.4

19.5 20.2

24.0 27.8

28.0 29.1

41.7

59.1

67.7

26.4

LOWER THAN EXPECTED GDP (h)**

5.5

3.9

6.0

4.6

5.3

27.9

9.9

-3.5

5.4

INCREASE IN DEBT/GDP RATIO (a+b+c+d+e+f+g+h)

20.0

23.4 23.5

30.0 32.2

32.6 34.3

69.6

69.1

64.3

31.8

ACTUAL 2010 GROSS DEBT

82.4

83.2 62.9

61.2 93.4

75.1 98.5 142.8

92.5

92.8

90.6

3.3

4.4

* GDP PPP weighted average.
† Includes reclassifications of public corporations, PPPs, public banks and conservatorship of Government Sponsored Enterprises.
‡ Changes to the GG perimeter and financial sector intervention include the estimated impact of liabilities transferred to newly createdgovernment sector entities, taking into account operations from the central and subnational governments. As public debt is a grossconcept, this neglects the simultaneous increase in government assets. Taking this into account, net debt effect amounted to
1.4 percent of GDP, which was recorded as a deficit. The EU Commission has assessed the aid element of these transfers at about
0.8 percent of GDP.
** The increase in the debt to GDP ratio owing to the GDP forecast error of the denominator, rather than higher nominal debt.
Source: Staff estimates, WEO, Eurostat, Article IV reports, IMF Fiscal Monitor and country budget documents.

12
9.
These findings about the sources of fiscal risks are supported by a broader
survey of the perceptions of IMF staff. The survey conducted in early 2012 asked Fiscal
Affairs Department (FAD) country economists working on 48 countries to identify the natureand sources of the main fiscal risks facing their countries. The results of the survey,
summarized in Figure 2 and Appendix I, found that, in terms of transactions, macroeconomic
shocks to budgeted revenue and spending are the most common source of fiscal risks in all
regions. These are followed by quasi-fiscal activities, extrabudgetary spending, government
guarantees, and social security obligations. On the institutional sources of those risks, public
corporations were seen to pose almost as great a risk as shocks to the central government
budget, followed by social security institutions, the financial sector, and subnational
governments.
Figure 2. Sources of Fiscal Risk by Institution and Transaction(FAD Economist Survey Results)
By Type of Transaction

Public private
partnerships

Budgeted taxes
and spending
100%

50%
Other

By Type of Institution

Centralgovernment
100%

Quasi-fiscal
activities
Other

50%

Extrabudgetary
spending

0%
Financialtransactions

0%
Commodity prices

Unfunded civil
service pensions

Government
guarantees
Social policy
obligations

Nonfinancial
publiccorporations

Extrabudgetary
funds

Subnational
governments

Social security

Financial sector

Note: Data refer to the portion of sampled countries (n=48) for which a given transaction or institution was
indicated to be a source of significant fiscal risk.

IV. STRENGTHENING FISCAL TRANSPARENCY STANDARDS AND PRACTICES
10.
To help policymakers and citizens to understand and address these sources offiscal risk, fiscal transparency standards and practices need to improve along several
dimensions: (a) more complete coverage of public sector institutions; (b) morecomprehensive reporting of assets and liabilities; (c) recognition of a broader range oftransactions and other economic flows; (c) more frequent and timely fiscal reporting;(e) more rigorous approach to fiscal forecasting and risk analysis; and (f) alignment ofstandards for budgets, statistics, and accounts. This section considers the implications ofthese reform priorities for current fiscal transparency standards and practices.

13
A. Coverage of Public Institutions
11.
For over a decade, international and regional statistical standards have focusedon expanding the scope of fiscal reporting to encompass the general government. The
IMF‘s GFSM 2001, EU‘s ESA95, and the UN‘s 2008 SNA all emphasize the consolidated
general government as the relevant unit for fiscal policy-making and statistical reporting on
fiscal developments. General government consists of all entities that are controlled bycentral, state, or local government or social security funds and are engaged primarily in nonmarket activity.10 Significant progress has been made since the 1990s in expanding theinstitutional coverage of fiscal reports to encompass general government, especially inEurope and Latin America (Figure 3). Moreover, a number of Latin American countries
including Brazil, Colombia, Costa Rica, Honduras, Panama, Peru, and Uruguay prepare data
for the nonfinancial public sector which consolidates the general government with all
nonfinancial public corporations.11 A handful of advanced countries including Australia,
Iceland, and the UK publish fiscal statistics covering the entire public sector, which
consolidate the general government with all nonfinancial and financial public corporations(including the central bank). 12
Figure 3. Institutional Coverage of Government Finance Statistics(Number of countries)
200

150

100

50

48
78
22
16

General Government
Central Government

10
33

98

Budgetary Central
Government
No Data Reported

63
0
2004

2011

Source: Government Financial Statistics Yearbook (GFSY), 2004 and 2011.
Note: Data reported to and published by the IMF are not necessarily the same as data published in the
country or used in domestic fiscal analysis. For the purpose of this graph, reporting is defined asreporting of revenue.

10

International statistical and accounting standards define government control in broadly similar terms, as theauthority and capacity to direct the policies or activities of another entity when the results of such direction can
generate financial or other benefits for the government or expose it to a financial burden or loss. Under 2008
SNA, indicators of control include ownership of majority voting interest or ―golden share,‖ the power to appoint
the majority of the board of directors, or the power to dissolve an entity.
11

Fiscal statistics in Brazil, Honduras, and Uruguay consolidate not only all nonfinancial public corporations
but also the central bank.
12

Since January 2011, the UK‘s public sector financial statistics have also included the private financial
institutions acquired by the government in the wake of the crisis. However, these recently acquired financial
institutions are excluded from the public sector fiscal aggregates targeted for fiscal policy purposes.

1412.
However, in most countries there is a range of public entities outside the general
government whose activities can and do have fiscal implications. These comprise nonfinancial corporations and financial public corporations (including the central bank). Despite
the large scale privatizations since the 1980s, government-owned or controlled corporations
continue to account for a significant share of economic activity even in advanced economies.
The outstanding debt of government-related enterprises (excluding the central bank) in
14 advanced countries amounted to US$8.4 trillion or 25 percent of their aggregate GDP in2008 and has risen to US$10.6 trillion or 29.5 percent of aggregate GDP (Figure 4) since thecrisis (IMF, 2012a).
Figure 4. Outstanding Debt of Government-Related Enterprises1/(Percent of GDP)
30
55
55

45
25
45

51.5
46.7
/\/\/\/\/\//\/\/\/\/\/

20
15
10
5

2012

AUS

DNK

ESP

FRA

PRT

SWE

JPN

NOR

CAN

CHE

NLD

DEU

AUT

USA

0

2008

Source: IMF (2012) Fiscal Monitor―Balancing Fiscal Policy Risks.
1/
Bonds issued by government-owned or government-related financial and nonfinancial institutions,subject to data availability. For the United States, it includes mortgage-backed securities and otherguarantees of government sponsored enterprises.

13.
Public corporations need to be part of any comprehensive analysis of publicfinances since their debts are often implicitly or explicitly government-guaranteed. This
was apparent from fiscal crises in Latin America in the 1980s, but was revealed again in the
run-up to the sovereign debt crisis in Europe, where the Stability and Growth Pact‘s (SGP)
focus on general government deficit and debt created incentives for governments to shiftfiscal activity into public corporations (see Box 3). In the USA, the classification of Fannie
Mae and Freddie Mac as Government Sponsored Enterprises (GSE) outside the federal
government‘s accounts made them attractive means of delivering quasi-fiscal support to themortgage market without increasing the federal government‘s reported gross debt (IMF,
2003). The crystallization of the federal government‘s implicit guarantee to Fannie Mae andFreddie Mac in 2008 increased the federal deficit by US$291 billion (2 percent of GDP) and15gave rise to cumulative commitments of around $100 billion over the following decade.13 In
the United Arab Emirates, the financial rescue of Dubai by neighboring Abu Dhabi was due
in part to the unsustainable accumulation of liabilities by government-related enterprises,
such as Dubai World, which had accumulated as of January 2010 US$86 billion (79 percent
of GDP) in debt compared with just US$24 billion (21 percent of GDP) owed by thegovernment of Dubai.14
Box 3. Defining the Public Realm: Problems at the Border
Subjecting government finances to intense scrutiny inevitably creates problems at the frontier between thegovernment and the rest of the economy. If the central government budget is put under the microscope, thegovernment will be tempted to move spending off-budget. If attention switches to the whole of general
government, it will be tempted to shift spending to public corporations. In Europe, for example, fiscal rules
apply to the deficit and debt of the general government, and the test that Eurostat applies to determine when apublic entity is in the general government is whether at least 50 percent of its costs are covered by market
sales.1/ There is thus an incentive to shift spending to public corporations whose commercial activities currently
cover more than 50 percent of their costs. Such cost shifting undermines the quality of fiscal statistics, reduces
the effectiveness of fiscal rules, and undermines the financial performance of public corporations.
Eurostat and national statistical agencies often detect such problems and reclassify the corporations into thegeneral government. This improves the accuracy of the statistics and the effectiveness of the rules, but it canalso create problems for fiscal management by causing large, unexpected, and retrospective changes in fiscal
data that bear only a loose connection to changes in fiscal reality. In 2009, for example, it was decided that Irish
Rail should be reclassified into general government—with effect from 2006. In Spain, consideration of theappropriate classification of public corporations happens only every five years, so quasi-fiscal activities ofpublic corporations can go undetected for years and reclassifications can change years of data retrospectively.2/
These particular problems would be solved if the scope of fiscal analysis were extended to the public sector,
which includes all corporations that government can control (and therefore direct to spend or borrow). Of
course, more intensive scrutiny of the finances of the public sector would lead to disputes at the boundary
between the public and private sectors, and tempt governments to create entities over which the government‘s
influence fell just short of the operational definition of control, or to impose heavier regulatory burdens on
private firms. The public sector boundary could, however, prove more stable than that of the general
government, since, for example, private firms have stronger incentives than public corporations to resist
interference in their operations and, unlike government, are typically obliged to apply international accounting
standards which, among other things, require them to be clear about the entities that they control.
_____________________
1/ See Eurostat (2011c).
2/ See Eurostat (2011a and b).

14.
Central banks can also be a source of significant quasi-fiscal activity (QFA) inthe wider public sector. In the 1980s and 1990s, the QFA of central banks in some13

The US$291 billion increase in the deficit is the Congressional Budget Office‘s (CBO) estimate of the netpresent value of anticipated cash flows. (CBO, 2009).
14

See IMF (2010c). Figures in parentheses are as a percent of Dubai and northern emirates GDP.

