Today’s column continues the discussion of the tenth (and final) item on my list of “top-10 development challenges”, which as I have indicated, Guyana will face when spending Government Take from its coming petroleum sector. Last week’s column had offered two concrete proposals on the topic (“integrating PSA revenues and the National Budget”). Both proposals are derived from my close review of varied experiences in several developing countries that have transitioned to the establishment of a new and potentially transformative petroleum based (or other extractive industry) sector.
The first proposal (made last week), is a call for the Authorities to produce an official national policy indicative planning framework to guide the operational process required to bring the coming petroleum sector into being. In the discussion of this proposal and other related issues last week, a Template for preparing such an indicative framework plan was offered. Timelines for such a proposal obviously constitute a key consideration.
And, judging from comments received since that publication, the majority of readers expressed the view that, as far as Guyana is concerned, the window of opportunity for such a study has already been closed! I hold no strong opinion on this judgement, but for the record, I believe the proposal is still worth putting forward.
Today’s column focuses on the second proposal, which is designed to protect the process of establishing a petroleum sector in Guyana from becoming hopelessly bogged down in public controversy. It is recommended, the Authorities unequivocally commit to the adoption of global best practices for integrating and managing expected PSA revenues and the National Budget. There are several contenders for expressing this commitment. These include: the Organisation of Economic Cooperation and Development, OECD’s Best Practices for Budget Transparency; the International Budget Partnership, IBPs: Open Budget Practices; as well as partial programmes (already in process) like the Extractive Industries Transparency Initiative, EITI, and the Natural Resources Fund, Santiago Principles.
My strong preference however, is for Guyana’s adoption of the IMF’s Fiscal Transparency Code, 2014. I shall elaborate on the antecedents of this Code for the remainder of today’s column, and continue its fuller discussion next week.
Fiscal Transparency Code
Up to date material on the IMF’s Fiscal Transparency Code can be obtained from its April 2018 publication of the Fiscal Transparency Handbook. As one would expect from a handbook, the material presented in it is detailed, instructional, comprehensive, providing guidance for practitioners and therefore somewhat pedantic. Because of this, I shall attempt to present a digestible and very broad outline of the Code, along with its rationale, for the benefit of readers. Others, who may be interested in a deeper consideration of the Code, can access it directly on the IMF website.
The Transparency Code 2014 has been two decades in the making. Its origins lie in an original 1998 recommendation by the IMF for a Code of Good Practices on Fiscal Transparency. This recommendation was made in response to the IMF’s own needs, along with growing concerns that budgets produced by Governments around the world were not consistently prepared and presented. This made them opaque. In effect therefore, national budgets tended to conceal more than they revealed! And, as a consequence of this, they were considered weak documents for decision making. This reality impeded the development of efficient financial markets, both at the national and global levels. The IMF had also reported, as a contributory factor that, the Asian financial crisis of the late 1990s highlighted: “shortcomings in the financial reporting in both the public and private sectors regarding linkages between the two”.
The 1998 Code of Practices and Fiscal Transparency led to a voluntary programme of fiscal transparency assessments, for which countries voluntarily signed up. Under this voluntary program the IMF published Reports on the Observance of Standards and Codes (that is, fiscal ROSCs). As the IMF reports these were the first “transparency assessments at the international level”.
A decade later, in 2007, the Code of Practices was updated. This was done in response to the onset of the global financial crisis and the Great Recession in that year. The opportunity was also taken to include emerging advances in good practices and standards, and to broaden the coverage of the Code.
The 1998 Code of Practices had introduced four pillars or foundations, on which a nation’s fiscal transparency is required to be built. These will be introduced in the next column, as they remain today the essential foundations of the Fiscal Transparency Code, 2014.
If the 2007 update of the 1998 version of the transparency Code was occasioned by the onset of the global financial crisis that, of the present Code (2014), reflects the aftermath of that financial and economic crisis, and the lessons learnt from this.
More generally, one can say, the 2014 Code 1) updates the earlier versions 2) incorporates the lessons learnt over the years 3) incorporates developments in international standards and, 4) benefits from feedback derived from stakeholder consultations on the Code held over the period December 2012 to August 2013.
In reflection of the unique set of challenges posed by the extractive industries sectors and their large share of some countries national revenues, the IMF has issued a “Guide on Resource Revenue Transparency”. This first appeared in 2005 and was later updated in 2007. This Guide is consistent with the principles of the Code. Indeed, it more-or-less forms the fourth pillar of the Transparency Code. Also of note, the current Code replaces the assessments of the ROSC, (mentioned above) with what is: “Financial Transparency Evaluations (FTEs) of countries fiscal systems”. These FTEs were designed to improve IMF surveillance while making national budgets more accountable, policy supporting and “market friendly”.
With this portrayal of the antecedents of the current Fiscal Transparency Code, next week I shall move on to discuss the main features of the Code and evaluate these.