The IMF is revamping its fiscal transparency code in the wake of the global financial crisis to help countries identify and deal with long-term risks such as pension costs.
The Fund’s Fiscal Affairs Department is replacing reports on the observance of standards and codes (ROSCs) with new fiscal transparency assessments.
The fiscal code was originally developed in the 1990s after the first Asian crisis and has been revamped a few times. Richard Hughes, division chief of department that looks at Europe among other regions, told Emerging Markets the Fund decided to review the code after the 2008-09 financial crisis.
He said the transparency assessments were “a new beast”. “The ROSCs were very much a box-ticking exercise. This is a much more analytical report.”
The assessments, which are conducted at the request of countries, include 38 indicators that look at fiscal reporting, forecasting and budgeting and risk management, which can provide information on potential future shocks.
Mario Falcao, a deputy chief in the division that covers Latin America, said the assessments were designed to be tough. “The benchmark is very high, so we do not expect any country in the world to get an ‘A’ in all the indicators,” he said.
The first three countries coming on board as pilot projects have been Bolivia, Costa Rica and Ireland. The report on Ireland was completed in July, with Costa Rica concluding later in October and Bolivia by the end of the year.
Hughes said he hoped to have five additional studies done by the end of the first half of next year. He said one of the findings of the Ireland assessment was the narrow focus on fiscal accounts.
As with many European countries, Irish fiscal reports cover only the government, but not state-owned enterprises, “which are in some sense out of sight and out of mind from fiscal management”.
The report states that Ireland has “the capacity and information to bring its fiscal transparency practices into line with international best practice standards within a reasonable time frame and relatively modest additional cost”.
While the Bolivian and Costa Rican reports are not concluded, Falcao said the countries stood out for their public sector fiscal reporting. “Their budgets cover almost the entire public sector, which is very rare,” he said.
Falcao said Bolivia and Costa Rica had “very good fiscal reporting, sufficient forecasting and budget preparation, but there is room for improvement in measuring of fiscal risks.”
The goal of improving this is to help countries see future risks and avoid traps that industrialized countries now have to deal with such as pension plans.