The World Bank SEPTEMBER PREMnotes know what we deliver 2013 No. 4 Special Series on The Current State of Fiscal Transparency: Norms, Assessment, and Country Practices Murray Petrie Over the last 15 years, there has been a growing effort globally to promote fiscal transparency, reflecting both that the public has a right to information, and that transparency contributes to more equitable, efficient, and effective fiscal policies. However, the overall state of budget transparency is poor: measured against the Open Budget Index, the national budgets of 77 countries—home to half the world’s population—fail to meet basic standards of budget transparency. Efforts are underway to improve the coherence of the multiplicity of standards, strengthen the assessment of country practices, and to address important gaps in the normative architecture, such as norms for legislative oversight and direct public participation. Many governments could rapidly improve transparency by publishing reports they already produce internally, which points to the need to strengthen incentives for governments to be more transparent. Fiscal Transparency operation and Development’s (OECD; 2001) Best Practices in Budget Transparency focused on As recently as the mid-1990s, there was no the narrower central government budget sector, recognized definition of fiscal transparency, let while the IMF issued a revised Government Finance alone any international codification of what it Statistics Manual (GFSM; 2001), which set the comprised. Since then, a multiplicity of norms and accrual basis as the standard for all countries for standards has been introduced, and assessments of reporting fiscal statistics. The International Fed- practices employing some of these instruments are eration of Accountants initiated the International now generating data on country practices. Public Sector Accounting Standards (IPSAS) project In 1998, Kopits and Craig defined fiscal trans- in 1996, and by 2002 had issued a core set of ac- parency as “openness toward the public at large counting standards for the public sector. about government structure and functions, fiscal Subsequently, the 2002 Extractive Industries policy intentions, public sector accounts, and pro- Transparency Initiative (EITI) and the IMF’s Guide jections.” This approach was embodied that year on Resource Revenue Transparency (2005) reflected in the International Monetary Fund’s (IMF) Code heightened concern over fiscal transparency in of Good Practices on Fiscal Transparency, and in the countries dependent on extractive industries. following year, the IMF starting assessing country The multidonor Public Expenditure and Financial practices against the code through the use of Fiscal Accountability (PEFA) reports that commenced ROSCs (Reports on the Observance of Standards in 2005, on the other hand, focused on countries and Codes). The Organisation for Economic Co- receiving development assistance. FROM THE POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK Recently, there has been an increasing emphasis government sector and the public sector, and revenue, on moving beyond disclosure to incorporate legisla- expenditure, and public debt classifications. There has tive oversight and direct public participation in fiscal also been a degree of informal, decentralized coordi- policy. This is reflected in the Open Budget Survey nation across the different norm-setting institutions, (OBS) introduced by the International Budget Partner- as well as some instances of explicit cooperation in ship (IBP) in 2006, and culminated in the High-Level developing instruments. Principles on Fiscal Transparency, Participation, and Ac- However, there are some core areas of fiscal trans- countability issued in 2012 by the multistakeholder parency that are technically difficult and over which Global Initiative on Fiscal Transparency (GIFT).1 The there is not yet a consensus. These areas include good first of the ten GIFT High-Level Principles declares practice in the disclosure of fiscal risks; accounting for that the public has a right to information on fiscal and disclosing the fiscal implications of public private policy, and the tenth principle declares a right to direct partnerships and contingent liabilities; and the dis- public participation. The High-Level Principles were closure of quasi-fiscal activities, that is, fiscal activities endorsed by the United Nations General Assembly undertaken outside the government sector, typically (UNGA) in December 2012.2 by state-owned enterprises (SOEs). These developments reflect that fiscal transpar- There is also limited international normative ency is increasingly viewed as both having an instru- consensus around: mental value—contributing to high-quality growth, • how legislatures should hold the executive to ac- effective public service delivery, and macroeconomic count for the conduct of fiscal policy; stability—and as being an important right that does • mechanisms of direct public participation in fiscal not need to be justified on the basis of its instrumental policy; effects. • Subnational government transparency;3 At the same time, fiscal