Public Sector Governance and Accountability Series: Budgeting and ...

258 Salvatore Schiavo-Campo
In other countries, such as the United Kingdom, the projections are validated
by the independent auditor general. In most African developing countries,
the macroeconomic and fiscal projections are developed with the support
of external organizations, which gives them a measure of added credibility.
In some countries, such as Tanzania, this cooperation has become close
enough to make the formulation of these frameworks a virtual partnership
(albeit without infringing on the country’s sovereign authority to make its
own decisions).
A major issue in this regard is whether to adopt binding rules on fiscal
outcomes (for example, a prescribed level of deficit) or behavior (for
example, prohibition against borrowing except for investment spending).
This issue, often going under the name of fiscal responsibility, is briefly
discussed below.
Whose “fiscal responsibility”?
Several countries have laws and rules that restrict the fiscal policy of government
and prescribe fiscal outcomes. 6 For example, the so-called golden
rule stipulates that public borrowing must not exceed investment (thus in
fact prescribing a current budget balance or surplus, as in Germany). In
many federal countries, the budget of subnational government entities must
be balanced by law. In the European Union (EU), the Maastricht Treaty stipulated
specific fiscal convergence criteria, concerning both the ratio of the
fiscal deficit to GDP and the debt-to-GDP ratio. (The former criterion has
been by far the more important.) EU member countries whose fiscal deficit
is higher than the permitted 3 percent of GDP limit are, supposedly, liable
for large penalties. Box 8.3 summarizes similar arrangements in countries of
the West African Economic and Monetary Union.
A frequent criticism of such rules is that they favor creative accounting
and encourage nontransparent fiscal practices by burying expenditures
or listing as regular revenue one-off revenues. Also, when the rules are
effectively enforced, the criticism is that they can prevent governments
from adjusting their budgets to the economic cycle, thus making worse
both recessions and inflationary pressures. The European experience has,
unfortunately, also shown that the Maastricht rules are selectively
enforced, with no penalties exacted for violation by the largest and most
important EU members.
In contrast with an approach based on rigid targets, other countries
(for example, New Zealand) do not mandate specific fiscal targets but refer
to criteria such as prudent levels and reasonable degrees. The government
is left to specify the targets in a budget policy statement, which presents