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IMF Fiscal Affairs Department At Glance

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					Fiscal Affairs Department




                                  A t         A   G l A n c e,                  2 0 1 2




I   n   t   e   r   n   A t   I   o   n   A   l   M   o   n   e   t A   r   y   F   u   n   d
 Fiscal Affairs Department


       F       iscal policy affects macroeconomic stability, growth, and income distribu-
             tion. Citizens expect their governments to ensure value for money from
       public spending, a fair and efficient tax system, and transparent and accountable
       management of public sector resources.

       Since 1964, the Fiscal Affairs Department (FAD) of the International
       Monetary Fund has been a leading source of fiscal policy and management
       expertise worldwide. FAD monitors and analyzes global and regional fiscal trends;
       advises IMF member countries on fiscal issues directly or in close cooperation with
       the IMF area departments; and contributes to the design and implementation of
       IMF-supported programs. FAD’s analysis and research are at the forefront of fiscal
       policy debates and its recent work has contributed to the discussion of fiscal policy
       options to address fiscal challenges in the aftermath of the global financial crisis.
       Each year, FAD staff and experts provide advisory services to about 130 IMF
       member countries comprising advanced, emerging, and low-income economies.

       FAD receives welcome financial support from donors such as Belgium, Canada,
       Germany, the European Commission, Japan, the Netherlands, Norway, Sweden,
       Switzerland, the United Kingdom, and the United States, as well as from other
       donors, supporting the IMF’s Regional Technical Assistance Centers (RTACs)
       and two recently established Topical Trust Funds (TTFs).


                            Allocation of Key FAD Outputs in Fiscal Year 2012

                        Assist IMF-
                    supported programs       Advise member
                           (5%)             countries on fiscal
                                              polices (5%)
          Monitor global,
          regional, and                                                    Technical Assistance
                                                                                IMF financed
             country
          developments                                                            (32%)
              (13%)




                                                                        Technical Assistance
                                                                          externally financed
                                                                                (44%)


2
Senior Management. First row from left to right: Katherine Baer, Kentaro Ogata, Paolo Mauro, Martine Guerguil, Carlo Cottarelli,
Adrienne Cheasty, Marco Cangiano, Julio Escolano, Sanjeev Gupta. Second row: Philip Gerson, Benedict Clements, Abdelhak
Senhadji, Victoria Perry, Brian Christensen, Gerd Schwartz, Johannes Mueller, Juan Toro, Kiyoshi Nakayama, Michael Keen.
Gilbert Terrier and Bernardin Akitoby (not pictured).




FAD staff.



                                                                                                                                   3
 FAD at Work


 F   AD supports the IMF’s interactions with member
     countries by assigning some 50 fiscal economists
                                                                   FAD’s Policy Work
to IMF surveillance and program teams. Further
countries are also covered through ad hoc participation
                                                                   F  AD is the source of a wealth of policy-oriented
                                                                      analytical work, which is disseminated in several
                                                                   ways.
in area department missions. In addition to analyzing
broad fiscal developments, FAD economists conduct                  A key publication is the IMF Fiscal Monitor, which forms
in-depth analysis of macrofiscal and structural fis-               part of the IMF’s World Economic and Financial Surveys.
cal issues in the countries to which they are assigned.            Issued twice a year (with interim quarterly updates), the
In carrying out their tasks, these economists draw on              Fiscal Monitor provides a comprehensive assessment of
the extensive fiscal expertise of FAD as a whole. Their            fiscal developments and prospects both globally and for
analysis forms part of the IMF staff ’s reporting on the           various country groupings, including advanced and emerg-
member countries concerned.                                        ing economies.
FAD provides technical assistance (TA) to member                   FAD staff also produce other cross-country policy analy-
countries both to enhance their fiscal performance and             sis, including papers for the IMF’s Executive Board, Staff
to strengthen their fiscal institutions. The bulk of FAD           Discussion Notes, Working Papers, Occasional Papers,
TA is provided in four areas:                                      Technical Notes and Manuals, and books (available on the
                                                                   IMF’s website: www.imf.org), as well as contributions to
    ■   Public financial management: legal and regulatory
                                                                   major economic and public finance journals.
        framework, budget management, medium-term
        expenditure framework, cash management, accounting,        As part of its contributions to the global economic policy
        reporting, and debt management.                            dialogue, FAD organizes a number of conferences and
    ■   Tax policy: general tax policy reviews and specific tax    seminars each year. Chief among them is the Fiscal Forum
        policy advice, particularly in the areas of income tax,    (http://www.imf.org/external/np/seminars/eng/2012/
        value-added tax, and taxation of natural resources,        fiscal/), which is held once a year and draws high-level
        including oil and gas.                                     policy makers from a cross section of IMF member
                                                                   countries. FAD staff also participate in international
    ■   Revenue administration: tax and customs
                                                                   conferences and meetings where they present the
        administration, social security contribution collection,
                                                                   department’s analysis and research.
        and implementation of major tax policy changes.
    ■   Expenditure policy: short-term expenditure                 FAD issues an e-newsletter quarterly to inform officials
        rationalization, social security reform and                in member countries of its analytical and research work.
        administration, and incorporation of cost-effective        Readers can subscribe by sending a request to FADsub-
        social safety nets into IMF-supported programs.            scribe@imf.org. FAD also maintains a Public Financial
                                                                   Management blog (http://blog-pfm.imf.org), which has a
In addition, assistance is provided in macrofiscal
                                                                   wide readership among officials and academics, and FAD’s
management, public-private partnerships, fiscal
                                                                   Director, Carlo Cottarelli, is a regular blogger on iMFdi-
risks, fiscal rules, fiscal transparency, and fiscal
                                                                   rect (http://blog-imfdirect.imf.org).
decentralization.




