1. MTEF, Performance, and Transparency
THE IMF CODE OF GOOD PRACTICES IN FISCAL TRANSPARENCY WAS ADOPTED BY THE (THEN) INTERIM COMMITTEE OF THE BOARD OF GOVERNORS OF THE INTERNATIONAL MONETARY FUND IN APRIL 16, 1998 AND ENDORSED BY ALL MEMBER COUNTRIES.
SINCE THAT TIME, THE FUND HAS BEEN WORKING WITH A WIDE RANGE OF MEMBER COUNTRIES ON STAFF ASSESSMENTS OF THEIR PRACTICES RELATIVE TO THOSE RECOMMENDED IN THE FISCAL TRANSPARENCY CODE—KNOWN AS FISCAL TRANSPARENCY REPORTS ON THE OBSERVATION OF STANDARDS AND CODES (ROSCS).
(SIMILAR APPROACHES ARE ADOPTED FOR OTHER STANDARDS (NOW 12 CORE STANDARDS) BEING FOSTERED BY THE INTERNATIONAL COMMUNITY. AS WELL AS THE IMF AND THE BANK, THESE STANDARDS ARE SUPPORTED BY THE FINANCIAL STABILITY FORUM (FSF), THE G-20, THE MANILA FRAMEWORK GROUP, ASIA AND PACIFIC ECONOMIC COOPERATION (APEC), AND WESTERN HEMISPHERE FINANCE MINISTERS).
THE BROAD OBJECTIVE IS TO HELP COUNTRIES TO OBJECTIVELY REVIEW THE DECISION PROCESSES AND QUALITY OF FISCAL INFORMATION AVAILABLE TO DECISION MAKERS AND THE PUBLIC—AND THEREBY TO HELP COUNTRIES IMPROVE THE BASIS FOR AND PUBLIC SUPPORT OF FISCAL POLICIES.
Seoul, Korea
March 19, 2004
Bill Dorotinsky
World Bank

2. Outline Transparency – overview MTEF Summary
Performance Budgeting (and management)
Linkages

3. Fiscal Transparency
Fiscal transparency is not just about accurate budgeting and reliable public accounts.
Effective public financial management (PFM) requires consideration of:
Relations within government and between government and other economic actors
Off-budget fiscal activity
Measures to assess fiscal risks
Fiscal sustainability
Oversight and integrity
The structure of the IMF fiscal transparency code is designed to cover all such PFM-linked practices

4. Why Transparency?
Improved transparency is a necessary basis for improving the efficiency and effectiveness of fiscal management through:
Better and broader information: better decisions
Broader access to information, better decisions by actors within and outside government
Stronger public and parliamentary oversight, and potential for improved governance and accountability
Improve business environment and attractiveness to FDI
These factors can be reinforced by market analysts and civil society organizations
Broad Objective: create a virtuous cycle, whereby better information strengthens policy and leads to demands for continuing improvement in information and policy making.
However, transparency is a public good and merit good—gainers don’t pay and losers don’t support
A key objective of defining and encouraging assessment of transparency is to provide a strong link between government fiscal decisions and financial markets.
The presence or absence of transparency can provide an incentive for decision-makers to undertake appropriate improvements in their system.
For such an incentive system to be effective, it has to be widely supported.
The principal aim of the Code is to promote fiscal transparency by making governments more accountable for the design and implementation of fiscal policy. Transparency and accountability should exert discipline on policymakers, and in turn lead to better, more credible policies, to a less uncertain policy environment, and to an earlier and smoother fiscal policy response to emerging economic problems. Ultimately, fiscal transparency should be associated with, and may directly result in, improved economic performance..

