According to the 2005 International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) - Fiscal Transparency Module, Spain has made considerable progress in both macroeconomic and fiscal adjustment, while also modernizing and strengthening its fiscal institutions and disseminating information about the government's operations. Consequently, Spain now fully meets or exceeds the IMF Code of Good Practices on Fiscal Transparency standards in many areas. Article 134 of the Spanish Constitution defines and formalizes budget and financial management in Spain. Additionally, the General Budget Law, Budgetary Stability Laws, Annual Budget Laws and Annual Budget Formulation Decrees provide the legal framework for fiscal management, and all are publicly available. More specifically, the Spanish Constitution defines the roles and responsibilities of general government and clearly sets Spain's main government sectors apart from the private sector in line with the 1995 European System of Account Accords. According to the ROSC, the General Budget Law and an annual Ministry of Economy and Finance (MEH) order regulate the budget process and delineate the guidelines for the preparation of the budget. However, the ROSC highlights several areas where transparency in fiscal policy could be improved in Spain. For example, Spain does not permit external scrutiny of macroeconomic forecasts and assumptions. As a result, macroeconomic forecasts, and the models on which the forecasts are based, are not made public. Furthermore, while the coverage of government operations in budget documents is relatively comprehensive, the information is dispersed and in need of compilation to make it easily accessible to the general public. Lastly, the ROSC notes that the assignment of supervisory responsibilities for budget execution is confusing. The MEH is responsible for executing the budget; the General Directorate of the Budget is in charge of budget modifications; the Directorate General for the Treasury handles cash and debt management; and the General Controller and Accounting Directorate oversees internal control, audit, accounting, and reporting. The IMF recommends that these duties be streamlined.

General Overview

The 2005 International Monetary Fund's (IMF) Report on the Observance of Standards and Codes (ROSC) - Fiscal Transparency Module concludes that Spain has made considerable progress in both macroeconomic and fiscal adjustment, while also modernizing and strengthening its fiscal institutions and disseminating information about the government's operations. Consequently, Spain now fully meets or exceeds the IMF Code of Good Practices on Fiscal Transparency standards in many areas.

The ROSC states that the Spanish Constitution defines the roles and responsibilities of general government and clearly sets Spain's main government sectors apart from the private sector in line with the 1995 European System of Account Accords. Furthermore, the distinction between the government and private sector is duplicated at the regional and local government levels. Furthermore, the ROSC notes that the Constitution and other legislation specific to individual government agencies provide a clear legal framework for fiscal activity. Specifically, Article 134 of the Spanish Constitution defines and formalizes the budget and financial management system in Spain. Additionally, the General Budget Law, Budgetary Stability Laws, Annual Budget Laws and Annual Budget Formulation Decrees provide the legal framework for fiscal management, and all are publicly available.

According to the ROSC, the General Budget Law and an annual Ministry of Economy and Finance (MEH) order regulate the budget process and delineate the guidelines for the preparation of the budget. However, the ROSC notes that the assignment of supervisory responsibilities for budget execution is not very clear. The MEH is responsible for executing the budget; the Directorate General for Budget (DGB) is in charge of budget modifications; the Directorate General for the Treasury handles cash and debt management; and the General Controller and Accounting Directorate (IGAE) oversees internal control, audit, accounting, and reporting. The ROSC recommends that Spain improve the coordination between budget execution and financial management

The ROSC states that Spain has a plethora of publications (issued by various institutions) that report fiscal developments and aggregates, and many of these publications are required by law. For example, Article 136 of Law No. 47 of 2003 requires IGAE to report on the execution of the budget on a monthly basis in the Official State Gazette (Boletín Oficial del Estado). Information on gross public debt and financial assets, such as the level and composition of general government debt, is published regularly. The Bank of Spain (BdE) publishes (on a quarterly basis) data on central government, social security fund, regional government (Comunidades Autónomas, CCAA) and local government debt on its website, and these numbers are also part of data sent to the IMF's SDDS. Monthly data are provided on state revenue and expenditures (except for debt data, which are quarterly), and on general government operations on an annual basis. In addition to publishing financial flows (i.e. accrual adjustments and stocks valued at market value), the BdE also publishes data on gross and net government financial assets. The ROSC highlights several areas where public availability of information on government operations in Spain could be improved. For example, while the coverage of government operations in budget documents is relatively comprehensive, the information is dispersed and in need of compilation to make it easily accessible to the general public.

Established by the Spanish Constitution, the fully independent Court of Accounts (Tribunal de Cuentas) is entrusted with the responsibility for conducting ex post audit of financial operations of the general government. The court, which reports its finalized reports directly to Parliament, prepares audit reports on the accounts of all components of the public sector, as well as on the contracts of the central public sector. Based on these reports, the Parliamentary committees that liaise with the Court of Accounts (COA) (i.e. Joint Committee of Congress and the Senate for Relations with COA) vote on the resolutions presented by parliamentary groups. All audit reports are publicly available in the Official State Gazette and the Court may freely convey its opinion in public. Nevertheless, the ROSC notes that the scope of auditing is narrow, since "the audit functions of the COA focus mainly on compliance with legislation and financial targets," adding that the "the capacity to carry out performance auditing is constrained by the low quality or absence of performance indicators" (p. 34).