2
3
FAD at Work

Technical Assistance Delivery

F    AD’s TA activities take different forms and are
     tailored to the circumstances of each member
country. Missions from headquarters constitute an
                                                                     TA of this kind has highlighted characteristics unique to
                                                                     FAD and IMF TA. First, such TA can respond quickly
                                                                     to urgent government requests—with specialized teams
important element of FAD’s TA. These missions work                   often in the field on short notice and sometimes ahead of
with the authorities (and other TA providers) in ana-                other IMF operations. Second, the technical diagnostics
lyzing the sources of weakness in fiscal institutions and            and remedial recommendations can provide input to the
drawing up an action plan to remedy these weaknesses.                design of IMF-supported programs.
They also provide advice on fiscal policy design and
                                                                     TA provided by Regional Technical Assistance Centers
implementation and help the authorities monitor the
                                                                     (RTACs). To help deliver effective follow-up assistance
implementation of fiscal reforms. A report on findings
                                                                     and to support implementation of reforms proposed by
and recommendations is provided to the authorities
                                                                     missions from headquarters, the IMF has a network of
at the end of each mission. These reports are prepared
                                                                     eight RTACs covering about 90 countries in the Pacific
for the authorities and shared only with the World
                                                                     (PFTAC), the Caribbean (CARTAC), East, West, Central,
Bank, but encouraged by the IMF, the authorities of
                                                                     and Southern Africa (AFRITAC East, AFRITAC West,
the member country themselves may decide these
                                                                     AFRITAC Central, and AFRITAC South), the Middle
reports should be more widely distributed. FAD TA
                                                                     East (METAC), and Central America (CAPTAC). One
also includes stand-alone expert assignments that assist
                                                                     additional center is planned, which will cover countries in
countries in implementing mission recommendations.
                                                                     Anglophone West Africa. Through a team of resident advi-
These assignments can be resident, short-term, peripa-
                                                                     sors, supplemented by short-term experts, each RTAC pro-
tetic (i.e., repeat visits), or be fielded from the IMF’s
                                                                     vides TA in the core areas of the IMF’s expertise, including
Regional Technical Assistance Centers (RTACs).
                                                                     macrofiscal, public financial management, and revenue
The distribution of missions and follow-up assistance
                                                                     administration. Their work is part of FAD’s TA program
through expert assignments is shown on the following
                                                                     and is subject to the same rigorous supervision and quality
two world maps.
                                                                     control as headquarter-led activities.
FAD’s TA has been vital in countries affected by the
                                                                     Topical Trust Funds. The IMF has launched two multi-
recent global financial crisis. Intensive TA has been pro-
                                                                     donor topical trust funds supporting TA to members in
vided in a number of policy areas critical to helping these
                                                                     Tax Policy and Administration (TPA TTF) and Man-
countries respond and recover from the crisis. Examples
                                                                     aging Natural Resource Wealth (MNRW TTF). The
include:
                                                                     assistance financed through these trust funds benefits
    ■   rationalizing government expenditures in the short run       from the IMF’s technical assistance infrastructure and
        and strengthening pension systems (e.g., Belarus and         proven expertise. It also provides a vehicle for donor
        Greece);                                                     coordination and commissioning focused policy devel-
    ■   developing medium-term fiscal frameworks to tighten          opment in these areas.
        budget execution and expenditure controls and to
        improve cash and debt management (e.g., Greece,
        Iceland, Poland, Romania, and Serbia);
    ■   identifying tax policy options (e.g., Greece, Poland, and
        Romania); and
    ■   fortifying tax administration in response to sharp
        crisis-related revenue declines (e.g., Greece, Latvia, and
        Portugal).




4
Macrofiscal Analysis


F    AD’s macrofiscal work includes cross-country
     analysis and monitoring, research on emerging
fiscal issues, and analytical support at the individual
                                                               Fiscal Monitor
                                                               The Fiscal Monitor monitors and analyzes the latest
country level. The latter is achieved by assignment of         public finance developments worldwide, updates fis-
FAD staff to area department teams to help analyze key         cal implications of the crisis and medium-term fiscal
policy issues.                                                 projections, and assesses policies to put public finances
                                                               on a sustainable footing.
In addition, FAD offers TA on various macrofiscal issues,
including:                                                     The Fiscal Monitor is one of the three IMF cross-
                                                               country flagship publications, in addition to the World
Macrofiscal modeling and the improvement of forecasts
                                                               Economic Outlook (WEO) and the Global Financial
used for fiscal policy formulation and budget preparation.
                                                               Stability Report (GFSR). Two full reports are prepared
Macroeconomics and the fiscal position, including ana-         each year together with two quarterly Updates. The
lyzing the impact of changes in the macroeconomic envi-        Fiscal Monitor’s projections are based on the same da-
ronment on the fiscal position, the impact of fiscal policy    tabase used for the WEO and GFSR. The publication
on macroeconomic outturns, the sustainability of fiscal        and dataset are available at: http://www.imf.org/exter-
policies and the design of fiscal adjustment plans, the        nal/ns/cs.aspx?id=262 and also on the IMF eLibrary
impact of expenditure envelopes from a short-, medium-,        iPad app.
and long-term perspective, fiscal-financial sector linkages,
                                                               In addition to analyzing and surveying fiscal develop-
and the coordination of monetary and fiscal policy.
                                                               ments, the Fiscal Monitor also identifies new medium-
Guidance on fiscal policy formulation, including defin-        term fiscal challenges and provides policy options. For
ing the role of fiscal objectives and targets, coordinating    example, past reports included research on spending
policies across different levels of government, managing       pressures arising from health care entitlements and
government assets and liabilities, and, designing rules-       reforms needed to contain these costs. Another study
based fiscal frameworks, stabilization and savings mecha-      focused on the emerging risks to fiscal transparency, as
nisms, and independent fiscal institutions.                    temptations rise to supplement genuine fiscal adjust-
Organizational aspects of the macrofiscal function,            ment with accounting stratagems. In addition, analysis
including defining the roles and responsibilities of minis-    and recommendations were provided on how “fis-
tries of finance, strengthening their capacity to carry out    cal devaluation,” that is, a revenue-neutral shift from
macrofiscal functions, and designing a macrofiscal unit.       direct to indirect taxation, can mimic the effects of an
                                                               exchange rate depreciation and support more broad-
Fiscal risk assessment, transparency and disclosure, and       based reforms that improve competitiveness.
management, including advising on analytical methods
as well as coordination and other institutional modalities.
Considerable synergies with other TA areas provide guid-
ance in the design of specific tax and expenditure policies
and institutions to achieve macrofiscal objectives.
The following boxes illustrate the diversity of FAD’s
macrofiscal work.




