providing financial support to a country or is engaged in surveillance. Where it exists, a fiscal agency and
the IMF could play complementary roles in the context of an IMF-supported program. In this case, an
independent fiscal authority (IFA) would have a mandate that is close to that of the IMF, although even
an FC could facilitate the negotiation and implementation of a program by increasing the information
flow between the authorities and the Fund, and by strengthening ownership of a program at the national
level by shaping the desirable preconditions in terms of consensus, fiscal rules, and budgetary
framework. The basic premise would be that the fiscal agency would have a realistic and objective view
of the constraints facing the economy, and the policies that need to be implemented. There is, however,
always a risk that an additional actor may end up further complicating the interaction between country
authorities and the IMF.
In a surveillance context, an FC and the IMF play similar roles, in that they are both involved in the
analysis of fiscal developments and sustainability. In this context they can support one another, rather
than duplicating each other’s work. Thus, an FC should engage in a continuous assessment of fiscal
developments, and undertake more detailed analysis of fiscal developments than is realistic for the IMF.
The IMF, on the other hand, can provide a better perspective on the implications of broader international
and global developments, as well as bring a cross-country perspective to bear on national fiscal policy.
7. Conclusions
This chapter has examined a number of issues related to the rationale, mandate, and operations of fiscal
agencies and analyzed country experiences. The discussion points to the following conclusions.
There are widespread difficulties in the design and implementation of fiscal policy in both industrial and
developing economies. They are reflected in deficit bias, procyclicality, and conduct of unsustainable
policies. These problems arise from a variety of political and economic factors, but political economy
considerations, including electoral concerns, and the competing demands from various constituencies and
lobbies play a key role.
A major element underlying the above problems is the inappropriate use of discretion in fiscal
policymaking. In general, discretion is valuable and allows response to unexpected shocks, as well as the
exercise of the democratic mandate, particularly with regard to redistribution issues. However, discretion
can be misused, especially in the presence of political and distributive conflicts, and if governments have
short-time horizons. The challenge is to alleviate the undesirable features of discretion while retaining
flexibility.
Institutional reform is one way of meeting that challenge. Whether as a complement to existing fiscal
rules, or independently of them, institutions can be set up that help in the formulation and
implementation of sound fiscal policies. Reforms in this direction could in general entail some measure
of delegation of a policy mandate or of activities supporting such a mandate. Theory has identified
various factors, including a consensus on what constitutes sound policy, that suggest that, in practice,
delegation in fiscal policy could be beneficial.
There are two main types of fiscal agencies to which some aspect of policy could be delegated and which
could help improve fiscal discipline: IFAs could be mandated with setting annual targets for the budget
balance, or could veto proposals at odds with a given fiscal rule. However, while an analytical case can
be made for IFAs, the fact that there are no instances of IFAs to date suggests that policymakers are
reluctant to delegate a significant element of their mandate and that their implementation may raise issues
of democratic accountability.
FCs are likely to be more generally acceptable and could help reduce policy distortions. These councils
could help improve fiscal policy by independent analysis, forecasts, or normative judgments. They could
thereby affect policymakers’ incentives and motivations, including through public debate and scrutiny. A
number of countries have constituted FCs, and there are a variety of proposals for new ones. The