16
emerging and developing economies contributed to significant and unexpected deteriorationsin the overall financial position of the public sector. These QFAs took the form of subsidized
lending, multiple exchange rate practices, or purchases of troubled assets. While central bankprofits or losses from conventional monetary policy operations seldom exceed a few percent
of GDP, the public sector losses from QFAs have ranged from 5 percent of GDP in Jamaicain the early 1990s to 29 percent of GDP in Zimbabwe in 2006.15 By contrast, the net public
sector impact of central banks‘ interventions in the wake of the recent crisis has been more
complex, as discussed in Box 4.
15.
The transparency of central bank activities would be enhanced if they prepared
their financial statements in accordance with international standards. Central banks tend
to have more advanced accounting and reporting than governments, with many following
accrual accounting and preparing their financial statements in accordance with international
standards such as IFRS. However, some central banks depart from those standards when they
consider such departures justified. For example, some central banks consider certain
disclosure requirements in respect of contingent liabilities to be inappropriate to theirfunction when acting as lender of last resort. Central banks also adopt valuation bases forparticular financial assets that differ from those specified by the relevant standards. Finally,some central banks do not publish a cash flow statement because they consider such astatement to be of limited relevance to their stakeholders. Such practices can impair thetransparency of the whole-of-government financial statements that consolidate the financial
statements of the central bank. When material, such departures from the standards may also
lead to the whole-of-government financial statements failing to receive an unqualified audit
opinion. Central banks should therefore be encouraged to follow internationally recognized
standards in full, though (as discussed in paragraph 17) some supplementary information
may also be required to allow for consolidation with public sector accounts.
16.
Broadening the institutional coverage of fiscal analysis would improveunderstanding of fiscal risks and reduce the temptation for governments to use public
corporations as vehicles for QFA. While general government remains an appropriate focus
for fiscal rules and targets in most countries, fiscal data for the general government and its
sub-sectors should be complemented by publication of comparable data on other parts of the
public sector, including nonfinancial public corporations, and financial public corporations,(including the central bank). As understanding of the financial relationship between thegeneral government and the wider public sector improves, governments should aim to
publish consolidated fiscal data for the nonfinancial public sector and for the public sector asa whole. The Statistics Department‘s (STA) 2008 Guide on Consolidation of Nonfinancial
Public Sector Statistics16 and a forthcoming FAD technical note on the financial oversight of15

See Dalton and Dziobek (2005); Mackenzie and Stella (1996); and IMF (2010d).

16

Wickens, 2008.

17
public corporations will provide operational guidance to countries on how to broaden thescope of their fiscal reporting and oversight.
17.
There are significant challenges, however, in evaluating the financial position of
the whole public sector. Many of these arise due to conceptual and practical differences
between the accounting used by national governments and public corporations:17
public corporations that use commercial accounting do not typically regard
investment in fixed assets as a cost (as it creates a corresponding asset on theirbalance sheet), while most governments treat capital expenditure as a cost as itincreases their primary measure of the deficit (net borrowing);

revenues from the voluntary commercial activities of public corporations areconceptually different from those that governments derive from compulsory taxation,
therefore simply adding the two together would overstate the tax burden;

consolidation of public corporations‘ gross liabilities with those of the general
government could overstate the financial vulnerability of the public sector as theliabilities of public corporations are typically matched by commercial assets; andconsolidating the central bank with the rest of the public sector requires a different
treatment of the former‘s monetary liabilities, as the issuance of base money
generally does not give rise to a fiscal imbalance.

17

A number of these conceptual differences (especially around treatment of investment and consolidation of
liabilities) would be eliminated if governments implemented accrual-based reporting standards such as
GFSM 2001 and IPSAS which focus on the operating balance as the principal measure of the government‘sfinancial performance and the overall net worth as the principal measure of the government‘s financial position.

18

Box 4. Central Banks and Financial Sector Interventions
Since the start of the financial crisis in 2008, central bank balance sheets have expanded significantly in many
advanced economies. Between 2007 and 2011, the liabilities of the European Central Bank doubled, and those of theFederal Reserve and Bank of England more than tripled in size. By the end of 2011, these central banks‘ assets andliabilities accounted for between 15 and 30 percent of GDP. This expansion has been due to stepped up direct andindirect purchases of sovereign debt and other assets (such as mortgage-backed securities) from private banks.
As shown in the figure below, these asset purchases have been primarily funded through increases in base money(quantitative easing) to meet high levels of financial market demand for liquidity. This increase in base money has
accounted for around half of the increase in the European Central Bank‘s liabilities, three quarters for the Federal
Reserve and Bank of England, and over 90 percent for the Bank of Japan.
Central Bank Assets and Liabilities in USA, UK, Japan, the Euro Area, 2001-11(percent of GDP)
40

Federal Reserve

30

30

20

20

10

10

0

0

-10

-10

-20

-20

-30

-30

-40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201140

Bank of England

40

Bank of Japan-40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

European Central Bank

40

30

30

20

20

10

10

0

0

-10

-10

-20

-20

-30

-30
-40

-40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sovereign Debt

Other Assets

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Base Money

Other Liabilties

Sources: Federal Reserve, ECB, Bank of Japan and Bank of England annual reports, IMF International Finance Statistics

The net impact of this expansion of central bank balance sheets on the public finances as a whole has been positive inthe short term. This near-term benefit comes primarily in the form of seigniorage revenues generated fromquantitative easing which has increased from less than ½ percent of GDP per year before the crisis to over 2 percent
of GDP per year since 2008 across selected advanced countries. Increased central bank purchases of sovereign debt
have also flattered the overall public sector financial position by reducing its net liabilities to the private sector andhelping to keep sovereign borrowing costs low.
However, the long-term fiscal impact of these interventions is more uncertain. As real money demand returns tonormal so will ―pure‖ (i.e., non-inflationary) revenues from seigniorage. Central banks may also find it difficult towind down their sizable asset holdings at a profit, especially if (i) the quality of those assets has been impaired in theinterim; (ii) government financing requirements remain high; or (iii) future interest rate rises reduce the market valueof fixed-rate instruments. In a worst case scenario for the public sector as a whole, losses incurred by the central bankon its asset holdings could create a need for a capital injection from the government to recapitalize the central bank.

19
B. Reporting of Assets and Liabilities
18.
Even before the current crisis, governments held significant stocks of financial
and nonfinancial assets and liabilities. In 2007, the 36 governments that produced financialbalance sheets reported holdings of financial assets of 21 percent of GDP on average withshares and other equity and currency and deposits accounting for the largest instruments intheir financial portfolios. In some countries, especially those that have built up large
sovereign wealth funds, government holdings of financial assets can be two or more times
GDP. The 12 governments that produce full balance sheets reported holdings of nonfinancial
assets of 14 percent of GDP on average with buildings and land being the largest share of thetotal. However, in countries with large natural resource endowments, governments‘
nonfinancial assets can also be many multiples of GDP.
Figure 5. Evolution of Government Balance Sheets (2007–10)
36 Countries with Financial Balance Sheets(percent of GDP)

12 Countries with Full Balance Sheet(percent of GDP)
40

40

20

20
20.7

25.4

Financial Assets00Liabilties

-20

-20

13.5
12.9

Non-Financial Assets
17.6

-41.4

-58.8
-40

14.6

Financial Assets
-64.9

-81.8

-40

-60

-60

-80

-80

Liabilties

-100

-100
2007

2010

2007

2010

Source: GFSY 2007; GFSY 2010.

19.
The crisis has seen an expansion and diversification of government assets andliabilities, especially in advanced economies. As shown in Figure 5, government holdingsof financial assets have increased by around 4 to 5 percent of GDP on average whileliabilities have increased by more than 20 percent of GDP since 2007. The increase has been
most dramatic in those countries whose governments have extended large-scale financial
support to distressed banks and financial institutions to provide liquidity, maintainconfidence, and stimulate economic activity. As a result, governments acquired significant
new financial assets (such as shares in financial institutions) and assumed new liabilities andcontingent liabilities (such as guarantees over particular classes of privately held assets). As
shown in Figure 6, around 30 percent of the increase in government holdings of financial
assets since 2007 was from acquisition of currency and deposits, 25 percent each fromacquisitions of loans and securities, and the remainder from accounts receivable and other20
financial assets. The challenges of accounting for these interventions are discussed in Box 5
and below.
Figure 6. Change in General Government Financial Assets 2007–11Q31/(Percent of GDP)
24

Other 2Loans
Currency and deposits

Accounts receivable
Shares and other equity
Securities other than shares
Financial assets

18
12
6
0
-6

Average

FIN

CZE

GRC

SWE

SVK

BGR

POL

CYP

FRA

ROM

ITA

SVN

JPN

AUT

LUX

MLT

EA

ESP

BEL

CAN

EST

GBR

IRL

NLD

DEU

HUN

PRT

DNK

-12

Sources: IMF, Fiscal Monitor, April 2012.
Note: EA: euro area.
1/
For France, Germany, and Japan, data as of 2010. For all other countries, stock as of end of third quarter of2011 in percent of 2011 GDP.
2/
Includes monetary gold and Special Drawing Rights, financial derivatives, and insurance technical reserves.

Box 5. Accounting for Government Interventions in the Financial Sector
The scale, variety, and complexity of government interventions in the financial sector in response to the current
crisis pose challenges for financial reporting standards and practices. Key challenges include:







Coverage of financial statements: Many of the financial interventions have been undertaken by thecentral bank or a special purpose vehicle which are generally not consolidated with the government‘s own
financial statements. Furthermore, even where the interventions result in the government acquiring amajority stake and managerial control over an entity, that entity may not be consolidated. This has made itdifficult to assess the net impact of the crisis on the public sector balance sheet.
Valuation of assets and liabilities and gains and losses: While most governments that report on an
accrual basis value the assets and liabilities acquired as a result of their interventions on a basis thatapproximate their fair value or recoverable amount, the treatment of subsequent gains and losses in thevalue of those assets vary from non-recognition to full recognition and inclusion in the measure of thegovernment‘s surplus or deficit. Other governments that report on a cash basis may not report the assets
and liabilities at all or recognize any valuation gains and losses.
Information on contingent liabilities: While many countries disclose the size of the government‘sguarantees and other contingent liabilities to financial institutions in some manner, very few recognize
provisions for amounts that may be payable under these arrangements.