transparency has become • transparency around the delivery of public ser- an increasingly broad umbrella term that subsumes vices; and a number of dimensions and topics. It covers both • the interface between fiscal policy and environ- the supply side—governments publishing informa- mental issues.4 tion—and the demand side—legislatures, civil society, In addition, there is some tension between the and other stakeholders seeking to use information to different instruments. For example, the instruments hold government actors accountable and to participate differ in their coverage of central government, the directly in public debate over resource allocation. The public sector or general government, and in whether term incorporates open budgeting as well as financial the ability of the legislature to amend the executive’s and nonfinancial reporting, the activities of the wider budget proposal is regarded as a transparency issue, public sector, and the management of public resources. or as going beyond transparency into constitutional Finally, while still focusing mainly on the central gov- design. ernment, the concepts of fiscal transparency are also Finally, there has been a proliferation of instru- being applied to subnational governments. ments that have the potential to create unnecessary Table 1 summarizes elements of some of the key transaction costs, if they are not already doing so, and normative instruments. confusion. This proliferation reflects some overlapping institutional mandates and insufficient coordination mechanisms. Overview of Consensus and Gaps The most significant overlap is between PEFA re- in the Normative Architecture ports and the Fiscal ROSCs. While the number of Fiscal There is broad consensus in the area of supply-side ROSCs has dwindled in the last few years, the IMF’s disclosure by governments: coverage and timeliness of intention to revitalize its fiscal transparency activities budget documents, timeliness of in-year reporting, and means this issue may reassume some importance. the scope, role, and timing of audited final accounts are However, the two instruments are currently quite areas of broad normative consensus. Provisions relating different from each other, and both are currently being to the independence of the supreme audit institution reviewed. PEFA reports focus on the information needs are consistently reflected across all main instruments. of donors and recipient governments, and therefore There is some key long-standing public financial they include many PFM diagnostics that go well beyond management (PFM) “infrastructure” supporting this transparency. Compared to the Fiscal ROSC, PEFA degree of consistency, including the definition of the reports’ coverage of transparency is relatively limited, 2 PREMNOTE SEPTEMBER 2013 Table 1. Summary of Main Fiscal Transparency Instruments Instrument name Scope Content Coverage Graduated Assessment Remarks 1. Code of Good Practices Budgets, forecasts, and 45 good practices in 4 Covers No Fiscal ROSC by IMF staff on request of The code and ROSCs are August 2013 on Fiscal Transparency reporting; all fiscal activities; pillars: all 187 (current government. Publication is voluntary, on being revised in 2013. focus on central govern- (i) clarity of roles; (ii) member review IMF Web site. IMF, 1998, revised 2007 ment, but also covers open budget processes; countries intended to Detailed staff description, diagnosis, and http://www.imf.org/external/np/ general government and (iii) public availability of introduce recommendations. fad/trans/index.htm public sector information; and (iv) as- graduated Few ROSCs completed in recent years. surances of integrity. approach) 2. Open Budget Survey and Budgets, forecasts, and OBI based on availability Country Yes OBS completed by independent civil soci- Consideration being given to Open Budget Index reporting; and content of eight key coverage: (4-level ety researchers in each country; surveys an “OBI-Plus” to better cover International Budget Partnership central government; documents over complete 2006: 59 published on IBP Web site. off-budget activities and SOEs. ordinal budget cycle. Quantitative cross-country data (the OBI); http://internationalbudget. budget sector 2008: 85 scale) org/what-we-do/major-ibp- OBS also includes legisla- used as basis for recommending reforms. 2010: 94 initiatives/open-budget- tive oversight and public Increasing use by donors and others, for engagement. 2012: 100 initiative/ example, Open Government Partnership. 