New Draft Fiscal Transparency Code and Assessment

1. New Draft Fiscal Transparency Code and Assessment

2. New Draft Fiscal Transparency Code & Assessment:Outline of the Presentation • Lessons from the Crisis • Revised Fiscal Transparency Code • The New Fiscal Transparency Assessment • Questions and Comments

3. I. Lessons from the Crisis a. Lack of Transparency Exacerbated Problems Sources of Unexpected Increase in General Government Debt (percent of GDP, 2007-2010) Issues Revealed by the Crisis Unreported Deficits SoEs & PPPs Arrears Macroeconomic Risks Contingent Liabilities Stimulus / Consolidation

4. I. Lessons from the Crisis b. Example: Portuguese debt 120 120 Arrears General Government gross debt 100 100 SOE & PPP reclassifications SOE & PPP debt outside the General Government Non-SOE & PPP General Government debt 80 80 60 60 40 40 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 *Only includes Central Government SOE debt pre 2007

5. I. Lessons from the Crisis c. Weaknesses in Reporting Standards Recommendation Weakness in Current Standards Problem Monthly operational fiscal reports Infrequent fiscal reporting Revisions to Deficits Publication of fiscal data for public sector Exclusive focus on general government Quasi-fiscal Activity by SoEs Recognition of doubtful debts in summary aggregates Losses on asset & liability holdings not recognized Unreported Flows Alternative macro-fiscal scenario analysis Bias in macroeconomic forecasting Macroeconomic Shocks Recognition of quantifiable contingent liabilities Exposure to Financial Sector No recognition of contingent liabilities

6. I. Lessons from the Crisis d. Weaknesses of the Previous Code & ROSC • Code & ROSC evaluate clarity of reporting procedures not quality of reports • Code’s 4 “Pillars” reinforce focus on formal laws, institutions, and processes • ROSCs pay too little attention to the content of fiscal reports themselves • Code & ROSC adopt a “one-size-fits-all” approach to evaluating countries • Do not take into account different levels of institutional capacity • Do not provide milestones to full compliance with international standards • Make it difficult to benchmark against comparator countries • ROSC assessments tended to be exhaustive rather than risk-based • Place equal weight on all elements of the Code • Difficult to judge relative seriousness of different fiscal reporting gaps • Include a large number of unprioritized recommendations

7. II. Revised Fiscal Transparency Code a. Objectives and key features of the revision • Focus on the quality and reliability of reported outputs as a more objective basis for evaluating the degree of effective transparency • Updated fiscal transparency principles and practices to reflect the lessons of the recent crisis and developments in international standards (e.g.,GFSM 2001, IPSAS, etc.) • Graduated practices for each fiscal transparency principle to provide countries with a set of achievable milestones on the way towards full compliance • Quantitative fiscal transparency indicators to highlight the magnitude of any gaps in published fiscal data • Complementarity with other multilateral diagnostic tools in the fiscal area, in particular the PEFA framework

8. II. Revised Fiscal Transparency Code b. Architecture of the Revised Code Three Pillars of the Revised Fiscal Transparency Code & Assessment Construction

9. II. Revised Fiscal Transparency Code c. More Graduated Set of Practices

10. III. New Fiscal Transparency Assessment (FTA)a. FTA will replace ROSC • More accessible evaluation with summary “heat maps” to provide countries with a clear picture of strengths and areas for development • Benchmarking against comparator countries • More rigorous analysis and quantification of any gaps through the new fiscal transparency indicators • A more targeted and sequenced action plan for addressing the main transparency weaknesses identified • Modular application including assessments of just one of the three pillars or targeted assessments focused on the most pressing transparency issues in a country

11. III. New Fiscal Transparency Assessmentb. Summary Heat map – Ireland example Ireland: Assessment Against Fiscal Transparency Practices

12. II. New Fiscal Transparency Assessmentc. Considers the whole of the public sector Ireland: Institutional Compositions and Finances

13. II. New Fiscal Transparency Assessmentd. A clear and complete picture of the public finances Ireland Public Sector Financial Overview, 2011 (Percent of GDP) Public Sector deficit is smaller than General Government Large financial sector assets that are often overlooked Public Sector liabilities more than 3 times size of GG debt Public Sector net liabilities lower than the US and the same as UK

14. III. New Fiscal Transparency Assessmente. Fiscal Transparency Indicators – some examples Coverage of Public Sector Entities (percent of expenditure) Reporting of Assets and Liabilities (percent of GDP) Contingent Liabilities (percent of GDP) Fiscal Forecast Error (percent of GDP) Ireland Fiscal Transparency Indicators Public corporations remain outside fiscal reporting Only a quarter of public sector liabilities reported Fiscal Forecasts are realistic and relatively accurate Guarantees remain a major source of risk

15. IV. New Fiscal Transparency Assessment f. Code and indicators come together Ireland: Summary Assessment of Fiscal Reporting Practices

16. IV. New Fiscal Transparency Assessment g. Providing a targeted and sequenced action plan Ireland Fiscal Transparency Action Plan

17. Thank you! Questions and Comments?