                                                                                                                           5
 Macrofiscal Analysis

    Fiscal Governance: Greater Role for Numerical Fiscal Rules and Fiscal Councils
    Adopting fiscal rules is one way that governments can                           www.imf.org/external/pubs/cat/longres.cfm?sk=26094.0
    help bridge the gap between lowering currently high
                                                                                    Another way of promoting greater fiscal discipline and
    fiscal imbalances and enhancing the credibility of overall
                                                                                    supporting increasingly more complex fiscal rules is
    fiscal consolidation. New analysis by FAD takes stock of
                                                                                    setting up independent fiscal councils, entrusted with
    numerical fiscal rules around the world and compiles a
                                                                                    the task of monitoring fiscal policies and raising public
    dataset—covering national and supranational fiscal rules
                                                                                    awareness of their fiscal implications. Qualitative evidence
    in 81 countries from 1985 to end-March 2012 (Figures
                                                                                    suggests that such institutions have been instrumental
    1 and 2)—presenting details about the rules’ key design
                                                                                    in fostering democratic accountability in many advanced
    elements. This study allows governments to draw lessons
                                                                                    economies. Moreover, preliminary findings of on-going
    from cross-country experiences in case they decide to
                                                                                    FAD research—using new indicators to measure the me-
    adopt fiscal rules or amend existing ones. The dataset
                                                                                    dia impact of fiscal council interventions—suggest that
    supports FAD’s technical assistance on fiscal governance
                                                                                    fiscal watchdogs tend indeed to react to budget slippages.
    while also serving as an input for research in this area.
                                                                                    Given the rising interest in setting up fiscal councils,
    The link to the dataset and the accompanying Working
                                                                                    FAD provides analysis and advice to member countries.
    Paper (WP/12/187) are available on imf.org at: http://

                              Figure 1. Countries with Fiscal Rules (National and Supranational), 2012




                                                                                                                  Number of Numerical Rules, 2012
                                                                                                                         None
                                                                                                                         One
                                                                                                                         Two
                                                                                                                         Three or more

                                    30%                                                                         Source: National authorities; and IMF staff assessment.
                                                                                                                Note: Based on fiscal rules in effect by end-March 2012.




                                                Number of Countries Countries with
                                      Figure 2. Figure 2. Number ofwith Fiscal Rules Fiscal Rules
                 80
                                                                                                                            Supranational rules
                                                                                                                            National rules
                 60                                                                                                         All rule

                                                                                                                 Source: National authorities; and IMF staff assessment.
                                                                                                                 Note: Based on fiscal rules in effect by end-March 2012.
                 40




                 20




                 0
                      1990   1992         1994   1996   1998   2000   2002   2004   2006   2008   2010   2012

6
Structural Fiscal Balances
Adjusting fiscal balances for the output cycle is cru-                  proaches that can be used to make such adjustments.
cial for assessing fiscal sustainability. Other temporary               The framework was recently supplemented with
factors beyond the output cycle may also affect fiscal                  an Excel-based tool that contains default elasticity
balances, obscuring the underlying fiscal position. In                  values for revenue and expenditure based on estimates
recent years, policymakers have increasingly turned their               derived from relevant studies in the literature. The
attention to the structural fiscal balance to address these             tool also incorporates modules that allow for different
concerns. Structural fiscal balances provide a more accu-               types of structural adjustment to be applied individu-
rate view of the underlying stance and sustainability of                ally. This approach provides flexibility to make adjust-
fiscal policy by correcting for a broad set of cyclical and             ments only for those factors relevant to the country
transitory factors, including commodity shocks, asset                   under consideration.
prices, and other one-off factors.
                                                                        The technical note, Excel-based tool, and further back-
The adjustment needs to take relevant country-specif-                   ground information are available at: http://www.imf.
ic factors into account, including data availability, the               org/external/np/fad/strfiscbal/index.htm. An FAD team
structure of the economy, and the elasticity of reve-                   is also available at FADF1SFB@imf.org to respond to
nues and expenditures to temporary factors. An FAD                      further requests regarding the tool and the information
technical note (TNM/11/02) outlines several ap-                         provided on the website.




                   7

                   6

                   5

                   4
                                                                                    Overall Balance
                   3
                         Business Cycle Effect
                   2

                   1

                   0

                  -1
                                                                                    Structural Balance
                  -2

                  -3
                                                                                        Commodity Price Effect
                  -4

                  -5
                                                   Asset Price Effect
                  -6

                  -7




                                                                                                                                   7
Technical Assistance Missions from the Fiscal Affairs Department

Policy Advice and Development of Fiscal Reforms and Action Plans




                                                    European Region
                                                    15%           39%

                                              14%




            Western Hemisphere Region
                                                           32%
                     12%

                                                            30%
                                        33%
           19%                                                    Africa Region
                                                                   4%

                                                          24%
                                                                                  36%
                       36%



    TA mission intensity
    Number of Missions, FY2010-FY2012
         No missions
         Low: 1-2
                                                                        36%
         Medium: 3-4
         High: 5 or more




8
                         Asia and Pacific Region

                                 9%

                                                       35%
                        27%


                                       29%




 Middle East and
Central Asia Region

      10%

                  30%

26%


            34%
                         Topical distribution of TA missions by region
                         FY2010-FY2012
                                Revenue Administration
                                Public Financial Management
                                Tax Policy
                                Other
                         Size of pie indicates volume of TA.