3. Government Finance Reporting only; general An accrual standard for Applies to No Some aspects assessed by IMF staff as Being revised in 2013 to make Statistics Manual 2001 government government fiscal statis- all 187 IMF part of Data ROSC, and some as part of compatible with System of IMF (and public sector) tics as part of the national member Fiscal ROSC, for example, definition of sec- National Accounts 2008. PREMNOTE accounts. countries tors, revenue and expenditure classifica- http://www.imf.org/external/pubs/ tions, and fiscal balance definitions. ft/gfs/manual/index.htm 4. International Public Sec- Reporting only; general pur- Thirty-two accrual basis Intended Yes By accountants and auditors in each Published medium-term work tor Accounting Standards pose financial statements IPSASs, and one cash to cover all (pass/ country. program of standards develop- International Public Sector Ac- of public sector entities and basis IPSAS as of March govern- Audited financial statements are published. ment, including a conceptual fail) counting Standards Board controlled entities; does not 2013. ments framework, and convergence cover business enterprises at national with GFSM as feasible. http://www.ifac.org/public- sector and subna- tional levels 5. High-Level Principles Budgets, forecasts, and Ten high-level principles Intended No None. The GIFT work program includes Endorsed by UNGA in Decem- on Fiscal Transparency, reporting; covering access to infor- to cover all promoting greater coherence in norms, ber 2012. Participation and Account- general government and mation and the gover- government filling gaps in existing norms (for example, Intended to sit above existing ability 2012 public sector; nance of fiscal policy. on public participation, and legislative set of normative instruments GIFT oversight) and strengthening assess- and to promote improvements public rights to fiscal ment practices, including through mutual in their coverage, consistency www.fiscaltransparency.net information and to direct recognition. and coherence. participation. Source: Author’s compilation, drawn from the GIFT phase I report, December 2, 2011, at www.fiscaltransparency.net. Note: Information on a set of 40 normative instruments containing provisions on fiscal transparency is available in the GIFT phase I report. 3 although they do include provisions on legislative over- to half the world’s population—fail to meet basic sight. PEFA reports also include detailed ordinal scores standards of budget transparency (scores of less that are intended to help track progress in a country than 60 out of 100). The average score is just over time. The Fiscal ROSC is aimed at countries at all 43 out of 100, and there is a very large range of levels of development, and does not produce explicit country practices—scores range from 0 to 93 on performance ratings. the 2012 OBI. The governments of 21 countries do not even What Does Public Participation publish their executive’s budget proposal. Mean with Respect to Fiscal Policy? • Finding 2: There has been steady, albeit incremental, progress over the four rounds of the OBS since 2006. The public participation dimension of fiscal transpar- ency has developed only recently, and norms in this • Finding 3: Good performance is possible in a variety area are relatively undeveloped. A wide range of activi- of contexts. Aid-dependent countries such as Af- ties are described as constituting “public participation,” ghanistan, oil revenue–dependent countries such and the meaning differs across political systems, coun- as Mexico, low-income countries such as Bangla- tries, and cultures. Indeed, the perceived need for and desh, and some countries in the Middle East and legitimacy of direct public participation mechanisms sub-Saharan Africa all have relatively transparent will be shaped by each country’s political system, and budget systems. South Africa ranks second on the by the level of government (central or subnational) index. concerned. • Finding 4: Not only is progress possible, it can happen The International Association for Public Participa- quickly and at a modest cost. Many governments tion identifies a five-level spectrum for public participa- could dramatically improve their budget transpar- tion: to inform; to consult; to involve; to collaborate; ency at little or no cost merely by posting on Web and finally, to empower.5 sites documents already produced internally. The concept of a spectrum of participation can be • Finding 5: Budget engagement by the audit institutions a useful way to consider different types of participa- and the legislature is typically weak. tion for different purposes, although there should be • Finding 6: There is widespread failure to provide no presumption that higher levels on the spectrum are sufficient opportunities for civil society to engage in necessarily more or less desirable than lower levels. It budget processes. The average score on participation is also important to note that public participation in opportunities was just 19 out of 100. There are, fiscal policy should be seen in a wider context than however, examples of innovative and meaningful just opportunities to participate in the annual budget steps to engage citizens, including hotlines for cycle—policy development will often span more than reporting problems with service delivery, public one budget cycle. Some forms of participation are de- hearings to gather input on proposed budget poli- signed more around public investment project cycles cies, and efforts to involve communities in audits rather than the budget cycle, and some mechanisms for of public programs. public participation are ongoing, for example, standing Looking beyond the OBI, an analysis of 57 Fiscal consultative