- International Monetary Fund
- Published Date:
- January 2002
Defined in IFAC (2000a) as “the body of accounting principles that determine when the effects of transactions or events should be recognized for financial reporting purposes. It relates to the timing of the measurements made, regardless of the nature of the measurement.” There are many variations of the accounting basis. IFAC identifies two basic reference points (cash and accrual) and two variations (modified cash and modified accrual).Accounting system:
The set of accounting procedures, internal mechanisms of control, books of account, and plan and chart of accounts that are used for administering, recording, and reporting on financial transactions. Systems should embody double-entry bookkeeping, record all stages of the payments and receipts process needed to recognize accounting transactions, integrate asset and liability accounts with operating accounts, and maintain records in a form that can be audited.Accrual accounting:
Accrual accounting systems recognize transactions or events at the time economic value is created, transformed, exchanged, transferred, or extinguished, and all economic flows (not just cash) are recorded.Accrual reporting:
Reporting based on accrual accounting systems.Aid-in-kind:
Flows of goods and services with no payment in money or debt instruments in exchange. In some cases, “commodity aid” goods (such as grain) are subsequently sold and the receipts are used in the budget, or more commonly through a special fund, for public expenditure.Appropriations:
Refers to an authority under a law given by the legislature to the executive to spend public funds for a specified purpose. Annual appropriations are made through annual budget laws. Supplementary budgets/appropriations are sometimes granted subsequent to the annual law if the annual appropriation is insufficient to meet the purpose. “Standing appropriation” is sometimes used for authority extending beyond a single budget year under separate legislation (such as social security legislation). In some countries, such as the United States, the term “authorization” is used to denote a general law setting up a program and permitting appropriation but not giving any specific authority to spend. In most countries, agencies and departments require specific executive authorization (“apportionment, allotment, or warrant”) to actually incur an obligation against appropriation.Augmented balance:
The overall balance plus any losses incurred by the central bank, and any issuance of government debt to recapitalize public financial institutions not recorded in the overall balance.Cash accounting:
Cash accounting systems recognize transactions and events when cash is received or paid.Cash reporting:
Reporting based on cash accounting systems.Central government:
All government units that are agencies or instruments of the central authority of a country and that are covered by or financed through the budget or extrabudgetary funds at that level.Commitments:
In accounting usage, commitments refer to a stage in the expenditure process at which contracts or other forms of agreement are entered into, generally for future delivery of goods or services. A liability will not be recognized until delivery of the item, but the government is contractually committed to meeting the obligation once delivery is made. The term is also used in a more general, noncontractual sense to mean firm promises of the government made in policy statements.Contingency funds or reserves:
A separate fund or a budget provision set aside to meet unforeseen and unavoidable requirements that may arise during the budget year. Certain types of contingency (such as meeting loan guarantee obligations) may be specified as a potential use for such funds.Contingent liabilities:
Obligations that have been entered into, but the timing and amount of which are contingent on the occurrence of some uncertain future event. They are therefore not yet liabilities, and may never be if the specific contingency does not materialize.Earmarked taxes:
Taxes raised and allocated to specific expenditure programs, often through an extrabudgetary fund (see below).Economic classification:
The current GFS Manual refers specifically to a “classification of expenditure by the nature of transaction, that is, whether requited or unrequited, for current or capital purposes, kind of goods or services obtained, and sector or subsector receiving transactions” (p. 325). It is generally used to identify the nature and economic effects of government operations. Though not formally described as “economic” in the GFS, the classification of revenue into current (tax and nontax), capital, and grants serves a similar purpose.Extrabudgetary funds:
The term generally refers to sets of government transactions that are not included in the annual budget presentation. These may not be subject to the same level of scrutiny or accounting standards as the annual budget. A wide variety of extrabudgetary arrangements are used, including funds (such as social security funds) set up under separate legislation, commodity funds that use proceeds of commodity aid, and earmarking specific kinds of revenue for specific purposes.Functional classification:
The current GFS Manual refers specifically to the Classification of the Functions of Government (COFOG), which is the international standard for classifying expenditures of government according to broad purposes for which transactions are undertaken. It is generally used to measure the allocation of resources by government for the promotion of various activities and objectives (such as health, education, and transportation and communication).General government:
Defined in the SNA as the following group of resident institutional units:
(a) all units of central, state, or local government;
(b) all social security funds at each level of government; and
(c) all nonmarket, nonprofit institutions that are controlled and mainly financed by government units.
