1. Overview

Sailendra Pattanayak
Published Date:
April 2018
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Fiscal Transparency and its Importance

1. Fiscal transparency refers to the information available to the public about the government’s fiscal policy-making process. It refers to the clarity, reliability, frequency, timeliness, and relevance of public fiscal reporting and the openness of such information.

  • Clarity is the ease with which reports can be understood by users.

  • Reliability is the extent to which reports are an accurate representation of government fiscal operations and finances.

  • Frequency (or periodicity) is the regularity with which reports are published.

  • Timeliness refers to the time lag involved in the dissemination of these reports.

  • Relevance refers to the extent to which reports provide users (legislatures, citizens, and markets) with the information they need to make effective decisions.

  • Openness refers to the ease with which the public can find information, and influence and hold governments accountable for their fiscal policy decisions.1

2. Fiscal transparency is a critical element of effective fiscal management. It helps ensure that the economic decisions of governments are informed by a shared and accurate assessment of the current fiscal position, the costs and benefits of any policy changes, and the potential risks to the fiscal outlook. Fiscal transparency also provides legislatures, markets, and citizens with the information they need to make efficient financial decisions and to hold governments accountable for their fiscal performance and the management and use of public resources. And it facilitates international surveillance of fiscal developments and helps mitigate the transmission of fiscal spillovers between countries. Greater transparency can also help underpin the credibility of a government’s management of public finances and improve market confidence. Empirical evidence points to a positive relationship between the degree of fiscal transparency and sovereign credit ratings (IMF, 2012a).

The IMF’s Fiscal Transparency Code

3. The IMF’s Fiscal Transparency Code (the Code) is the most widely recognized international standard for disclosure of information about public finances (Box 1.1). The Code is part of the IMF’s efforts to strengthen fiscal surveillance, support policymaking, and improve fiscal accountability among its member countries. It is one of the 12 standards that have been recognized by the international community under the IMF and World Bank’s Standards and Codes Initiative launched in 1999 to strengthen the international financial architecture.2

Box 1.1.The IMF’s Fiscal Transparency Code (the Code)

The IMF has a long history in setting fiscal transparency standards dating back to 1998.

  • In 1998, the IMF introduced the Code (Code of Good Practices on Fiscal Transparency),1 which led to a voluntary program of fiscal transparency assessments called fiscal transparency modules of Reports on the Observance of Standards and Codes (fiscal ROSCs) that were the first comprehensive fiscal transparency assessments at the international level. The Manual on Fiscal Transparency was issued in the same year (IMF, 1998).

  • In 2007, the Code was updated to reflect some emerging good practices and broaden its coverage but retained the original four pillars of fiscal transparency: (i) clarity of roles and responsibilities; (ii) open budget processes; (iii) public availability of information; and (iv) assurances of integrity. The Manual was also revised (IMF, 2007).

  • Reflecting the unique set of challenges faced by countries that derive a significant share of revenues from natural resources, the IMF issued a Guide on Resource Revenue Transparency in 2005, which was subsequently updated (IMF, 2007). This guide provided an overview of generally recognized good practices for transparency of resource revenue management consistent with the principles of the Code.

  • In 2014,2 in the aftermath of the global financial crisis, which started in 2007, the IMF revised the Fiscal Transparency Code and launched the Fiscal Transparency Evaluation (FTE), which replaced the fiscal ROSC (IMF, 2012a). The new Code updates the 2007 version, reflects the lessons of the global financial crisis, incorporates developments in international standards, and builds on feedback from stakeholder consultations. It comprises a set of principles built around four “pillars.” Pillars I, II, and III were finalized following an extensive consultation exercise in two rounds between December 2012 and August 2013. An additional two rounds of public consultation were undertaken for Pillar IV.