21
20.
While reporting standards call for the provision of balance sheets, relatively few
governments can fully account for their overall financial position. Both GFSM 2001 and
IPSAS call for government financial statements to include comprehensive balance sheets
reporting the value of government financial and nonfinancial assets and liabilities.18 As
shown in Figure 7, over the past six years, the number of countries reporting data on financial
assets and liabilities to the IMF has increased from 21 in 2004 to 41 in 2011, including
almost all countries in the EU. However, the vast majority of countries continue to provide
no comprehensive data on their financial assets and liabilities which makes it difficult tojudge their overall net financial worth.
Figure 7. Reporting of Assets and Liabilities(Number of countries)
200
180
160
140

9
12
27

14
27
17

120

Financial Assets Only

100

Liabilities Only

80
60

Financial & Non-Financial Assets

136

126

2004

2011

No Balance Sheet

40
20
0

Source: GFSY 2004; GFSY 2011.
Note: To eliminate complications from late reporting, data captures the assets and liabilities published two
years prior to indicated year. Data reported to the IMF are not necessarily the same as data published in
the country or used in domestic fiscal analysis.

21.
Even less progress has been made in the disclosure of information about thevalue of nonfinancial assets. Between 2004 and 2011, the number of countries that wereable to provide the IMF with comprehensive balance sheets including both financial andnonfinancial assets and liabilities and an overall picture of government net worth increased
from 9 to 14. For many countries, one of their most valuable nonfinancial assets is a subsoil
mineral resource such as oil, gas, diamonds, or precious or industrial metals. However, only
13 countries reported data on the stock and depletion of naturally occurring assets to theFund despite there being 47 countries which rely on the exploitation of such assets for overhalf of their export revenue IMF (2011d). The limited reporting of subsoil assets is partly areflection of the complexities associated with assessing the market value of such assets which
requires estimates of the size of subsoil reserves, the time and cost profile of extraction, andthe path of future prices for the commodity. However, progress is being made in developing
18

IMF (2011e) provides detailed guidance on the measurement of debt.

22
appropriate reporting requirements on this topic—the US federal government is now required
to report estimated royalties from the production of federal oil and gas proven reserves as
supplementary information, and a proposal to develop an international public sector standard
in this area is under active consideration.
22.
Fully accounting for the fiscal implications of government’s crisis-related
interventions requires not only comprehensive balance sheet data but also a moresophisticated approach to the treatment of contingent liabilities. Much of the public
support extended to crisis-hit financial institutions, businesses, and households was in theform of government guarantees over their assets or liabilities. As shown in Figure 8, thestock of government-guaranteed bonds issued by private and public financial institutions has
increased more than ten-fold since the crisis from US$120 billion in 2008 to US$1.4 trillion
in 2012. Current statistical standards do not allow for the recognition of most guarantees orother contingent liabilities or related provisions on the government balance sheet unless anduntil they have been called or crystallized.19 While IPSAS requires the recognition offinancial guarantee contracts at fair value, provisions related to other contingent liabilities are
only recognized when payment is deemed to be probable (i.e., more than 50 percent likely).20
This creates a strong temptation for governments to class these liabilities as just on theunlikely side of ―probable‖ pending any review by their external auditors. As governments
seek to consolidate their fiscal positions, they will also be tempted to offer further assistanceto the private sector in the form of guarantees instead of subsidies or direct lending. For
example, since March 2012 the UK government announced new government guarantees of£20 billion (1.3 percent of GDP) to encourage a resumption of commercial bank lending tosmall businesses and a further £50bn (3.2 percent of GDP) to promote private investment ininfrastructure and exports.21
23.
Fully reflecting the impact of governments’ crisis-related financial interventions
in public fiscal reports also requires a reconsideration of the treatment of bad anddoubtful debts. As their portfolios of loans and guarantees to the private sector have grown,
governments have become more exposed to credit risk on these instruments. Accounting
standards require the recognition of any change in the likelihood of repayment on these items
as an expense. However, under statistical standards, bad debts written off are recognized asother economic flows and provisions for doubtful debts are not recognized but only disclosed
as memorandum items. Although efforts to harmonize statistical and accounting standards
19

GFSM 2001 does require outstanding contingent liabilities to be disclosed as memorandum items to thebalance sheet.
20

Even when the expected value is not recognized in accounts, IPSAS does require relevant information about
the size, nature, and beneficiary of the guarantee to be disclosed in the notes to the accounts.
21

HM Treasury, National Loan Guarantee Scheme (http://www.hm-treasury.gov.uk/nlgs.htm ) and ―UK
Guarantees,‖ Written Ministerial Statement by Lord Sassoon (July 18, 2012).

23
are ongoing, full harmonization may not be achievable given the different objectives of theseframeworks. Specifically, under statistical standards provisions for contingent liabilities or
doubtful debts are not recognized mainly because recognizing provisions in the financial
accounts of the government as the guarantor or creditor, but not in those of the recipient of
the guarantee or the debtor, would result in asymmetrical treatment and is contrary to thefundamental concept of balance being maintained in the national accounts statistics for the
economy as a whole. On the other hand, the need to reflect the fiscal position of thegovernment in a true and fair manner requires the recognition of these items. An option tobridge this gap would involve the inclusion of supplementary information on these items andmultiple summary aggregates in statistical reports.
Figure 8. Outstanding Government-Guaranteed Bonds(US$ billions)
1600
1400
1200
1000

United States

800

Euro area

600

Other EU

400

Australia200
Dec-11

Oct-11

Jun-11

Aug-11

Apr-11

Feb-11

Oct-10Dec-10Aug-10

Apr-10Jun-10Feb-10

Oct-09Dec-09Aug-09Apr-09Jun-09Feb-09Oct-08Dec-080

Sources: Dealogic; and IMF staff estimates.
Note: State guarantees on bonds issued by private and public banks, and financial institutions. Shortterm debt is not included. Countries included in the sample are: Australia, Austria, Belgium, Denmark,France, Germany, Greece, Ireland, Luxembourg, the Netherlands, Portugal, Slovenia, Spain, Sweden,
the United Kingdom, and the United States. Data for Greece has not been updated since July 2011.

24.
In summary, providing a more comprehensive picture of overall sovereign net
worth requires international reporting standards to capture a broader range of direct
and contingent assets and liabilities. In particular, there is a case for:

supplementing existing statistical and accounting standards with guidance regarding
the recognition of subsoil assets in the face of uncertainty or incomplete information
about their value;

requiring recognition of provisions in respect of a broader range of contingent
liabilities in accounts and supplementary summary statistics provided that theamounts can be reliably valued. These contingent liabilities should be valued at theirmarket, fair, or expected present value, taking into account the probability of theliability being called and the amount and timing of any resulting payments, unlessthere is a clear moral hazard case for non-recognition; and24

presenting multiple aggregates in fiscal statistics to supplement the information
provided in accordance with existing statistical standards. In particular, if
GFSM 2001 cannot be revised in the short to medium term to recognize provisions
for contingent liabilities and doubtful debts, these could be incorporated, foranalytical purposes, in a fiscal balance that supplements the conventional aggregatessuch as net lending/borrowing.
C. Accounting for Transactions and Other Economic Flows25.
Fiscal pressures can also prompt some governments to design specifictransactions that artificially reduce their publicly reported deficits or debt. For example,
several European governments, including Portugal and France, have reduced their headline
deficits by taking over the pension schemes of public or private corporations, thus counting
the receipt of the pension scheme assets as revenue (Koen and van den Noord, 2005). This ispossible because, while the governments‘ obligations to make future pension payments havea real cost, this is not counted as a liability in the fiscal statistics underlying Europe‘s fiscal
rules. In other countries, such as Spain, subnational governments sought to sell andsimultaneously lease back government office buildings.
26.
The scope for manipulating the timing of reported transactions to report a lower
deficit is partly an artifact of the predominance of cash accounting. Cash deficits can be
reduced simply by deferring the disbursement of cash, for example, by not paying bills ontime as occurred in Greece, Portugal, and at the subnational level in Spain. GFSM 2001,
ESA95 and IPSAS try to address this problem by requiring revenue and expenditure to berecorded at the point at which value is transferred rather than when the actual payment ismade, which means that postponing payment does not affect the deficit. As shown in Figure
9, over the past seven years the number of countries reporting data to the IMF on a partial or
full accrual basis has increased from 38 to 64. However, most countries continue to recordand report all government transactions solely on a cash basis.
27.
Derivative transactions are another important area where standards have beendeveloped, but public reporting lags far behind. GFSM 2001 provides for the recognitionof assets and liabilities in relation to swaps, futures, and other derivatives—contracts often
used in debt management, for example, to hedge interest- and exchange-rate risks. IPSAS has
similar requirements and also requires the disclosure of additional information about thosederivatives. However, many governments do not yet comply with these standards, especiallythe requirements to recognize changes in the market values of derivative contracts after they
have been entered into. Because derivative liabilities are not included in the Maastricht
measure of debt, off-market swaps were sometimes used in Europe before the crisis toborrow money without reporting additional debt.22 Although the off-market-swap loophole
22

See, for example, Eurostat (2010).

25
has been closed, ordinary derivative liabilities are still excluded from the Maastricht measureof debt and are therefore subject to less scrutiny than other liabilities. This has createduncertainty about the total liabilities of governments that have used derivatives.
Figure 9. Basis for Reporting of Government Flows(Number of countries)
200
180

9

160

29

12
52

140

Full Accrual

120
100
80

Partial Accrual
146

60

120

Cash

40
20
0
2004

2011

Source: GFSY 2004; GFSY 2011.
Note: Partial accrual includes countries that report transactions and other economic flows on
an accrual basis but do not prepare a full balance sheet. Full accrual includes countries thatrecord transactions and other economic flows on an accrual basis and publish a full balance
sheet.

28.
Action at the international, regional, and national level is required to accelerate
the shift from cash to full accrual-based recording of transactions and to capture othereconomic flows in fiscal reports. At the international level, standard-setters need to provide
practical guidance on the sequencing of the adoption and implementation of accrual-based
reporting standards, based on successful experiences in advanced and emerging economies.
Building on its past advice in this area, FAD staff will prepare a guidance note on theoperational steps involved in moving from cash to full accrual accounting.23 Regional
standard-setters such as Eurostat need to explore the scope for aligning treatment of accounts
payable and derivative and other financial instruments with more comprehensive
GFSM 2001 and IPSAS standards.24 Finally, at the national level, governments need to
upgrade their accounting systems and practices to record revenues and expenditures whenvalue is transferred and capture other non-transactional economic flows. Such improvements
are likely to be made only gradually as public financial management institutions, systems,
and capacity are improved. In the process of moving to accrual-based fiscal reporting, it is2324This will build on the more general guidance offered in Khan and Mayes (2009).

Eurostat is currently carrying out an assessment of the suitability of implementing IPSAS in EU member
states (http://epp.eurostat.ec.europa.eu/portal/page/portal/public_consultations/consultations/ipsas).