The sector does not include public corporations, even when all the equity of such corporations is owned by government units. It also does not include quasi-corporations that are owned and controlled by government units. However, unincorporated enterprises owned by government units that are not quasi-corporations remain integral parts of those units and, therefore, must be included in the general government sector.Generational accounting:
Generational accounts are used to assess the distributional implications of fiscal policy for different cohorts. This is accomplished by estimating the present value of net tax payments (taxes paid less benefits received) over the lifetime of different generations under current tax and spending policies. A generation is defined as including all males and females (separately accounted for, because of differing tax and benefits profiles) born in the same year. The technique has heavy data requirements and the results depend on a large number of simplifying assumptions. It is generally regarded as a supplementary technique for analysis of sustainability and intergenerational distribution.Government balance sheet:
A comprehensive statement of the assets, liabilities, and net worth (assets less liabilities) of government at a point in time—usually year-end. In practice, very few governments prepare statements of their financial position that could be described as balance sheets. Adoption of accrual accounting reports and generally accepted methods of asset valuation are prerequisites for a reliable balance sheet presentation.Government-guaranteed loan:
A loan contracted by a nongovernment public sector agency with a guarantee that the government will repay any amount outstanding in the event of default.Implicit contingent liabilities:
Liabilities that reflect noncontractual obligators of government (e.g., potential liabilities arising in connection with financial sector restructuring).Individual government ledger accounts:
The government (or general) ledger is the book where all transactions by the central government, as a debit or a credit, are recorded. The government ledger is generally maintained by the general accounting office. Each transaction affecting a specific bank account is reflected in a corresponding individual account of the government ledger, thus allowing for a full reconciliation with the bank statement.Line-item budgeting:
A general term used to describe a relatively unsystematic budgetary chart of accounts. In addition to standard votes or “lines” for items such as “salaries and wages,” separate lines for new requirements are introduced as they arise, thus giving rise to lengthy, ad hoc forms for appropriating and accounting for spending.Medium-term budget framework:
A framework for integrating fiscal policy and budgeting over the medium term by linking a system of aggregate fiscal forecasting to a disciplined process of maintaining detailed medium-term budget estimates by ministries reflecting existing government policies. Forward estimates of expenditures become the basis of budget negotiations in the years following the budget and the forward estimates are reconciled with final outcomes in fiscal outcome reports.Modified accrual accounting:
Modified accrual accounting differs from accrual accounting in that physical assets are expensed at the time of purchase.Modified cash accounting:
Modified cash accounting differs from cash accounting in that it recognizes receipts and disbursements committed in the budget year and allows a specified period after year-end for payments of these to be recorded and reported.Moral hazard:
The possibility that the signal or expectation of possible future government support may induce an undesirable change in behavior by management of an enterprise or bank, for example, by engaging in more risky activities because some of the potential losses are seen as being effectively underwritten by the government.Outputs and outcomes:
In performance assessment in government, outputs are defined as the goods or services produced by government agencies (e.g., teaching hours delivered, welfare benefits assessed and paid); outcomes are defined as the impacts on social, economic, or other indicators arising from the delivery of outputs (e.g., student learning, social equity).Overall balance:
This term corresponds to the GFS terminology of “Overall Deficit/Surplus,” which is defined as revenue plus grants received less expenditure less “lending minus repayments.” The balance so defined is equal (with an opposite sign) to the sum of net borrowing by the government, plus the net decrease in government cash, deposits, and securities held for liquidity purposes. The basis of this balance concept is that government policies are held to be deficit or surplus creating and thus the revenue or expenditures associated with these policies are “above the line.” Borrowing or a rundown of liquid assets, however, is deficit financing or “below the line.” It should be noted that the term lending minus repayments included above the line in the current GFS covers government transactions in debt and equity claims on others undertaken for purposes of public policy rather than for management of government liquidity or earning a return.Payment arrears:
Amounts that have not been paid by the date specified in a contract or within a normal commercial period for similar transactions. Payment arrears may arise from nonpayment by government in such areas as bills due from suppliers, due salaries or transfers, or due debt repayment or service.Primary balance:
The overall balance excluding interest payments. Since interest payments represent the cost of past debt, and the determinants of future debt that are under policy control of government are other spending and revenue measures exclusive of interest payment, the primary balance is of particular importance as an indicator of the fiscal position in countries with high levels of debt.Program budgeting/program classification:
“Programs” are groupings of government activities in relation to specific government objectives. Program classification applies this principle across all government activities. Program budgeting attempts to apply cost-benefit analysis to the allocation decision, allocate expenditures by program, and assess results of programs in relation to objectives. A full system of program budgeting (or subsequent proposals such as zero-based budgeting) has not been successfully realized in any country, in large part because of the high information and complex management requirements of such systems.Public sector:
A classification drawn from sectors and subsectors of the SNA classification consisting of general government and the public subsectors of nonfinancial and financial corporations. The principle of classification is that of government ownership and/or control rather than function (as in the primary classification of SNA). An important subdivision within this sector for fiscal analysis purposes is the “nonfinancial public sector” comprising general government and nonfinancial public enterprises.Public sector balance:
The overall balance of the public sector. It is distinct from public sector borrowing requirement, which is the overall balance of general government plus the net borrowing requirements of nonfinancial public enterprises.Quasi-fiscal activities:
Activities (under the direction of government) of central banks, public financial institutions, and nonfinancial public enterprises that are fiscal in character—that is, in principle, they can be duplicated by specific fiscal measures, such as taxes, subsidies or other direct expenditures, even though precise quantification can in some cases be very difficult. Examples include subsidized bank credit and noncommercial public services provided by an enterprise.Supplementary budgets/appropriations
(see appropriations)Tax arrears:
Taxes due to government but not paid. Other arrears in receipts could arise from nonpayment of loans by government or nonpayment of bills for government services.Tax expenditures:
Concessions or exemptions from a “normal” tax structure that reduce government revenue collection and, because the government policy objectives could be achieved alternatively through a subsidy or other direct outlays, the concession is regarded as equivalent to a budget expenditure. Precise definition and estimation of tax expenditures thus require definition of the normal base as well as determination of the most appropriate way of assessing costs (i.e., by revenue forgone or the expenditure required to achieve the policy objective).Unfunded public pension liabilities:
This term refers to future liabilities of government under unfunded (pay-as-you-go), or partially funded public pension schemes. Liabilities for such schemes are generally not recognized in accounting terms until the obligation to pay arises (see IFAC, 2000a), though this will depend on institutional arrangements in particular countries. (These points are under continuing consideration by the IFAC-PSC.) Such future liabilities need to be taken into account in assessing fiscal sustainability over the long term.User charges:
Payments made by consumers to providers of government services.
1995, “The Political Economy of Budget Deficits,” Staff Papers,International Monetary Fund, Vol. 42(March), pp.1–31.
1999, “Budget Deficits and Budget Institutions,” in Fiscal Institutions and Fiscal Performance, ed. byNational Bureau of Economic Research Conference Report (Chicago: University of Chicago Press).
Basle Committee on Banking Supervision, 1997, “Basle Core Principles for Effective Banking Supervision,” International Legal Materials, Vol. 36(March), pp. 405–32.