                                                                         9
 Medium and Long-term Assistance through Expert Assignments and Support

 Strengthening Institutions and Fiscal Management Capacities




                                                                                             European Region
                                                                                                       2%
                                                                                                                   56%
                                                                                           42%




                            Western Hemisphere Region
                                                 5%

                                                                                                                       Africa Region
                                34%                                             61%                                     4%




                                                                                                                                       40%

                                                           BERMUDA                                       56%

                                     BAHAMAS

                                        TURKS & CAICOS
       GUATEMALA
                                           DOMINICAN           ANGUILLA
                                                                                      Intensity of expert and RTAC TA delivery
                     CAYMAN
                     ISLANDS                  REPUBLIC        ST. KITTS AND NEVIS     In person years, FY2010-FY2012
                   BELIZE                                      ANTIGUA AND BARBUDA
                     HONDURAS
                              JAMAICA   HAITI                    MONTSERRAT                No TA
                                                                     DOMINICA
                                                                                           Low: less than 0.5
                               ST. VINCENT AND
                               THE GRENADINES                    ST. LUCIA
                                                 GRENADA
     EL SALVADOR                                                  BARBADOS
                                                               TRINIDAD AND TOBAGO
                                                                                           Medium: 0.5 - 1.5
        COSTA RICA

                   PANAMA
                                                                 GUYANA
                                                                     SURINAME
                                                                                           High: more than 1.5
                                                                                           Member of an RTAC

10
from Regional Technical Assistance Centers (RTACs)




                                                Asia and Pacific Region

                                                                                        49%

                                                51%




               Middle East and Central
                    Asia Region
                              7%

                                       43%
                     50%
                                                             FEDERATED STATES                          MARSHALL
                                                               OF MICRONESIA                            ISLANDS
                                                                                     NAURU
                                                                                                                         KIRIBATI
                                                         PALAU

                                                                                                       TUVALU

                                                            PAPUA
 Topical distribution of expert and RTAC                  NEW GUINEA

 delivery by region                             TIMOR
                                                                         SOLOMON
                                                                           ISLANDS
                                                L’ESTE
 FY2010-FY2012
        Public Financial Management
                                                         VANUATU                        SAMOA
        Tax Policy and Revenue Administration                          FIJI                                       COOK ISLANDS
        Other                                                                                   NIUE

 Size of pie indicates volume of TA.
                                                                                TONGA



                                                                                                                                    11
     Tax Policy


     FAD provides support to enhance the efficiency,
      fairness, and productivity of tax systems. FAD’s
 advice covers the design and implementation of reforms
                                                                   Natural resources and environmental work
                                                                   Extractive industries. FAD completed 31 techni-
 of corporate and personal income taxes, taxes on capi-            cal assistance missions in this area in fiscal year 2012,
 tal income and financial institutions, VAT and other              partially utilizing donor financing available through
 indirect taxes, local property taxes, and—increasingly—           the newly established Topical Trust Fund on Manag-
 work on fiscal regimes for natural resource extraction,           ing Natural Resource Wealth (MNRW TTF). Techni-
 and environmental taxes. Recent work includes:                    cal assistance on taxation of natural resources is diverse,
                                                                   focused on evaluation and design of fiscal regimes, and
 Taxes and the global economic crisis. FAD has exten-
                                                                   also including revenue administration, forecasting, and
 sively analyzed the interactions of tax policy and the
                                                                   management. Tax policy advice assists in designing
 financial crisis, and the tax policy aspects of strategies to
                                                                   an efficient mechanism for capturing economic rents,
 restore fiscal sustainability. This is reflected in both ana-
                                                                   enhancing government revenues while maintaining a
 lytical work and technical assistance to member countries.
                                                                   fiscal regime attractive to investors. FAD undertakes
 Tax coordination, customs unions, and tax incentives.             extensive analytical work in the area and conducts
 Increased trade and capital mobility, amplified by regional       workshops and conferences. The latest event was the
 trade arrangements, necessitate improved tax coordina-            Resources without Borders workshop, addressing inter-
 tion. FAD assists regional organizations and country              national issues for extractive industries.
 groups with these problems.
                                                                   Environmental taxation. FAD’s work emphasizes the
 Financial markets and instruments. The department                 economic rationale for using fiscal instruments (e.g.,
 provides advice on taxation of financial instruments and          environmental taxes and emissions trading systems)
 institutions, as well as on tax aspects of capital market         to address environmental problems such as climate
 development.                                                      change and poor air quality. A recent FAD e-book
 Recurrent taxes on real property. An area of increasing           provides guidelines for the design of fiscal policies to
 concern for member countries is more effective use of these       mitigate greenhouse gas emissions. A current project is
 taxes, which are both economically efficient and equitable.       assessing the magnitude of pollution and other exter-
 The tax policy division advises on design and strategy for        nalities to provide guidance on appropriate fuel tax lev-
 implementation of modern property tax systems.                    els for different countries. FAD also provides technical
                                                                   assistance in these areas.
 International aspects of corporate taxation. The effects
 of bi-lateral tax treaties, transfer pricing, and international
 corporate income tax structures are increasingly relevant
 for both developing and industrial countries.
 Interaction of the tax system and labor market outcomes.
 Recent work includes technical assistance advice and con-
 tributions to a departmental paper covering both tax and
 expenditure aspects of structural labor market problems.