Source: IMF staff.1 The Asian financial crisis of the late 1990s highlighted shortcomings in financial reporting in both the public and the private sectors and regarding the linkages between the two (Lane and others, 1999). This led to the introduction of the IMF Code of Good Practices on Fiscal Transparency in 1998 as one of the 12 new international standards and codes designed to improve the functioning of the international financial system.2 See

4. In 2012, the IMF reviewed the state of fiscal transparency shortcomings that were revealed in the context of the 2008 global financial crisis and decided to update international fiscal transparency standards and monitoring arrangements (IMF, 2012a).3 The crisis revealed that, even among advanced economies, reporting by governments of their fiscal operations and finances was incomplete, as illustrated by the emergence of previously unrecorded deficits and debts. The crisis also demonstrated that, in many cases, countries had substantially underestimated the risks to their fiscal position and prospects, especially those emanating from the financial sector. The sharp deterioration in government finances that accompanied the crisis, and the related need for fiscal adjustment, increased the incentives faced by governments to engage in activities that clouded the true state of their finances (Irwin, 2012 and 2015).

5. The IMF’s new Fiscal Transparency Code, issued in 2014, is part of the renewed global interest in promoting fiscal transparency.4 Several other transparency initiatives in the fiscal area have been established, including the Organisation for Economic Co-operation and Development’s (OECD) Best Practices for Budget Transparency,5 the multi-stakeholder Extractive Industries Transparency Initiative (EITI) to address resource revenue transparency issues in resource-rich countries,6 and the International Budget Partnership’s (IBP’s) Open Budget Survey7 of information provided to citizens in budget documents. In addition, assessments under the multi-donor Public Expenditure and Financial Accountability (PEFA) program include a series of performance indicators covering aspects of fiscal transparency, which are derived in part from the Code. More recently, the Global Initiative on Fiscal Transparency (GIFT), a multi-stakeholder network, has promulgated a set of high-level principles of fiscal transparency, participation, and accountability.8 The OECD, with the participation of the GIFT network, has also recently developed a Budget Transparency Toolkit aimed at serving as a guide/gateway to existing standards and guidance materials and reinforcing some key practical messages in budget and fiscal transparency.9

6. The 2014 Code comprises a set of principles built around four “pillars” (Figure 1.1). Each pillar contains three to four dimensions, and each dimension, two to four principles.10

  • Pillar I: Fiscal Reporting, requires the availability of relevant, comprehensive, timely, and reliable information on the government’s fiscal operations and performance. The 12 principles under this pillar are grouped under four dimensions of fiscal reports: coverage, frequency and timeliness, quality, and integrity.

  • Pillar II: Fiscal Forecasting and Budgeting, requires the provision of a clear statement of the government’s budgetary objectives and policy intentions, together with comprehensive, timely, and credible projections of the evolution of public finances. The 12 principles under this pillar are grouped under four dimensions of fiscal forecasts and budgets: comprehensiveness, orderliness, policy orientation, and credibility.

  • Pillar III: Fiscal Risk Analysis and Management, requires that risks to the public finances are disclosed, analyzed, and managed and that fiscal decision making across the public sector is effectively coordinated. The 12 principles under this pillar are grouped under three dimensions of fiscal risk management: risk analysis and disclosure, risk management, and fiscal coordination among different levels of government.

  • Pillar IV: Resource Revenue Management, requires the provision of a transparent framework for the ownership, contracting, taxation, and use of natural resource endowments.11 The 12 principles under this pillar are grouped under four dimensions: legal and fiscal regime, allocation of resource rights and collection of revenue, company reporting, and resource revenue management.

Figure 1.1.Architecture of the Revised Fiscal Transparency Code

Source: IMF staff.

7. Reflecting the aftermath of the global financial crisis, the new Code updates the 2007 Code in several respects. It emphasizes the need for information that fosters good fiscal management and decision making in a postcrisis world where more attention is being paid to the full extent of government operations and the risks they entail. Specifically, the new Code

  • Focuses on outputs more than on processes. The Code emphasizes the quality of published information as an objective basis for evaluating the degree of effective fiscal transparency.

  • Takes account of different levels of countries’ institutional capacity. The Code formally differentiates between basic, good, and advanced practice. This allows countries to develop a sequenced path for reform, by providing them with a clear set of milestones toward full compliance with international standards. The new approach also facilitates cross-country benchmarking:

    • Basic practice should be viewed as a minimum standard that should be achievable by all IMF member countries.