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2000, “Assessing Fiscal Sustainability in Theory and Practice,” in Fiscal Sustainability,papers presented at a Banca D’Italia Research Department Workshop, Perugia, Italy,January.
1996, Aging Populations and Public Pension Schemes, IMF Occasional Paper No. 147 (Washington: International Monetary Fund).
1997, “Fiscal Accounting of Bank Restructuring,” IMF Paper on Policy Analysis and Assessment 97/5 (Washington: International Monetary Fund).
Financial Stability Forum, Working Group on Deposit Insurance, 2000, “International Guidance on Deposit Insurance: A Consultative Process,” June(Basel).
1997, “The Case for an International Banking Standard,” Policy Analyses in International Economics, Vol. 47(April),Institute for International Economics, pp. 14.
Inter-american Development Bank, 1997, Latin America After a Decade of Reforms: Economic and Social Progress in Latin America, 1997 Report (Washington: Johns Hopkins University Press).
International Federation of Accountants, 2000a, “Study 11-Governmental Financial Reporting,” International Public Sector Studies, May (New York).
International Federation of Accountants, 2000b, “Financial Reporting under the Cash Basis of Accounting,” Exposure Draft No. 9,May (New York).
International Monetary Fund, 1996, Guide to the Data Dissemination Standards. Module 1: The Special Data Dissemination Standard (Washington).
International Monetary Fund, 1998b, The General Data Dissemination System: Standards for the Dissemination by Countries of Economic and Financial Statistics (Washington).
International Organization of Supreme Audit Institutions, 1992, Guidelines for Internal Control Standards, Issued by the Internal Control Standards Committee,June (Vienna).
International Organization of Supreme Audit Institutions, 1995, Auditing Standards, Issued by the Auditing Standards Committee at the XlVth Congress of INTOSAI in 1992 in Washington, D.C., as amended by the XVth Congress of INTOSAI in 1995 in Cairo (Vienna).
1998, Transparency in Government Operations, IMF Occasional Paper No. 158 (Washington: International Monetary Fund).
1998, “The Macroeconomic Impact of Privatization,” Staff Papers, International Monetary Fund, Vol. 45(June), pp. 363–73.
1996, Quasi-fiscal Operations of Public Financial Institutions, IMF Occasional Paper No. 142 (Washington: International Monetary Fund).
Organization for Economic Cooperation and Development, 1984, Tax Expenditures: A Review of the Issues and Country Practices, report by the Committee on Fiscal Affairs (Paris).
Organization for Economic Cooperation and Development, 1988, External Debt: Definition, Statistical Coverage, and Methodology, report by an International Working Group on External Debt Statistics of the World Bank,International Monetary Fund,Bank for International Settlements, and Organization of Economic Cooperation and Development (Paris).
Organization for Economic Cooperation and Development, 1996, Tax Expenditures: Recent Experiences,prepared by the Working Party on Tax Policy Analysis and Tax Statistics of the Committee on Fiscal Affairs (Paris).
Organization for Economic Cooperation and Development, 2000, OECD Best Practices for Budget Transparency,PUMA/SBO (2000) 6/FINAL (Paris).
1999, “Contingent Government Liabilities: A Hidden Fiscal Risk,” Finance & Development, Vol. 36(March), pp. 46–49.
1998, Guidance for Fiscal Economists on Public Expenditure Management (Washington: International Monetary Fund).
1993, “Amalgamating Central Bank and Fiscal Deficits,” in How to Measure the Fiscal Deficit: Analytical and Methodological Issues, ed. by (Washington: International Monetary Fund).
1998, “Institutional Arrangements and Fiscal Performance: the Latin American Experience,” NBER Working Paper No. 6358 (Cambridge, Massachusetts: National Bureau of Economic Research).
1993, “Effects of Inflation on Measurement of Fiscal Deficits: Conventional Versus Operational Measures,” in How to Measure the Fiscal Deficit: Analytical and Methodological Issues, ed. by (Washington: International Monetary Fund).
United Nations, 1996, “Crime Prevention and Criminal Justice: Action Against Corruption,” Note by the Secretariat, September 26, A/C.3/51/L.2 (New York).
1998, “Public Sector Transformation and Ethics: A View from South Africa,” Public Money and Management, Vol. 18(January-March), pp. 15–20.
Budget Papers: http://www.budget.gov.au/finaloutcome/.
Bank for International Settlements
Basle Committee on Banking Supervision: http://www.bis.org/publ/bcbs30a.htm.
Tax Expenditures and Evaluations 2000: http://www.fin.gc.ca/toce/2000/tadxexp_e.html.
Customs Cooperation Council
Declaration of the World Customs Organization: http://www.wcoomd.org/.
European System of Accounts (ESA95):http://www.europa.eu.int/comm/eurostat/.
Procurement Directives: http://formby.wiganmbc.gov.uk/pub/bsu/eudirect.htm.
Hong Kong, SAR
Home Page of the Hungarian Government: http://www.meh.hu/default.htm.
International Monetary Fund
Code of Good Practices on Transparency in Monetary and Financial Policies—Declaration of Principles: http://www.imf.org/external/np/mae/mft/index.htm.
Czech Republic: http://www.imf.org/external/np/rosc/cze.htm.
Hong Kong, SAR: http://www.imf.org/external/np/rosc/hkg/index.htm.
Standards and Codes: http://www.imf.org/external/standards/index.htm.
Toward a Framework for Assessing Data Quality: http://dsbb.imf.org/dqrs_work.htm.
Government Financial Reporting: http://www.ifac.org/Guidance/Pub-Download.tmpl?PubID=960182179426.
Code of Ethics for Auditors in the Public Sector: http://www.intosai.org/3_ETHICe.html.
Guidelines on Best Practice for the Audit of Privatizations: http://www.nao.gov.uk/intosai/wgap/bestprac.htm.
Lima Declaration of Guidelines on Auditing Precepts: http://www.intosai.org/2_LIMADe.html.
