Fiscal transparency, fiscal forecasting and budget credibility in developing countries

Abstract

AbstractFiscal transparency entails fiscal information disclosure, ensuring good quality of such information, public and parliamentary scrutiny, and the oversight of fiscal risks, while the concept of budget credibility involves an assessment of the extent of conformity of budgetary outturn to the planned forecasts. There are two main channels through which fiscal transparency can affect budget credibility: politicians' incentives to manipulate fiscal forecasts or deviate from the plans, and the uncertainty‐reducing effect in the light of fiscal risks. This study empirically examines the impact of the dimensions of fiscal transparency on deviations from budgetary forecasts, and hence budget credibility, in developing countries using regression analysis. The results show that an improvement in the oversight of fiscal risks arising from public sector entities plays a very significant role in decreasing the deviations from budgetary forecasts in developing countries. The study accords with the view that a relatively less important weight should be attached to the fiscal disclosure component in analyzing fiscal transparency, and it sheds light on the importance of ensuring good quality of disclosed information through more independence of audit bodies in developing countries in order to enhance the credibility of their budgets.