1. Transparency and Good Governance: The Effects on Economic Performance
Sanjeev Gupta
Deputy Director
Fiscal Affairs Department, IMF
Transparency Forum
“The Impact of Transparency on Democracy, Quality and Economic Growth”
University of Alcala, Madrid, Spain, June 2017

2. Outline Fiscal transparency, governance and economic performance
Importance of transparency
The Fiscal Transparency Code
Findings of Fiscal Transparency Evaluation
Findings of Public Investment Management Assessment
Key Takeaways

3. I. Fiscal transparency and governance
Transparency is a key element of good governance
Good governance
When public institutions are:
accountable
effective and efficient
transparent
responsive
equitable
Governance
the institutions, mechanisms, and practices through which governmental power is exercised

4. I. What is fiscal transparency?
clarity, reliability, frequency, timeliness, and relevance of public fiscal reporting
openness to the public of the government’s fiscal policy-making process to demonstrate that government’s decisions are informed by:
accurate assessment of the current fiscal position
clear costs and benefits of policy changes
and the potential risks to the fiscal outlook

5. I. Fiscal transparency and governance
Fiscal transparency is associated with strong governance
Transparency & Governance
(ICGR global, average )
Sources: Transparency International and IMF.
Note: The ICGR Index is the average score for a country between

6. I. Fiscal transparency, governance and corruption
Insufficient transparency is often associated with corruption which
Undermines quantity and quality of public spending
Hinders sound monetary policy
Hampers market access
Negatively impacts the private sector
Is linked to poor social and environmental outcomes
Transparency & Corruption
(CPI, average )
Less corrupt
More transparent
Source: Transparency International and IMF FTEs.
Note: The CPI is the average score for a country between

7. I. Fiscal transparency, governance and corruption
Corruption weakens the government’s capacity to raise revenue
Corruption and VAT C-Efficiency 1/
Harms the culture of compliance, increasing tax evasion
Creates disincentives to pay taxes when tax exemptions are viewed as arbitrary
As a result, lower revenue limits the ability of the state to provide public services with consequences for growth

8. I. Fiscal transparency, good governance and economic performance
Transparency and governance have a strong influence on economic performance
Transparency & Competitiveness
Transparency & Ease of Doing Business
Sources: World Bank, World Economic Forum and IMF.

9. I. Fiscal transparency, governance and corruption
Corruption Mitigation Strategy includes the following pillars:
Transparency
Rule of Law
Economic reform policies designed to remove excessive regulation
Effective Institutions

10. II. Importance of fiscal transparency
Fiscal shocks can be large and damaging
Sources of Unexpected Increase in General Government Debt*
(percent of GDP, )
Policy Change
Exogenous Shocks
Underlying Fiscal Position
*Weighted average of: France, Germany, Netherlands, Spain, Portugal, UK, USA, Greece, Ireland and Iceland

11. II. Importance of fiscal transparency
Transparency affects fiscal solvency and fiscal credibility
Fiscal Transparency & Fiscal Solvency
Fiscal Transparency & Fiscal Credibility
Note: Fiscal Transparency Index is based on data from fiscal ROSC reports and the quality of budget institutions index developed by Dabla-Norris and others (2010).
Source: IMF (2012) “Fiscal Transparency, Accountability and Risk,” IMF Policy Paper.

12. II. Importance of fiscal transparency
Transparency increases credibility and reliability of governments economic forecasts
Transparency and quality of GDP forecasts
Transparency and quality of inflation forecasts
Source: Sarr, B. (2015) “Credibility and Reliability of Government Budgets: Does Fiscal Transparency Matter?” International Budget Partnership Working Paper No. 5.

13. II. Importance of fiscal transparency
Transparency bolters the efficiency of public investment
Public investment efficiency score & Fiscal Transparency
Source: Transparency International and IMF PIMA scores.

14. III. The Fiscal Transparency Code
A global concerted effort to improve fiscal transparency since the late 1990s
Asian crisis highlighted weakness in public and private financial reporting
Also underscored the risks associated with undisclosed linkages between the two
New fiscal reporting standards were developed
General: IMF’s Code & Manual on Fiscal Transparency
Budgeting: OECD Best Practices for Budget Transparency
Statistics: EU’s ESA 95, IMF’s GFSM 2001 and 2014, & UN’s SNA 08
Accounting: IFAC’s International Public Sector Accounting Standards (IPSAS)
New tools for monitoring compliance with standards were introduced
Multilateral: Fiscal ROSCs, GDDS/SDDS, & PEFA
Regional: Eurostat, WAEMU & CEMAC harmonization of fiscal reporting
Civil Society: Open Budget Survey and Index, GIFT Principles

15. III. The Fiscal Transparency Code (IMF 2014)
Four Pillars

16. III. Application of the Fiscal Transparency Code
Finland Summary assessment

17. IV. Monitoring Fiscal Transparency
Fiscal Transparency Evaluation (FTE) missions
22 FTE missions conducted, as of June 2017

18. IV. Results of Fiscal Transparency Evaluation
FTE results by pillar and level of income
FTE Results by Pillar
(Percent of total scores)
FTE Results by Income
(Percent of total scores)
Source: IMF Fiscal Transparency Evaluations.

