Appendix I

I. The Fiscal Transparency Code and EU Accession Requirements

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Appendix II

II. Observations on Fiscal Transparency

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Source: Fiscal ROSC for the respective countries and IMF staff. All observations are derived from published fiscal transparency ROSCs or updates published on the IMF website. In several cases, particularly when no recent updates have been published, significant reforms may have occurred. Any such reforms should be embodied in future ROSC updates.* No observation made in the ROSC

Improvements are in progress.

Aggregate projections only (Lithuania and Slovak Republic aggregate projections are not in the budget document but are sent to parliament with the draft budget)

Objectives are stated in general terms only

Analysis of long-term risks is done on an ad hoc basis. In the case of Poland, some improvement was recorded in the June 2003 update.

No in these columns is usually implied by Uie early stage of development of medium-term planning; Yes means the medium term framework or strategy (rather than agency estimates) is used to guide annual budget submissions

ROSC mentions inadequate consideration of fiscal risks in general.

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Extrabudgetary fluids, however, are approved by parliament and discussed at the same time as the budget.

Improvements in progress.

Plans to implement improvements

Improvements reported since initial ROSC

Partial data reported to legislature

Data are published but incomplete.

No bailout policy

* No observation made in the ROSC


  • Allen, R., 2002, Budgetary and Financial Management Reform in Central and Eastern Europe, OECD Journal of Budgeting, Volume 2, Supplement 1, pp. 81-114, OECD.

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  • Bjorgvinsson, J., 2003, The advantages of the GFSM 2001 Framework and its relationship with ESA 95, paper presented at the JVI Seminar, February 19-21, 2003, IMF (unpublished manuscript).

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  • Craig, Jon, and Alvaro Manoel, 2002, “Budget Management Systems in Anglo-Saxon and Latin American Countries: A Comparative Assessment,” paper presented at the IMF– World Bank Conference “Rules-Based Fiscal Policy in Emerging Market Economies,” Oaxaca, Mexico, February.

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  • Feldman, R., and C. M. Watson, 2002, Into the EU: Policy Frameworks in Central Europe, IMF: Washington DC.

  • Hemming, R., and M. Kell, 2001, Promoting Fiscal Responsibility: Transparency, Rules, and Independent Fiscal Authorities, a paper presented at the Bank of Italy Public Finance Workshop, Perugia, Italy, February, 2001.

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  • IMF, 2001, Government Finance Statistics Manual, 2001, IMF, Washington DC.

  • Kopits, George, and Steven Symansky, 1998, Fiscal Policy Rules, IMF Occasional Paper No. 162 (Washington: International Monetary Fund).

  • Kopits, George, and I. Szekely, 2002, Fiscal Policy Challenges of EU accession for Central European Economies, a paper originally presented at the international conference Structural Challenges and the Search for an Adequate Policy Mix in the EU and Central and Eastern Europe, organized by the Oesterreeichische National bank, Vienna, November 3-5, 2002

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  • Mueller, J., C. Beddies, R. Burgess, V. Kramarenko, and J. Mongardini, 2002, The Baltic Countries: Medium-term Fiscal Issues Related to EU and NATO Accession, IMF Occasional Paper No. 213, IMF, Washington DC.

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  • Organization for Economic Cooperation and Development (OECD), 1998, SIGMA Paper No. 19 Effects of European Union Accession—Part 1: Budgeting and Financial Control.

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The authors wish to thank Mr. Farhan Hameed for work in preparing the appendixes; Robert Feldman, Mark Horton, George Kopits, Johannes Mueller, Istvan Szekely, Johann Bjorgvinsson and Richard Allen for their constructive comments on earlier drafts of the paper; and Murray Petrie for major inputs to Box 2. This paper also benefited from discussion with the main EU accession country officials at a Joint Vienna Institute seminar on February 19–21, 2003. Any remaining errors are the responsibility of the authors.


The IMF Code of Good Practices on Fiscal Transparency (the fiscal transparency code), adopted in April 1998, aims at promoting good practices of fiscal transparency among all IMF member countries. The code and the Manual on Fiscal Transparency (the manual) are available on the IMF website at


The acquis defines all of the obligations of EU member states deriving from the Treaty of Rome, the Treaties of Maastricht and Amsterdam, the Single European Act, community law, and the judgments of the European Court of Justice and is continuously updated and developed. It has been subdivided into 31 chapters for accession negotiations with the EU Commission; a chapter is considered closed when a timetable is agreed for adoption of the required legislative and policy changes. See also Feldman and Watson (2002), Chapter 2.