    • Good practice provides an intermediate goalpost that would require stronger institutional capacities.

    • Advanced practice reflects relevant international standards and is in line with current state-of-the-art policies and practices.12

  • Emphasizes the importance of fiscal risks management. The Code devotes a full pillar (with 12 principles) to the analysis and management of fiscal risks that are likely to be relevant to all countries. It analyzes risks arising from a wide range of sources, including macroeconomic shocks, government guarantees and other contingent liabilities, fiscal pressures from demographic and other long-term trends, budgetary contingencies, changes in asset and liability values, public-private partnerships, the financial sector, the availability and price volatility of natural resources, environmental factors, subnational governments, and public corporations.

  • Captures recent advances in fiscal management and in international standards and practices.13 Examples of new “advanced” practices include (i) the publication of information on fiscal activities of the entire public sector; (ii) the preparation of full balance sheets, including all financial and nonfinancial assets and liabilities; (iii) monthly fiscal reporting of general government operations and publication of audited annual financial statements within six months; (iv) the alignment of information provided in budgets, accounts, and fiscal statistics; and (v) public participation in deliberations on budget preparation and execution.

8. Several other standards and diagnostic tools have been developed by the IMF in the fiscal area that complement the Code. These tools analyze issues relating to transparency (Box 1.2).

Box 1.2.Complementary Fiscal Standards and Assessment Tools1

Government Finance Statistics Manual (GFSM), 2014, the international standard for compiling and disseminating government finance statistics, including for publication in the IMF GFS Yearbook (see

Public Investment Management Assessment (PIMA) instrument, which evaluates 15 institutions that shape decision making at the three key stages of the public investment cycle: planning sustainable investment across the public sector, allocating investment to the right sectors and projects, and implementing projects on time and on budget (see

Public-Private Partnerships Fiscal Risks Assessment Model (PFRAM), an analytical tool to assess the potential fiscal costs and risks arising from public-private partnership (PPP) projects (see

Public Expenditure and Financial Accountability (PEFA) (jointly with other partners), a tool that helps governments assess public financial management (PFM) practices. It was updated in 2016 (see

Tax Administration Diagnostic Assessment Tool (TADAT) (jointly with other partners), which is designed to provide an objective assessment of the health of key components of a country’s system of tax administration (see

Source: IMF staff.1 Other fiscal assessment tools used by the IMF include the Revenue Administration Fiscal Information Tool (RA-FIT), a web-based data gathering tool used to assess revenue administration performance; the Revenue Administration Gap Analysis Program (RA-GAP) that assists countries to assess taxpayer compliance through tax gap analysis; and Fiscal Analysis of Resource Industries (FARI), a methodology for fiscal analysis of extractive industries.

Fiscal Transparency Evaluations

9. Fiscal Transparency Evaluations (FTEs) assess country practices against the Code and replace the previous fiscal ROSCs. FTEs provide countries with

  • a comprehensive assessment of their fiscal transparency practices against the various standards set by the Code;

  • rigorous and quantified analyses of the scale and sources of fiscal vulnerabilities, including measures of the coverage of fiscal reports, the quality of fiscal forecasts, and the size of unreported contingent liabilities;

  • an accessible summary of the strengths and weaknesses of country practices related to fiscal transparency and their relative importance. This is achieved through a set of summary “heatmaps,” a major innovation of the FTEs, which facilitate benchmarking against comparator countries, identification of reform needs, and prioritization of recommendations. FTEs include individual heatmaps for each pillar (covering all the principles under that pillar) and an overall heatmap covering all pillars;

  • an optional sequenced action plan to help define reform priorities designed to address the main shortcomings in fiscal transparency; and

  • an option for countries to undertake a modular assessment focused on just one or two pillars of the Code, aimed at addressing the most pressing transparency issues.