26
important that countries retain a firm understanding of and controls over their underlying
cash position, given the link to the government‘s liquidity requirements.
D. Frequency and Timeliness of Fiscal Reporting
29.
Lack of timely information about the current fiscal position can also be an
important source of risks. Fiscal strategies and budgets are typically prepared and approved
before the start of the financial year to which they refer. Timely information about the stateof the government finances for the current year is critical to establishing the baseline forfiscal settings. As shown in Figure 10, just over half of all countries currently publish
consolidated fiscal reports for central government on a monthly basis, with the remainder
reporting quarterly, semi-annually, or annually. In both Greece and Portugal, a lack of timely
data about in-year fiscal developments contributed to substantial revisions to initial estimatesof the general government debt and deficit in the current and previous fiscal years. Theselarge ex post revisions rendered their fiscal adjustment plans out of date shortly after they
were approved and undermined the credibility of the government‘s fiscal policy statements.
30.
While statistical reporting standards call for detailed quarterly general
government fiscal reporting, 25 governments should consider publishing reports on amonthly basis. Given reporting lags in the production of quarterly data, it is often the casethat governments have only two observations of in-year fiscal developments before theypresent their fiscal plans and budgets for the next financial year. This is especiallyproblematic for those countries with fiscal rules that relate past fiscal performance to futurefiscal policy setting. As those fiscal rules increasingly apply to the consolidated general
government, policymakers need more regular feedback on general government fiscal
performance. Publishing provisional data on a monthly basis with a one-month lag would
give governments between eight and ten observations before they submit their fiscal plans
and budgets to their legislatures. While these provisional monthly data will doubtless be lessdetailed, more volatile, and subject to greater revision than quarterly statistical data, they canhelp to improve policymakers‘ and the public‘s understanding of in-year fiscal developments
and patterns.

25

Statistical standards require reporting of both transactions and positions.

27
Figure 10. Periodicity and Timeliness of Central Government Fiscal Reporting(Number of countries)

Periodicity

Timeliness

Unknown
16

Over 12months25
6-12months18

Annually
37

Semiannually
3
Quarterly
32Monthly96

3-6months8

Unknown
4

1 monthor less83

1-3
months46

Source: Special Data Dissemination Standards (SDDS) Database; General Data Dissemination Standards (GDDS) Database.

E. Fiscal Forecasting and Budget Planning
31.
While there has been a sustained effort to develop and disseminate standards for
retrospective fiscal reporting, the same cannot be said for prospective fiscal reporting.
There are currently no internationally accepted standards for the content and presentation of
the budget and related documents. As a result, the methodology, construction, and time
horizon of fiscal forecasts and budgets vary greatly across countries. The OECD‘s 2007–08
Survey of Budget Practices and Procedures in 97 countries found shortcomings in forecast:

methodology, where only one-third of countries systematically distinguish the fiscal
impact of current and new policies, making it difficult to hold government to accountfor the adequacy and implementation of discretionary tax and spending decisions;construction, where less than half of countries prepare disaggregated multi-year
budget estimates, making it difficult to understand the distributional implications offiscal policies or compare current fiscal plans with future annual budgets; andhorizon, where three quarters of countries‘ fiscal forecasts now extend three-to-fiveyears ahead, but less than one quarter routinely produce the kind of long-term fiscal
projections (i.e., for 30 years or more), required to judge the sustainability andintergenerational fairness of current fiscal policies (OECD, 2007).

32.
In addition, most countries’ fiscal forecasts are based on a single, central
scenario with limited exploration of the implications of alternative assumptions.
Improving understanding of the magnitude and likelihood of fiscal risks is critical tosafeguarding government‘s future fiscal solvency. The Code and other fiscal transparency
norms such as the OECD‘s Good Practices in Budget Transparency call on governments toinclude in their budget documentation both alternative macroeconomic and fiscal scenarios

28
and quantified statements of discrete fiscal risks such as guarantees, PPPs, and othercontingent liabilities. However, even among advanced economies, less than half provide thiskind of systematic exploration of the risks to their fiscal outlook (OECD, 2007).
33.
A new standard for fiscal forecasting could help to improve the quality andconsistency of prospective fiscal reporting. The standard would require fiscal forecasts to:cover a minimum time horizon and set of institutions;state the economic, demographic, and other assumptions underlying the fiscal
projections;separately identify the impact of new policy measures and include all announced
government policies in the ―post-measures‖ forecast, even where those measures have
yet to be legislated or implemented;

provide a breakdown of revenue by main revenue heading and expenditure byeconomic category, ministry, and program where relevant;

provide a reconciliation of material changes since the last fiscal forecast;

analyze the distributional impact of government policies on households; and

regularly include long-term fiscal projections based on a plausible range of forecast
assumptions.

34.

The standard would also require disclosure and analysis of fiscal risks through:

provision of fiscal scenarios on the basis of various macroeconomic assumptions;a statement of discrete fiscal risks (such as natural disasters, guarantees, and othercontingent liabilities) providing their maximum value, probability, and expectedvalue wherever possible and an account of the mitigating actions being taken; andan account of how these risks have been taken into consideration in setting the overall
fiscal stance.
F. Aligning Budgets, Statistics, and Accounts

35.
A final source of fiscal risk observed during the recent crisis is divergence in thereporting concepts used in ex ante budgets and ex post statistics and accounts. For
example, in the EU, member states typically prepare fiscal forecasts and budgets on a cash

29
basis26 while the SGP limits on deficits and debts are on a modified accrual basis.27 This
makes the budget an imperfect instrument for meeting SGP targets ex post. For example, in
Greece, Portugal, and Spain, lack of control over and accounting for payables and arrears to
suppliers were a significant source of ex post revisions to fiscal deficits first reported to theEuropean Commission. As discussed in Box 7, a desire to promote greater transparency andaccountability at the national level has prompted a number of countries to align the reporting
standards across budgets, statistics, and accounts.
Box 7. Aligning Accountability Documents in Australia, New Zealand, and the UK
In many countries, the various fiscal documents, such as budgets, appropriation acts, budget execution reports,financial statistics, and financial statements, are prepared on different bases, using different institutional
coverage and accounting standards. This variation is due to the fact that they are often produced by different
institutions for different purposes and constituencies and have therefore developed in different directions.
However, this misalignment can make it difficult to assess and scrutinize how fiscal outcomes relate to theinitial budget appropriations and whether these outcomes are in line with fiscal rules and strategies. In order toprovide a coherent and consistent fiscal picture at all stages of the budget process, a number of countries have
moved to harmonize or align the reporting basis across different accountability documents.
One of Australia‘s main ex post accountability documents is the Final Budget Outcome, which is publishedwithin three months of the end of the financial year. This document is prepared on the same basis as the budget
and the mid-year update, and provides a direct comparison of the outcome to the budgeted amounts, both for theflows (revenues, expenditures and balances) as well as the stocks (net debt and net financial worth), with all
major deviations explained. It also provides a direct comparison with the financial statements for the general
government sector, as well as the nonfinancial and financial public corporations sectors. All fiscal information
is based on common reporting standards, largely in line with GFSM 2001, although there are some departuresfrom these standards when Australian Accounting Standards (mainly IFRS) are used. While this creates somedifferences to the statistical reports, these departures and their rationale are all disclosed.
New Zealand produces its audited annual report three months after the end of the financial year. This reportprovides a detailed comparison of budgeted amounts and outturns, as well as brief analysis of the major
variations, and a description of the progress the government has made in implementing its fiscal strategy, as laidout in the (prebudget) fiscal strategy report. Budgets and forecasts are prepared on the same accounting basis(mainly IFRS) as accounts. Forecasts also comply with New Zealand accounting standard that, among otherthings, requires that forecasts be prepared using the accounting rules that will apply to retrospective reports andthat assumptions be ―reasonable and supportable,‖ internally consistent, and published.
The UK has also been seeking to improve the consistency between ex ante and ex post financial reporting
through it Alignment Project which aimed to produce a consistent set of budgets, statistics, and accounts by
June 2012. The UK government previously prepared its budget on one basis, presented the expenditure
estimates for parliamentary approval on another, and produced its end-of-year resource accounts on yet anotherbasis. The result was a significant misalignment between the three accountability documents, which added up toaround 4 percent of GDP. The Alignment Project has established a clear line of sight between the threeaccountability documents, reduced this discrepancy, and brought the various elements closer to IFRS.

26

Among the 27 EU member states, only Denmark and the UK prepare budgets on an accrual basis. Austria will
adopt accrual budgeting from 2013.
27

Under the SGP, the deficit is measured on an accrual basis, except that the cost of acquiring a nonfinancial
asset is recorded as expenditure in the year of acquisition rather than being spread over the life of the asset.

30
36.
Part of the above divergence can be attributed to differences in the reporting
standards applied to the various accountability documents.28 The accountability problems
created by these discrepancies have become increasingly apparent in the wake of the crisis,
especially discrepancies in:Institutional coverage. Budgets typically cover those institutions specified asbudgetary in the national constitution or organic budget law. Statistical standards
focus on all institutions considered to be engaged in non-market activity, a groupwhich is typically broader than just those entities included in the central government
budget. Accounting standards also require the consolidation of all entities regarded ascontrolled by government, which is often an even broader group as it includes public
corporations. This means that the financial institutions acquired by governments inthe wake of the crisis would typically not be consolidated with the rest of government
in budgets or statistics under applicable standards. Therefore, the fiscal implicationsof any changes in the financial position of these institutions for the wider public
sector will only be fully captured in ex post accounts, if at all.



Recording of transactions. Budgets are largely prepared on a cash basis, whileaccounts and statistics are increasingly being prepared on an accrual basis. In addition
to the problem of expenditure arrears discussed above, this discrepancy can also leadto underprovisioning for the full, long-term costs of government decisions. For
example, in the US, the federal government‘s cash-based budget outlays include an
average of US$128 billion of payments for pensions and other benefits for former
federal employees, but do not include the additional US$257 billion annual averageincrease in pension and other benefit liabilities, that stood at US$5.8 trillion(38.2 percent of GDP) in 2011.29

Treatment of balance sheet gains and losses. Only a handful of countries require
explicit provision in budgets for depreciation, impairments, or other changes in thevalue of assets and liabilities.30 Those countries that have fully adopted GFSM 2001
for fiscal statistics or IPSAS for the accounts should (and increasingly do) recognize
gains and losses in government assets and liabilities in their final accounts and, under
IPSAS, their reported fiscal balance. However, given the rapid expansion in public
sector balance sheets in the wake of the crisis, governments need to be cognizant of

28

The term accountability documents refer to fiscal strategy documents, the annual budget document, in-year
and year-end fiscal statistics releases, and in-year and end-of-year accounts.
29

See Office of Management and Budget (2012); and the US Treasury (2012).

30

Australia, Iceland, New Zealand, and the United Kingdom.