panels. ROSCs by Hameed in 2005 found that European Union accession countries had higher average transpar- Country Practices ency scores compared to the rest of the nonadvanced The most comprehensive cross-country data on cur- economies, and the difference was statistically signifi- rent practices in fiscal transparency is that compiled cant. There was a higher mean value for scores on bud- by the IBP with respect to country scores on the Open get execution in Latin American countries, possibly Budget Initiative (OBI). The 2012 OBI comprised 100 reflecting the introduction of GFMISs (government mainly developing countries, although it included 18 finance management information systems) in the Organisation for Economic Co-operation and Devel- region, and scores on medium-term budgeting were opment (OECD) member countries and had good statistically different and higher for heavily indebted geographic coverage. The following findings emerge poor countries (Hameed 2005). from the 2012 OBI:6 With respect to PEFA, of the 71 countries for • Finding 1: The overall state of budget transparency is which PEFA assessments of indicator D-2 (financial poor. The national budgets of 77 countries—home information provided by donors to recipient countries 4 PREMNOTE SEPTEMBER 2013 on project and program aid ) were published through been provided, and there has been a significant March 2011, 48 received a D or a D+, the lowest pos- improvement in Greece’s fiscal reporting practices. sible scores. These scores highlight the lack of informa- • Pressures among members of deep regional trade tion provided by donors, and therefore the inability of agreements can create incentives for fiscal transpar- recipient governments to disclose the information to ency, as seen in the European Union. their legislatures and citizens (IBP 2011, 2). • There is some evidence that fiscal transparency Finally, with respect to access to information, in improves fiscal performance and social and gover- 2010–11, a network of civil society organizations nance indicators, which may indirectly strengthen submitted 480 requests for budget information in incentives for increased transparency. 80 countries.7 No information at all was provided in response to over half of these requests, despite repeated Priority areas for action to strengthen incentives attempts. Only 12 of the 80 countries complied with include working with the governments in the Open right-to-information standards. Government Partnership, over 40 of which have committed to specific initiatives relevant to fiscal Strengthening incentives for fiscal transparency transparency and participation;9 exploiting the po- Given the overall weak state of country practices, it tential of financial market pressures for transparency is important to consider how incentives might be in the post–global financial crisis environment; and strengthened to foster more transparent, participatory, strengthening the normative architecture for fiscal and accountable fiscal decision making. At this stage, transparency and participation as well as the effective- there is a limited but growing evidence base in this area, ness of the assessment of country practices. which can be summarized as follows:8 • There is evidence that, after controlling for other Concluding Remarks variables, fiscal transparency is rewarded with Over the last decade and a half, there has been a greatly higher sovereign ratings and lower spreads. increased global effort to promote fiscal transparency • Recent case study research identifies four main to improve equity, effectiveness, and stability in the factors as contributing to improvements in fiscal management of public resources. There is now a mul- transparency and participation: (i) political tran- tiplicity of norms and a need for more coherence, but sition toward more democratic forms of political gaps remain. Some of these issues are being addressed contestation; (ii) fiscal and economic crises that in the current reviews of a few commonly used instru- force governments to put in place enhanced mecha- ments, including IMF’s Fiscal Transparency Code and nisms for fiscal discipline and independent scru- the PEFA assessments. GIFT’s High-Level Principles tiny; (iii) widely publicized cases of corruption that represent an attempt to promote more coherence and give reformers political space to introduce reforms comprehensiveness in the normative architecture, that improve public access to fiscal information; while strengthening legislative oversight and direct and (iv) external influences that promote global public participation. However, the current overall state norms that in turn empower domestic reformers of fiscal transparency is weak, although there has been and civil society actors (Khagram, Fung, and de some improvement since 2006. Many governments Renzio 2013). could rapidly improve transparency by publishing on • There is case study and testimonial evidence sup- the Web reports they already produce internally. These porting the impact of fiscal transparency norms factors point to the need to strengthen incentives for and their assessment on country behavior. For