The International Monetary Fund (IMF) has said that despite the advances made in economics, the current understanding of governments underlying fiscal position and the risks to that position remains inadequate.
According to IMF this was demonstrated by the emergence of previously unreported fiscal deficits and debts in the wake of the crisis in Greece and Portugal. It could also be seen in the United States where financial problems in quasi-public enterprises, like Fannie Mae and Freddie Mac, remained largely out of sight until government bailouts were needed.
“Elsewhere, in countries with large domestic banking sectors, such as Iceland, Ireland, and the United Kingdom, the biggest shock to the public finances came from the crystallization of large, mainly implicit government liabilities to the financial sector, said the IMF report.
IMF also said that these shortcomings in fiscal transparency were due to a combination of gaps and inconsistencies in existing fiscal reporting standards, delays and discrepancies in countries adherence to those standards, and a lack of effective multilateral monitoring of compliance with those standards.
“The elements of a revitalized fiscal transparency effort will address the shortcomings in standards and practices revealed by the crisis and guard against a resurgence of fiscal opacity in the face of growing pressures on government finances,” the IMF said.
It further added that it had examined the relationship between fiscal transparency and fiscal outcomes, reviewed progress in promoting greater fiscal transparency over the past decade, considered the lessons of the recent crisis for existing fiscal transparency standards, practices, and monitoring arrangements, and had made a series of recommendations for renewing the global fiscal transparency effort in the wake of the crisis.
