Progress towards fiscal transparency ‘uneven’, says IMF official

27 Mar 13
Efforts to improve fiscal transparency have led to better financial reporting practices but progress has been uneven, a senior International Monetary Fund official warned yesterday.

By Nick Mann | 27 March 2013

Efforts to improve fiscal transparency have led to better financial reporting practices but progress has been uneven, a senior International Monetary Fund official warned yesterday.

Speaking at a CIPFA and Ernst & Young event in Brussels, Richard Hughes welcomed countries’ progress in including more public sector activities in their fiscal reports. The number of countries whose financial reports cover at least their general government spending increased from 48 in 2004 to 78 in 2011.

‘Some progress’ has also been made in moving governments from cash to accrual-based accounting, with 64 countries using full or partial accruals in 2011, compared with just 38 in 2004, he added.

However, Hughes noted that just 12 countries had adopted full accrual accounting as of 2011.

Less progress had also been made in preparing full balance sheets that include information on government assets and liabilities. According to Hughes, only one quarter of countries can produce a financial balance sheet and less than 10% can produce one which covers both financial and non-financial assets.

Speaking to PF International at the event, Hughes explained that this was particularly significant given the private sector assets and liabilities that a lot of governments had taken on since the crisis hit.

‘This hasn’t been a typical crisis about falling revenues and rising expenditure,’ he explained. ‘A lot of the action of this crisis has gone on the balance sheets of governments – they’ve taken on lots of assets and liabilities from the private financial sector and in traditional accounting none of that shows up in how much tax revenue you bring in or how much spending you’re doing.

‘It shows up really on the balance sheets of governments and the challenge lots of them have is they don’t actually produce balance sheets so they can’t actually see the impact these kind of transactions are having on their public finances.’

Countries have been playing ‘catch-up’ over the past few years to try to understand the impact on their finances of actions such as taking over a private sector bank, Hughes said.

‘Ministries of finance aren’t used to being portfolio managers, they’re used to watching the revenues come in and watching the spending go out, and what’s the difference between the two. But now they’ve also got to worry about what’s the value of the assets and liabilities they’re now responsible for.’

Adopting common public sector accounting standards could make a ‘big difference’ to countries’ efforts to manage the continuing effects of the crisis, Hughes said.

‘A lot of what you want countries to do to be able to manage this kind of balance sheet crisis is just adopt international accounting standards which tell you to produce a full balance sheet and put your assets together, so your fixed assets are on there and you can understand the full network of government,’ he said.

Since the crisis hit, countries have been trying to realise value from their assets to reduce their liabilities – such as by privatising state-run operations – but they have been held back by not having the full balance sheets detailing their assets and liabilities that would be required if standards were in place, he added.

‘Too few governments have that information going into the crisis so they’ve lost crucial time in the past few years gathering that information,’ Hughes said. ‘If they’d had it at the start they could have walked straight into the privatisation programmes they need to initiate to realise their value and reduce their liabilities.’

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