governments to publish more information and for instance, a number of governments have indicated governments to increase direct engagement with the that they will take action to improve their country’s public. Providing targeted and practical technical assis- score on the OBI, or have introduced more trans- tance to assist executives, legislatures, and civil society parency following an OBI assessment. can also help increase levels of fiscal transparency. • There is evidence of a strong impact of interna- tional finance institution conditionality on fiscal transparency in some circumstances, for example, Acknowledgment Greece’s program with the IMF and the European This PREMnote draws on papers prepared for and Union contained structural benchmarks on fiscal available on the Web site of the Global Initiative on reporting. Substantial technical assistance has also Fiscal Transparency. August 2013 PREMNOTE 5 About the Author fossil fuels; and transparency of outcomes/impacts in Murray Petrie is a Technical Advisor on global norms the public management of environmental resources. with the Global Initiative on Fiscal Transparency. Since 5. International Association for Public Participation, 1998, he has worked as a consultant for the Interna- www.iap2.org. tional Monetary Fund and the International Budget 6. See http://internationalbudget.org/what-we-do/ Partnership on developing fiscal transparency standards open-budget-survey. and assessing country practices. He is actively involved 7. Ask Your Government! 6 Question Campaign. in civil society initiatives to strengthen transparency, Access Info Europe and the Centre for Law and De- participation and accountability, and has published mocracy, in collaboration with the IBP (see http:// widely on fiscal transparency and related issues in www.access-info.org/en/budget-transparency/200- public financial management. 6-question-campaign). 8. For further details, see “Towards Stronger Incentives Notes for Increased Fiscal Transparency, Participation and 1. GIFT is an initiative comprising governments, Accountability” (December 2, 2012). international financial institutions, and civil society 9. See http://www.opengovpartnership.org/countries. organizations (www.fiscaltransparency.net). 2. UNGA resolution 67/218, which was adopted with- References out a vote, noted the GIFT High-Level Principles and GIFT (Global Initiative on Fiscal Transparency). 2012. High- endorsed the principles of transparency, participation, Level Principles on Fiscal Transparency, Participation, and and accountability in respect of fiscal policies. The Accountability. www.fiscaltransparency.net. UNGA resolution is available at http://www.un.org/ Hameed, Farhan. 2005. “Fiscal Transparency and Economic ga/search/view_doc.asp?symbol=A/RES/67/218. Outcomes.” IMF Working Paper WP/05/225, Washing- 3. International Public Sector Accounting Standards, ton, DC. set by the International Public Sector Accounting IBP (International Budget Partnership). 2011. “Linking Aid Transparency and Budget Transparency for Develop- Standards Board, apply to the financial statements ment Effectiveness.” Briefing Note, www.internation- of national and subnational governments. The In- albudget.org. ternational Budget Partnership has completed pilot IMF (International Monetary Fund). 1998. Code of Good studies of budget transparency at the subnational Practices on Fiscal Transparency. Washington, DC. government level, see http://internationalbudget. ———. 2001. Government Finance Statistics Manual. Wash- org/what-we-do/major-ibp-initiatives/open-budget- ington, DC. initiative/subnational-work/. The PEFA Secretariat ———. 2005. Guide on Resource Revenue Transparency. Wash- has also published “Supplementary Guidelines for the ington, DC. Application of the PEFA Framework to Subnational Khagram, S., A. Fung, and P. de Renzio, eds. 2013. Open Governments,” which can be found at http://www. Budgets: The Political Economy of Transparency, Participa- pefa.org/en/content/pefa-secretariat-studies. tion, and Accountability. Brookings Institution Press. Kopits, George, and Jon Craig. 1998. “Transparency in 4. Examples include climate change–related expendi- Government Operations.” IMF Occasional Paper 158, tures, funding, and liabilities; transparency of manage- Washington, DC. ment of renewable resources, for example, forestry and OECD (Organisation for Economic Co-operation and fisheries; transparency of fiscal support for the exploi- Development). 2002. Best Practices in Budget Transpar- tation of natural resources and for the consumption of ency. Paris. This note series is intended to summarize good practices and key policy findings on PREM-related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank. PREMnotes are widely distributed to Bank staff and are also available on the PREM Web site (http://www.worldbank.org/ prem). If you are interested in writing a PREMnote, email your idea to Madjiguene Seck at mseck@worldbank.org. For additional copies of this PREMnote please contact the PREM Advisory Service at x87736. This series is for both external and internal dissemination 6 PREMNOTE SEPTEMBER 2013