31
these potentially large changes in the value of their newly acquired assets andliabilities when determining their long-term fiscal stance in the budget itself.31
37.
International standard-setting bodies (such as the UN, IMF, Eurostat, and
IPSASB) should work to harmonize reporting standards for budgets, statistics, andaccounts. Guidance on the coverage of institutions needs to be aligned to encourage thebroad and consistent coverage across financial accountability documents. Standards for fiscal
forecasting need to include standards for the preparation of both cash and accrual budget
forecasts, including forecast balance sheets, which give a clear picture of the government‘sfinancing needs while also being fully comparable with accrual-based fiscal statistics andfinal accounts. Treatment of contingent liabilities and valuation gains and losses should be
more closely aligned across budgets, statistics, and accounts so the realization of thesebalance sheet changes does not consistently come as an ex post surprise to fiscal
policymakers and observers. Of course, full comparability of prospective and retrospective
fiscal data within countries will only be achieved when underlying national standards andsystems used to generate the data are aligned or integrated. As an input into these
discussions, FAD, in consultation with STA, will prepare a position paper on the integrationof fiscal reporting across budgets, statistical reports, and financial statements.
V. STRENGTHENING FISCAL TRANSPARENCY MONITORING AND INCENTIVES
38.
Promoting greater fiscal transparency requires not only clear reporting
standards but also effective monitoring and enforcement of compliance with thosestandards. Pressure for greater disclosure of fiscal information can come from: (a) national
institutions such as parliaments, supreme audit offices, national statistics bodies, independent
fiscal agencies, and professional and civic organizations; (b) regional institutions such as
regional unions, monetary arrangements, and statistics agencies; and (c) international
institutions such as the IMF, World Bank, and OECD, international standard-setting bodies
such as IFAC, IPSASB, and the International Organization of Supreme Audit Institutions(INTOSAI), and civil society groups such as IBP and the recently launched Global Initiativeon Fiscal Transparency (GIFT).32 This section reviews the effectiveness of these three tiers offiscal transparency monitoring and enforcement and makes recommendations for how toenhance their impact.
31

This does not necessarily imply that all such changes should be recognized in determining the deficit inbudgets or ex post reports or that governments should change fiscal policy settings in response to short-term
fluctuations in the value of their assets and liabilities. For example, GFSM 2001 distinguishes between changes
in net worth due to transactions and holding gains and losses.
32

The INTOSAI operates as an umbrella organization for the government external audit community to promote
development and transfer of knowledge, improve government auditing practices worldwide and enhance
professional capacities, standing and influence of member supreme audit institutions (SAIs). The GIFT is amulti-stakeholder network working to advance and institutionalize global norms and bring continuous
improvements in fiscal transparency, participation, and accountability in various countries.

32
A. National and Regional Monitoring of Transparency
39.
Pressure for greater fiscal transparency has traditionally come from national
institutions. Parliaments, as representatives of taxpayers, have in almost every country aconstitutional right and responsibility to hold the government to account for the use of theirconstituents‘ money. Parliaments are traditionally supported in this task by supreme audit
institutions (SAIs) and national statistics agencies. More recently, the proliferation of fiscal
rules and responsibility laws has been accompanied by the rise of independent fiscal agencies
charged with providing an external expert perspective on the government‘s fiscal forecasts,
policies, and performance. Finally, national professional bodies such as chartered institutes ofpublic accountants and auditors have also been an important source of pressures for
improvements in government reporting practices (Box 8).
40.
While legislatures’ role in fiscal policymaking has grown in recent years, many
continue to lack the information, time, and powers to hold governments to account.
Recent reforms in this area include (i) giving legislatures greater input into the formulation of
ex ante fiscal policy; (ii) greater involvement in budget policy decisions; (iii) better analyticalsupport through parliamentary budget offices; and (iv) enhanced information and oversight
regarding budget execution. However, progress in these areas has been slow, especiallyoutside advanced countries. According to the latest OBI survey, only 45 percent ofparliaments are given the opportunity to scrutinize in advance the medium-term fiscal policy
framework that informs the preparation of the annual budget. The situation is somewhat
better among advanced countries, where 26 of 30 parliaments are provided with some kind of
pre-budget report (OECD, 2007). Furthermore, when the annual budget is submitted for
debate and approval, legislatures do not always have the time and resources to give it proper
scrutiny. For example, over 30 percent of legislatures are given less than six weeks to debate
and approve the government‘s budget before the start of the year, compared with theminimum of three months called for in IMF and OECD guidance (IBP, 2010).
41.
SAIs also play a central role in scrutinizing government financial information,
but are also not always fully empowered to meet their obligations. The OBS found thataround 80 percent of SAIs are legally, financially, and operationally independent ofgovernment. However, over half of countries‘ audit reports on the government‘s annual
accounts are either not published or published more than a year later―which greatly reduces
their impact. Furthermore, an unpublished IMF survey of budget institutions in some
50 countries found that in one-third of countries, the auditor general is not obliged to provide
an audit option as to whether the government‘s accounts provide a ―true and fair view‖ of thegovernment financial position. Finally, even where the auditor general finds accounting orother irregularities, in less than one-third of countries is the government obliged to report toparliament and the public on how those irregularities are being addressed (IBP, 2010).

33

Box 8. Role of National Institutions in Promoting Fiscal Transparency
Legislatures are central actors at all phases of the financial management cycle from ex ante scrutiny andapproval of the government‘s fiscal strategy and budget, to in-year monitoring and adjustment to budgetary
appropriations, to ex post scrutiny of the use of public resources and follow-up on the findings of national audit
bodies. Legislatures often exercise these functions through various parliamentary committees and bodies suchas budget, finance, or public accounts committees, and parliamentary budget offices. In France, the financial
committees of the Assembly and Senate were the driving force behind the country‘s 2001 organic budget law(Loi Organique relative aux Lois de Finances), which overhauled the budgetary and accounting rules toenhance fiscal transparency at every stage of the financial management cycle.
Supreme audit institutions (SAIs) play a key role in identifying gaps in the quality and reliability of
government accounts and financial information produced by governments. External audit by an SAI provides akey means by which the legislature, on behalf of the taxpayer, scrutinizes how government uses the money
voted to it. Although most SAIs have the primary responsibility for the audit of information disclosed in thegovernment‘s financial statements, some SAIs have taken steps to improve the understanding and oversight of
the government‘s wider financial exposures. For example, the Australian National Audit Office has recently
conducted reviews of government guarantees, indemnities, and letters of comfort to assess the size of thegovernment‘s exposure; the adequacy of the government‘s monitoring, management, and reporting
arrangements; and areas for improving the oversight and disclosure of these contingent liabilities.1/
National statistical bodies are critical sources of reliable in-year and annual fiscal statistics. Although specificroles and responsibilities of these bodies vary across countries, their institutional and operational independence
is important to ensure that they are in a position to verify (without political influence) the comprehensiveness,quality and reliability of fiscal data produced by governments. For example, the principle of professional
independence of national statistical bodies was recognized by the European Parliament and the Council in thelegislative ―six-pack‖ on enhanced economic governance which entered into force in December 2011. 2/
Independent fiscal agencies have been established in a growing number of countries in recent years to provide
an independent view on the reliability of fiscal forecasts and the sustainability of fiscal policies andperformance. They can also be a driving force in improvements in national fiscal transparency practices. For
example, the Congressional Budget Office (CBO) in the US was the first to make long-term fiscal forecasts andnow publishes its annual update of its long-term budget outlook.
Professional bodies of government accountants and auditors have also played an important role in improving
government financial reporting practices and upholding the professional integrity of government financial
managers. This is especially the case in countries like the UK where all ministerial financial directors need tohold an accounting qualification and be a certified member of a professional accounting association such as theChartered Institute of Public Finance Accountants (CIPFA).
__________________________
1/ See ―Fiscal Exposures: Implications for Debt Management and the Role for SAIs,‖ INTOSAI Public Debt
Committee, February 2003.
2/ EU Council Directive #85/2011.

42.
Citizens, civic groups, and markets also have a vital part to play in holding
governments to account for the use of their money and in pressing for transparency
improvements. Access to information is a precondition for citizens to understand how agovernment is using its powers to conduct fiscal policy. As the budget is the key instrument
through which a government translates its policies into action, it should be presented clearly

34
to the public. However, only 21 percent of countries currently publish a citizens‘ guide to thebudget. While many governments solicit written inputs from key organizations regarding
their budget priorities, only 28 percent of legislatures organize public hearings at whichcitizens are given the opportunity to testify on budgetary matters. Indeed, in more than onethird of countries, all budgetary discussions between the legislative and the executive areconducted behind closed doors (IBP, 2010). As sources of both tax revenue and financing forgovernments, markets also can be an important source of pressures for fiscal transparency
improvements. However, a lack of readily accessible cross-country data on fiscal
transparency practices has been cited by civil society groups, businesses, and otherstakeholders as an impediment to domestic and international efforts to promote greater fiscal
transparency.33
43.
Regional bodies play an increasingly important role in harmonizing fiscal
reporting practices and enforcing transparency standards among their members. These
regional harmonization efforts are often the most extensive in monetary unions where timely,
reliable, and comparable fiscal data from member states are needed to monitor and enforce
regional fiscal convergence criteria. In Europe, Eurostat has been the driving force behind thestandardization of fiscal reporting across EU member states through the development of acommon European System of Accounts (ESA) and activities to harmonize national statisticalmethodologies across the region. Eurostat is also tasked with assessing the quality andreliability of fiscal data notified by EU member states to the European Commission
concerning their compliance with the limits set out in the Stability and Growth Pact. In
Africa, the West African Economic and Monetary Union (WAEMU) and Central African
Economic and Monetary Community (CEMAC) have also been catalysts for upgrading andharmonizing fiscal reporting practices among their member countries.
B. International Monitoring of Transparency
44.
The IMF’s Fiscal Transparency ROSC, established in 1999, is the principal tool
for assessing the openness of national institutions for fiscal policy-making and thetransparency of fiscal reporting practices. The fiscal ROSC evaluation framework is basedon the Fund's Code of Good Practices on Fiscal Transparency, which was updated in 2007,
based on assessments of country observance relative to the good practices identified in theprevious version of the Code.34 The revised Code retained the original four pillars of fiscal
transparency: (i) clarity of roles and responsibilities; (ii) open budget processes; (iii) publicavailability of information; and (iv) assurances of integrity. It also introduced some new goodpractices and broadened the coverage of others, including in the areas of contractual
arrangements with private companies; publication of a citizens‘ guide to the budget;
33

34

See Petrie (2003) for a discussion of these aspects.

The revised Code took into consideration suggestions from the general public, country authorities,
development agencies, academics, and nongovernmental agencies working in the area of budget transparency.