5. Transparency central to public financial management
Reliable, comprehensive fiscal data an essential element of any PFM reform, and to basic public financial management
IMF ROSCs can monitor
data quality improvement
improved definition of fiscal management roles
and, combined with TA and policy advice, can build synergies for continuing focus on reform
PROGRESS IN IMPROVING TRANSPARENCY AS RECORDED IN A ROSC CAN PROVIDE A GOOD GUIDE TO THE SUCCESS OF PFM REFORM PROGRAMS
TRANSPARENCY A FUNDAMENTAL OBJECTIVE OF PFM REFORMS
OBJECTIVE, EXTERNAL ASSESSMENT—NOT LINKED TO SPECIFIC PROJECTS
BUILD SYNERGY BETWEEN ASSESSMENT, REVIEW, AND SELECTION OF TA

6. Basic Principles of the IMF Code
Institutional clarity: government’s role and the way its’ agencies interact
Public information for fiscal policy—and government’s commitment to provide it
Open processes of budget preparation, execution, and reporting
Assurance of integrity of information through data standards and strong oversight
The IMF Code defines good practice in fiscal transparency—under the 4 principles, 10 specific principles, and 37 areas of good practice are identified to help guide reforms in member countries.

7. Transparency Progress in Russia and Ukraine
 Code
Area of
Reform
1999
2003
4.1.1
2.1.2
3.1.3
3.1.1
3.1.4
3.1.5
MTF
Unreliable estimates
No medium-term,
 Reliable estimates,
Medium-term initiated
2.1.3
Off-budget activities
Extensive and not reported
 Reporting on CL and TE.
QFAs less, but not reported
2.1.1
3.2.1
3.3.1
4.1.2
Accounting and data quality
Sound treasury, but coverage limited, no commitments
Reliable reports, coverage near complete
Limited commitments
3.3.1 
4.2.1
Oversight
Outdated internal control and weak external audit
Internal: some improvement, Weak external audit—particularly Ukraine
Major reform
in place
Further work
needed
Major continuing reform needed

8. Links with budget reform — elements of MTEFs in EU-accession and CIS
MTEF Element
Implementation in ROSCs
Reliable annual estimates
EU sound/CIS improved
Macro-framework and rolling 3 year projections
EU most initiated/CIS some initiated
Medium-term targets set ministry/agency ceilings
Some being initiated
Costing of existing policy and distinct new policy submissions
Not done
Integrate recurrent and investment budget decisions
Not done
Accountability for forward estimates
Not done

9. MTEF Summary
MTEF is about creating an orderly public financial management process and appropriate incentives, promoting sound decisions and outcomes
MTEF should support
Macrofiscal discipline
Strategic allocation of resources
Basis for improved operational efficiency

10. Performance Budgeting and Management
Trying to assess whether programs are working, or can work better
Measuring performance, producing information
Using the information
Changing incentives of actors in system
Performance information kept hidden does not change incentives
and multiple actors need the information

11. Implementing effective performance monitoring requires:
Setting organizational incentives to support performance monitoring
Predictable funding
Flexible resource application at program level
Getting performance monitoring consistent with organizational culture
Need for central unit to play active and effective leadership role in defining criteria and implementing practical performance monitoring
May not be MoF or budget office!! (US NPR, UK)

12. Integration of performance and financial management is easier where
strategic/target objective setting is linked to resource allocation
global or output-based budgeting is in place
full-cost activity accounting is in place
programs consist of tangible and measurable products or services
integration is attempted at the level of program management and operational management
the impact of programs can be seen soon after delivery
the results can be attributed to the program with high degree of confidence
“Integrating Financial Management and Performance Management.” OECD PUMA, July P. 9.

13. Synergies
MTEF – promotes fiscal sustainability
Removes barrier to program performance
Empowers line manages (within limits)
Performance budgeting -
Focuses on program performance
Easier where fiscal sustainability exists
Transparency – tracks MTEF and transparency
Broadens constituency for reform
Potentially amplifies benefits of MTEF, Performance
Each reform has a synergy with the others to deepen and reinforce reform objectives

14. Moving forward Each reform is not a ‘take it or leave it’ proposition
- they can be gradually introduced
- there are elements of each that can be adopted and which provide benefits themselves
- overtime, the reforms can reinforce one another