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Latin American conference: New fiscal data framework aids policymaking

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2002
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Good data are now widely recognized as essential ingredients in effective policymaking. But what constitutes “good” data and what types of data aid policymakers and analysts? The IMF revised its Government Finance Statistics Manual in late 2001 to update users on good practices and to propose a new fiscal data framework that would facilitate economic analysis by tracking public finances more accurately and comprehensively. The new system also aims to make the fiscal accounts look more like business accounts—so that the private sector will find it easier to use fiscal data—and allow fiscal accounts to be more easily harmonized with other statistics (notably the national accounts).

To brief users on the innovations of the new framework and to encourage its implementation, the IMF’s Statistics, Fiscal Affairs, and Western Hemisphere Departments, in collaboration with the IMF Institute and the Brazilian School of Finance Administration, held a three-day seminar at the Joint Brazil Training Center. Amaury Bier, Executive Secretary of Brazil’s Ministry of Finance, encouraged the participants to speak frankly and to examine fully the new system’s improvements and the strategies for—and potential obstacles to—its successful implementation. Bier drew particular attention to the manual’s concepts and the role they could play in providing a clearer picture of fiscal developments and sustainability in a country like Brazil. It did not take long for the participants to follow his advice to speak frankly.

New fiscal data framework

Paul Cotterell, chief of the IMF’s Government Finance Division, enumerated several of the significant changes that the framework would entail. He explained that it would supplement existing data on government flow transactions with public sector balance sheets and would fully reconcile stocks and flows. Further, it would add information based on accrual accounting principles (resource accounting) to existing cash data. One notable innovation is that the new framework permits investment (the acquisition of nonfinancial assets) to be analyzed differently from other types of government outlays: it distinguishes between the government’s operating balance (revenue minus noninvestment outlays) and its net lending/borrowing (that is, its financing need, including for net investment).

The goal of the new framework is to increase fiscal transparency and accountability and strengthen fiscal analysis and policy formulation and evaluation. Teresa Ter-Minassian, Director of the IMF’s Fiscal Affairs Department, highlighted the additional tools that would be available to fiscal analysts and the usefulness of those tools in enhancing fiscal policies. Also significant, she said, is the shift away from a single measure of fiscal policy to a more nuanced view of fiscal developments, through multiple analytical balances. Ter-Minassian stressed that implementing the new system would not result in countries’ losing information they are currently gathering, although she did say that implementing this new fiscal data framework would take considerable time and that its pace would vary across countries.

Country developments

Senior delegates from Brazil, Chile, and Mexico briefed participants on initiatives in their own countries, notably the use of structural balances in Chile, development of various analytical measures in Mexico, and efforts to strengthen fiscal cooperation and data systems within Brazil’s decentralized system. Following these presentations, Ana Maria Jul, Associate Director of the IMF’s Western Hemisphere Department, reviewed the fiscal variables that have been developed in the context of IMF discussions with member countries in the region. She called particular attention to Ecuador’s innovative development of a balance sheet that, among other things, incorporated the value of oil and gas reserves and enriched the available information for fiscal policy formulation. A major theme across all of the presentations was fiscal sustainability and how it could be assessed. The extension of fiscal statistics and analysis to government balance sheets should significantly improve countries’ capacity to do such assessments.

Broader coverage matters

Latin America’s coverage of fiscal statistics is broader than anywhere else in the world, and that, argued Adrienne Cheasty, chief of the IMF’s Fiscal Operations I Division, provides clear and important advantages. Narrow coverage, she observed, tends to provide incentives to shift fiscal policies to institutions outside monitored government agencies. This can yield unpleasant surprises, such as higher debt, and lead to suboptimal fiscal policies and inappropriate adjustments. Cheasty also added that analysts need to know the size of public sector activity and its effects on economic growth.

Implementation strategies

Participants agreed that the new manual and its fiscal data framework represent a useful advance, but how were they to move from proposals on paper to enhancements on the ground? Betty Gruber and Ethan Weisman summarized other countries’ experiences. They highlighted, in particular, the adoption of accrual accounting by Australia and Iceland, the efforts by the IMF’s Statistics Department and European Union authorities to take existing accrual data from the national accounts and present them using the new framework, and a preliminary exercise in Mauritius to shift cash data into the framework. Cheasty also illustrated some new analytical variables that could be derived from fiscal data based on the new manual and described the relevance of these variables for analyzing liquidity constraints and fiscal sustainability and vulnerability.

Experiences elsewhere prompted a vigorous discussion of possible implementation strategies in the region. The seminar’s participants quickly realized that different migration paths would need to be formulated based on individual country circumstances, underlying policy frameworks, and accounting and statistical systems. The shift to the new fiscal data framework will take time and will need to be implemented in parallel with ongoing fiscal data work. And central to this process will be the need to train policy officials and fiscal data compilers within each country.

While enthusiastic about the benefits afforded by the manual’s innovations, the participants also realized that these discussions were just the first step toward implementing the new process. Many challenges remain, but the seminar did deepen understanding of the new framework’s potential benefits and provided participants with the opportunity to build a network of experts to bring these potential improvements to fruition.

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