How Does the IMF Encourage Greater Fiscal Transparency?
June 24, 2022
The IMF’s Fiscal Transparency Code (the Code) is the international standard for disclosure of information about public finances. The IMF’s Fiscal Transparency Evaluations (FTEs), which are based on the Code, support member countries in strengthening fiscal surveillance, accountability, and management. Greater fiscal transparency helps governments to provide a comprehensive picture of fiscal positions and prospects, the long-term costs and benefits of policy changes, and the potential fiscal risks down the road. Fiscal transparency also fosters better overall economic governance and supports the fight against corruption, including by providing legislatures, oversight bodies, markets, and citizens with the information they need to hold governments accountable.
Why is increased fiscal transparency desirable?
Fiscal transparency helps to achieve financial and economic stability, foster a well-informed debate about the design and results of fiscal policy, and provide oversight bodies and the public with timely, relevant, accurate and clear information for ensuring government accountability. In doing so, fiscal transparency also helps to strengthen the credibility of a country’s fiscal plans and boosts financial market and citizens confidence. By highlighting risks to fiscal positions and the fiscal outlook, it also supports a timely and smooth fiscal policy response to changing economic conditions, thereby reducing the incidence and severity of crises.
The IMF’s work on fiscal transparency
The IMF’s Fiscal Transparency Code, is the international standard for disclosing information about public finances. The IMF overhauled the Code to advance international fiscal transparency standards and monitoring arrangements in 2014 and to integrate resource revenue management issues in 2019. The Code grew out of a broader IMF initiative on Reports on the Observance of Standards and Codes (ROSC) initiated in 2007. The Fiscal Transparency Code guides and informs transparency practices in IMF member countries and is the basis for the Fiscal Transparency Evaluations (FTEs). It was developed following a public consultation and is well aligned with other transparency initiatives.
In the context of the COVID-19 pandemic, the IMF has taken several initiatives, including analytical and research work, to help countries enhance transparency and accountability (see How the IMF is promoting transparency amid COVID-19).
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The Code and evaluation
The revised Code focuses on outputs; takes account of different levels of country capacity by differentiating between basic, good, and advanced practices for each fiscal transparency principle; and places emphasis on fiscal risks, also reflecting the lessons of the global financial crisis. It also recognizes the transparency challenges posed by natural resources and provides a unified fiscal transparency framework for all countries, by integrating resource revenue issues with broader transparency principles.
The Code covers four key elements of fiscal transparency:
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Pillar I: Fiscal Reporting, which should offer relevant, comprehensive, timely, and reliable information on the government’s financial position and performance.
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Pillar II: Fiscal Forecasting and Budgeting, which should provide a clear statement of the government’s budgetary objectives and policy intentions, together with comprehensive, timely, and credible projections of the evolution of the public finances.
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Pillar III: Fiscal Risk Analysis and Management, which should ensure that risks to public finances are disclosed, analyzed and managed, and that fiscal decision-making across the public sector is effectively coordinated.
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Pillar IV: Resource Revenue Management, which should provide a transparent framework for the ownership, contracting, taxation, and utilization of natural resource endowments.
Pillars I-III were issued in 2014, while Pillar IV was finalized in January 2019, following public consultation and testing in several countries.
The IMF’s Fiscal Transparency Handbook (Volume 1), published in 2018, provides practical guidance on the implementation of the Code’s principles and practices for Pillars I-III and provides examples of practices from countries around the world. It also notes relevant international standards and guidance material related to the Code’s principles. A second volume covering Pillar IV, relating to natural resources, is under preparation.
FTEs are the IMF’s principal fiscal transparency diagnostic tool, and are voluntary exercises conducted upon request by an IMF member country. FTEs provide countries with a comprehensive assessment of fiscal transparency practices against the standards set by the Code, a more complete picture of public sector activity through estimation of a public sector balance sheet, quantified analyses of the scale and sources of fiscal vulnerability based on a set of fiscal transparency indicators, a summary of fiscal transparency strengths and reform priorities through a set of heat maps, and clear proposals for addressing shortcomings in fiscal transparency, usually in the form of well-sequenced action plans. The Code has been designed to allow for both full four-pillar assessments as well as modular assessments of individual pillars, allowing countries to tailor their FTEs to specific areas of interest
Since July 2013, the IMF has conducted 36 FTEs, of which, 34 reports have been published; three FTE updates have also been published.
Next steps in the IMF’s fiscal transparency initiative
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Finalize the second volume of the Fiscal Transparency Handbook , which will provide detailed guidance on implementing the Code’s principles and practices relating to natural resources.
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Carry out additional FTEs on the basis of the Code, upon member country requests.
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Continue outreach activities on fiscal transparency, including with other organizations involved in advancing fiscal transparency and strengthening fiscal governance.
For further information on the IMF’s work on Fiscal Transparency, visit https://www.imf.org/external/np/fad/trans/