EU surveillance of members’ stability or convergence programs and rules to dissuade members from noncompliance with EU reference values place a high premium on prompt reporting of fiscal data and rapid adjustment to ensure broad consistency of fiscal and monetary policies within the community. Stability programs setting out medium-term budgetary objectives and other relevant information are submitted by euro- area members; convergence programs, similar in content, but covering a broader range of objectives including monetary policy, are required from those states not participating in the euro area. The excessive deficit procedure (see Council Regulation (EC) No 1467/97 of July 7, 1997) requires prompt submission of fiscal data twice annually and a clear deadline for effective remedial action.


Malta and Cyprus have not participated in a fiscal ROSC to date.


Some elements of duality can arise from changes in national systems that respond only to acquis requirements rather than to general fiscal management needs: country studies of the ways in which existing members adapted to the acquis are provided in SIGMA Paper No. 19 Effects of European Union Accession—Part 1: Budgeting and Financial Control, OECD, 1998.


While there are strong imperatives to improve key elements of transparency, progress in many aspects will be achieved only over the long-term, and the pace of reform will depend on country-specific constraints. A critical element of applying the fiscal transparency code is to establish priorities for reform over a realistic time frame, taking into account specific capacity constraints. It can be added that fiscal ROSCs have indicated the need for improvement in some aspects of fiscal transparency even among existing EU members.


Bjorgvinnsson (2003) describes the 2001 Government Finance Statistics Manual (GFSM 2001) reporting requirements and the relationship with ESA 95 reporting. The present paper complements this study by examining developments in accounting systems with respect to fiscal reporting and transparency.


These elements are similar to listings by Feldman and Watson (2002)—see Box 7.7; and j. Craig and A. Manoel (2002). See also paragraphs 107-8 of the Manual on Fiscal Transparency.


As noted in the Appendix, observations relate to the time of the ROSC mission or update during Fund surveillance missions. Reforms that may have occurred subsequent to these dates but not recorded in formal updates are not shown. The fiscal transparency ROSCs do not attempt to indicate the extent of improvement required to meet EU requirements, but a recent review of fiscal management practices relative to EU requirements found considerable room for improvement in Central and Eastern European countries (see Allen, 2002).


The basic elements of such processes in advanced EU member countries were described in presentations by representatives of the Netherlands and the United Kingdom at an EC conference, EU Accession—Developing Fiscal Policy Frameworks for Sustainable Growth, held in Brussels, 13-14 May 2002, and organized by the European Commission, the IMF, and the World Bank. See


The June 2003 ROSC update notes some improvement in this regard, but notes continuing work underway to eliminate extrabudgetary funds, agencies and special funds and lack of transparency with regard to recapitalization of state-owned companies


See discussion in Mueller et al (2002), pp. 12–14 with reference to the Baltics.


There is need in this context for some resolution of the issues relating to the future interpretation of SGP rules and the question of whether the special difficulties faced by some accession countries require adjustment to the way in which the rules are applied and measured. See discussion in final section of Kopits and Szekely (2002).


In some advanced countries, explanations of changes are given for differences between budgets and the forward estimates for that budget year previously published. This form of accountability is a strong feature of the Australian budget estimates presentation.


Hemming and Kell (2000), discussing expenditure rules applied in several OECD countries argue that “they tackle deficit bias at its source…by forcing participants in the budget process to internalize budget constraints… governments are made accountable for what they control most directly…(and) there is now a large body of evidence suggesting that expenditure-based fiscal adjustments tend to be more successful than tax-based adjustments.” (p.417). Similar arguments can be applied to MTBFs, the question of whether these need to be supported by a formal rule is largely a question of credibility.


See paragraphs 91-2 of the Manual on Fiscal Transparency.


Again, this is largely a question of credibility. For further discussion of these issues see Mueller et al (loc cit, particularly Box 4), Kopits and Symansky (1998), and Hemming and Kell (2002).


Tax expenditures are defined as concessions from a “normal” tax base that involve loss of revenue rather than an expenditure to achieve a particular policy objective.


Extrabudgetary funds are discussed in Paragraphs 40–44 of the manual, in the context of the legal framework, and in Paragraph 59, in the context of comprehensive reporting. Contingent liabilities, tax expenditures, and QFAs are discussed extensively in Paragraphs 62–77 of the manual.


Handling of privatization receipts presents a particular issue in a number of countries, including the need to ensure the accountable use of privatization proceeds (Estonia), the need to clarify and rationalize the government’s involvement in the private sector (Bulgaria), and the need to report on public enterprise activities (or report on the entire public sector) and government equity (Slovenia, and the Slovak Republic) in the final accounts. In Estonia and Poland it was noted that all proceeds from the sale of enterprises should accrue to the budget first, and then be allocated as desired; and a clear rule specified in the event receipts are above or below the budget forecast.


