Code of Good Practices on Transparency in Fiscal Policy

Fiscal policy transparency is a crucial part of good governance, generally accepted to be vital for successful and sustainable economic development. It makes those responsible for the design and implementation of fiscal policies more accountable. Ideally, the successful implementation of fiscal transparency will lead to more credible fiscal policies and, in turn, the support of a well-informed public, more favorable access to domestic and international capital markets, and fewer and less severe crises.
George Kopits and Jon Craig, of the Fiscal Affairs Department of the IMF, provided the standard definition of fiscal transparency in 1998. They define fiscal transparency as openness toward the public at-large about government structure and functions, fiscal policy intentions, public sector accounts, and projections. It involves ready access to reliable, comprehensive, timely, understandable, and internationally comparable information on government activities – whether undertaken inside or outside the government sector – so that the electorate and financial markets can accurately assess the government’s financial position and the true costs and benefits of government activities, including their present and future economic and social implications.

The IMF's Code of Good Practices on Fiscal Transparency

 Recognizing the importance of fiscal transparency for the development of civil society, economic growth, and the prevention of financial crises, the Interim Committee of the Board of Governors of the IMF adopted "The Code of Good Practices on Fiscal Transparency – Declaration on Principles" (the Code) on April 16, 1998. In 2001, a section related to best practices for the quality of fiscal data was added to the Code. In 2007, after extensive public consultation, a revised Code was published.
The Code is accompanied by a "Manual on Fiscal Transparency," which explains the Code in great detail. It emphasizes the Code as a set of good practices that are achievable by countries at all levels of development. The Code itself consists of four principles. (1) Clarity of Roles and Responsibilities, focuses on the clear distinction between government and commercial activities and on a clear legal framework governing fiscal administration. (2) Open Budget Processes, covers core practices on transparent budget preparation, execution, and monitoring. (3) Public Availability of Information, highlights the importance of publishing comprehensive fiscal information and contains a detailed list of information requirements that should be found in budget documentation. (4) Assurances of Integrity, concerns the quality of fiscal data and the need for independent scrutiny of fiscal information.
Fiscal transparency is only one aspect of good fiscal management and care is needed to distinguish fiscal transparency from two other key aspects, namely the efficiency of fiscal policy and the soundness of public finances. Institutional changes that would to more efficient government and promote sound public finances are not explicitly advocated in the Code nor does the Code assess fiscal performance. However, fiscal rules such as fiscal deficit rules (allowing for deficits only as counter-cyclical measures), a debt ceiling rule (i.e. a limit on the net debt/GDP ratio), the golden rule (public borrowing cannot exceed public investment) or the Euro Zones Stability and Growth Pact (SGP) may help to increase fiscal transparency. Such rules increase accountability as they set clear goals for fiscal performance, but require vigilance  against creative accounting and a sophisticated capacity to report accurately and regularly on fiscal developments.

Applicability of the Code

 The compliance of a country with the IMF's Code of Good Practices on Fiscal Transparency is assessed by IMF staff in the context of the  HYPERLINK "http://www.imf.org/external/np/exr/facts/sc.htm" Reports on the Observance of Standards and Codes (ROSC), which are carried out at the request of a country's authorities and published with their consent. At the end of 2006, the IMF had conducted assessments of 86 countries, most of which were published. A moteworthy development in the fiscal transparency areas is the Extractive Industries Transparency Initiative (EITI), to address transparency issues in resource-rich countries, which was launched in 2002 as a multi-stakeholder initiative and the Guide on Resource Revenue Transparency issued in 2005 by the IMF.  In addition Oxford Analytica, a research firm,  conducts fiscal policy transparency assessment against the IMF code for the California Public Employees' Retirement System (CalPERs) and the International Budget Project produces an Open Budget Index for 59 countries, assessing the availability of key budget documents for citizens. Other reports, such as the Studies on National Integrity Systems by Transparency International, as well as the annual Article IV consultations of the IMF with its members provide valuable information on fiscal policy practices for eStandardsForum's assessments.