Annual Budget Forecasts: http://www.treasury.govt.nz/forecasts/befu/2001/.
OECD/PUMA: OECD Best Practices for Budget Transparency http://www.olis. oecd.org/olis/2000doc.nsf/87fae4004d4fa67acl25685d005300b3/cl25692700623b7 4cl256a4d005c23be?OpenDocument.
Guidelines on Public Procurement: http://www.oecd.org/puma/sigmaweb/pubs/pbno3.htm.
Policy Recommendations on Regulatory Reform: http://www.oecd.org/subject/regreform/.
Institute for Democracy in South Africa (Folscher,1999): http://www.idasa.org.za.
HM Treasury: http://www.hm-treasury.gov.uk/budget2001/fsbr/chapc.htm.
Classification of the Functions of Government: http://esa.un.org/unsd/cr/registry/regrt.asp.
Commission on International Trade Law: Model Law on Procurement of Goods,
Construction, and Services: http://www.uncitral.org/english/texts/procurem/proc93.htm.
Common Code of Statistical Practice: http://www.un.org/Depts/unsd/demotss/tcnjun96/tony.htm.
International Code of Conduct for Public Officials: http://www.un.org/ga/documents/gares51/gar51-59.htm.
Statistical Division: http://www.un.org/Depts/unsd/statcom/1994docs/e1994.htm.
Budget of the United States: http://www.access.gpo.gov/usbudget/fy2001/maindown.html.
Congressional Budget Office: http://www.cbo.gov/respon.shtml
Federal Accounting Advisory Board: http://www.financenet.gov/fasab.htm.
Taxpayer Advocate Service: http://www.irs.gov/prod/ind_info/advocate.html.
World Trade Organization
Government Procurement Agreement: http://www.wto.org/english/docs_e/legal_e/final_e.htm.
See IMF (1998a).
This version of the Manual replaces earlier drafts first posted on the IMF website in November 1998 and April 1999.
ROSC fiscal transparency modules, which were first published in March 1999, have made the summary self-evaluation report redundant and it has been taken off the external website.
A number of technical terms are italicized on first usage and defined in the glossary.
From here on, the Code refers to the revised Code of Good Practices on Fiscal Transparency.
The SDDS, GDDS, and the monetary and financial transparency code are also available on the Standards and Codes website.
See IMF (1986). Some differences exist between the SNA and the GFS, but the revised GFS Manual will be harmonized with the SNA. The revised GFS Manual is expected to be available early 2002. In the meantime, a revised draft GFS Manual has been posted on the IMF’s external website for comment. See http://www.imf.org/external/pubs/ft/gfs/manual/index.htm.
See Chapter 2 of the current GFS Manual, Coverage of the GFS System, for detailed discussion of the definition of the general government.
ESA is harmonized with the SNA. See http://www.europa.eu.int/comm/eurostat/.
In the Code, and hereafter in the Manual, references to public financial institutions do not include the central bank. Given the particular significance of the central bank for fiscal analysis, it is important to distinguish it clearly from other public financial institutions.
See paragraph 126 for further discussion of reporting on public sector finances.
However, the intergovernmental framework should not be so inflexible as to constrain effective macroeconomic management by the central government.
Mozambique has recently set up a new institutional frame-work for intergovernmental relations with relatively clear and simple rules. See the ROSC for Mozambique, Fiscal Transparency Module, paragraph 5, at http://www.imf.org/external/np/rosc/moz/index.htm.
See, for instance, von Hagen (1992); Alesina and Perotti (1995,1999); and Stein, Talvi, and Grisanti (1998). These studies suggest that fiscal performance in Europe and Latin America is strengthened by budget procedures that concentrate power in the executive (and, within the executive, in the finance ministry), and are more transparent.
The Code is silent, however, on whether the legislature should have the power to amend the budget presented by the executive. This goes beyond transparency. See Alesina and Perotti (1999) for a discussion of the effects of different legislative budget amendment powers.
See paragraph 108 for discussion of the need to integrate current and capital budgets.
The framework for fiscal management is discussed in paragraphs 40-41.
The channeling of earmarked taxes to extrabudgetary funds is common where there is a strong link between taxes and benefits, emphasis on which may result in earmarked taxes being more easily accepted than regular taxes. Also, activities undertaken through extra-budgetary funds should often be less influenced by the short-term considerations that affect the budget, and may even be governed by separate legislation. Social security has these characteristics.
Reporting of externally financed transactions is discussed further in paragraphs 136-137.
Or through more extended reviews linked to medium-term budget targets or longer-term sustainability.
The new budget laws in Moldova and Latvia go as far as to incorporate extrabudgetary funds as special funds in the annual budget.
In Sweden, the central bank undertakes no quasi-fiscal activities, and its independence is assured under amendments to the 1997 Sveriges Riksbank Act. See the ROSC for Sweden, Fiscal Transparency Module, paragraph 5, at http://www.imf.org/external/np/rosc/swe/index.htm. The Bank of Korea is prohibited by the Central Bank Act from direct financing of the fiscal deficit. See the ROSC for the Republic of Korea, paragraph 6, at http://www.imf.org/external/np/rosc/kor/index.htm.
Although it is still possible for the central bank to buy government securities in the open market, or to influence the demand for such securities in other ways (e.g., by requiring their use in meeting reserve requirements).
Box 10 contains a more complete listing of the different types of quasi-fiscal activity.
Reporting of quasi-fiscal activities is discussed in paragraphs 70-77, and a discussion of how they can be incorporated into assessments of the overall fiscal position is contained in Box 18.
For detailed discussion, see http://www.imf.org/external/np/mae/mft/index.htm.
See Goldstein (1997).
