Fiscal transparency is a critical element of effective fiscal policymaking and the management of fiscal risks. The last decade and a half has seen a concerted effort to develop a set of internationally accepted standards for fiscal transparency and to monitor and promote the implementation 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 the risks to that position remains inadequate. This was demonstrated by the emergence of previously 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 in fiscal transparency standards, delays and discrepancies in countries‘ adherence to those standards, 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 the face 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 of direct and contingent assets and liabilities; (iii) recognize a wider range of transactions and flows; (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 consistent basis. 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 to evaluating country compliance with fiscal transparency standards. This requires revisions to the Fiscal Transparency Code and Manual to reflect the above refinements in standards and provide 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 and substantive fiscal ROSC which would (i) cater for modular assessments focused on key areas of fiscal risk; (ii) include an assessment of the adequacy and reliability of public information on 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 national and regional constituencies for transparency, such as supreme audit institutions, national statistics agencies, fiscal councils, and regional surveillance bodies; (ii) strengthening the institutional relationships among international standard-setters; and (iii) providing regular updates on the state of fiscal transparency practices across countries.
Read more: http://www.imf.org/external/np/pp/eng/2012/080712.pdf