Inaccurate public finance data
Inadequate systems of national accounts
To be effective, public finance policies must be based on accurate and comprehensive statistics on the financial transactions of public agencies. The weaknesses of national data sources are due to delays in auditing, weak administrative systems, and incomplete reporting of subnational government and state owned enterprise accounts. This makes it very difficult to get a timely, complete and accurate picture of the main sources and uses of public funds. Fiscal planning, consistent fiscal policy design, and financial accountability by decision-makers are thus significantly impeded. The weakness of public finance data, at a time of rapid increase in the public sector, complicates the design and implementation of public finance policies.
For intercountry analysis, financial data needs to be compiled on a comparable basis across countries. Such data is currently assembled within two international systems: the Government Finance Statistics (GFA) of the IMF and the System of National Accounts (SNA) of the United Nations. The former focuses solely on government transactions, whereas the latter considers government transactions as a component of the economy as a whole. Because of the difficulty of collecting consistent and accurate data on state owned enterprises, only data on transactions between the central government and the enterprises are currently recorded in the GFS. The GFS does not report asset or liability positions of the government, nor does it report depreciation for fixed assets owned by the government. Accounts are recorded on a cash, not an accrual, basis. GFS coverage is most complete for central government accounts, but more limited for general government accounts. The SNA accounts are recorded on a accrual basis and include depreciation. For national aggregates the SNA consolidates transactions between all sectors and eliminates intersectoral transactions, so that only the final demand and value added are aggregated. National accounts data compiled within the SNA framework lack the detail required for many aspects of of public finance analysis. The consolidated accounts omit some important financial flows, such as all domestic transfers, including interest.
[Developing countries] For most developing countries consistent data are available only for the past decade or two and often cover only the central government. Comparable data on regional and local governments and on state-owned enterprises are patchy across countries and over time. Up-to-date national accounts data are not available in many developing countries. Whilst accounting systems may have been implemented, there are countries in which the data supplied is so late or so unreliable that they cannot serve as a basis for rational public expenditure or monitoring. Managers at all levels may either disregard requests for budget estimates for the next fiscal year or submit estimates far in excess of what is possible (reasoning that the government cannot fail to allocate some resources to their activities, that whatever they might submit is unlikely to be reflected in the ultimate budget, and that the actual release of funds will not match the budget anyway). And yet such unrealistic budget submissions in turn destroy confidence among those receiving them such that all phases of the process lose credibility in a cycle of mutually reinforcing scepticism.
Inadequate accounting and reporting for financial and economic management has contributed to unrealistic and inconsistent decision-making at the national level, ineffective monitoring of fiscal developments and the ensuring imbalances in public finances. The presence of deficient accounting systems and practices makes it easier for public officers and others to conceal breaches and other irregularities where those have taken place.