In its 2007 Article IV Consultations, the IMF recommends that Spain improve its ability "to ensure fiscal discipline in a highly decentralized system" (p. 10). The IMF adds that "with extensive decentralization, strengthened transparency and monitoring (in line with 2005 fiscal ROSC recommendations) remain the most effective means to secure fiscal discipline at the regional and local government levels--who now account for over 75 percent of government spending, excluding social security" (p. 10-11). The Consultations report cites the insufficient reporting of off-budget capital spending and the lengthy lags in the publication of national accounts-based data for territorial governments as particular weaknesses in Spain's fiscal policy transparency and monitoring system. While praising some ongoing efforts to solve these problems (i.e. the recent census of regional public entities), the Consultations report further recommends that Spain conduct a thorough review of the efficiency of "productive expenditure" spending (i.e. R&D) featured in successive budgets. The IMF also recommens that Spain allow for independent scrutiny of fiscal policy plans and outturns. Finally, the Consultations report states that, "with the long-term rise in age-related public spending currently estimated at 81/2 percentage points of GDP (by 2050), preserving budgetary stability will require further pension reform, beyond that agreed in 2006--a point recognized by the authorities" (p. 11).

Spain subscribes to the Special Data Dissemination Standard (SDDS). Spain has been a subscriber to the IMF's SDDS since September 27, 1996, and met SDDS specifications on December 21, 2000. (IMF SDDS website)

The Principles

Clarity of roles and responsibilities.

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According to the 2005 IMF ROSC - Fiscal Transparency Module, fiscal policy in Spain fully meets or exceeds the standards of the IMF Code of Good Practices on Fiscal Transparency in many respects. The ROSC states that the Spanish Constitution defines the roles and responsibilities of general government and clearly sets Spain's main government sectors apart from the private sector in line with the 1995 European System of Account Accords. Furthermore, the distinction between the government and private sector is duplicated at the regional and local government levels.

Furthermore, the ROSC notes that the Constitution and other legislation specific to individual government agencies provide a clear legal framework for fiscal activity. Specifically, Article 134 of the Spanish Constitution defines and formalizes the budget and financial management system in Spain. Additionally, the General Budget Law, Budgetary Stability Laws, Annual Budget Laws and Annual Budget Formulation Decrees provide the legal framework for fiscal management, and all are publicly available. Mechanisms for examining and amending the budget are well defined and governed by strict rules restricting the parliament's powers. According to the ROSC, the legislative and legal basis for taxation, regulation, and administrative procedures are clear and governed primarily by Articles 133 and 134 of the Constitution, the General Tax Code of 2003 and other tax laws, all of which are published in the Official State Gazette (the Boletín Oficial del Estado) and are readily available on the website of the Ministry of Economy and Finance.

The 2005 IMF ROSC also lays out areas in which Spain can improve the clarity of roles and responsibilities regarding fiscal policy. While noting that Spain's Constitution clearly defines the roles of general government and sets the main government sectors apart from the private sector in line with the 1995 European System, the ROSC also observes that, in practice, the application of these criteria in individual cases "has tended to blur the boundaries between the government and public enterprises sectors" (IMF 2005, p. 35). Furthermore, while observing that the Budgetary Stability Laws (BSLs) "have established the principle of budgetary equilibrium as the cornerstone of fiscal management" the ROSC also notes that "information on sub-national government budget execution is not adequate to allow full and timely control of the application of this law" (p. 36). As of the release of the ROSC in February 2005, the Spanish government was considering revising the BSLs to strengthen reporting and transparency requirements.

Open budget processes

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The 2005 IMF ROSC - Fiscal Transparency Module observes that Spain's "annual budget process is open, and budget presentation is partly consistent with international standards" (p. 24). According to the ROSC, the General Budget Law and an annual MEH order regulate the budget process and delineate the guidelines for the preparation of the budget. However, the ROSC notes that the assignment of supervisory responsibilities for budget execution is not very clear. The MEH is responsible for executing the budget; the DGB is in charge of budget modifications; the Directorate General for the Treasury handles cash and debt management; and IGAE oversees internal control, audit, accounting, and reporting. The ROSC recommends that Spain improve the coordination between budget execution and financial management. Most importantly, the ROSC states that the overall balance of the general government is the main indicator of the fiscal position, and this is monitored and publicized during the year.