35
consultation periods for the budget and changes to laws and regulations; periodic reports on
long-term public finances; and openness in the sale and purchase of government assets. The
government finance statistics module of the IMF‘s data dissemination ROSC complements
the fiscal ROSC by assessing country compliance with IMF standards for statisticalreporting.
45.
Despite these refinements, the fiscal transparency ROSC’s record in identifying
problems that contributed to or exacerbated the fiscal impact of the recent crisis was
mixed. Of the ten countries that experienced the largest increase in government liabilities
during the crisis, nine had undergone a ROSC within the previous eight years. These reports
identified some but not all of the key transparency problems revealed by the crisis (seeAppendix II for a summary). The reports were most effective in identifying inadequate
coverage of fiscal reports, lack of medium-term fiscal forecasts, and weak controls overbudget execution. However, issues such as the need for fiscal risk analysis to explore abroader range of output scenarios or better surveillance of exposure to financial sector risks
were generally not explored. Even where shortcomings were identified, their relative
seriousness was generally not quantified and they were not always given due prominence inthe summary recommendations.
46.
This and other evaluations of the ROSC program35 highlighted a number ofshortcomings in the design of the fiscal ROSC itself that may have reduced its impact:the methodology is one-size-fits-all and makes no allowance for different levels of
institutional capacity or economic development. This makes it difficult for countries
at a lower level of observance to use the ROSC to chart a sequenced reform path fromtheir current practice to the best practices set out in the Code and Manual;the assessment places equal weight on compliance with all elements of the Code andfocuses on verifying the existence of formal institutions rather than validating thequality of their output. This gives the evaluation the flavor of a ―box ticking exercise‖
which can overlook examples of both good and bad informal practices and fails to
distinguish between more or less serious deficiencies in terms of implications for thequality of published information;



while the reports tend to be exhaustive and qualitative in presenting the results of theevaluation, they lack a clear and accessible summary of a country‘s performance both
relative to the absolute standards set by the Code and to other comparable countrygroupings; and35

See Petrie (2003), and IMF (2011a).

36


the recommendations are not always integrated into Article IV consultations andsurveillance, nor always followed-up by the countries themselves. However, theyoften inform the setting of structural conditionality for countries with IMF programs.

47.
After peaking in 2002, the annual number of fiscal ROSCs dropped significantly
in recent years. Various factors explain the reduction in the number of fiscal ROSCs. First,
many countries have undergone initial assessments and the gains to undertaking further
updates are perceived to be limited in the absence of significant reforms or changes to the
ROSC standard itself. Second, as noted above, fiscal ROSCs do not provide for a graduatedassessment of conformity to the best international practice which means it is difficult for lowand middle-income countries to use repeated assessments as a tool for charting the progressof their fiscal reform efforts. Third, the fiscal ROSC did not benefit from an explicit link withaccess to IMF or other official external financing. Finally, there was a reduction in the
resources to deliver ROSCs, including as a result of the IMF downsizing undertaken in 2008.
Figure 11. Number of Fiscal ROSCs1/
25
21
20
15
15
11

10
10
5

8

9

9
7

7

6
4

3
1

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: IMF (2011c).
1/
The Fiscal ROSC numbers in the chart include full ROSCs and updates.

48.
Addressing these shortcomings in fiscal transparency evaluations will require
actions to: (a) strengthen national and regional institutions for fiscal transparency; (b) update
the IMF Fiscal Transparency Code and Manual and strengthen the Fund‘s relationship withother international standard-setters; and (c) adopt a more graduated, accessible, and riskbased approach to IMF evaluations of fiscal transparency practices.
C. Strengthening National and Regional Fiscal Transparency Institutions
49.
The effectiveness of national institutions in promoting greater fiscal
transparency depends on their legal status, resources, and capacity. To perform theirfunctions, audit institutions, statistics agencies, independent fiscal agencies should:

be institutionally independent of government. This requires these institutions to beestablished in the constitution or primary legislation. The heads of these institutions
should be selected based on professional merit, appointed for a fixed term either by or37
with the concurrence of the legislature, and removable only for serious misconduct.
The budgets of these institutions should provide medium-term certainty of funding
and be insulated from undue interference by the executive. Finally, these institutions
should report directly to the legislature and the public and not through the executive;

have a well defined role in the public financial management cycle. SAIs should be
required to provide a formal audit opinion on government accounts to parliament;
statistics agencies‘ responsibilities and procedures regarding the production anddissemination of government finance statistics should be publicized; fiscal councils
should be given clear remits regarding their ex ante and ex post analysis of fiscal
performance; and professional bodies should play a role in certifying thequalifications of government accountants; andhave the legal powers to hold government to account. Governments should (i) be
obliged to appear before parliamentary finance committees whenever called to testify;(ii) be required to respond to the auditor generals‘ recommendations in a timely
manner; (iii) be obliged to provide statistics agencies with necessary data about
government activities; (iv) recognize the fiscal council‘s verdict on their fiscal
performance; and (v) ensure that relevant finance staff hold professional
qualifications and conduct themselves with integrity.

50.
In its capacity building activities, the Fund can help governments foster strong
and independent national institutions for fiscal transparency. These would include
independent fiscal agencies, parliamentary budget and accounts committees, national
statistics agencies, and supreme audit institutions. Technical assistance (TA) in the fiscal area
has traditionally focused primarily on the ministry of finance as the principal agency of fiscal
management. However, there is a good case for relevant TA missions and other capacitybuilding activities in the fiscal area to engage more fully with those institutions charged withholding the government to account for fiscal transparency. FAD will consider further
expanding its range of contacts, scope of engagement, and portfolio of skills to encompass
the activities of these important institutions and will look to identify external resources andreallocate internal resources for these activities.
51.
Regional institutions can help improve transparency, especially where theirefforts are linked to improvements in their members’ financial management practices.
The realization that the effectiveness of regional fiscal surveillance depends on the quality of
the underlying budgeting and accounting systems of member states prompted the EU,
WAEMU, and CEMAC to adopt some form of regional budget frameworks directives. These
directives seek to harmonize members‘ budget system laws, budget classification, charts ofaccounts, and the format of fiscal reports.36 These regional unions have also established
36

See CEMAC Directives # 1, 2, 3, 4, and 5/2008; WAEMU Directives # 1, 6, 7, 8, 9 and 10/2009; and EU
Council Directive #85/2011.

38
cross-country monitoring committees to oversee national implementation of these directives.
Full implementation of these reforms will require a concerted and sustained effort on the partof member states, as evinced by the fact that WAEMU and CEMAC countries have been
given between seven and ten years to introduce the required changes. Fund staff has been
providing technical assistance to a number of regional institutions including WAEMU,
CEMAC, and the East African Community to help improve fiscal reporting practices acrosstheir members.
D. Updating the IMF Fiscal Transparency Code and Manual
52.
The Code of Good Practices and Manual on Fiscal Transparency need to berevised to reflect the developments in specific standards proposed in Section III. The
revised Code and Manual need to, inter alia:place greater emphasis on the consolidated public sector as the broadest unit of fiscal
analysis;

more systematically refer to relevant international reporting standards where they
exist;

require governments‘ powers to issue guarantees and conclude PPP contracts to beclearly articulated in organic budget legislation;

encourage the publication of a full set of accounts, including comprehensive balance
sheets covering the full range of financial and, eventually, nonfinancial assets andliabilities;37



incorporate new standards for fiscal forecasting, budgeting, and fiscal risk reporting;

promote monthly reporting on general government finances, especially for countries
with a general government fiscal rule, and the publication of audited year-end
financial statements within six months;

promote the alignment of reporting standards used in budgets, statistics, and accounts
with any remaining discrepancies set out in reconciliation tables; and

ensure that external oversight institutions and citizens have the information they needto hold governments to account.

53.
The revised Code and Manual should also provide for each practice a
description of basic, good, and best practice. This would provide all countries with a set of
37

Where a differentiated standard already exists (as in the case of GDDS, SDDS, and SDDS Plus for statisticalreporting), the Code and Manual will look to align themselves with these milestones.

39
achievable milestones on the way towards full compliance with international standards
within which, for each individual practice under the Code:basic practices would be considered as a minimum achievable by all countries;

good practices would require more developed institutional, human, and technologicalcapacities; andbest practices would entail full compliance with relevant international standards andbeing in line with the current ―state-of-the-art.‖38

As discussed below, this more differentiated Code and Manual would also provide the basis
for a more transparent, accessible, and internationally comparable assessment of a country‘slevel of fiscal transparency. In revising the fiscal transparency Code, Manual, and ROSC,
Fund staff will look to exploit synergies with the ongoing review of the PEFA to streamline
the compliance burden that these evaluations can put on country authorities. FAD plans to
consult with external stakeholders on these revisions to the Code and Manual.
54.
The Fund should also further strengthen its institutional relationships with otherinternational standard-setters, professional bodies, and voluntary organizations. This
could be done by making a more explicit link in the revised Code and ROSC to compliancewith relevant international standards in the areas of budgeting, statistics, accounting, andaudit. The Fund is also uniquely positioned to strengthen coordination between standardsetters, professional organizations, and civil society groups in the fiscal reporting area
through more regular and intensive engagement with these bodies. Building on the G-20/
IMFC Data Gaps Initiative, the aim of this engagement would be to (i) promote thealignment of international reporting standards; (ii) identify and address any gaps in thenormative architecture for fiscal transparency; (iii) review progress in the implementation of
those standards; and (iv) identify priorities for technical assistance and opportunities formutual assistance in the fiscal reporting area. To enable it to play this coordinating role in thefiscal reporting area, the IMF should also play a more active role in key standard-setting
bodies such as IPSASB. Fund staff should also continue its active engagement in multistakeholder initiatives and civil society groups active in the fiscal transparency area.
E. More Effective Multilateral Monitoring of Fiscal Transparency
55.
The effectiveness of the Fund’s assessments of national fiscal transparency
practices also needs to be enhanced. In particular, there is a need for an enhanced ROSC
which moves away from the ―box-ticking exercise‖ of the past in favor of a more targeted
and substantive assessment of the quality of published fiscal information. For a particular38

For example, in the case of the institutional coverage of fiscal reports, coverage of central government would
be considered basic practice, general government (and its subsectors) would be considered good practice, andpublic sector (and its subsectors) would be considered best practice.