12
Revenue Administration

                                                           Modernizing revenue administration is a key objective
Analytical Work in Revenue                                 in many countries. FAD provides TA in tax and customs
Administration                                             administration to help design reform strategies to achieve
                                                           optimal revenue levels at the lowest administrative and
RA-FIT                                                     compliance cost.
This new data collection tool is building a global data-
                                                           Revenue administration management and organiza-
base of information about tax and customs administra-
                                                           tion. FAD tailors to country circumstances reforms
tions to provide baseline performance indicators and
                                                           aimed at administrative effectiveness and efficiency. These
identify trends. Developed as a service and updated
                                                           reforms include an effective headquarters that provides
annually, RA-FIT will help member countries evaluate
                                                           strategic planning and monitors field office activities
their revenue administrations against benchmarks, and
                                                           against clear performance measures, and appropriate
in conjunction with other diagnostic tools, it will help
                                                           reform management arrangements to ensure success.
them identify priorities for improvement, better coor-
dinate reform efforts, and monitor results over time.      Tax administration. TA includes guidance to improve
The first phase consists in collecting information from    management and performance of specific taxes (e.g., VAT,
one hundred low and lower middle-income countries.         income taxes, excises, and social contributions). It devel-
Aggregated baseline indicators, analyzed by region and     ops segmentation strategies for different taxpayer groups,
country income group, will be published in 2013.           such as large business tax administration, and simplified
                                                           regimes for small businesses. Assistance is also provided
Tax Diagnostic Tool                                        to strengthen core functions (e.g., audit, enforcement,
Work is underway to develop, with donor support, a         filing, and payment), based on voluntary compliance,
tax administration diagnostic tool, modeled on the         taxpayer self-assessment, effective taxpayer services, and
successful Public Expenditure and Financial Ac-            well-designed IT strategies.
countability (PEFA) tool used in evaluating public         Customs administration. FAD TA reflects the interna-
financial management. Building on the findings of a        tional standards established by the World Customs and
2011 feasibility study, when fully operational by early    World Trade Organizations as well as the requirements of
2014, this diagnostic tool will provide to countries,      regional agreements. Many low-income countries rely on
international organizations, and donors a consistent       revenues from import taxes and duties, even as they un-
and shared understanding of the status of tax ad-          dertake trade facilitation reforms to reduce costs and in-
ministration—the essential basis for designing more        crease export competitiveness. FAD TA strategies balance
coordinated reform plans.                                  both objectives by strengthening legislative and regulatory
                                                           controls and simplifying procedures and improving basic
RA-GAP                                                     revenue assessment and collection.
FAD’s revenue gap program is another way of assist-
ing countries to measure the overall performance of
revenue administration. This work involves a systematic
evaluation of the difference between potential revenue
collections and actual collections, given the policy
settings in place and the factors contributing to this.
Revenue gaps can be measured in terms of non-filing,
non-payment and tax evasion by taxpayers, and the
impact of measures such as tax expenditures.




                                                                                                                         13
 Public Financial Management


     S   trong Public Finance Management (PFM)
         systems are key to ensuring effective delivery of
     intended budget policies. FAD’s TA in the PFM area
                                                                     Mexico
                                                                     Challenge
     focuses on:
                                                                     The Treasury Department (TESOFE) of the Secretary
     Comprehensive assessment of PFM systems. FAD pro-               of Finance and Public Debt (SHCP) of Mexico has
     vides in-depth, diagnostic analysis of the efficiency, effec-   been implementing a modernization reform of treasury
     tiveness, and transparency of PFM systems through in-           management in line with international best practices
     struments such as TA missions, reports on the observance        since 2007. This reform includes modernizing the
     of standards and codes (ROSCs), and public expenditure          financial management information system, improving
     and financial accountability (PEFA) assessments.                the legal and regulatory framework, improving cash
     Basic PFM systems. Advice is provided to member                 flow forecasting and liquidity management, and docu-
     countries to enhance the budget as the central instru-          menting procedures and processes.
     ment for fiscal management and the allocation of public
     resources. Issues treated include budget coverage, particu-     Approach
     larly the integration of extra-budgetary and quasi-fiscal       FAD has helped TESOFE by providing high-level
     activities; the budget formulation process; treasury sys-       advice through a programmatic approach that included
     tems; expenditure and revenue classification; accounting        headquarters missions, short-term expert visits, semi-
     and fiscal reporting; cash management and commitment            nars and workshops. FAD is also supporting the forum
     control; and internal control and audit.                        of Latin American treasury departments through an
                                                                     annual seminar and preparation of studies of com-
     More advanced reforms. Depending on the level of devel-
                                                                     mon interest. The technical notes and manuals on the
     opment of a member country, FAD promotes the adop-
                                                                     preparation of a business continuity plan and on the
     tion of best practices, such as integrating the budget into
                                                                     relationship between treasuries and central banks are
     a medium-term fiscal and budgeting framework; program
                                                                     two examples.
     and performance budgeting; and accrual accounting.
     Legislative and regulatory drafting. The department             Results
     assists in preparing budget system laws and fiscal respon-      The main outputs so far are:
     sibility legislation in cooperation with the IMF’s Legal
     Department.                                                     ■   The coverage of the treasury single account (TSA)
                                                                         has been broadened.
     Restructuring of central finance agencies. FAD pro-
                                                                     ■   Cash planning, cashflow forecasting, and liquidity
     vides expertise in the re-organization of state treasuries
                                                                         management have been improved.
     and debt and cash management offices, and advises on
     how to reshape a ministry of finance as a whole to be-          ■   A business continuity plan and an operational risk
     come an effective manager of public resources.                      assessment framework have been implemented.
                                                                     ■   The TSA has brought important savings on bank
                                                                         services, improved monitoring and control of bud-
                                                                         getary savings through improved cash management,
                                                                         enhanced the capacity of treasury officials, and
                                                                         improved documentation of procedures and systems.




14
                      Liberia
                      Challenge
                      Liberia emerged from conflict in 2003 with shattered
                      institutions and without a framework for running
                      an effective budget. Early efforts, supported by FAD
                      and others, focused on re-establishing basic Public
                      Financial Management (PFM). Encouraged by early
                      successes, Liberia is now in a second round of more
                      advanced PFM reforms.

                      Approach
Mexico City, Mexico   FAD responded quickly to a request for technical
                      advice from Ellen Johnson Sirleaf ’s newly elected gov-
                      ernment, starting with a diagnostic mission in 2007 to
                      consolidate basic PFM controls, and follow up TA on
                      drafting a new PFM legal framework. A second mis-
                      sion in 2009 made recommendations on implementing
                      the new PFM Act and helped launch the next phase of
                      reforms, with follow-up provided by a resident PFM
                      advisor funded by Japan as well as expert visits. In
                      2010, FAD selected Liberia to pilot a new program-
                      matic approach to TA, with a three-year work program
                      linked to specific donor funding—Sweden and Euro-
                      pean Union for the PFM component.

