“IF WE are going to strengthen investment, we must improve on transparency gaps.”
This was how International Monetary Fund (IMF) acting director for fiscal affairs Sanjeev Gupta cited the importance of fiscal transparency and infrastructure development and financing, two of the four pillars of the Cebu Action Plan (CAP).
Based on IMF’s observation, Gupta said 20 percent of government spending are not reported. As a result, these inefficiencies lose roughly one-third of the investment potential.
“The key message is strengthen fiscal transparency and improve quality of investment,” Gupta said during the press briefing yesterday for the Asia Pacific Economic Cooperation (APEC) Finance Ministers’ Meeting at the Movenpick Hotels and Resorts in Lapu-Lapu City.
In the case of the Philippines, it earned a favorable score in IMF’s Fiscal Transparency Evaluation in June 2015. The evaluation revolves around three pillars, which cover fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis management.
Against the 36 principles of the IMF’s Fiscal Transparency Code (FTC), the Philippine evaluation is broadly favorable, as the country is “advanced” in seven principles, “good” in 16, and “basic” in eight.
“The Philippines has a relatively favorable assessment..Overall, the country complies with generally good practices across all pillars, although with several areas for improvement in each of them,” the IMF report states.
In the area of fiscal reporting, IMF critiqued that while it is comprehensive and timely, there is a lack of consolidated data that covers the public sector and as a whole. One of the recommendations is for the government to strengthen the executive branch in terms of its capacity to consolidate and report fiscal data and statistics.
Meanwhile,in fiscal forecasting and budgeting, the environment is generally good but the budget’s credibility has been undermined by the “complexity and flexibility” of the annual budget framework.
In fiscal risk analysis management, the Philippines fared better than some countries, but there are few areas for improvement. IMF said it needs to capture the risks from guarantees and public-private partnerships and assess the scope of tax expenditures while introducing a longer-term perspective in analyzing fiscal sustainability.
Although Gupta highlighted the importance of transparency, he said the results are not immediate and the consequences of non-compliance are not easily felt.
“There is no immediate consequence..but it prepares you well when fiscal risks follow,” Gupta said. In addition, the official believes that a transparent system will improve the country’s revenue and spending efficiency.
IMF resident representative Shanaka Peiris, on the other hand, said financial resiliency, also one of the pillars of CAP, will be a by-product of fiscal transparency.
Gupta noted that the member economies are interested to implement fiscal transparency and the other pillars of CAP.
Although compliance of CAP, particularly on the matter of fiscal transparency, is voluntary and not binding among APEC countries, IMF officials believe they will follow because compliance leads to “good outcomes.”
Fiscal transparency, according to IMF in its website, is the comprehensiveness, clarity, reliability, timeliness, and relevance of public reporting on the past, present, and future state of public finances.
It is critical for effective fiscal management and accountability and helps ensure that governments have an accurate picture of their finances when making economic decisions, including of the costs and benefits of policy changes and potential risks to public finances. It also provides legislatures, markets, and citizens with the information they need to hold governments accountable.