In the United Kingdom nonfinancial public enterprises operate on a commercial basis, with the costs of noncommercial activities being compensated for and reflected in the budget. In France, some quasi-fiscal activities are being replaced by explicit subsidies. For example, airlines are explicitly contracted on a competitive basis to maintain some noncommercial routes and the cost of maintaining postal services in rural areas in now explicit. See paragraphs 2 (including footnote 2) and 9 of the ROSCs for the United Kingdom and France respectively, Fiscal Transparency Modules, at http://www.imf.org/external/np/rosc/index.htm.
See paragraphs 62-66 for a discussion of contingent liabilities.
See INTOSAI (1998) at http://www.nao.gov.uk/intosai/wgap/bestprac.htm.
See http://www.oecd.org/subject/regreform/for additional detail.
See paragraphs 46-47 on accessibility and understandability of tax laws; paragraph 55 on tax-payer rights; and paragraph 142, which refers to transparency of tax compliance costs.
See Basle Committee on Banking Supervision (1997). See also http://www.bis.org/publ/bcbs30a.htm. This is one of the core standards promoted through the Financial Sector Assessment Program (FSAP). In the FSAP, staff of the World Bank and IMF consider observance of relevant financial sector standards as an input in to a broader examination of financial sector stability.
See paragraphs 81-82 for a discussion of reporting information on the stock of financial assets, including equity investment in private companies.
This should definitely be done when new equity is acquired. There should also be periodic reviews of all equity holdings, and the reasons for retaining equity positions should be given, especially where governments are in the process of privatizing assets.
In some transition economies (e.g., Kyrgyz Republic and Tajikistan), treasury laws were enacted ahead of more comprehensive budget laws.
Arrears are discussed in paragraphs 132-135.
The term “tax” in this section is used to refer to any compulsory payment under law, including customs duties.
For example, in the Republic of Korea taxes are levied under strict legal authority, tax laws are accessible, and they contain details of taxpayers’ rights, tax dispute procedures, and the application of tax laws. Taxpayers can contest rulings through internal dispute resolution procedures, recourse to the National Tax Tribunal, and finally by appealing to the judiciary. See the ROSC for the Republic of Korea, Fiscal Transparency Module, paragraph 8, at http://www.imf.org/external/np/rosc/korea/fiscal.htm.
For the United States, see http://www.irs.gov/prod/ind_info/advocate.html.
The recent experience with addressing problems of corruption in the public service in the Republic of South Africa illustrates some of the problems in implementing ethical standards. See van der Westhuizen (1998).
There is an issue as to the language (s) in which information should be made available. It is unclear whether countries should routinely publish fiscal information, and economic information more generally, in a commonly used language. Outsiders following a country can usually arrange for fairly quick translation. However, for countries seeking access to international capital markets, there is likely to be some benefit from translating key documents and reports for release simultaneously with national language versions.
In Uganda, historical information on the budget and outturn information for the preceding four years is provided by sector and vote in the “Background to the Budget” presented with the budget each year. See the ROSC for Uganda, Fiscal Transparency Module, paragraph 27, at http://www.imf.org/external/np/rosc/uga/index.htm.
Medium-term fiscal forecasts are discussed in more detail in paragraphs 107-108 and Box 15.
More precisely, IFAC-PSC defines a contingent liability as either … “(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) a present obligation that arises from past events but is not recognized as a liability because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient reliability.
See Polackova (1999).
Where there is a portfolio of similar contingent liabilities, such as a large portfolio of loan guarantees with similar characteristics (e.g., in housing or agriculture sectors), there may be sufficient reliable historical data on loan loss experience to allow a reliable estimate of the expected cost of the guarantee program to be made. This estimate might then be appropriated as expenditure in the budget.
Supplementary disclosure is also possible under cash accounting, as recommended in the IFAC Exposure Draft 9 (2000b).
Disclosure of contingent liabilities should be included in a broader statement of fiscal risks (see paragraph 110 and Box 16). Reporting on contingent liabilities will require development of an underlying information system for recording them.
The Czech Republic provides a good example of a country where there are significant contingent liabilities in the form of guarantees, and where steps have been taken to provide information on guarantees in budget documents. See Box 2 in the ROSC for the Czech Republic, Fiscal Transparency Module, at http://www.imf.org/external/np/rosc/cze/index/htm.
Section 7.6 of the monetary and financial transparency code requires that, where there are deposit insurance guarantees, information on the nature, operating procedures, financing, and performance of such arrangements should be publicly disclosed.
A special case that falls outside the usual definition of tax expenditure occurs where government, public financial institutions, and nonfinancial public enterprises are exempt from taxes applied to similar transactions carried out by the private sector. Where such exemptions apply, these should be noted and quantified to the extent possible in the budget documentation.
The quantification of tax expenditures is particularly complex, requiring the specification of a benchmark tax structure in the absence of tax expenditures and, in more sophisticated approaches to quantification, assumptions about the behavioral impact of tax expenditures. See OECD (1984, 1996). See also Government of Canada, Tax Expenditures and Evaluations 2000, at http://www.fin.gc.ca/toce/2000/taxexp_e.html
In some instances, revenue earned by a central bank from a quasi-fiscal activity may be transferred directly to the budget (e.g., revenue earned from the operation of a multiple exchange rate system).
There is also typically a time lag between the time when a quasi-fiscal activity occurs and impacts on the central bank’s profit and loss account, and when central bank profit is transferred to the central government.
In some cases, the central bank law may provide that all profits are to be transferred to the central government once reserves reach a certain level. More generally, the marginal rate of transfer may vary over time.
Significant central bank losses are not uncommon in developing countries; in some instances annual losses have exceeded 5 percent of GDP. See Robinson and Stella (1993.)
Such subsidized credit needs to be distinguished from rediscounting by central banks. The latter activity is monetary in character and should generally be regarded as involving an exchange of assets of equal value. Rediscounting is provided to solvent institutions on a fully collateralized basis, often at market or penal rates of interest. Where rediscounting is provided at below market interest rates, however, the interest rate subsidy should be regarded as a quasi-fiscal activity. Similarly, unremunerated (or underremunerated) reserve requirements, which can impose a significant tax on financial institutions where interest rates are high, should be regarded as a quasi-fiscal activity.
