TEPAV: “Public Financial Management System is not Adequate for Fiscal Rule” TEPAV stated that the soundness of the fiscal rule implementation process will be closely related with the steps proposed to be taken in the draft law submitted to the TBMM (The Grand National Assembly of Turkey).

31/05/2010 - Viewed 1790 times ANKARA- TEPAV said that the restructuring achieved in public financial management is currently insufficient for a healthy fiscal rule implementation and maintained "The Draft Law on Fiscal Rule, taking these exact insufficiencies into account, proposes some steps in the right direction on issues which will be dealt with in this note. This sure is a good development. The soundness of the fiscal rule implementation is closely related with the steps proposed to be taken in the law draft."

The note titled "How does Fiscal Rule Work?" written by TEPAV Governance Studies Director Emin Dedeoğlu is published. The note stated that the Draft Law on Fiscal Rule is an attempt of critical importance as it puts an emphasis on fiscal discipline and reflects the will of the government to impose a rule on itself.

Reminding that Turkey redesigned the public financial management system after the 2001 crisis, the note underlined that inclusive reforms targeting at transparency in public financial system was launched through the "Law on Public Financial Management and Control",  "Law on Public Finance and Debt Management"  "Public Procurement Law"  as well as through reforms in different sectors including in different sectors including energy, agriculture, heath, and social security. The note said that these are attempts that shall not be overlooked and that can set an example at global level and added: "At the point we arrived, it is possible to say that the public financial management reform was implemented successfully considering the budget processes in particular. Therefore, on the basis of the implementation results, it can be concluded that a considerable level of fiscal discipline was attained between 2002 and 2007." The note continued:

"Nonetheless, it should be added that the quality and thus the sustainability of the fiscal discipline is also discussed. Criticism about the quality of fiscal adjustment mainly stress that fiscal adjustment is predominantly ensured by increasing indirect taxes; that expenditures are not cut; that primary expenditures are tried to be controlled via reducing expenditures on education and public investments against the compulsory expenditures that tend to rise (such as personnel, social security or health expenditures) as well underlining that this is not sustainable in the long term. This situation creates the risk of pursuing measures that will deteriorate further the resource allocation in order to comply with the fiscal rule."

Serious question marks about the implementation process ...

The evaluation of TEPAV maintained it is promising that the long-discussed fiscal rule is eventually turned into a concrete law draft and that the timing of this attempt is also meaningful given the tension raised by the Greek crisis. The note continued:

"However, when the anti-transparent budget practices, the failure to implement the medium term expenditure program completely; and the budget constraints in both revenue and expenditure sides are considered it appears that shift to fiscal rule implementation should be accompanied with a public finance reform in order to ensure rapid gains in credibility. What is more, the infrastructural deficiencies in the independent monitoring-auditing and sanctioning raise question marks about the process.

The Draft Law on Fiscal Rule sent to the TBMM intends to eliminate a part of the existing deficiencies, which should be considered as a positive development. However, in this form and in a milieu where there expectations for the deepening of the crisis in Europe intensifies, the draft law appears to have left the construction of fiscal credibility to the administrative decisions the Government will make in the future. Under these circumstances, it will be necessary to monitor closely the implementation process."