According to the ROSC, "information on revenue developments is monitored on a timely basis by the tax administration; all stages of the expenditure process are appropriately recorded in the Government Financial Management Information System (GFMIS); thus, information on each stage is available on a timely basis" (p. 40). Additionally, a statement on macroeconomic assumptions underlying the budget forecasts is presented in the annual budget documents. However, Spain does not permit external scrutiny of macroeconomic forecasts and assumptions. As a result, macroeconomic forecasts, and the models on which the forecasts were based, are not made public. While medium-term fiscal policy targets are published twice a year, they are not part of the budget documents. The rules and regulations for internal control and audit overseen by IGAE are clearly specified, and the accounting system is capable of producing accurate in-year reports on the central government budget outturn.

Finally, the ROSC made the following key recommendations to increase transparency in the formulation of budgetary policies: (1) provide a clearer and detailed explanation of rationale for the specific fiscal targets in each annual budget; (2) over the longer run, carry out a comprehensive revision of the government accounting plan to closely align it to ESA-95; (3) bring functional classification in the budget fully in line with international (i.e., GFS 2001) standards; and (4) develop medium-term fiscal scenario into a full-fledged rolling medium-term budget framework (MTBF), including multi-year projections for main revenue categories.

Public availability of information.

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According to the 2005 IMF ROSC - Fiscal Transparency Module, the "coverage of government operations in budget documents is relatively comprehensive" (p. 38). However, the assessment does not specifically address Spain's compliance level with this principle. Spain has a plethora of publications (issued by various institutions) that report fiscal developments and aggregates, and many of these publications are required by law. For example, Article 136 of Law No. 47 of 2003 requires IGAE to report on the execution of the budget on a monthly basis in the Official State Gazette. Information on gross public debt and financial assets, such as the level and composition of general government debt, is published regularly.

The BdE publishes (on a quarterly basis) data on central government, social security fund, CCAA and local government debt on its website, and these numbers are also part of data sent to the IMF's SDDS. Monthly data are provided on state revenue and expenditures (except for debt data, which are quarterly), and on general government operations on an annual basis. In addition to publishing financial flows (i.e. accrual adjustments and stocks valued at market value), the BdE also publishes data on gross and net government financial assets. Furthermore, IGAE publishes comprehensive data on fiscal outturns for the general government and its enterprises on the basis of ESA-95, but with a two-year lag. The ROSC notes that Spain subscribes to the Special Data Dissemination Standard and "meets the timetable for providing data on state administration and general government operations" (p. 24). In addition, Spain meets the requirements concerning the regular publication of fiscal data and preceding timetables for their release. Spain also fulfils its obligations to the European Union to submit annual general government fiscal data to the appropriate EU authorities as part of the excess deficit exercise.

The ROSC highlights several areas where public availability of information on government operations in Spain could be improved. For example, while the coverage of government operations in budget documents is relatively comprehensive, the information is dispersed and in need of compilation to make it easily accessible to the general public. In addition, the ROSC states that the publication of information about the central government's budget outturns does not fully meet the IMF's standards, since it is delayed for more than two years. Furthermore, the ROSC notes that the timely publication of annual consolidated general government accounts is undermined by lengthy lags. In the ROSC, the IMF recommends that Spanish authorities "move as quickly as possible to publish the quarterly preliminary data on general government compiled by IGAE, and to shorten the delay in publication of final annual data to under one year" (p. 38).

Independent assurances of integrity.

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The 2005 IMF ROSC states that fiscal information in Spain is subject to independent scrutiny and that "external audit arrangements are broadly in line with international standards" (p. 42). Established by the Spanish Constitution, the fully independent Court of Accounts is entrusted with the responsibility for conducting ex post audit of financial operations of the general government. The court, which reports its finalized reports directly to Parliament, prepares audit reports on the accounts of all components of the public sector, as well as on the contracts of the central public sector. Based on these reports, the Parliamentary committees that liaise with the COA vote on the resolutions presented by parliamentary groups. All audit reports are publicly available in the Official State Gazette and the Court may freely convey its opinion in public. Nevertheless, the ROSC notes that the scope of auditing is narrow, since "the audit functions of the COA focus mainly on compliance with legislation and financial targets," adding that the "the capacity to carry out performance auditing is constrained by the low quality or absence of performance indicators" (p. 34). The National Statistics Institute (INE), which is independent by virtue of Law No. 12 of 1989 on Public Statistics (Article 30 and 35), manages Spain's national statistics system and utilizes fiscal information to prepare the national accounts.

The IMF ROSC highlights several areas where independent assurances of integrity could be improved. For example, the ROSC notes that "deviations between budget forecasts and outturns are not systematically and clearly explained in budget documents" (p. 41) and the IMF recommends that such explanations be included in budget documents. The ROSC also observes that the fiscal and financial management of the CCAA and the municipalities can be subject to two rounds of external audits, one from the COA and another from their own external auditing entities. For example, nine CCAAs have their own external auditing entities. In the ROSC, the IMF recommends that Spanish authorities improve the transparency and reliability of budget forecasts by exposing them to independent scrutiny by industry and academic experts. Finally, the IMF recommends that the Spanish Parliament set up a non-partisan budget office to conduct an independent analysis of the government's budget proposals.