Fiscal Transparency in CESEE

Friday, July 30, 2021, 15.00 – 16.00 Vienna time (CEST)

Ms. Silvia Domit, European Department, International Monetary Fund
Ms. Nujin Suphaphiphat, European Department, International Monetary Fund

Mrs. Barbara Dutzler, Joint Vienna Institute

In the wake of the current global health crisis, fiscal transparency concerns have come to the forefront of discussion. Fiscal risks related to public investment, subnational governments, public guarantees, and state-owned enterprises (SOEs) have increased in Central Eastern and Southeastern European (CESEE) countries, following the strong fiscal response to the COVID pandemic.

While research has shown that fiscal transparency is critical to effective fiscal management and accountability, lack of fiscal transparency has contributed to periods of macroeconomic stress and sovereign debt crises in European countries. Underestimated fiscal risks and deficient fiscal reporting have led to large unexpected debt increases during the global financial crisis.

Drawing on the results of a recent IMF survey on fiscal transparency and putting a spotlight on Central, Eastern and Southeastern European economies, Silvia Domit first presented the three pillars of the IMF’s Fiscal Transparency Code and the fiscal transparency evaluation ratings of European countries according to basic, good or advanced practice.

Figure 1: FTE Ratings for CESEE Countries by Fiscal Transparency Pillar

In order to extend the knowledge on fiscal risk analysis and management practices in the region, a survey of CESEE country authorities was conducted relating to subnational governments, public investment management, government guarantees, and State-Owned Enterprises (SOEs). Selected results of the survey reveal the following, as Silvia Domit and Nujin Suphaphiphat explained:

  • Sub-National Governments: Two thirds of the countries surveyed show good or advanced practices. Most authorities report the use of financial performance monitoring of sub-national governments against benchmarks and have in place fiscal rules and limits on borrowing. Identified policy gaps relate to the lack of indirect controls like linking the degree of financial autonomy to performance reporting requirements, and risk transfer mechanisms such as no-bailout clauses or retaining the authority to liquidate assets and appoint an administrator. 
  • Public Investment Management: Most countries show good or basic performance. Policy gaps exist relating to publishing cost-benefit analyses based on clear, well-established guidelines and standardized methodology, as well as information on the total value of each multi-annual investment project. Further, the practice of open and competitive procurement process should be applied by SOEs and local government.
  • Government Guarantees: Mostly, countries follow good or advanced practices, in particular regarding direct controls such as a central registry of guarantees, publication of the stock outstanding as well as new issues, a central authorizing entity, or a law on the maximum guarantees to be issued per year. Gaps are present in indirect controls such as charging of fees, risk transfer elements such as requiring collaterals, and provisioning for calls or buffer funds.

Finally, the webinar discussed structural reform examples on how to improve fiscal transparency, and presented measures taken by the IMF in emergency lending, surveillance, and capacity development to ensure concrete steps to ‘keep the receipts’, improve government efficiency and reduce corruption vulnerabilities. After a round of questions on the survey methodology as well as on preconditions and outlook for reforms, the presenters concluded that while no single country fulfilled all criteria for transparency in fiscal matters, there had been tangible progress in the region.

Barbara Dutzler, Senior Economist, JVI


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