The monetary and financial transparency code provides a basis for the provision of such information by the central bank.
For example, reporting of a guaranteed loan might include the amount and duration of the loan; reporting of a subsidized loan might include the amount and duration of the loan and the rate of interest; and reporting of a consumer subsidy by a nonfinancial public enterprise might include at least some indication of the divergence between the price charged and a price based on full cost recovery.
See Mackenzie and Stella (1996) for a detailed discussion of issues in estimating the size of quasi-fiscal activities.
See for instance reporting by the United Kingdom government in the budget documents of details of privately financed infrastructure projects. Information is given on estimated sectoral capital spending by the private sector, under contracts signed with the government, for the previous year and the next three years; and forecasts of the estimated payments for services flowing from new private investment projects over the next 25 years. See http://www.hm-treasury.gov.uk/budget2001/fsbr/chapc.htm.
The reporting standards for debt set out here are based on those in the GDDS (http://dsbb.imf.org/#gdds). For a discussion of issues in the reporting of government debt and financial assets, see IFAC (2000a). Government-guaranteed debt should be reported in a statement of contingent liabilities.
Indexed debt is that denominated in domestic currency but with its nominal value indexed to a foreign currency, inflation, or a commodity price (such as the price of oil or gold).
Where remaining maturity is not available, original maturity may be reported.
Cash and cash equivalents cover cash on hand, demand deposits, and short-term highly liquid investments readily convertible to cash.
In the case of subnational levels of government, the compilation need not be based on the actual outturns of all individual governments. It can be based instead on a sample survey that covers the actual budget outturns for a significant portion of total transactions undertaken by subnational government.
Australia provides a good example that broadly meets both of these benchmarks. States are independent sovereign agencies and present their budgets independently from the central government. However, states rely heavily on grants from the central government. Therefore, there has been a considerable effort to standardize statistical presentation in line with international standards for all jurisdictions, so that the focus of fiscal policy can be shifted to general government. The United States provides a good example of reliance on market forces (and voluntary self-regulation) to discipline the finances of lower levels of government. Because of the degree of independence of state governments, the focus of national fiscal policy is the federal budget. High standards of fiscal transparency are generally observed at all levels of government. The federal government compiles consolidated general government information ex post.
The country with the longest tradition of such a commitment to open government is Sweden, where the principle has been enshrined in the constitution since 1776. Members of the public in Sweden (and in a number of other countries) have the right to appeal to the ombudsman—an office independent of the executive that receives and investigates complaints of maladministration—any government agency’s decision to withhold information. Thailand has recently enacted freedom of information legislation. In other countries, such as the United States, there is a right of appeal to a court.
Release calendars could include a statement that the dates are “expected” or “target,” but any subsequent delays due to unforeseen events should be announced as soon as they are evident.
In Hong Kong SAR, the annual budget documentation provides a clear statement of fiscal policy objectives and medium-term sustainability. See the ROSC for Hong Kong SAR, Fiscal Transparency Module, paragraph 32, at http://www.imf.org/external/np/rosc/hkg/index.htm.
In South Africa, a Medium Term Budget Policy Statement is presented to parliament three months before budget day. It contains the macroeconomic assumptions, proposed inter-provincial allocations, the expected functional classification of expenditure, and the expected split between capital and current spending. See Folscher (1999) at http://www.idasa.org.za. For a discussion of the prebudget consultation phase in Canada, see OECD (1999).
The emergence of new debt-creating obligations that may be excluded from routine fiscal projections—such as contingent liabilities that may have to be honored—should also be taken into account.
For further discussion of approaches to assessing fiscal sustainability, including for countries where the assessments are affected by special circumstances such as the availability of an exhaustible mineral resource, see Chalk and Hemming (2000).
See Chand and Jaeger (1996). Also, the United States budget for 1999 contains detailed information on the long-term implications of current fiscal policies. In an “Analytical Perspectives” publication provided as part of the budget documentation projections are given for the budget to the year 2070. The key assumptions are described, and illustrations provided of the sensitivity of the projections to alternative assumptions and scenarios. Long-term (75 year) projections of the income and outgoings of the Social Security and Hospital Insurance Trust Funds are also provided, including the estimated 75-year actuarial balance of the Trust Funds as a summary measure of their financial status (see http://www.access.gpo.gov/usbudget/fy2001/maindown.html).
The United Kingdom budget for 2000 contains information on generational accounts for the United Kingdom (including comparative information for other countries), in the context of a detailed discussion of long-term fiscal sustainability (see http://www.hm-treasury.gov.uk/budget2000/fsbr/annexa.htm).
Kopits and Symansky (1998) discuss fiscal rules in detail.
In Hong Kong SAR, a medium-range forecast is prepared and published as an annex to the budget speech (see http://www.info.gov.hk/budget01-02/index.htm). The medium-range forecast involves projections for the budget year plus three years. Hungary has also started to present its budget in the context of a three-year outlook for the budget and the economy (see http://www.meh.hu/default.htm), as has Uganda—see the ROSC for Uganda, Fiscal Transparency Module, paragraph 28, http://www.imf.org/external/np/rosc/uga/index.htm.
In Germany, the Law on Budgetary Principles, for instance, explicitly requires multiyear financial planning by all levels of government. To coordinate this task, a Financial Planning Council comprising the minister of finance (chairman), the minister of economics, the state ministers responsible for financial affairs, and four representatives of municipalities was created in 1968.