40
aspect of fiscal reporting, the revised ROSC would not only assess whether formal
institutions conform, in principle, with the Code, but also whether actual fiscal reporting
practices provide an accurate picture of the true state of public finances. In doing so, it would
look to evaluate the consequences of deviations from the Code and their implications for the
reliability of public information on the state of the fiscal accounts. More specifically, the newrevamped fiscal ROSC will:

cater for more modular evaluations focused on key areas of fiscal risk, as
recommended by the 2011 Standards and Codes Review and Triennial
Surveillance Review.39 Rather than placing equal weight on all aspects of the Code,these targeted evaluations would focus on particular sectors (such as oversight ofpublic corporations) or aspects of fiscal reporting and decision-making (such as
disclosure and management of fiscal risks);40

provide more substantive analysis of the adequacy of fiscal reporting practices
in these areas. Rather than merely review whether existing laws, regulations, anddocuments comply with the Code, the revised ROSC will examine whether acountry‘s published fiscal data provide policymakers, the public, and the international
community with an adequate picture of the state of and risks to the public financesand estimate, the extent possible, the fiscal implications of deviations from the Code.
This will provide countries with a clearer sense of the sources and scale of structural
fiscal vulnerabilities and analytical basis for prioritizing transparency-related reforms;
and

offer a more graduated, comparable, and actionable assessment of country
practices. Rather than compare all countries against a best practice standard, therevised ROSC evaluation would be based on the updated Code which differentiates
between basic, good, and best practices in each area. The final ROSC report would
provide countries with a more accessible summary of where they stand against eachof the key transparency practices as well as how they compare with other countries.
The ROSC would also incorporate a prioritized and sequenced fiscal transparency
action plan to enable authorities, IMF area departments, and the public to monitor
progress against key recommendations.

39

IMF (2011b). The 2011 Standards and Codes Review Board Paper recommended extending the methodologyof targeted ROSCs (currently applied to financial sector ROSCs) to a larger group of ROSCs.
40

Modules of the revised ROSC could also be used as the basis of a fiduciary risk assessment for countries
seeking to access Fund resources, incorporating the lessons of the current fiscal safeguards pilots. See
IMF (2012b).

41
56.
There is also a need to improve the dissemination of information about the stateof fiscal transparency practices. Basic information about countries‘ fiscal reporting
practices can be found in a range of public sources including STA‘s Dissemination Standards
Bulletin Board and Government Finance Statistics Yearbook, the OECD‘s Budget Practices
Database, individual ROSC and PEFA reports, and the IBP‘s Open Budget Survey.
However, there is no single, accessible, and up-to-date source of information about the stateof fiscal transparency practices across countries. FAD therefore proposes to provide a regular
fiscal transparency update on a set of cross-country fiscal transparency indicators which
could also be available electronically.
F. Resource Implications
57.
The costs of the proposed initiatives can be accommodated over the next three
years within FAD’s budget. FAD‘s FY2013–15 business plan includes an allocation forpolicy development in the fiscal transparency area which will be used to fund the revision of
the Fiscal Transparency Code, Manual, and ROSC. FAD‘s FY2013–15 resource allocation
plan includes provisions for two-three fiscal ROSCs per year which can be used to fundpilots of the revised transparency evaluation missions in FY 2014 and 2015 to low-income,emerging, and advanced economies. Work on the various policy and guidance notes, anddatabases can be met from existing resources for research and policy development in thefiscal area.

42
APPENDIX I. RESULTS OF FAD SURVEY ON FISCAL TRANSPARENCY AND RISK
G. Overview of Countries Surveyed
In January 2012, a survey of fiscal transparency and risks was conducted among FAD
economists working on 48 countries, reflecting a range of income levels, regions, andrelations with the Fund (Figure A1). The survey asked them to describe the institutional
coverage, consolidation details, and timeliness of fiscal reports, and to indicate quasi-fiscal
activities, inconsistencies in accounting standards, or other factors that could lead to adiscrepancy between overall balance and financing data of the countries to which they wereassigned. Furthermore, the survey asked economists to indicate government entities andfinancial activities whose volatility could lead to a deviation between budgeted and actual
fiscal outcomes, and to what extent this volatility posed a threat.
Figure A1. Income, Regional, and IMF Program Status of
Sampled Countries
AFR
12

APD
6

EUR
16

MCD

LICs

WHD
7

7

Emerging

Advanced & G-20

24

Program15

9

Non Program

22

26

H. Institutional Coverage of Fiscal Data
The institutional coverage of the fiscal data received by Fund staff are presented inTable A1:
Table A1. Institutional Coverage of Regularly Published Data on Fiscal Flows1/
CentralGovernment
BudgetExtrabudgetary
Funds

Regionaland Local
governments

Nonfinancial
PublicCorporations

Financial
PublicCorporations

Africa

100

25

25

0

0

0

Asia and Pacific

100

17

67

0

0

17

Europe

100

38

94

25

25

13

Middle East and Central Asia

86

29

57

14

0

0

Latin America

86

14

29

57

14

14

Developing

92

17

38

13

0

0

Emerging

100

38

75

13

19

0

Advanced or G-20

100

38

88

50

25

0
8

Other

By Region

By Income

All

1

96

27

58

19

10

of which, program

95

36

59

14

5

0

of which, non-program

96

19

58

23

15

15

Percentage of sample for which given transaction or entity was assessed to pose fiscal risk.

43
I. Timeliness of Fiscal Data
The periodicity and timeliness of fiscal data received is as follows (Table A2):
Table A2. Periodicity and Reporting Lag of Regularly Published Fiscal Flows
Periodicity

Timeliness

Month

Quarter

AnnualOther

No Morethan OneMonth

No Morethan one
Quarter

No Morethan Six
MonthsNo Morethan OneYear

Africa

50

33

8

8

17

58

17

8

Asia and Pacific

83

17

0

0

67

33

0

0

Europe

63

25

6

6

44

50

6

0

Middle East and Central Asia

43

29

0

29

33

67

0

0

Latin America

57

29

0

14

14

86

0

0

46

33

4

17

26

61

9

4

Emerging

56

31

6

6

38

56

6

0

Advanced or G-20

100

0

0

0

50

50

0

0

58

27

4

10

34

57

6

2

of which, program

64

18

5

14

36

59

5

0

of which, non-program

54

35

4

8

32

56

8

4

By Region

By IncomeDeveloping

All

J. Reliability of Fiscal Data
According to fiscal economists there were two concerns regarding the reliability of the data:Quasi-fiscal activities: of the countries sampled, 75 percent were perceived to have
known quasi-fiscal activity conducted outside the reported fiscal data. The mostsignificant of these was subsidized lending and/or bank recapitalization reported in
50 percent of countries. Also significant was the practice of governments charging
less than commercial prices for goods such as fuel, electricity, and water which wasreported in 44 percent of countries.



Statistical discrepancy: 35 percent of countries were determined to have asignificant discrepancy (greater than 1 percent of GDP) between the government‘soverall balance and its financing data for the highest reported level of consolidation.
Such significant discrepancies were especially common in Latin America (80 percent)and Asia-Pacific (50 percent). Of this subset, the discrepancy was most often
attributed to the differences in both coverage and accounting bases between monetaryand fiscal statistics. An additional source of discrepancy was the presence of
extrabudgetary operations not captured in revenue and expenditure data.

Table A3. Transactions and Institutions as a Source of Fiscal Risk

Unfunded civil service
pensions

Extrabudgetary spending

Quasi-fiscal activities

Social policy obligations

Commodity prices

Financial transactions

Government guarantees

Public private partnerships

Other

Central government

Extrabudgetary funds

Social security

Subnational governments

Nonfinancial public
corporations

The financial sector

Other

By Institution

Budgeted taxes andspending

By Transaction

Africa

75

25

58

67

17

92

17

42

33

25

92

33

17

8

75

25

0

Asia and Pacific

17

17

17

50

33

67

50

50

0

33

67

17

17

33

67

67

0

Europe

69

25

50

38

75

6

31

44

13

19

63

19

63

50

56

56

6

Middle East and Central Asia

71

29

86

57

14

43

14

29

14

29

57

57

43

57

71

14

14

Latin America

43

43

43

71

57

43

29

71

0

0

43

29

57

14

57

29

0

Developing

63

29

58

54

29

67

29

46

21

25

71

33

29

33

75

38

4

Emerging

56

25

50

63

56

25

25

50

0

13

63

31

44

31

56

44

6

Advanced or G-20

63

25

38

38

63

25

25

38

25

25

63

13

75

38

50

38

0

All

60

27

52

54

44

46

27

46

15

21

62

27

38

31

60

37

4

of which, program

82

27

55

45

32

45

36

50

18

18

76

43

38

33

67

38

0

of which, non-program

42

27

50

62

54

46

19

42

12

23

58

19

42

31

65

38

8

By Region

44

By Income Level

45
K. Sources and Management of Fiscal Risks
The survey also asked fiscal economists to identify the main sources of fiscal risks in theircountry assignment and evaluate their fiscal risk disclosure and management practices.
The sources of fiscal risks perceived are presented in Tables A3.
Regarding governments‘ fiscal risk disclosure and management practices (Table A4),
economists reported:

Alternative macroeconomic scenarios: only 10 percent of the countries sampled
produce alternative macroeconomic scenarios and only 8 percent produced alternative
fiscal scenarios. Within this, 38 percent of advanced and G-20 countries provided
alternative macro-fiscal scenarios, compared with 6 percent of emerging and none ofdeveloping countries.



Fiscal risk statements: two-thirds of countries sampled did not publish fiscal riskstatements of any kind. Of those countries which did, the most commonly publishedfiscal risk statement was a qualitative description of risks produced by 23 percent ofcountries. Only 10 percent of countries sampled produced a quantified statement offiscal risk.
Table A4. Fiscal Risk Disclosure and Management
Alternative
macroeconomic
scenarios

Alternative
fiscalscenarios

Qualitative
statementof fiscalrisks

Quantifiedstatementof fiscal
risks

Other

None

Africa

0

0

8

0

0

92

Asia and Pacific

0

0

17

33

0

67

Europe

25

25

38

6

25

44

Middle East and Central Asia

14

0

29

14

0

71

Latin America

0

0

14

14

0

71

Developing

4

0

8

4

0

92

Emerging

6

6

31

13

6

63

Advanced

38

38

50

25

38

0

10

8

23

10

8

67

of which, program

14

10

24

5

5

76

of which, non-program

4

4

19

12

12

62

By Region

By Income Level

All

46
APPENDIX II: REVIEW OF FISCAL ROSCS IN CRISIS-HIT COUNTRIESOf the ten countries that experienced the largest increase in government liabilities during thecrisis (see Box 2 of the main text), eight had undergone a Fiscal Transparency ROSC within
the previous eight years. This appendix summarizes the results of a review of the findings
and recommendations of these ROSCs, with a particular focus on the following questions:

What criteria did the ROSCs use to make judgments on the level of transparency thecountries had achieved? What evidence was provided to support these judgments?



Did the ROSCs identify the key transparency problems revealed by the crisis? Werethese problems given sufficient prominence? Was the relative seriousness of these
problems analyzed?



Were the ROSC recommendations implemented by the authorities? Did subsequent
Article IV staff reports assess progress in implementation of ROSC
recommendations?