                      Results
Monrovia, Liberia
                      ■   Liberia re-established control over public finances,
                          avoided new arrears, completed the HIPC process,
                          and introduced an employee direct deposit scheme
                          to limit payroll risks. This result is highlighted in the
                          IMF video “Africa Rebuilds: IMF Technical As-
                          sistance in Liberia” available at http://www.imf.org/
                          external/mmedia/view.aspx?vid=1082523636001.
                      ■   Liberia’s 2009 PFM Act created, for the first time in
                          over 30 years, a comprehensive legal framework to
                          guide PFM, anchoring all subsequent reforms.
                      ■   The 2011 PFM reform strategy provides a focal
                          point for donor funding, including $28 million re-
                          cently signed by Sida, World Bank, African Devel-
                          opment Bank, and USAID.
                      ■   Liberia’s 2012/13 medium-term budget framework
                          provides a clear policy link between the budget and
                          the Poverty Reduction and Growth Strategy.


                                                                                      15
 Expenditure Policy


 T    he quality of spending has a direct bearing on
      growth and social development in IMF mem-
 ber countries. FAD provides a range of analytical and
                                                                The Economics of Public Health Care
                                                                Reform in Advanced and Emerging
 advisory services in this area:                                Economies
                                                                In advanced economies, public expenditure on health
 Expenditure efficiency. The department, where appropri-
                                                                is putting enormous pressure on government budgets
 ate in close collaboration with the World Bank, provides
                                                                and is expected to rise further. In emerging economies,
 advice on short-term expenditure rationalization, aimed
                                                                spending is much lower, but health insurance coverage
 at identifying sustainable ways of raising the efficiency of
                                                                is incomplete; for these economies, health care must be
 public spending. Advice is provided on employee com-
                                                                expanded in a fiscally sustainable manner.
 pensation, pensions and other social insurance, health and
 education spending, subsidies, and social assistance.          A new FAD book, The Economics of Public Health Care
                                                                Reform in Advanced and Emerging Economies, analyzes
 Equity and social spending. The department is engaged
                                                                the outlook for public health expenditure in the next
 in work on the effects of fiscal policy on equity and the
                                                                20 to 40 years and the options for health care reform
 impact of Fund-supported programs on health and edu-
                                                                in both advanced and emerging economies, drawing on
 cation spending.
                                                                lessons from across the globe. The analysis is based on
 Social safety nets. Advice is provided on incorporating        econometric analysis, event analysis, and detailed case
 cost-effective social safety nets during fiscal adjustment.    studies of 18 economies.
 This has included technical assistance and policy work on
                                                                Dana P. Goldman, Professor and Norman Topping
 how to protect the poor during subsidy reform.
                                                                Chair in Medicine and Public Policy, University
 Public-private partnerships (PPPs). TA to member               of Southern California, suggests “…This book is a
 countries on PPPs aims at helping countries manage the         must-read for anyone interested in understanding the
 fiscal risks of PPPs, in particular through strengthening      extent of the global health crisis…and what nations
 institutional capacity and transparency.                       can do about it.”
 Age-related spending. Fiscal consolidation efforts in          The Economics of Public Health Care Reform in Advanced
 advanced and emerging economies will require that              and Emerging Economies, ed. by B. Clements, D. Coady,
 countries confront spending pressures on public health         and S. Gupta (IMF, 2012). The book can be down-
 and pensions. TA on pension reform and FAD’s policy            loaded free from the Fund’s website.
 work are helping countries meet this challenge, including
 a new book on health reform (see Box).
 Fiscal policy and employment. The department is en-
 gaged in policy work assessing the impact of expenditure
 and tax reforms to boost employment.




16
Selected Recent Publications

IMF Fiscal Monitor                                              IMF Technical Notes and Manuals
Fiscal Monitor Update: Nurturing Credibility While Man-         Operational Risk Management and Business Continuity
   aging Risks to Growth, Fiscal Affairs Department,              Planning for Modern State Treasuries, No. 5, I. Storkey,
   International Monetary Fund, Washington DC, July               2011.
   2012.
                                                                Treasury Single Account: An Essential Tool for Government
Fiscal Monitor: Balancing Fiscal Policy Risks, Fiscal Affairs     Cash Management, No. 4, S. Pattanayak and I. Fain-
   Department, International Monetary Fund, Washing-              boim, 2011.
   ton DC, April 2012.
                                                                Chart of Accounts: A Critical Element of the Public Financial
Fiscal Monitor Update: As Downside Risks Rise, Fiscal             Management Framework, No. 3, J. Cooper and S. Pat-
   Policy Has To Walk a Narrow Path, Fiscal Affairs De-           tanayak, 2011.
   partment, International Monetary Fund, Washington
   DC, January 2012.
                                                                IMF Working Papers
Fiscal Monitor: Addressing Fiscal Challenges to Reduce Eco-
   nomic Risks, Fiscal Affairs Department, International        “Fiscal Rules in Response to the Crisis—Toward the
   Monetary Fund, Washington DC, September 2011.                   “Next-Generation” Rules. A New Dataset,” A.
                                                                   Schaechter, T. Kinda, N. Budina, and A. Weber,
                                                                   WP/12/187, 2012.
IMF Staff Discussion Notes                                      “Foreign Aid and Revenue: Still a Crowding Out Effect?”
Income Inequality and Fiscal Policy, F. Bastagli, D. Coady,       D. Benedek, E. Crivelli, S. Gupta, and P. Muthoora,
   and S. Gupta, SDN/12/08, 2012.                                 WP/12/186, 2012.
Fiscal Frameworks for Resource Rich Developing Countries,       “Great Recession and Fiscal Squeeze at U.S. Sub-national
   T. Baunsgaard, M. Villafuerte, M. Poplawski-Ribeiro,           Government Level,” J. Jonas, WP/12/184, 2012.
   and C. Richmond, SDN/12/04, 2012.
                                                                “Quality of Government and Living Standards: Adjusting
Accounting Devices and Fiscal Illusions, T. C. Irwin,             for the Efficiency of Public Spending,” F. Grigoli and
   SDN/12/02, 2012.                                               E. Ley, WP/12/182, 2012.
What Happens to Social Spending in IMF-Supported                “Environmental Tax Reform: Principles from Theory
 Programs? B. Clements, S. Gupta, and M. Nozaki,                  and Practice to Date,” D. Heine, J. Norregaard, and I.
 SDN/11/15, 2011.                                                 W.H. Parry, WP/12/180, 2012.
                                                                “Public Expenditure in the Slovak Republic: Composi-
IMF Books and Occasional Papers                                   tion and Technical Efficiency,” F. Grigoli, WP/12/173,
                                                                  2012.
Policy to Mitigate Climate Change: A Guide for Policymak-
   ers, ed. by R. de Mooij, I. W.H. Parry, and M. Keen,         “The Impact of Longevity Improvements on U.S. Corpo-
   2012.                                                          rate Defined Benefit Pension Plans,” M. Kisser, J. Kiff,
                                                                  E. S. Oppers, and M. Soto, WP/12/170, 2012.
The Economics of Public Health Care Reform in Advanced
  and Emerging Economies, Benedict J. Clements, David           “Quantifying Impact of Aging Population on Fiscal
  Coady, and Sanjeev Gupta, June 2012.                            Space,” S. G. Park, WP/12/164, 2012.
Chipping Away at Public Debt, Sources of Failure and Keys       “Fiscal Transparency, Fiscal Performance and Credit Rat-
  to Success in Fiscal Adjustment, ed. by P. Mauro, Wiley,         ings,” E. Arbatli and J. Escolano, WP/12/156, 2012.
  2011.
                                                                “Financial Intermediation Costs in Low-Income Coun-
                                                                   tries: The Role of Regulatory, Institutional, and Macro-
                                                                   economic Factors,” T. Poghosyan, WP/12/140, 2012.



