New IMF Report Takes Stock of Brazil’s Fiscal Transparency Practices

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The FINANCIAL — The International Monetary Fund (IMF) published a Fiscal Transparency Evaluation (FTE) report for Brazil on May 3. This evaluation assesses Brazil’s fiscal transparency practices based on the IMF’s Fiscal Transparency Code, and was carried out at the request of the Brazil authorities.

The report recognizes several key strengths of fiscal transparency practices in Brazil. For example, the fiscal statistics encompass the general government sector and recognize most of its assets and liabilities. Fiscal reports are published in a frequent and timely manner and annual financial statements are audited by the Federal Court of Accounts. The institutional scope of budget documentation is comprehensive and the key sequences of the budget process are timely. Extensive budgetary information is made available to the public through websites and online databases. Fiscal risk disclosure and management are anchored in the Fiscal Responsibility Law, which mandates the publication of a statement of fiscal risks. While still an area of relative weakness, the monitoring and management of fiscal risks has improved recently.

However, despite the development of fiscal responsibility legislation, several weaknesses in fiscal transparency have had adverse effects on the quality of fiscal policy—many of which are being addressed. These included: lack of clarity on fiscal reporting standards, which undermines the effectiveness of fiscal rules; lack of transparency in the relationship between the central government and public banks and between the central government and subnational governments, according to IMF.

Since 2015, important efforts have been underway to address some of these weaknesses, and the report found that many of Brazil’s practices perform well against the 36 principles of the Fiscal Transparency Code. Across the three pillars, 18 of Brazil’s practices are rated as either “good” or “advanced”, while 18 practices are rated as “basic” or “not yet met”.

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This FTE report makes a number of recommendations to strengthen fiscal transparency, including:

Expand the coverage of the key fiscal reports to include at a basic level the direct expenditures and revenues of extra-budgetary funds and parastatals;

Produce comprehensive fiscal statistics on the public sector, including by incorporating all public enterprises into the data on non-financial public enterprises and more comprehensive information on the entire public sector;

Further disclose the relationships between the public banks and other parts of the public sector;

Strengthen the reporting of transactions between the BCB and the Treasury;

Provide more clarity on policy intentions by publishing a medium-term fiscal policy statement. This could be complemented with improvements to the legal framework by introducing a modern organic budget law;

Strengthen disclosure and management of fiscal risks;

Disclose key medium- to long-term fiscal challenges, especially rising pension and health spending.


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