A good example of this is the reporting of budget measures in the United Kingdom, where a summary table of new budget measures and their estimated fiscal effects is provided in the budget document, and an annex expands upon each new measure in more detail. In France, existing policy expenditure (“appropriations for current services”) is clearly distinguished from “items of expenditure reflecting new policies.” This distinction is required by the organic budget law and, under that law, current services appropriations are subject to only one vote in parliament while new policy items are subject to detailed voting processes. See the ROSC for France, Fiscal Transparency Module, paragraph 13, at http://www.imf.org/external/np/rosc/fra/index.htm.
In the United States, the Congressional Budget Office is required by law to advise the legislature of the estimated costs (and the basis of the estimate) that proposed federal legislation would impose on state and local governments (and on the private sector). See “About CBO,” at http://www.cbo.gov/respon.shtml.
There may be some instances where there are legitimate public policy reasons not to quantify a fiscal risk; this might be the case, for example, where to do so would result in disadvantage to the government in negotiations with third parties. The existence and nature of the risk should however still be disclosed.
In recent years Greece has strengthened its reporting of fiscal risks. Risks from variations in macroeconomic assumptions, contingent liabilities, and other uncertainties are now examined in the budget document. See http://www.imf.org/external/np/rosc/index.htm.grc, where IMF Staff Country Report No. 99/138 (pp. 49-53) discusses fiscal transparency in Greece. An example of comprehensive reporting of information on fiscal risks in the annual budget is provided by New Zealand. See http://www.treasury.govt.nz/forecasts/befu/2001/.
See Box 7 for discussion of the relationship between GFS classification and various types of fiscal reporting.
Although the GFS is not the only fiscal statistical reporting standard (the SNA and ESA provide alternatives that are close in concept), the current GFS Manual provides the most generally accepted international point of reference for purposes of classification of fiscal statistics.
See paragraph 170.
For example, the 1998 budget in Ukraine introduced a basic GFS-consistent economic classification of expenditure and, for the first time, showed budget allocations by main spending agency.
The United States, through its Planning, Programming, and Budgeting System, represented the leading example in the mid-1960s.
It should be noted that a program classification is conceptually distinct from the GFS/COFOG functional classification, since government program objectives may be served by activities in several functional areas (an antimalaria subprogram, for instance, could have an educational component, an agricultural drainage component, and a health component). Nonetheless, in practice, some program classifications have been based on COFOG at higher levels of categorization.
Access to detailed work on these issues in the OECD and to individual country sites is provided through the OECD/PUMA website, http://www.oecd.org/puma/links.htm.
The term actually used throughout the current GFS Manual is “overall deficit/surplus.”
See paragraph 126 for further discussion of the public sector balance.
See Tanzi, Blejér, and Teijeiro (1993).
The various concepts of the fiscal balance are discussed in Blejér and Cheasty (1993).
See Mackenzie (1998).
See the ROSCs for Australia, France, and the United Kingdom, at http://www.imf.org/external/np/rosc/index.htm.
Under this broad definition, internal control covers administrative controls (procedures governing decision-making processes) and accounting controls (procedures governing the reliability of financial records).
See INTOSAI (1992).
Tunisia provides a good example of this organization of internal control following the French system. See the ROSC for Tunisia, Fiscal Transparency Module, at http://www.imf.org/external/np/rosc/tun /index.htm.
See more detailed discussion of these issues in Potter and Diamond (1998) and IFAC (2000a).
Since tax revenue is compulsory and unrequited, there are more difficulties in establishing recognition points to establish tax liability than on the expenditure side. IFAC (2000a) notes a number of possible recognition points that could apply under an accrual system and gives examples of recognition points for different taxes (paragraphs 517-28), but notes that “because of the differences in legislation and administrative systems across countries, it is possible that different countries will have different recognition points for similar taxes” (paragraph 524).
Although offsetting arrangements are generally not recommended in government transactions, it is important that a unified approach be taken to assessment of tax liabilities. A single taxpayer identification number and tax file for each taxpayer would permit such an assessment; if a taxpayer is in arrears for one tax and entitled to a refund from another tax, the refund could be used to offset the tax arrears.
Korea provides a good example of a clear, comprehensive and transparent framework at all levels of the general government for procurement and tendering. See the ROSC for the Republic of Korea, Fiscal Transparency Module, paragraph 22, at http://www.imf.org/external/np/rosc/kor/index.htm, paragraph 22.
Guidelines on public procurement are available through the OECD/PUMA website, http://www.oecd.org/puma/sigmaweb/pubs/pbno3.htm, which cites relevant legislation under multilateral trade arrangements like the World Trade Organization’s Government Procurement Agreement (http://www.wto.org/english/docs _e/legal_e/final_e.htm) and the European Union’s Procurement Directives (http://formby.wiganmbc.gov.uk/pub/bsu/eudirect.htm), which set legal obligations for national systems and practices.
See http://www.uncitral.org/english/texts/procurem/proc93.htm. One such country is Poland, which received technical assistance from OECD/SIGMA. It operates a highly decentralized procurement system, with a central public procurement office responsible for developing rules and regulations.
Internal audit is defined here as internal to the executive branch of government, and independent audit as external to the executive. Internal audit therefore covers both an audit of an agency by staff of the agency itself (ideally, reporting directly to senior management) and an audit of ah agency by another agency (e.g., by an audit body under the control of the ministry of finance or the prime minister).
In Australia, these are referred to as “compliance cost impact statements.”
In Sweden the government is required to report to parliament at least twice a year on the expected budget outturn, the state debt, and discrepancies between outturn and the original budget forecasts. Detailed monthly reports on fiscal performance are published on the website of the National Financial Management Authority. See the ROSC on Sweden, Fiscal Transparency Module, paragraph 17, at http://www.imf.org/external/np/rosc/swe/index.htm.
The OECD best practice guidelines suggest that debt should be reported with a lag of a month.
See paragraphs 174-176 for a discussion of independent assessment of fiscal and macroeconomic forecasts.
For instance, IPSAS, GAAP, as in the United Kingdom and New Zealand, or Federal Financial Accounting Standards applied by the United States federal government (see http://www.financenet.gov/fasab.htm).