                                                                                                                                17
 Selected Recent Publications

 “Walking Hand in Hand: Fiscal Policy and Growth in           “Oil Exporters’ Dilemma: How Much to Save and
   Advanced Economies,” C. Cottarelli and L. Jaramillo,         How Much to Invest,” R. Cherif and F. Hasanov,
   WP/12/137, 2012.                                             WP/12/04, 2012.
 “Appraising Credit Ratings: Does the CAP Fit Bet-            “Who’s Going Green and Why? Trends and Determi-
   ter than the ROC?” R. J. Irwin and T. C. Irwin,              nants of Green Investment,” L. Eyraud, A. Wane, C.
   WP/12/122, 2012.                                             Zhang, and B. Clements, WP/11/296, 2011.
 “Fiscal Consolidation in Southeastern European Coun-         “Evaluating Designs for a Fiscal Rule in Bulgaria,” J. R.
    tries: The Role of Budget Institutions,” B. Olden, D.       Andritzky, WP/11/272, 2011.
    Last, S. Yläoutinen, and C. Sateriale, WP/12/113,
    2012.                                                     “Assessing the Variability of Tax Elasticities in Lithu-
                                                                ania,” T. Poghosyan, WP/11/270, 2011.
 “Narrowing Vertical Fiscal Imbalances in Four European
   Countries,” I. Karpowicz, WP/12/91, 2012.                  “The Puzzle of Persistently Negative Interest Rate-
                                                                Growth Differentials: Financial Repression or Income
 “’Fiscal Devaluation’ and Fiscal Consolidation: The            Catch-Up?” J. Escolano, A. Shabunina, and J. Woo,
    VAT in Troubled Times,” R. de Mooij and M. Keen,            WP/11/260, 2011.
    WP/12/85, 2012.
                                                              “Decentralizing Spending More than Revenue: Does It
 “Debt, Taxes, and Banks,” M. Keen and R. de Mooij,             Hurt Fiscal Performance?” L. Eyraud and L. Lusinyan,
   WP/12/48, 2012.                                              WP/11/226, 2011.
 “Fiscal Performance, Institutional Design and Decentral-     “Spatial Spillovers in Emerging Market Spreads,” E.
    ization in European Union Countries,” J. Escolano, L.       Baldacci, S. Dell’Erba and T. Poghosyan, WP/11/221,
    Eyraud, M. Moreno Badia, J. Sarnes, and A. Tuladhar,        2011.
    WP/12/45, 2012.
                                                              “Efficiency-Adjusted Public Capital and Growth,” S.
 “Stock-Flow Adjustments and Fiscal Transparency: A             Gupta, A. Kangur, C. Papageorgiou and A. Wane,
    Cross-Country Comparison,” A. Weber, WP/12/39,              WP/11/217, 2011.
    2012.
                                                              “Public Debt in Advanced Economies and its Spillover
 “Macroeconomic and Welfare Costs of U.S. Fiscal Imbal-         Effects on Long-term Yields,” C. E. Alper and L.
   ances,” B. Gruss and J. L. Torres, WP/12/38, 2012.           Forni, WP/11/210, 2011.
 “A Partial Race to the Bottom: Corporate Tax Develop-        “The Taxation and Regulation of Banks,” M. Keen,
   ments in Emerging and Developing Economies,” S.              WP/11/206, 2011.
   M. Ali Abbas and A. Klemm, with S. Bedi and J. Park,
   WP/12/28, 2012.                                            “Public Debt Targeting An Application to the Carib-
                                                                bean,” A. Guerson and G. Melina, WP/11/203, 2011.
 “Pricing of Sovereign Credit Risk: Evidence from Ad-
   vanced Economies during the Financial Crisis,” C. E.       “Burkina Faso—Policies to Protect the Poor from the
   Alper, L. Forni and M. Gerard, WP/12/24, 2012.               Impact of Food and Energy Price Increases,” J. Arze
                                                                del Granado and I. Adenauer, WP/11/202, 2011.
 “Central Banks Quasi-Fiscal Policies and Inflation,” S.G.
   Park, WP/12/14, 2012.                                      “Taxing Financial Transactions: An Assessment of
                                                                Administrative Feasibility,” J. Brondolo, WP/11/185,
 “A Toolkit to Assessing Fiscal Vulnerabilities and Risks       2011.
   in Advanced Economies,” by a staff team led by A.
   Schaechter, with C. E. Alper, E. Arbatli, C. Caceres, G.   “Customs Administration Reform and Modernization
   Callegari, M. Gerard, J. Jonas, T. Kinda, A. Shabunina,      in Anglophone Africa - Early 1990s to Mid-2010,” J.
   and A. Weber, WP/12/11, 2012.                                Zake, WP/11/184, 2011.
                                                              “Democratic Accountability, Deficit Bias, and Indepen-
                                                                dent Fiscal Agencies,” X. Debrun, WP/11/173, 2011.


