Ian Lienert. Formerly IMF Fiscal Affairs . Department . Fiscal Responsibility Laws (FRLs) are Rare in Advanced Countries. Advanced Countries. (WEO definition). Only Australia and United Kingdom have FRLs. ID: 493504
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Should Advanced Countries Adopt Fiscal Responsibility Laws?
Formerly IMF Fiscal Affairs
Fiscal Responsibility Laws (FRLs) are Rare in Advanced Countries
Only Australia and United Kingdom have FRLs
Argentina, Brazil, Colombia, Ecuador,
Latvia, Mexico, Pakistan
, Panama, Peru, Romania, Sri
Ghana (draft), Nigeria.Slide3Slide4
Definition of a “Fiscal Responsibility Law”
An FRL is a limited-scope law that
on the rules and procedures relating to three budget principles:
(of the government to parliament)
Institutions to implement the FRLSlide5
Four essential components of a FRL
The following four features are chosen to
a fiscal responsibility law,
requirement for the government to:
medium-term path of fiscal aggregates
of fiscal policy intentions).
Describe the medium-term and
annual budget strategy
for attaining the chosen fiscal objectives (policies to support
Regular reports, including a mid-year review
on the attainment of fiscal objectives or targets (
achieving fiscal strategy).
annual financial statements
Optional components of a FRL
Numerical fiscal rules—quantitative targets in law.
(if debt is measured in net terms, then asset
Existing fiscal policies versus new measures (
projections; impact analysis).
policies (ratio: revenues/GDP)
of tax expenditures
Reporting of fiscal risks, comprehensively
Quarterly in-year fiscal reporting and projections.
Long-term fiscal scenarios, especially for ageing.Slide7
Optional coverage for FRLs
assuring that the FRL applies to all levels of government (important in federal countries where
governments pose risks).
ensuring that institutional arrangements are in place for implementing the FRL.Slide8
Why Most Advanced Countries Have Not Adopted a FRL
Existing Legal Framework for Budget System is Adequate
Law Perceived to be Less Necessary, or Unnecessary, for FRL Issues
Independent Institutions Contribute to the Accountability of Government
In EU countries: Supranational Fiscal Rules and Fiscal
Reporting to Brussels
Agreements, or National/Domestic Stability Pacts,
can Specify Fiscal ObjectivesSlide9
Why Most Advanced Countries Have Not Adopted a FRL (continued)
Limited Success of Including Quantitative Fiscal Rules in Law: Credibility diminishes
The Political Difficulty of Adopting FRLs
Strong Legislatures Reject Executive Dominance in Budget Matters
Freedom of Information Laws Set Tone for TransparencySlide10
The need for a FRL in advanced countries is obviated to the extent that:
Pre-existing legal framework
There is usually already a comprehensive law governing the budget and public financial management. In several countries, the Constitution impinges on the objectives of FRLs.
Fiscal stability objectives
can be achieved by arrangements other than by a FRL
e.g., coalition agreements and, for EU countries, the quantitative targets for debt and fiscal deficits of the Stability and Growth Pact (and enforcement procedures).
The experience of embedding numerical fiscal rules –debt, deficit or spending targets – in FRL-type legislation has been disappointing.
FRLs do not buy credibility.
Institutional arrangements for providing quality fiscal information to the public are already in place: independent external audit
bodies function well; Freedom of Information Acts are widespread.
When there a clear separation of executive and legislative powers, parliaments hold the government to account. In some countries, an independent fiscal council, reinforces accountability.Slide11
Issues for Discussion
Do you agree that FRLs
are not generally needed in advanced countries?
Is Greece (Ireland…) an exception? Should FRLs be
“pushed” on to
fiscally profligate countries? Or low-income countries, by donors?
of a FRL
has been defined
transparency of, and accountability
for, medium-term fiscal strategies).
Should some of the “optional” provisions be obligatory
Do you agree that a regularly
an adequate “anchor” for fiscal
policy? Or would
it be better to embed
in FRL-type law
(as is the case for EU supranational rules)?
If FRLs do not buy credibility, what does?Slide12Slide13Slide14Slide15Slide16
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