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Fiscal Responsibility and Budget Management Acts in India, Pakistan, and Sri Lanka: Lessons and Insights

Explore the experiences of India, Pakistan, and Sri Lanka with Fiscal Responsibility and Budget Management Acts (FRBMA, FRDL, FMRA) and draw key lessons on procedural rules, numerical targets, sanctions, and escape clauses. Understand the importance of transparent reporting, accountability, and the role of developed PFM systems. Learn about the challenges posed by weak institutions and the need for independent monitoring and broad political consensus.

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Fiscal Responsibility and Budget Management Acts in India, Pakistan, and Sri Lanka: Lessons and Insights

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  1. The Experiences of India, Pakistan and Sri Lankawith FRLs Yang Hyun Jin Maldives , April 1, 2010

  2. India • Fiscal Responsibility and Budget Management Act (FRBMA) of 2003 * fiscal deficit 9%; debt GDP ratio 87% • Procedural rules and numerical targets

  3. India’s experience with fiscal rules has been mixed • FRBMA contributed to India’s fiscal policy framework by strengthening the procedural rules • However, date for achieving current deficit target was postponed repeatedly; off-budget activities increased, and there were significant slippages with deficit target (even before the global crisis) * current balance: -3.6% (2003), -4.0% (2009) * government debt: 68.4% (2003), 64.1 (2008) • Focus on current balance target without clear accounting definition increases incentive for creative accounting • Reliance on reputational sanctions for noncompliance; this does not guarantee consistency between FRBMA and annual budget

  4. Pakistan • Fiscal Responsbility and Debt Limitation Act (FRDL) of 2005 * eliminate revenue deficit and reduce of government debt • Procedural rules and numerical targets

  5. Pakistan • Pakistan’s experience with FRDL has been reasonably good. • Public debt target was achieved in 2009, which was earlier than the target year of 2013 (58.1% in 2009) • However, revenue deficit target was breached (-3.4% 2008, -1.7% 2009), and new guarantees slightly exceeded target by 2.07% • Annual “fiscal policy statement” and “debt policy statement” has provided clear review of performance target • Well defined sanctions contributed to accountability of fiscal policies

  6. Sri Lanka • Fiscal Management Responsibilty Act (FMRA) of 2003 * overall balance -7.8%; public debt ratio 100.6% • Procedural rules and numeral targets

  7. Sri Lanka • Sri Lanka’s experience with FMRA has been less satisfactory • Overall deficit target set in FRMA already modified in 2005, and repeatedly postponed thereafter • Quasi-fiscal activities by commercial public corporations and banks have increased significantly • Reliance on reputational sanctions and loosely defined escape clauses have been proved problematic

  8. Key Lessons from these three countries’ experiences • Procedural rules should contain: • (ex ante) fiscal policy statements over a medium term period help ensure transparency • (ex post) reports to the parliament and public are needed, to ensure accountability • Numerical rules, if included, should be: • simple and transparent • well- defined and enforceable • Sanctions should be credible and enforceable • Escape clauses should be clear and narrowly defined

  9. Key Lessons(continued) • Sufficiently developed PFM systems are pre-requisites for credible FRL implementation • Numerical targets in law can not guarantee success of fiscal policies • Weak institutions and poor implementation capacity may undermine the FRL • Independent monitoring and oversight is necessary • FRLs require broad political consensus and support for prudent fiscal policy

  10. Thank you yjin@imf.org

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