19. IV. Results of Fiscal Transparency Evaluation
FTE results by pillar and topic
On average, management of fiscal risks relatively weaker than reporting and budgeting practices
Ranking of FTE Scores (Average)

20. IV. Results of Fiscal Transparency Evaluation
Countries often report much less than full public sector
Large gaps in public sector balance sheet
Unreported Public Sector Expenditure (Percent of Total Expenditure)
Ireland: Public Sector Balance Sheet, 2011 (Percent of GDP)
Improved focus on general government leaves public corporations unreported
Large amounts of quasi-fiscal activity continues to occur outside the budget
In Ireland, only a quarter of public sector liabilities were reported

21. IV. Results of Fiscal Transparency Evaluation
Macro and fiscal forecasts are often systematically optimistic
There are large contingent liabilities, many of which are unreported
Medium Term Expenditure Forecast Errors (% of GDP)
Contingent Liabilities (% of GDP)
Overspend
Underspend
Leads to unrealistic medium-term fiscal plans with weak credibility.
Include guarantees, PPPs, pension liabilities and public corporation liabilities.

22. IV. Results of Fiscal Transparency Evaluation
FTE results support earlier findings
FTE & Corruption
(CPI, average )
FTE & Governance
(ICGR global, average )
Sources: Transparency International and IMF FTEs.
Note: The ICGR Index is the average score for a country between
Sources: Transparency International and IMF FTEs.
Note: The CPI is the average score for a country between

23. IV. Results of Fiscal Transparency Evaluation
FTE results support earlier findings [cont.]
FTE & Global Competitiveness
(2016)
FTE & Ease of Doing Business
(2016)
Sources: World Bank Data and IMF FTEs.
Sources: World Bank Data and IMF FTEs.

24. V. Results of Public Investment Management Assessment (PIMA)
Good governance
When public institutions are:
Accountable
Effective and efficient
Transparent
Responsive
Equitable
Good governance bolters economic performance
Transparency associated with more effective and efficient institution for public investment management (PIM)

25. V. Results of Public Investment Management Assessment Sizeable gaps in public investment efficiency, even in ADVs
Large public investment efficiency gaps both across and within different income groups
Average efficiency gap is 27% , even larger gaps among low-income countries
Public Capital Stock and Infrastructure Performance
Public Investment Efficiency Index (PIE-X)
Source: Making Public Investment more Efficient Board Paper.

26. Impact on output after 4 years
V. Results of Public Investment Management Assessment More efficient public investment can serve as an important catalyst of growth
Both level and efficiency of public investment have a large impact on economic growth
Most efficient public investors get twice the economic dividend from their investment compared to least efficient public investors
Impact on output after 4 years
of a 1% of GDP increase in investment
Profile of output impact of a 1% of GDP increase in public investment by efficiency group
Source: Making Public Investment more Efficient Board Paper.

27. V. Results of Public Investment Management Assessment PIMA is a new diagnostic tool, evaluates 15 key institutions in 3 phases of the PIM process

28. V. Results of Public Investment Management Assessment What has been done so far? 36 Desk Studies and 21 Piloting Missions

29. V. Results of Public Investment Management Assessment Preliminary findings from 21 pilots in EMEs and LIDCs
Average scores of 21 pilots in line with desk studies results
EMEs perform better than LIDCs, except in national & sectoral planning
For all income levels biggest challenges are in allocation and implementation phases

30. V. Results of Public Investment Management Assessment Preliminary findings from 21 pilots in EMEs and LIDCs
Implementation phase shows the weakest results so far
4 out of 5 institutions score in the bottom
Transparency of execution
Protection of investment
Monitoring of assets
Project management
While worst performing institution belongs to allocation phase
Project appraisal
Planning
Allocation
Implementation

31. V. Results of Public Investment Management Assessment Existence of institutions doesn’t necessarily to good results – they need to be used
While Sub-Saharan African countries have reasonable institutions, they are relatively ineffective.
MTBFs exist, but aren’t followed in subsequent years
Laws exist but aren’t followed
Procurement law requires competitive tendering but in practice most projects are not

32. VI. Key takeaways
Fiscal transparency is one of the key elements of good governance and has a strong influence on economic performance
Fiscal transparency is important
to reduce corruption
to strengthen fiscal solvency and credibility
to prevent large and damaging fiscal shocks
increase credibility and reliability of governments economic forecasts and budgets
bolters the efficiency of public investment
Results from Fiscal Transparency Evaluation (FTE) missions point to large gaps, particularly in risk management practices
Results from Public Investment Management Assessment (PIMA) missions also suggest weaknesses in transparency practices

33. Thank you!