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Economywatch: Fiscal transparency: a hallmark of good governance

Mar 28, 2012, 1:42 PM

Officials of central banks and other economic and financial departments such as revenue authorities from the West African states of Nigeria, Ghana, Liberia, Sierra Leone andThe Gambia are presently undergoing a two-week course on public financial management which covers key topics such as planning, budgeting and financial management in the public sector.

These are pertinent aspects of fiscal management and economic growth and development which must be given due consideration.

This is because these are the issues at stake when talking about good governance. The truth is that in Africa today good governance is far-fetched. Good governance constitutes not only the politics of seeking or being in power but also sound economic and financial management of a nation.And in this domain the people at stake are the ones that have largely been targeted by the West African Institute for Financial and Economic Management (WAIFEM) in the course presently taking place in The Gambia this time around.

Budgeting, planning and borrowing are fiscal issues which determine the real fate of a nation. Therefore good planning, accountability and most importantly transparency in managing the financial life of a nation are requirements of sound fiscal policy.

“The centre piece of good governance in public resource management is transparency and accountability,” WAIFEM Acting-Director General Prof. Akpan H. Ekpo says.

He added that the key elements of transparency in managing public resources pertain to effective accounting and internal auditing standards to ensure accountability and probity in the use of public resources.

Fiscal policy can be defined as the deliberate changes in the levels of government expenditures, taxes and other revenues and the borrowing in order to achieve such national economic goals or objectives as price stability, full employment, growth in the Gross Domestic Product (GDP) and balance of payments equilibrium.

The achievement of the broad macroeconomic objectives of the budget (i.e. price stability, economic growth, full employment and balance of payments equilibrium) can be affected by the design and management of fiscal policy.

While the private sector is expected to concentrate on production of private goods and services; that is goods that can be produced and sold solely under conditions of price mechanism, the public sector is expected to concentrate on provision of public goods and services, such as roads, environmental protection and security services.

The public sector role, which is performed through its fiscal policy in particular and economic policy in general, are formulated and implemented through the annual budget.

Therefore an effective budget process can enhance the achievement of macroeconomic stability and sustainable growth especially if the budget is sustainable, that is, can be financed and achieved its target without unfeasible or unexpected outcomes such as macroeconomic instability, external debts overhang, and declining GDP.

Efficiently designed and managed, fiscal policy can enhance the achievement of rapid economic growth and development as well as improve social welfare considerably.

However, when fiscal policy management is inefficient, that is lacks transparency, accountability and discipline, the consequences are low GDP growth, high rate of inflation, unemployment, public debt overhang, and growing number of citizens trapped under poverty.

This is why WAIFEM is considered to be on the right track in enhancing the capacity of our public trustees who direct our economies and use or misuse our finances.

Fiscal transparency would therefore make a major contribution to the cause of good governance, as it gives rise to a better-informed public debate about the design and results of fiscal policy, makes governments more accountable for the implementation of fiscal policy, and thereby strengthens credibility and public understanding of macroeconomic policies and choices.

In a globalised environment, fiscal transparency is of considerable importance to achieving macroeconomic stability and high-quality growth, though it is only one aspect of good fiscal management (and therefore attention has to be paid also to increasing the efficiency of government activity and establishing sound public finances).

Because of its fiscal management expertise and universal membership, the IMF has been taking the lead in promoting greater fiscal transparency.

The international financing body has therefore been encouraging its member countries to implement a sound code of good practices on fiscal transparency.

The code is based around the following key objectives: roles and responsibilities in government should be clear; information on government activities should be provided to the public; budget preparation, execution, and reporting should be undertaken in an open manner; and fiscal information should attain widely accepted standards of data quality and be subject to independent assurances of integrity.

The code sets out what governments should do to meet these objectives in terms of principles and practices. These principles and practices are distilled from the IMF’s knowledge of fiscal management practices in member countries.