Germany
Germany underwent a Fiscal Transparency ROSC in 2003. The report found that Germany
had achieved ―a high level of fiscal transparency,‖ citing, in general terms, a comprehensive,
precise and carefully respected body of fiscal laws and regulations which clearly assignsroles and responsibilities for branches and tiers of government and set standards forbudgeting, accounting and reporting at all levels of government which require disclosure of
not only cash revenue and expenditure but also contingent liabilities, guarantees, tax
expenditures, and equity holdings.
At the same time, the ROSC noted that public ownership of financial institutions is extensiveat all levels of government, and these institutions often conduct quasi-fiscal activities. As an
example, the report noted that in some cases loans were not strictly screened on the basis ofcreditworthiness, and that many public financial institutions still enjoyed a government
guarantee over all of their liabilities, which contributed to very good credit ratings. Whilenoting that quasi-fiscal activities did not appear to be extensive, their cost were not estimatedby the authorities nor included in the budget documents. Since the ROSC was issued, manyof the quasi-fiscal activities have been transferred to specialist development banks.
The report also noted that budget documents should provide more in-depth information on
macrofiscal strategy, risks and structural trends. Further, a lack of a legally binding
mechanism for committing the government to achieving its general government deficit anddebt targets called for greater clarity in the budget documents regarding performance against
its obligations under the Maastricht Treaty. This issue has since been addressed to someextent by the adoption of the so-called debt-brake rule in the German Constitution.
Subsequent Article IVs were silent on the implementation of ROSC recommendations.

47
FranceFrance underwent a fiscal transparency ROSC in 2000, followed by three updates over thefollowing four years. The initial report found that France had achieved a high level of fiscal
transparency, noting the very high standards set in most aspects of the code. The reportfocused on recent improvements to the coverage and presentation of fiscal information, citing
more complete information on government assets and liabilities as well as disclosure ofcontingent liabilities, and the change in accounting standards to reflect accrual principles in a
number of areas. This assessment seems to have been largely borne out during the crisis,
where almost all of the increase in debt was due to the output shock, with relatively smalltransparency-related factors.
Despite the generally positive findings, the report identified a number of areas where
improvements could be made, including clearer identification and reporting of quasi-fiscal
activities in the budget presentation; better presentation of fiscal activity that occurs outside
the appropriation process, such as issuance of contingent liabilities, quasi-fiscal activity andtax expenditures; and improving the reconciliation of stated policies with outcomes at thegeneral government level. The reports gave no real sense of the magnitudes or priorities ofthese issues, nor how to resolve them.
Many of these issues were addressed in the Loi Organique aux Lois de Finances (LOLF),
which has become fully effective on January 1, 2006. In addition to the annual
appropriations, the government has to commit to a multi-annual framework, details of which
are provided in the economic, social, and financial report attached to the Budget Act. The
first multi-annual fiscal framework law was adopted in 2009. The LOLF also strengthens
parliamentary oversight powers, confirms implementation of accrual-basis accounting, andbroadens information requirements.
The ROSC updates provided details about improvements to the French system, through thepassage of the LOLF, particularly regarding improved analysis of taxes and social security
contributions (2001 and 2002 updates), analysis of expenditure (2004 update), principle ofsincerity (2002 update), and results-based expenditure appropriation (2001 update).
However, the updates tended to focus on actions the government had taken, with little follow
up regarding the problem areas that had been identified in the initial report. The ROSC
recommendations were featured in subsequent Article IV reports.
GreeceBetween 1999 and 2006, Fund staff prepared six Fiscal Transparency ROSCs, including two
full reports and four updates. The 1999 ―experimental‖ ROSC report was on the wholeappreciative of the progress the authorities had made in various areas. It recommended
clarifying the treatment of public corporations, investment, quasi-fiscal activities, and state
assets, clearly stating the accounting basis underlying the budget and audited financial
statements presented to parliament. Further, it recommended ―a comprehensive analysis of

48
the sustainability of the government‘s fiscal position in the budget report.‖ The 2005 fullreport, while noting that Greece had made progress in meeting the requirements of the fiscal
transparency code particularly in the area of public availability of information, raised
concerns about a range of specific deficiencies including the lack of a consolidated budget
covering ordinary, investment, and military expenditure, large number of extrabudgetaryfunds, inadequate coverage, timeliness and reliability of general government fiscal reporting,lack of control over expenditure commitments and arrears, inadequate assessment of fiscal
risk, and lack of systematic analysis/monitoring of fiscal policy objectives. Although the
ROSCs identified many of the deficiencies contributing to the fiscal crisis in Greece, there
was no attempt to quantify and estimate their relative fiscal costs.
Between 1999 and 2005, the Fund‘s Article IV staff reports on Greece consistently reported
key ROSC recommendations, without a clear follow-up on the implementation. The 1999
Article IV staff report summarized the recommendations of the ROSC of that year. The
2004 staff report emphasized the need for timely and accurate fiscal data and urged thegovernment to reinforce the integrity of the fiscal accounts. Finally, the 2005 staff reportcontained a box on the key recommendations of the 2005 reassessment, which was published
as a standalone document. However, after 2005, fiscal transparency issues received lessattention and Article IV reports were silent about the ROSC findings, and no further follow
up was requested.
Netherlands
The Netherlands underwent a Fiscal Transparency ROSC in December 2005. The ROSC
found that the Netherlands met or exceeded good practice against each of the four generalprinciples of the Code. At the same time, the ROSC noted that the Netherlands should ensure
consistent fiscal reporting across general government to facilitate compliance with ESA 95,
place more emphasis on scrutiny and reporting of fiscal developments in the local
government sector, and more strictly monitor the financial decisions of line ministries,
in particular with respect to PPPs. The ROSC did not include an explicit analysis of the
fiscal-financial sector linkage other than the relationship between government and publicfinancial corporations, which mostly operated in dedicated market segments with somequasi-fiscal activity. State ownership of some banks also implied an implicit guarantee for
their funding activities.
The 2006 Article IV summarized the ROSC recommendations and noted that they are underconsideration by the official working group contemplating a fiscal strategy. The 2007
Article IV reiterated the ROSC‘s key message, and noted that many of the new refinements
to the fiscal framework were in line with earlier staff recommendations, but not directly
related to any specific ROSC recommendations.

49
PortugalPortugal underwent a ROSC in 2003. The final report noted that Portugal met therequirements of the fiscal transparency code in several areas and it had been making
significant progress in strengthening fiscal management and transparency. To justify thisassessment, the report noted, in general terms, that the allocation of responsibilities between
different levels of government was clearly defined and intergovernmental fiscal relations
were based on relatively stable principles. The report also noted that budget process was
based on a clear legal framework and adequate mechanisms of internal and external control
of government operations are in place. Further, the report commended the new budget
framework legislation for improving fiscal coordination, accounting and reporting
arrangements requirements across all levels of the general government.
However, the report also identified many of the shortcomings revealed by the crisis,
including: (i) a lack of focus on institutions on the periphery of the general government
sector, such as PPPs and SOEs, that were subsequently reclassified into the general
government; (ii) the lack of a sound medium-term budgetary framework, that resulted incontinued fiscal drift over the decade as longer-term fiscal objectives were consistently
missed; and (iii) weaknesses in budget execution, reporting and accounting processes, that
resulted in a large and unobserved build up in expenditure arrears.
The 2003 Article IV report noted briefly that implementing the ROSC recommendations
could facilitate the efficient achievement of fiscal objectives.
Spain
Spain‘s 2005 Fiscal Transparency ROSC noted that Spain had made significant progress instrengthening its fiscal institutions and in disseminating information about the government‘s
operations. It also noted that the legal framework clearly delineated the scope andresponsibilities of the general government and its subsectors, including their relations withthe public corporations.
However, the ROSC raised concerns about the lack of timely information on the fiscal
decisions and accounts of the subnational tier. To address these concerns, it wasrecommended that medium- to long-term fiscal costs and risks associated with various formsof PPPs at all levels of government should be systematically quantified, transparently
disclosed in budgetary documentation, and taken into account in fiscal scenarios and longterm projections. The report also recommended that the analysis of fiscal risks andcontingencies in budget documents should be improved.
The 2006 Article IV noted that while there had been some progress in implementing someof the 2005 ROSC recommendations, considerable scope remained for more extensive andtimely publication of territorial governments‘ fiscal data, in particular concerning budget
execution, quasi-fiscal activities, and contingent liabilities. The 2007 Article IV reiterated
the 2005 ROSC recommendations by noting that strengthened transparency and50monitoring remain the most effective means to secure fiscal discipline at the regional andlocal government levels.
United Kingdom
The UK underwent one of the first ―experimental‖ ROSCs in March 1999 covering eightcodes and standards including fiscal transparency. While the brief account found that the
UK had achieved a ―very high level of transparency,‖ it was not clear what absolute orcomparative standard was used as the basis for this summary assessment.
While the report raised concerns about the fact that estimates of contingent liabilities, tax
expenditures, and quasi-fiscal activities were not integrated into budget documents, there was
no attempt to estimate the importance of these fiscal risks other than to say that the latter was―not significant.‖ The UK government‘s limited exploration of alternative macro-fiscal
scenarios, large implicit contingent liabilities to the domestic private financial sector, andgrowing exposure to public private partnership liabilities revealed during the crisis were notexplicitly discussed.
The subsequent Article IV, released in 2000, mentioned the 1999 ROSC and noted that
fiscal transparency had improved since the assessment, including through fuller reportingof tax expenditures in budget documents. However, the Article IV also emphasized that
improvements are needed in the area of budget reporting. Most notably, the absence ofregular treasury reports analyzing fiscal performance during the year in relation to
expectations was seen to hamper the public‘s assessment of fiscal developments.
United States
The US‘s 2003 fiscal ROSC found that it was ―fully compliant with most elements of theFund‘s Code, and sets best practice standards in many areas.‖ It praised the clarity of roles
and responsibilities under the US Constitution, the openness of the budget process, and thequality and scope of the budget documentation including detailed sensitivity analysis.
Nonetheless, the ROSC also identified a number of weaknesses including concerns over thelack of clarity over the longer-term direction of fiscal policy, the complexity of thecongressional budget process, and the need to provide greater information on the costs andrisks associated with GSE such as Fannie Mae and Freddie Mac and other contingent
liabilities. Since the ROSC, there has been little concrete progress in addressing theseweaknesses despite a number of attempts on the part of the administration, congress, andthird parties. In the wake of the crisis, all three of these issues complicated theadministration‘s fiscal policy making efforts.
The Fund‘s 2003 Article IV staff report contained a box on the key recommendations of the
ROSC assessment, and subsequent Article IV reports have raised concerns over the GSEs
and institutional issues.

51
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