Written evidence submitted by staff of
the International Monetary Fund
Please note that the views expressed in these
comments are those of the IMF's staff, and not necessarily of
its management or Executive Board.
IMF staff appreciate the Treasury Committee's
invitation to submit views on the OBR's future structure and remit.
We broadly agree with the Interim OBR's advice on this issue.
The comments below, prepared by the staff of the European Department
and the Fiscal Affairs Department, focus on ways to further clarify
the OBR's mandate and strengthen its independence and resources.
These comments are organized around five "best practices"
for fiscal councils (FC), based on IMF staff analysis of international
experience with FCs.
Where applicable, we indicate in brackets examples of countries
in which FCs employ a certain practice.
1. Objectives and activities
FCs are typically intended to reduce deficit bias,
enhance policy credibility, and improve fiscal outcomes while
leaving full discretion for policymaking to the government. They
can best do so by providing three types of output: (1) nonpartisan
analysis of fiscal developments and long-term sustainability issues;
(2) independent projections and forecasts for both budget and
relevant macroeconomic variables; and (3) analysis of the implications
of a particular fiscal stance, including the consequences for
needed future adjustment to meet specified fiscal goals.
Recommendations: The OBR's proposed
focus on fiscal forecasts, economic analysis, and assessments
of fiscal sustainability is consistent with the above objectives.
However, it would be worthwhile to spell out more explicitly what
this might entail. In this regard, the OBR's "judgment of
the sustainability of the public finances" (paragraph 20)
should include not only a discussion of the debt path that arises
from announced fiscal policies, but also a discussion of the sustainability
of policy measures and assumptions that underpin the debt path
[Belgium, Hungary, Netherlands, Sweden, USA]. This could include
discussing any key risks to the trajectory of policies assumed
in the official forecasts and by producing alternative scenarios
that show the projected path of fiscal variables under alternative
assumptions regarding the path of future policies. Such scenarios
and commentary by the OBR may reduce the incentive for governments
to resort to questionable devices (such as assuming that an implausibly
large fiscal adjustment will occur suddenly at some point in the
distant future) to achieve balanced fiscal paths or to meet fiscal
mandates only on paper. It would also be useful to clarify that
the OBR would take a lead role in assessing compliance with any
future fiscal rule that may be adopted to succeed the current
2. Role of forecasts and policy assessments
An FC should prepare forecasts on a regular basis
throughout the year. The FC's forecasts should be used in the
budget preparation process, and the FC's analysis should be channeled
into policymaking through explicit mechanisms. Recommendations:
We see merit in having both pre-budget and budget forecasts, as
this would help clarify the effects of the new budget. These forecasts
should be detailed and include, among other items, the scoring
of key policy measures [Chile, Belgium, Netherlands], information
on the main assumptions underpinning the forecasts, and information
on how projections for key variables compare with outside (eg,
consensus) forecasts. We also strongly support the proposed annual
report on fiscal sustainability (paragraph 35). In addition to
projecting the fiscal path under baseline policies, the annual
sustainability report could also further public debate by scoring
the fiscal savings from possible reform measures (eg, accelerating
increases in the retirement age), based on proposals submitted
by the government, opposition members, academia, and think tanks.
To preserve its reputation as a nonpartisan agency without a political
agenda, the OBR should refrain from explicitly advocating any
specific tax or spending measure, but it could usefully discuss
the likely effects of such measures on fiscal sustainability from
a technical perspective. To provide the OBR with sufficient instruments
of influence, it should also be empowered to issue other public
reports and statements aimed at informing the public debate on
fiscal policy [Sweden] and be provided with regular hearings in
It is essential for an FC to operate in a manner
free from political influence, requiring formal guarantees on
funding and independence in decision-making. Recommendations:
It is essential that the OBR be fully independent from Treasury.
Measures that would help guarantee de facto and de jure independence
include (i) providing multi-year budget appropriations for OBR
to reduce the government's ability to coerce the OBR through reduced
appropriations; (ii) establishing the OBR as its own entity that
is not an office or agency of the Treasury (paragraph 61), with
a separate physical location; (iii) establishing sufficiently
long fixed terms for members of the Budget Responsibility Committee,
making removal of a member before expiration of his or her term
difficult or impossible; (iv) adopting restrictive qualification
requirements for members (eg, members could be required to have
an advanced degree in economics or public policy and be chosen
from a list proposed by the Treasury Select Committee, with current
or former elected representatives excluded from consideration);
and (v) framing the needed collaboration with Treasury in a way
that is clear and transparent [Netherlands] and ensures that the
OBR has unfettered access to Treasury fiscal data; a well-designed
Memorandum of Understanding with Treasury (paragraph 56) will
be critical in this regard.
Well-trained and adequate numbers of staff are
key to the FC discharging its mandate and retaining credibility.
Recommendations: The OBR should be provided with
sufficient staff resources to fully perform its duties. This will
likely require a significant expansion over its current staff
size, though this could be developed over time. To attract competent
staff, the salary scale should be competitive [Hungary, Netherlands,
USA]. To facilitate independence, staff should report solely to
the OBR and not be seconded from Treasury. The OBR should also
be tasked with maintaining a working culture that is supportive
of providing nonpartisan technical advice devoid of any specific
Formal mechanisms should ensure that the FC
is accountable to the relevant Parliamentary Committees.
Recommendations: The OBR should ideally be accountable
only to Parliament [Hungary, USA].
11 See Debrun, Hauner, and Kumar (2009), "Independent
Fiscal Agencies", Journal of Economic Surveys, 23: