Fiscal Transparency Code
The IMF has for many years been at the forefront in promoting fiscal transparency as a critical element of effective fiscal policy making and accountability, and a key aspect of good governance. In 2014, the IMF released a revamped Fiscal Transparency Code, which is the global standard for disclosure of information about public finances, and replaced the 2007 Code and the related Fiscal Module of the Reports on the Observance of Standards and Codes (fiscal ROSC). The 2014 code and evaluation reflect the lessons of the global financial crisis, incorporate developments in international standards, and build on feedback from stakeholder consultations.
Fiscal transparency – the comprehensiveness, clarity, reliability, timeliness, and relevance of public reporting on the past, present, and future state of public finances – is critical for effective fiscal management and accountability. Fiscal transparency allows for a better-informed debate by both policymakers and the public about the design and results of fiscal policy, and helps establish accountability for its implementation. It helps to highlight risks to the fiscal outlook, allowing an earlier and smoother fiscal policy response to changing economic conditions and thereby reducing the incidence and severity of economic crises. The degree of fiscal transparency can also help provide a sense of a country’s fiscal credibility and plays a role in how financial markets view the country’s fiscal track record. The loss of market confidence in governments with underestimated or hidden deficits in the wake of the recent financial crisis underscored the importance of fiscal transparency to global financial and economic stability.
The IMF’s Fiscal Transparency Code (the Code) is the international standard for disclosure of information about public finances. The 2014 Code comprises a set of principles built around four pillars:
Fiscal reporting (Pillar I)
Fiscal reports should provide a comprehensive, relevant, timely, and reliable overview of the government’s financial position and performance.
Fiscal forecasting and budgeting (Pillar II)
Budgets and their underlying fiscal forecasts should provide a clear statement of the government’s budgetary objectives and policy intentions, and comprehensive, timely, and credible projections of the evolution of the public finances.
Fiscal risk analysis & management (Pillar III)
Governments should disclose, analyze, and manage risks to the public finances and ensure effective coordination of fiscal decision-making across the public sector.
Resource revenue management (Pillar IV)
Governments should provide a transparent framework for the ownership, contracting, taxation, and utilization of natural resource endowments. (Pillar IV will complement the first three pillars for resource-rich countries and will reflect feedback from consultations with stakeholders and the public. A new framework, comprising pillar IV is expected to be finalized by mid-2018.)
Fiscal Transparency Evaluations (FTEs) are the IMF’s fiscal transparency diagnostic. For each transparency principle, the Code differentiates between basic, good, and advanced practices to provide countries with clear milestones toward full compliance with the Code. Specifically, FTEs provide countries with:
a comprehensive assessment of their fiscal transparency practices against the differentiated standards set by the Code;
rigorous analysis of the scale and sources of fiscal vulnerability based on a set of fiscal transparency indicators;
a visual account of their fiscal transparency strengths and reform priorities through summary heat maps;
a sequenced fiscal transparency action plan to help them address those reform priorities; and
the option of undertaking a modular assessment focused on just one Pillar of the Code.
A new Fiscal Transparency Manual is expected to be issued by April 2018, providing more detailed guidance on implementation of the new Fiscal Transparency Code’s principles and practices. The Manual will cover the code’s first three pillars and replace the 2007 Manual on Fiscal Transparency. A second volume covering Pillar 4 will be issued at a later stage.
More information of the Code and the FTEs carried out since 2014 can be found here.