10. FTEs are carried out at the request of governments and form part of the IMF’s policy dialogue and capacity-building efforts with its member countries. They support the identification of fiscal transparency strengths, weaknesses, and challenges as well as the prioritization and delivery of technical assistance by the IMF and other development partners. Many FTEs, across a broad spectrum of countries, have been completed.14

11. An analysis of completed FTEs reveals that fiscal transparency levels vary both across and within countries and are positively correlated with the level of income (Figure 1.2). While low-income countries have generally scored relatively lower than emerging market and advanced economies, there is scope for countries at all income levels to improve practices, particularly in fiscal reporting and fiscal risk analysis and management.

Figure 1.2.Summary Results of Fiscal Transparency Evaluations Conducted as of the End of March 2018

Source: IMF staff calculations, using data from 23 FTEs completed by March 2018.

12. FTEs have an important part to play in providing input to the IMF’s surveillance through exposing strengths and weaknesses in institutional public financial management frameworks. In several cases, findings and recommendations from FTEs have fed into IMF’s country reports in the context of Article IV or other surveillance-related missions.15

The Role of the Handbook

13. This Handbook explains the 2014 Code’s principles and practices and provides more detailed guidance on their implementation. In particular,

  • It defines each pillar of the Code, and the dimensions and principles under each pillar.16

  • It sets out the importance of each principle and describes recent trends in implementation of the principle, also noting relevant international standards.

  • It describes basic, good, and advanced practices for each principle, setting out both the benefits and the challenges of moving beyond basic practices. Selected country examples are also provided.

  • It specifies the indicators to be used to measure adherence to the principles.

14. The Handbook aims to provide guidance on the application of the Fiscal Transparency Code to a range of stakeholders.

  • First, governments with an interest in promoting fiscal transparency can review the detailed descriptions, standards, and country examples and use them to guide the development of more robust fiscal transparency practices.17

  • Second, the Handbook provides a reference guide for the international community (bilateral and multilateral agencies), with an interest in transparency issues or in complementing their assessment tools.

  • Third, it is a tool to assist national oversight and accountability institutions such as legislatures, supreme audit institutions (SAIs), parliamentary budget offices, national statistics agencies, and independent fiscal agencies.

  • Fourth, national and international civil society organizations may find the Handbook useful to support and complement their efforts in promoting fiscal transparency.

  • Fifth, it can serve as a reference for academia and researchers studying public finance and fiscal transparency.

15. Promoting greater fiscal transparency requires not only clear reporting standards as described in this Handbook but also effective monitoring and enforcement of those standards. Institutions that can help promote fiscal transparency include (i) national institutions such as legislatures; SAIs, independent fiscal agencies, and professional and civic organizations; (ii) regional economic, monetary and customs unions, and statistics agencies;18 (iii) international institutions such as the IMF, the World Bank, and the OECD; (iv) international standard-setting bodies such as the International Federation of Accountants (IFAC), the International Public Sector Accounting Standards Board (IPSASB), and the International Organization of Supreme Audit Institutions (INTOSAI); and (v) international civil society groups such as the IBP.

16. This Handbook covers Pillars I to III of the Fiscal Transparency Code.19 The three following chapters cover each pillar, respectively.

  • Each chapter starts with a brief introductory section that describes the pillar, its main dimensions, and the underlying concepts.

  • Each dimension is then presented in a section, including subsections for each related principle and specific references to applicable international standards, norms, and relevant guidance material.

  • Each subsection on principles is followed by a description of each of the three levels of practice, illustrated by practical country examples.

  • A glossary of terms, a bibliography, and a list of website references are included.

  • For the ease of readers, the Handbook uses the following colors: (i) blue for highlighting each pillar of the Code; (ii) red for highlighting a dimension under each pillar of the Code; (iii) dark green for highlighting a principle under a dimension; (iv) light green for highlighting a practice under a principle as well as country examples for practices; and (v) pink for the tables with relevant standards, norms, and guidance material. Grey color is used for all the other boxes with definitions of key concepts and/or factual descriptions, including trends in implementation of the Code’s principles.

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