“Accounting policies are the specific principles, bases, conventions, rules and practices adopted … in preparing and presenting financial statements;” see paragraph 7, IFAC (2000b). The accounting basis may differ between budget documents and financial reports, as it does for example in the United States. In France, accounting standards used in the preparation of the final accounts have recently been changed to reflect accrual principles in a number of areas, and these standards are clearly explained in the Final Accounts—see the ROSC for France, Fiscal Transparency, Box 1, at http://www.imf.org/external/np/rosc/fra/index.htm. Some countries that have moved to accrual budgeting first went through a transitional period of reporting on an accrual basis while still budgeting on a cash basis.
For example, in the United States the Federal Accounting Standards Advisory Board is responsible for developing proposals to improve accounting and financial reporting in the Federal Government. In New Zealand, the Fiscal Responsibility Act requires the government to prepare and present all its fiscal reports in accordance with GAAP, i.e., accrual accounting. GAAP is the responsibility of the New Zealand Accounting Standards Review Board, a body independent of the government that establishes accounting standards for the private and public sectors.
Australia provides a good example of routine account-ability in these terms. See http://www.budget.gov.au/finaloutcome/.
In Albania, fiscal financing data are reconciled with financial sector claims on and liabilities to the government; and government debt and official flows are reconciled with the balance of payments. See Toward a Framework for Assessing Data Quality, by Carol S. Carson, Annex IV, Sample C, at http://dsbb.imf.org/dqrs_work.htm.
In Pakistan, following a significant breakdown of the processes of accounts reconciliation, and the discovery of substantial fiscal data discrepancies, the government has begun to reestablish basic processes of accounting and reconciliation. The creation of an inter-agency Fiscal Monitoring Committee—and its strong support by the government—is an important step toward improving the quality of data used for monitoring budget performance. It has also resulted in a strengthening of internal reconciliation and control. See the ROSC for Pakistan, Fiscal Transparency Module, paragraph 26 and Box 1, at http://www.imf.org/external/np/rosc/pak/fiscal.htm.
For detailed information concerning this framework, which was developed by the IMF’s Statistics Department, see Toward a Framework for Assessing Data Quality, by Carol S. Carson (2000), at http://dsbb.imf.org/dqrs_work.htm.
The fiscal data quality assessment framework is undergoing an intensive process of consultation with international experts and IMF staff, as well as field-testing.
See http://www.un.org/Depts/unsd/statcom/1994docs/el994.htm. To further promote these principles, the UN Statistical Commission established a task force to develop a draft code of best practice. See United Nations Statistical Division, “Common Code of Statistical Practice in the United Nations Systems,” Part I and Part II, April 1996 at http://www.un.org/Depts/unsd/demotss/tcnjun96/tony.htm.
These are also known as supreme audit institutions. The national audit body is the highest level audit body in a country.
The main elements of institutional independence have been established for the Audit Office in Uganda. See the ROSC for Uganda, Fiscal Transparency Module, paragraph 29, at http://www.imf.org/external/np/rosc/uga/index.htm.
In India, an independent comptroller and auditor general reports only to the parliament. It should also be noted that state governments have their own accountants general—working under the comptroller and auditor general—who provide audit reports directly to state legislatures.
In Pakistan, for instance, defense appropriation accounts are provided to the Public Accounts Committee, but circulation of the documents is restricted for security reasons. See the ROSC for Pakistan, Fiscal Transparency Module, paragraph 30, at http://www.imf.org/external/np/rosc/pak/fiscal.htm.
For example, in the United Kingdom, the Public Accounts Committee reports its findings both to parliament and to the treasury, and the treasury must subsequently report back to the committee on actions taken or not taken in response. The Public Accounts Committee in India plays the same role.
See INTOSAI (1995).
The OECD best practice guidelines (item 3.2) go further by requiring that each fiscal report should contain a statement of responsibility by the finance minister and the senior official responsible for producing the report.
The Bank of Norway regularly publishes its internal staff macroeconomic forecasts. The Swedish Riksbank publishes macroeconomic forecasts sanctioned by its policymaking body, not just by the staff, which further aids transparency. Publication by the central bank on a specified schedule of a report on the evolving macroeconomic situation is a requirement of the monetary and financial transparency code (item 2.4.2).
In South Africa, the macroeconomic assumptions on which the budget forecasts are based are presented to parliament in a Medium Term Budget Policy Statement three months before budget day. See Folscher (1999) at http://www.idas.a.org.za.
In Australia, for example, the Treasury Macroeconomic Model can be viewed at http://www.treasury.gov.au/ and purchased from the Australian Bureau of Statistics. In the United Kingdom, the treasury is required by law to make the macroeconomic model publicly available.
In Canada, the average of private sector economic forecasts is used as the basis for the economic assumptions underpinning the budget. See OECD (1999).
In France, for example, the macroeconomic forecasts are reviewed by the National Economic Commission, chaired by the minister of economy and finance and including 22 members chosen for their economic and financial expertise. The National Economic Commission is supported by a technical group, which reviews macroeconomic forecasts prepared by key independent institutes and banks. See the ROSC for France, Fiscal Transparency Module, paragraph 20, at http://www.imf.org/external/np/rosc/fra/index.htm. In the Czech Republic, twice a year and before the budget forecasts are released, a panel of experts, including individuals from the private sector, scrutinize the macroeconomic assumptions. See the ROSC for the Czech Republic, Fiscal Transparency Module, paragraph 19, at http://www.imf.org/external/np/rosc/cze.htm.
In the United States, the Congressional Budget Office, which reports directly to the legislature, prepares a complete set of macroeconomic and fiscal forecasts to be considered alongside those contained in the president’s budget proposal.
In a number of countries, most notably those in Latin America, fiscal data are produced and disseminated by the central bank rather than by the national statistics office.
Updated on February 28, 2001.