Only transfers from the central government to the autonomous institutions are recorded rather than their full activities on a gross basis as recommended.


But the issue of disclosure of these obligations for fiscal planning and in accounting statements should be clearly distinguished from their recognition as liabilities in financial statements and statistical reports. The latter topic is subject to continuing debate in terms of international accounting standards, but irrespective of the outcome of this debate, it is important that information on such obligations be available and used for fiscal policy.


The Latvia ROSCs mentions that tax laws are being streamlined to reduce tax exemptions and the ROSC for Poland recommended continuing efforts to simplify the tax system and restrict tax preferences (the June 2003 update for Poland, however, notes a number of steps being taken to eliminate tax exemptions, but a continuing need to report on remaining tax expenditures). ROSCs for Romania and Turkey also note the complexity of the tax system.


At the Joint Vienna Institute seminar, representatives from some other countries (notably Bulgaria and Malta) indicated their authorities’ commitment to introduction of accrual basis accounting.


The nearest equivalent balance in GFSM 2001 is net lending/borrowing from the Statement of Government Operations.


The June 2003 update notes that steps have been initiated in Poland to move toward accrual accounting for the entire general government. The original ROSC for Bulgaria recommended a more comprehensive accounting system; the update on Bulgaria notes treasury improvements including new Chart of Accounts that is consistent with ESA95 and new GFSM; and more comprehensive accounting. In Turkey the presence of a large number of budgetary and nonbudgetary organizations collecting and spending public resources while following various accounting and reporting requirements hindered the transparency of fiscal operations.


Some ROSCs also recommend publication of budget and accounting summary information in a major European language or English to better inform markets.


From 2001, parliament must approve all increases in budget spending, but these rules do not apply to extrabudgetary funds.


Practices in Hungary have been amended, as noted in ROSC updates, to ensure full parliamentary scrutiny of use of privatization receipts.


However, the Bulgaria update notes improvements that permit it to be first EU accession country to manage the Special Accession Program for Agriculture and Rural Development (SAPARD) funds under EU member country guidelines for management of state aid; six other accession countries now also have SAPARD accreditation.


In some cases, it has been recommended that a public accounts committee be established to review external audit reports and follow-up on its recommendations. In Turkey, the ROSC advocated expanding the scope of the external audit to cover extrabudgetary funds, provincial administration and social security institutions.


Some steps are being taken in this direction in several countries (for instance, in Lithuania since 2000, the government has been working on establishing program-based medium-term budgeting to link the strategic plan with budget plans of government agencies). However, development of results-oriented budgeting, reporting, and audit is necessarily a long-term program, even in the most advanced countries.


See, for instance, footnote 12 of the June 2001 ROSC for Estonia.


In Estonia, for example, the ROSC records that borrowing by local governments in excess of one year requires that the funds be devoted to approved investment projects, that the stock of their debt not exceed 60 percent of projected revenues (the June 2002 ROSC update notes that this limit was tightened from the former 75 percent), and that debt service payments cannot exceed 20 percent of projected revenue in any one year. In Hungary local government debt is limited to 70 percent of adjusted own revenues, and regional authorities have to submit to an external audit before borrowing.


In Hungary, local government bankruptcies are governed by the Law on Bankruptcy of Local Governments. In 2002, the Czech Republic removed existing limits on borrowing and the extension of guarantees for subnational governments. However, the new law explicitly states that the central government is not liable for the debt of municipalities and regions.


In Estonia, for example, 10 municipalities exceeded borrowing limits and in 2 cases the central government had to bailout the local governments.


The Czech Republic and Estonia reportedly intend to publish quarterly general government accounts according to ESA95 standards in 2003.


Steps have been taken in this direction by the Czech Republic, Slovenia, and Estonia; such steps are not recorded in other ROSCs or updates.


It can be noted that similar problems occur in many advanced countries (for instance Italy and the United States). Australia provides a good example of the application of uniform statistical standards for presenting fiscal data at federal (commonwealth) and state levels as well as a mechanism for agreeing on general government borrowing levels. Germany provides another good example of consistent classification and planning systems.


ROSCs note that local governments have expanded extrabudgetary activities (Poland), engaged in QFAs (Lithuania), increased the size and number of local government enterprises (Turkey), and run payment arrears (Lithuania).

Fiscal Transparency in EU Accession Countries: Progress and Future Challenges
Author: Mr. William A Allan and Ms. Taryn R Parry