Fiscal Transparency, Fiscal Performance and Credit Ratings

34 Pages Posted: 10 Aug 2012

See all articles by Elif C. Arbatli

Elif C. Arbatli

International Monetary Fund (IMF)

Julio Escolano

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: June 2012


This paper investigates the effect of fiscal transparency on market assessments of sovereign risk, as measured by credit ratings. It measures this effect through a direct channel (uncertainty reduction) and an indirect channel (better fiscal policies and outcomes), and it differentiates between advanced and developing economies. Fiscal transparency is measured by an index based on the IMF's Reports on the Observance of Standards and Codes (ROSCs). We find that fiscal transparency has a positive and significant effect on ratings, but it works through different channels in advanced and developing economies. In advanced economies the indirect effect of transparency through better fiscal outcomes is more significant whereas for developing economies the direct uncertainty-reducing effect is more relevant. Our results suggest that a one standard deviation improvement in fiscal transparency index is associated with a significant increase in credit ratings: by 0.7 and 1 notches in advanced and developing economies respectively.

Keywords: Fiscal Transparency, Sovereign Credit Ratings, Developed Countries, Developing Countries, Consumption, fiscal transparency, fiscal performance, public debt, budget process, budget documents, fiscal outcomes, fiscal policies, fiscal discipline, budget institutions, budget activities, budgetary institutions, budget execution, fiscal balance, fiscal institutions, fiscal risks, budget preparation, fiscal indicators, fiscal balances, budget proposal, contingent liabilities, primary fiscal balance, fiscal variables, budget projections, budget reporting, public finances, government finance statistics, budgetary operations, government finance, fiscal policy, budget transparency, budget formulation,

JEL Classification: H60

Suggested Citation

Arbatli, Elif C. and Escolano, Julio, Fiscal Transparency, Fiscal Performance and Credit Ratings (June 2012). IMF Working Paper No. 12/156, Available at SSRN:

Elif C. Arbatli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Julio Escolano

International Monetary Fund (IMF) - Fiscal Affairs Department

700 19th Street, NW
Washington, DC 20431
United States

Do you want regular updates from SSRN on Twitter?

Paper statistics

Abstract Views
PlumX Metrics