Fiscal Transparency, Plans and PRSPs Plans and PRSPs in East Asia April 2006 Tom Dorsey, International Monetary Fund
What Is Fiscal Transparency? • Publication of Budget Plans and Outcomes • Inclusion of All Public Expenditure (including any extrabudgetary funds) • Budget Realism • Fiscal Risks and Contingencies • Medium-Term Fiscal Plans
Fiscal Transparency Initiatives • National “Sunshine” Laws • Participation in PRSs and Other Plans • Publications of International Institutions • Code of Good Practices on Fiscal Transparency • Extractive Industries Transparency Initiative • Resource Revenue Transparency
Publication of IMF Staff Reports • An option since 2001, requires consent of member. • IMF Article IV Staff Reports published for almost all Fund members (IMF, 2005b) • Cambodia, Indonesia, Lao P.D.R., Mongolia, Timor Leste, and Vietnam all agreed to the publication of all papers for the Article IV consultation • Fiscal information in these tables includes and overview and assessment, medium-term projections, background tables, and papers on special topics, including Indonesia’s public debt, revenue mobilization in Lao PDR, and an overview of fiscal issues in Mongolia.
Fiscal Transparency and Poverty Reduction Strategies • Publications of plans and outcomes • PRS documents are always published, most have information on outcomes, many have information on revised plans • Inclusion of All Public Expenditure • experience mixed; data are often partial and not comparable to budgets • sometimes are available only in a few broad categories
Fiscal Transparency and Poverty Reduction Strategies (cont.) • Budget Realism and PRS documents • Largely an area for future work. • Project costs in PRS documents often far exceed available funding • Loose links to budget documents and sometimes based on outdated information • Fiscal Risks and Contingencies • Some risk information • Alternative scenarios reflecting risks and different aid scenarios
Fiscal Transparency and Poverty Reduction Strategies (concluded) • Medium-term fiscal plans • Experience differs widely, but this is an area for more work in most countries • Some PRS processes have been merged with existing multi-year planning efforts (e.g., Timor Leste); other plans have close links (e.g., Vietnam) • On the other hand, some countries have inconsistent PRSs, development plans, and medium-term budget frameworks
PRS Budget Transparency in East Asia • Almost all PRS documents are published in English and national languages • All budgets and budget outturns are published • Cambodia reports budget outturns in its Monthly Bulletin of Statistics in English and Khmer • However, some countries publish only with very long lags (e.g. well after the budget year is over)
Budget Transparency (cont.) • Budgets that are consistent with PRS documents • This is a chronic difficulty worldwide • Timor Leste has gone further than most countries, in part by making the PRSP comprise the National Development Plan and public investment program • Budgets that are consistent with budget outcome • This an area for more work although for different reasons (e.g., some countries underestimate revenue while others overestimate it) • Indonesia is making progress in this regard by using an unbiased oil price assumptions rather than an intentionally conservative one.
Code of Good Practice on Fiscal Transparency • 76 countries have had IMF assessments of adherence to Code of Good Practice and agreed to publication of the assessments. • These include: • All G-7 countries • 27 PRGF/IDA eligible countries • 12 countries from South and East Asia and the Pacific (Bangladesh, Fiji, Hong Kong SAR, India, Japan, Korea, Mongolia, Pakistan, Papua New Guinea, the Philippines, Samoa, and Sri Lanka).
Mongolia’s Fiscal Transparency Assessment • Fiscal ROSC report first done in 2001 • Update of Fiscal ROSC completed in 2005 • Both reports frankly discuss strengths and weaknesses of Mongolia’s fiscal transparency. • 2005 Update discusses improvements, but also areas where limited progress has been made. • The Mongolian authorities agreed to the publication of both the 2001 and 2005 fiscal ROSCs on the Fund’s website.
Prior to Fiscal Transparency ROSCs • Fiscal Transparency Assessments are subject to resource constraints at the IMF and in governments. • In some countries, there have been extensive discussions on public expenditure management with the Bank and Fund Staff. • In such cases, it may be better to pursue the agenda on Public Expenditure Management first • Lao P.D.R. is pursuing such a program – the Public Expenditure Management Strengthening Program with the support of the World Bank
Benefits of Fiscal Transparency • Better informed decisions (in government and outside it). • Better Access to Capital Markets • Increased Accountability of Public Officials • Easier to Detect Corruption
Evidence of BenefitsEconometric Studies • More fiscally transparent countries have better credit ratings, better fiscal discipline, and lower corruption (Hameed, 2005). • Publication of IMF reports, ROSCs (including on fiscal transparency), and participation in SDDS is associated with lower sovereign spreads in emerging markets (Glennerster and Yongseok, 2003).
Evidence of Benefits – More Studies • Fiscal transparency standards (along with data, banking supervision, and monetary and financial policies are those with greatest potential to influence sovereign ratings. There is a strong statistical relationship between upgrades and downgrade and the number of reports countries have a agreed to publish. (Price, 2002) • Investment funds invest systematically less in less transparent countries; herding among funds is more prevalent in less transparent countries (Gelos and Wei, 2006).
Evidence of Benefits - Surveys Surveys of market participants indicate that the fiscal ROSC is second only to the Monetary and Financial Policies ROSC as a source of information out of 12 ROSC varieties (IMF 2005a). • Surveys of developing country authorities indicated that the fiscal ROSC was second only to the data ROSC in its usefulness; emerging market authorities rated it as most useful (IMF 2005a)
For More Information • All published fiscal ROSCs, Article IV and background reports, and IMF working papers are available at imf.org. Searches by country, topic, and type of report are possible. • The most recent review (mid-2005) of the standards and codes initiative is available on the Fund and Bank websites: The Standards and Codes Initiative--Is It Effective? And How Can It Be Improved?
Bibliography • Gelos and Wei, 2006, “Behavior, forthcoming in Journal of Finance, also available as Transparency and International Investor Behavior, NBER working paper 9260 at www.nber.org • Glennerster and Yongseok, 2003 – Is Transparency Good for You, and Can the IMF Help? IMF Working Paper 03/132 Available at www.imf.org • Hameed, 2005 – Fiscal Transparency and Economic Outcomes, IMF Working Paper 05/255. Available at www.imf.org • IMF, 2005a - The Standards and Codes Initiative--Is It Effective? And How Can It Be Improved? and Background Paper, Available at www.imf.org • IMF 2005b – Key Trends in Implementation of the Fund’s Transparency Policy Available at www.imf.org • Price, 2002 – Standards and Codes – Their Impact on Sovereign Ratings, Special Reports, Fitch Ratings, 2002.