How Governments Can Ensure Transparency — Views from IMF
Suraj Jaiswal
In a democracy, elected governments are entrusted with a number of powers and responsibilities, including managing public resources and spending it as deemed fit for the welfare of masses. The members of the government are not the owners of the public finance, but they are expected to manage it in a manner that is best suited for the benefit of the citizens. For citizens and other non-government actors to be able to evaluate the government’s management of public resources, the relevant information needs to be made public.
A transparent fiscal regime is helpful in curbing corruption and building better trust between the citizenry and the government. It is also useful in creating a wider dialogue on government policies, and hence weeding out inefficient and / or ineffective policies and practices.
Owing to such desirable outcomes, transparency in government’s management of public resources is considered an essential feature of democratic governance.
What information regarding public finance needs to be made public, in what format and what other attributes it should have, all such details combined are broadly known as transparency code. Arguably, the most often used transparency code by governments worldwide is the one devised by the International Monetary Fund (IMF). First envisaged in 1998, it has seen continuous evolution over time. The current code was revised in 2014, and then further changes were made in 2019.
The code has a three layered structured with Pillars, Dimensions and Principles.
There are four main pillars, and each of these pillars are divided into multiple ‘Dimensions’, each of which is further divided into many ‘Principles’. These principles are, in essence, the foundations of IMF’s code on how government’s fiscal management can be made more transparent.
This article briefly explains the four pillars, the dimensions and the principles in the IMF transparency code.
1. Fiscal Reporting — This pillar basically deals with what fiscal information should be reported, how to maintain the quality, and when it should be reported. There are four dimensions to it as follows:
a. Coverage — it lists all the relevant information which should be covered in reports. The four principles under it described are coverage of institutions, stocks, flows, and tax expenditure.
b. Timeliness — this dimension is about when reports should be published. Two principles under this dimension suggest that reports should be published frequently, regularly, and in timely manner.
c. Quality — it explains what attributes the information should have. It suggests that information should be relevant, presented in format that can be compared internationally, and should have consistency — internally as well as historically. Three principles under it are about the consistency, classifications and disclosure of revisions.
d. Integrity — this dimension is about the reliability of the information presented in the report. There are three principles under it, and they refer to statistics presented according to well defined standards, being audited by an independent institution, and fiscal data being comparable throughout the report as well as with other reports published according to international standards.
2. Fiscal Forecasting and Budgeting — Budgets inherently involve forecasting, because they are about the future. This pillar posits that reports about budgets should clearly mention with what objective(s) the policies have been made, and it should have credible projections about the public finances. There are four dimensions as follows:
a. Comprehensiveness — the budget and the forecasts associated should provide a comprehensive view about the situation related to public finance. There are four principles under it, they refer to reporting of all the revenue, costs and finances approved by the legislature; all the relevant forecasts and related methodology properly disclosed and explained; the projections for medium term and government’s plan to adjust any overruns; and the government’s obligations towards all the multi-year investments. Essentially all indicators that have implications for government’s finances should be reported.
b. Orderliness — the process of preparation of budget, the powers of executive and legislative branches should be defined in the law. There are two principles under this dimension, and they refer to the legal framework about the various aspect of budgetary processes and the institutions involved, and publication of relevant budget documents.
c. Policy Orientation — the presentation of budgetary documents and forecasts should be such that it facilitates engagement by the public and demand of accountability from the government. Three principles under it suggest that all the policy objectives and all the results achieved should be published in a manner that is accessible to the general public.
d. Credibility — budget documents should provide credible information and forecasts. Three principles to achieve this are evaluation of budget by independent entity, all the changes in the budget to be authorised by legislature, and all the revisions to be properly explained.
3. Fiscal Risk Analysis and Management — Given that the budget involves projections and execution in the future, there are inherent risks associated with it. All such risks should be analysed, and proper strategy to manage be put in place. There are three dimensions under this pillar:
a. Risk Disclosure and Analysis — all risk to public finance should be analysed and disclosed in proper format and timely manner. The three principles under it are about the types of risks, they are macroeconomic, sector specific, and long-term sustainability.
b. Risk Management — all relevant risks to public finance of the country should be properly monitored and regularly analysed, and proper strategies to manage them should be put in place. The seven principles under it lists different types of risks that should be considered. They cover issues such as — contingency plans, liability and guarantees given by the government, risks related to financial sector, risks related to natural resources and environment.
c. Fiscal Co-ordination — Government structure in a country is generally complex because of scale of operation, political structure, multiple objectives and constraints government has to operate under. Such structure leads to a situation where government entities include many independent, quasi-independent or interdependent entities. Broadly, such entities can be of two types — sub-national governments, and public sector enterprises. Such entities often work with each other and there are overlaps in functionalities. All relevant information, like performance and financial indicators, for such entities should be reported in proper consolidated forms.
4. Resource Revenue Management — Government raises receipts from multiple sources, like taxation, public sector enterprises, user-fees, natural resources, etc. Among all these, natural resources need special consideration because of the possibility of misuse/abuse as well their impact on environment. All relevant information regarding different aspects of resource of government is to be properly recorded and made publicly available. There are four dimensions under this pillar, as follows:
a. Resource Ownership and Rights — who has the rights to exploit the natural resources should be properly defined in law. Also, the process of allocation of rights to individual or any legal entity should be properly recorded and transparent. Three principles under this refer to the legal framework related to the ownership of natural resources, the process of allocation of rights, and the disclosure norms about the ownership.
b. Resource Revenue Mobilization — how natural resources should be used to generate revenue for the government, what should be the scale, who should have the responsibility and what should be the process, all these things need to be defined clearly in the law. Two principles to achieve this are about the fiscal regulations and the administration of revenue generation and collection.
c. Resource Revenue Utilisation — the revenue generated from natural resources needs to be utilised in a manner best aligned with overall fiscal objective of the government. Towards this objective, there are three principles — revenue forecasting to be done in a methodological sound and transparent manner, the revenue to be properly budgeted in accordance with the fiscal policy of the government, and in case the revenue from the natural resources is going towards an independent fund, then the governance, disclosure and reporting of the same to be properly defined in law.
d. Resource Activity Disclosure — usage of natural resources includes a number of steps and actors. Apart from revenue, they also generate externalities like impact on environment and on the society nearby. All such processes and impacts should be properly recorded and published. There are four principles under this dimension, and they refer to reporting of information as well as their reliability which can be ensured through audit, clearly defined governance guidelines, and the assessment of environment and social impact.
Given the expansive nature of government’s activities, multiple sources of revenue, multiple objectives, risks and uncertainty involved, managing public finance is a difficult process. Nonetheless, it is the duty of the government to follow best public finance management practices. One essential aspect of this is making the relevant information available and accessible to public. The transparency code by International Monetary Fund (IMF) as described above is a useful and much followed code to help governments achieve the goal of fiscal transparency.
