1. EDP/GFS revisions – user perspective
Ingrid TOMING, DG ECFIN

2. Outline – use of EDP/GFS statistics in budgetary surveillance
Corrective arm of SGP
Opening and closing of EDPs
Assessing "action taken" and intermediate targets
Preventive arm of SGP
Forecast
Statistical revisions in DG ECFIN's work

3. Corrective arm of SGP – opening and abrogating EDPs
Depend on notified data (past and planned), plans in SCPs/DBPs and Commission's forecast
For opening and closing of EDPs, nominal data matters
When an EDP is opened, MS receives a recommendation
Deadline to adopt necessary measures to comply with the recommendation (max 6 months)
MS to report to the Council and the Commission
Deadline to end the excessive deficit situation
As a rule, the year after its identification (t+1 for excessive deficit observed in t-1)
Path with intermediate nominal targets
Annual fiscal effort
In structural terms, consistent with the nominal path, at least 0.5% of GDP annually

4. Assessing compliance with the EDP recommendation (simplified view)
Are the (intermediate) nominal targets met?
If not, is the recommended fiscal effort met?
Top-down approach (change in the structural balance), adjusted for difference between the forecast at the time of the recommendation and the outcome, including revenue shortfalls/windfalls
Bottom-up approach (actual fiscal measures)
Outcome:
Abrogation (if deficit sustainably below 3%);
New recommendation (if deadline missed but fiscal effort done);
Stepping up the procedure

5. Some descriptive statistics on EDPs
38 EDPs leading to 69 recommendations over (initial and revised)
Average deficit at the start of new procedures 5.5% of GDP, average debt 61.1%
Average length of recommendation (new and revised procedures) 2.5 years
Average recommended annual structural effort (new and revised procedures) 1.1% of GDP

6. Countries under corrective and preventive arm at the end of the year

7. Preventive arm of SGP Preventive arm centred on MTO
MTO = target in structural terms
Compliance with the preventive arm
Depend on the level of structural balance (at the MTO or not)
Possibility for temporary deviation from the MTO or adjustment path in case of systemic reforms
If not at MTO: deviation from and progress towards the MTO are measured in two ways: Δ structural balance and expenditure benchmark, similar (but not identical) to top-down and bottom-up under the corrective arm

8. Recap: measuring fiscal effort / progress towards or deviation from MTO
Top-down
Bottom-up
Corrective arm: actual fiscal measures
Change in the structural balance
Revenue: measures taken
Under corrective arm: adjusted for developments compared to the EDP scenario
Expenditure: evolution of expenditure under control of government
In the context of EDP recommendation
Preventive arm: expenditure benchmark
Evolution of expenditure net of discretionary revenue measures
Excludes interest, cyclical unemployment benefits and expenditure fully matched by Union funds revenue
Compared to potential growth rate

9. Fiscal forecast in DG ECFIN (1)
Forecast sheet is based on the national accounts approach
Ca 40 compulsory variables for general government, largely corresponding to "Table 2", i.e. GFS
Most desks have a more detailed approach, tailored to the needs and availability of data
Compulsory variables are (mostly) annual, but quarterly data are used by many desks

10. Fiscal forecast in DG ECFIN (2)
"No policy change" fiscal forecast
Extrapolates past revenue and expenditure trends and relationships in a way that is consistent with past policy orientations
Reflects all measures that are sufficiently detailed, and are adopted or at least credibly announced
May include working assumptions to deal with possible structural breaks

11. Fiscal forecast in DG ECFIN (3)
Spring and autumn forecasts perfectly aligned to the notification calendar, winter forecast is more flexible
Each forecast leads to the assessment of budgetary situation for countries under corrective and preventive arm
Spring forecast feeds into the assessment of Stability and Convergence Programmes
Autumn forecast feeds into the assessment of Draft Budgetary Plans for Euro Area

12. Use in surveillance: EDP deficit and debt
EDP deficit and debt (nominal)
Treaty based use
Opening and abrogation of EDPs
Intermediate progress with respect to nominal EDP targets
Structural balance = cyclically adjusted balance net of one-offs, top-down approach
Measuring fiscal effort (corrective arm)
Measuring distance from and adjustment towards the MTO (preventive arm)

13. Use in surveillance: GFS data
DG ECFIN fiscal forecast
Almost all "Table 2" variables
Adjustment for revenue windfalls/shortfalls in the top-down approach (corrective arm)
Revenue (compared to the forecast)
Bottom-up approach (corrective arm) / expenditure benchmark (preventive arm)
Total expenditure
Interest expenditure
GFCF
(Expenditure fully matched by revenue from the EU)
(Cyclical unemployment expenditure – builds on COFOG)

14. User view on statistical revisions (1)
EDP deficit / debt
If EDP deficit turns out higher than previously notified, also the correction will take longer: a year may be lost…
If there is a risk of revision: should be explicit
Inconsistency between EDP and GFS
Can lead to a wrong conclusion: nominal deficit is not met, but the fiscal effort is (wrongly) deemed fulfilled
To be avoided
Revenue and expenditure levels
Can lead to a different conclusion because of assymmetric treatment of revenue and expenditure in the bottom-up approach
Mitigating factor: rate of change is usually more important than level

15. User view on statistical revisions (2)
Inconsistency between GFS and the rest of macroeconomic data
Least harmful (but not entirely problem-free)
Public information on the source of discrepancies is a very good idea (national accounts category could be useful…)
To consider in case of breaks in series: publishing at least one period on the basis of both "old" and "new" approach