18
 Selected Recent Publications

Papers in Academic Journals                                    “Historical Patterns and Dynamics of Public Debt—Evi-
                                                                 dence From a New Database,” S M. Ali Abbas, N. Bel-
“Reassessing the fiscal mix for successful debt reduction,”      hocine, A. El-Ganainy, and M. Horton, IMF Economic
  E. Baldacci, S. Gupta, C. Mulas-Granados, Economic             Review, Vol. 59(4), pp. 717-42, December 2011.
  Policy, Vol. 27(71), pp. 365-406, July 2012.
                                                               “Fiscal Policy and the Current Account,” S M. Ali Ab-
“Reforming the tax system to promote environmental ob-            bas, J. Bouhga-Hagbe, A. Fatás, P. Mauro and R. C.
  jectives: An application to Mauritius,” I. Parry, Ecologi-      Velloso, IMF Economic Review, Vol. 59(4), pp. 603-29,
  cal Economics, Vol. 77, pp. 103–12, May 2012.                   December 2011.
“On the Drivers of FDI and Portfolio Investment: A             “The Distributional Implications of Income Under-Re-
  Simultaneous Equations Approach,” T. Kinda, Inter-             porting in Hungary,” D. Benedek and O. Lelkes, Fiscal
  national Economic Journal, Vol. 26(1), pp. 1–22, March         Studies, Vol. 32(4), December 2011.
  2012.
                                                               “International fuel tax assessment: an application to
“How Much Inequality is Necessary for Growth?” Fuad               Chile,” I. Parry and J. Strand, Environment and De-
  Hasanov, Harvard Business Review, January-February              velopment Economics, Vol. 17, pp. 127-44, November
  2012.                                                           2011.
“Endogenous timing in general rent-seeking and conflict        “Climate Policy in Crisis and Recovery,” B. Jones and M.
  models,” M. Hoffmann and G. Rota-Graziosi, Games               Keen, Journal of International Commerce Economics and
  and Economic Behavior, Vol. 75, pp. 168–84, December           Policy, Vol. 2(1), pp.103-19, June 2011.
  2011.




                      Career Opportunities
                      The Fiscal Affairs Department (FAD) seeks talented and dedi-
                      cated professionals, with a background in different areas of public
                      finance, to work on macrofiscal policy issues and to provide techni-
                      cal assistance advice to IMF member countries on public financial
                      management, tax policy reform, revenue administration, and various
                      expenditure policy issues. Vacancies in FAD for staff and long-term
                      expert positions are posted on http://www.imf.org/external/np/adm/
                      rec/job/howtoap.htm.

                      FAD also seeks experts who are interested in occasional short-term
                      (i.e., 2-3 week) assignments. More information is available at
                      http://www.imf.org/external/np/adm/rec/job/shortexp.htm and inter-
                      ested candidates may send their CVs to FADexperts@imf.org.




                                                                                                                          19
 Contacts


                                                      Carlo Cottarelli
                                                             Director
                                                        ccottarelli@imf.org


              Sanjeev Gupta                           Gilbert Terrier                           Gerd Schwartz
               Deputy Director                           Deputy Director                           Deputy Director
                 TA to Africa                        TA to Western Hemisphere                        TA to Europe
               sgupta@imf.org                            gterrier@imf.org                         gschwartz@imf.org


                        Philip Gerson                                                   Michael Keen
                          Deputy Director                                               Deputy Director
                    TA to Asia and Pacif ic Region                              TA to Middle East and Central Asia
                          pgerson@imf.org                                                mkeen@imf.org


                                                                                      Johannes Mueller
                        Marco Cangiano
                                                                           Assistant Director and Division Chief,
              Assistant Director and Division Chief,
                                                                              Public Financial Management II
                  Public Financial Management I
                                                                         Asia and the Pacif ic, Western Hemisphere, and
     Anglophone Africa, Middle East and Central Asia, and Europe
                                                                              non-Anglophone countries in Africa
                         mcangiano@imf.org
                                                                                       jmueller@imf.org

                       Martine Guerguil                                               Abdelhak Senhadji
              Assistant Director and Division Chief,                          Assistant Director and Division Chief,
                  Fiscal Policy and Surveillance                                        Fiscal Operations I
                        mguerguil@imf.org                                                asenhadji@imf.org

                                                                                           Juan Toro
                      Bernardin Akitoby
                                                                         Division Chief, Revenue Administration I
                         Division Chief,
                                                                               Asia and the Pacif ic, Middle East
                       Fiscal Operations II
                                                                                and Central Asia, and Europe
                        bakitoby@imf.org
                                                                                        jtoro@imf.org

                         Katherine Baer
                                                                                        Victoria Perry
           Division Chief, Revenue Administration II
                                                                                    Division Chief, Tax Policy
                  Africa and Western Hemisphere
                                                                                          vperry@imf.org
                          kbaer@imf.org

                      Benedict Clements                                                 Julio Escolano
               Division Chief, Expenditure Policy                                            Advisor
                       bclements@imf.org                                                jescolano@imf.org

                       Kiyoshi Nakayama                                                 Kentaro Ogata
                             Advisor                                                        Advisor
                        knakayama@imf.org                                                kogata@imf.org

                                                      Brian Christensen
                                   Division Chief, Resource and Information Management
20                                                  bchristensen2@imf.org
                         DVD Content
1. Voices from Senior Country Officials on Advisory Services

2. Africa Develops: IMF Technical Assistance in Mali (English
   and French)

3. Africa Rebuilds: IMF Technical Assistance in Liberia

4. The Economics of Public Health Care Reform in Advanced
   and Emerging Economies

5. Back to the Future: A History of Global Debt

6. Chipping Away at Public Debt




                                                                              On the Cover

                                                                Effects of Good Government

                                                                    by Ambrogio Lorenzetti

                                                                    Siena, Italy, 1338-1339.
Fiscal Affairs Department
International Monetary Fund
700 19th Street, NW
Washington DC 20431

				
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