Public Information Notice No. 05/167

Public Information Notice: IMF Executive Board Holds Seminar on Using the Government Finance Statistics Manual 2001 Framework to Strengthen Fiscal Analysis by the Fund

December 23, 2005

On November 16, 2005, the Executive Board of the International Monetary Fund (IMF) held a seminar on using the Government Finance Statistics Manual 2001 (GFSM 2001) framework to strengthen fiscal analysis by the Fund.¹

Background

As a follow up to the Executive Board meetings on public investment and fiscal policy (see Public Information Notice No. 05/68 and No. 04/45), the seminar provided an opportunity for an exchange of views on the issues raised in the staff paper that aimed to respond to the Board's call for greater consistency in fiscal reporting in line with the GFSM 2001.

A staff paper was drafted to summarize the GFSM 2001 framework, review the implementation process of the framework by member countries and Fund staff, and propose pilot studies to map out more fully the process involved. The paper proposed the gradual adoption of the GFSM 2001 framework as the basis for fiscal analysis in Fund staff reports.

Executive Board Assessment

Executive Directors welcomed the opportunity to discuss the use of the GFSM 2001 statistical framework to strengthen fiscal analysis in the Fund. They considered that the GFSM 2001 provides a comprehensive analytical framework that will strengthen fiscal policy analysis and reporting in Fund surveillance and program work, through three summary fiscal tables—the operating statement, the balance sheet, and the cash statement—and the core indicators that are derived from these tables. Directors generally supported the staff's recommendations.

Directors noted that use of the GFSM 2001 framework will lead to greater transparency and consistency in the presentation of country fiscal data in staff reports. They welcomed the enhanced ability that the GFSM 2001 framework provides to record noncash transactions in a coherent and consistent manner. They also acknowledged that GFSM 2001 is an appropriate framework for handling new and complex fiscal operations that can pose challenges to fiscal reporting and analysis.

Directors considered that GFSM 2001 will aid fiscal sustainability analysis, including through the integration of flows and stocks and the evaluation of balance sheets. In addition, the harmonization of GFSM 2001 with other macroeconomic statistical systems, such as the national accounts, will facilitate fiscal analysis within an integrated quantitative macroeconomic framework. Directors also noted that the GFSM 2001 framework could provide supplementary fiscal indicators that respond to particular analytical needs, and that it would encourage countries to report fiscal statistics that cover public corporations and the public sector as a whole. Directors were of the view that the cash perspective continues to have an important role, and that crucial fiscal indicators should be reported in both cash and accrual terms. Some Directors also considered that the focus on net worth alone could lead to unsustainable accumulation of debt, and that more traditional indicators of debt sustainability, such as gross debt expressed in nominal values, should continue to be used.

Directors cautioned that national authorities will require time to fully implement GFSM 2001. They supported gradual implementation over many years, at a pace consistent with countries' resource, institutional, and legal constraints—although some Directors felt that the length of the transition period should be specified at the beginning of the process. They encouraged countries to carefully review the methodology and adapt their circumstances to it over time. Some Directors noted that the significant resource cost of shifting to the GFSM 2001 framework could adversely affect improvement in the underlying fiscal source data. Some Directors also stressed the importance of having a good communications strategy in place to prevent any misinterpretation that might arise regarding the stance of fiscal policy, because the government's fiscal balances and debt position might seem to deteriorate with the new fiscal presentation.

Directors were encouraged that the three sets of actions recommended by the staff—data presentation, data reporting, and full implementation of accrual reporting—could be accomplished in a phased manner. They agreed with the staff proposal to start immediately with data presentation, regardless of country circumstances, in conjunction with data reporting and then implementation of accrual reporting. On accrual reporting, Directors noted that careful planning and management will be needed to avoid disrupting the flow and accuracy of fiscal statistics. In this regard, it was noted that the switch to accrual accounting could create room for "creative" accounting, especially in countries with less developed fiscal accounting frameworks. Directors emphasized the importance of learning from the experiences of other countries that have already shifted emphasis to accrual reporting.

Directors agreed, in principle, that the Fund staff should move in a phased way to present fiscal data using the GFSM 2001 framework in staff reports. Noting that the GFSM 2001 framework has not been tested across the Fund's membership, most Directors supported the staff's proposal to conduct pilot studies to include the GFSM 2001 operating statement, integrated balance sheets, and cash statements in Article IV consultation reports. A few Directors, however, felt that pilot studies will have little value added, given that the new methodology has already been finalized. Directors agreed that the pilot studies should be done for volunteer countries, over the course of two years and within the Fund's existing budgetary envelope, to map out more fully the process involved in shifting to the GFSM 2001 framework. Most Directors agreed that pilot studies should cover both surveillance and program countries, with the latter being restricted to countries entering new programs, and should include countries from different regions and income levels. For surveillance cases, Directors supported the short-term objective of reclassifying existing data that could be included in Article IV staff reports, when accompanied by a bridge table explaining the differences between the GFSM 2001 presentation and the concepts used in previous staff reports—although a few Directors felt that this should be done only for countries that have already moved to GFSM 2001. However, Directors cautioned that similar tables should not appear in program documentation. Directors emphasized the importance of internal and external training in support of the pilot studies.

Directors agreed that staff should report back to the Board on the experience with the pilot studies, together with migration path proposals to fully implement the GFSM 2001 methodology. The migration strategy should recognize the three phase approach of presentation (short term), country reporting (medium term), and full implementation of accrual reporting and the associated underlying systems (long term). The differing country capacities and legal constraints will need to be recognized in the migration proposals, as would the costs to the Fund and the national authorities.

Directors were supportive of the ongoing technical assistance work by the Fund staff, including guidance to country compilers in reporting operational data to the Fund using the GFSM 2001 framework. They emphasized the importance of this technical assistance work to strengthen the underlying accounting and classification systems. Some Directors, however, were concerned that work on implementing the GFSM 2001 framework, including the proposed pilot studies, may adversely affect technical assistance in other, more pressing, areas. Directors considered that the success of the migration strategies will depend crucially on the commitment of the national authorities to implementing the GFSM 2001 framework, and on the technical support and training provided by the staff.