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- Title
OECD Review of Latvia’s Fiscal Discipline Council.
- Authors
Cameron, Scott; Fontaine, Peter; Langenus, Geert; Murdoch, Claire; Novysedlak, Viktor; Švilpe, Irēna Emīlia
- Abstract
Latvia’s Fiscal Discipline Council (FDC) was established in 2013 by the Fiscal Discipline Law and began operating on 1 January 2014. Its mandate is to monitor the government’s compliance with fiscal rules, endorse the macroeconomic forecasts that are used to prepare the budget, assess the adequacy of the fiscal security reserve and assess the sustainability of national fiscal policy, among other responsibilities. The OECD’s review concluded that the FDC is an effective fiscal monitoring body for Latvia and adheres closely to the OECD Principles for Independent Fiscal Institutions (IFIs). It can achieve even greater alignment to the OECD Principles and increase its impact by addressing the following areas with the associated recommendations: 1. Analytical underpinning of Council opinions. Stakeholders perceive the FDC’s opinions as being driven in large part by the expertise of the highly engaged and well-respected Chair. This contrasts with many of the FDC’s European peers, whose formal opinions are viewed primarily as grounded in the analytical work of their secretariat. Recommendation: Given that the FDC’s secretariat does not currently have staff resources available to develop sophisticated internal models, the Council should seek external technical assistance to help build the capacity to support Council opinions with a clear and consistent analytical base that endures beyond the tenure of any specific Chair or Council members. The secretariat should focus first on developing modelling capabilities for fiscal analysis, which would most quickly align the FDC with its European peers. Since the start of this review and the provision of draft recommendations, the FDC has begun receiving such assistance through the European Commission’s Directorate-General for Structural Reform Support. 2. Long-term fiscal sustainability analysis. Stakeholders appreciated the FDC’s Sustainability Report in 2017 and would like to see the report updated to reflect developments following the COVID-19 pandemic. Such a report would be best supported by internal tools developed by the secretariat, rather than those of temporary external consultants, to ensure consistency over time. Recommendation: The FDC should commit to a regular schedule for publishing long-term fiscal sustainability analysis, with the goal of releasing an updated report within the next two years, when the economy and public finances have stabilised. The sustainability report should be made a regular publication every three years to ensure that at least one major update will occur within the terms of the Presidency and Saeima and under each Chair. 3. Resources devoted to economic and fiscal monitoring. During the COVID-19 crisis, the FDC has justifiably focused its effort on monitoring monthly economic and fiscal developments, rather than more strategic analysis of Latvia’s fiscal objectives. Its monthly monitoring reports during the crisis have been popular but have required much of the FDC’s capacity. Recommendation: As the immediate pandemic crisis subsides, the FDC should reduce the frequency of monitoring reports, for example to quarterly or twice annually. This will free staff resources to support a greater focus on strategic medium- and long-term fiscal issues and the development of the analytical underpinning of Council opinions. 4. Parliamentary engagement. The frequency of the FDC’s appearances before parliamentary committees has varied over its history, and there are no legislated requirements for engagement. Under current practice, the FDC participates in meetings of the Budget and Finance (Taxation) Committee and the European Affairs Committee when the annual budget law is reviewed, but has little direct interaction with the Saeima outside of those occasions. Both the FDC and parliamentarians would like to see the FDC’s research feature more prominently and routinely in committee hearings during the budget cycle. Recommendation: The FDC should strengthen engagement with parliament, specifically with the Budget and Finance (Taxation) Committee and the European Affairs Committee. Engagement 4 OECD JOURNAL ON BUDGETING, VOLUME 2021 ISSUE 3 © OECD 2021 could be increased through formal channels, such as through a committee standing motion requiring the FDC to appear twice each year at fixed times in the fiscal year to share its views of the economy and public finances. Engagement could also be increased through informal channels, such as through one-on-one background briefings to committee members and committee analysts, provided the briefings are conducted transparently and with efforts to provide equal opportunities to members. 5. Legal authority to hire secretariat staff and the balance between inside and outside expertise. The Fiscal Discipline Law provided legal authority for only Council members and a Secretary. The drafters of the law intended that Council members would do the majority of the analysis themselves with the support of outside consultants. However, the FDC’s funding agreement sets an upper limit of 72 hours per year of direct remuneration for Council members. Further, as the FDC’s mandate has expanded, stakeholders now view the use of outside consultants as suboptimal for responding quickly to emerging issues with evidence-based opinions that are consistent over time. In recognition of these challenges, the government has granted the FDC the authority to hire analysts each year in the state budget. However, there is no permanent legislation authorising secretariat staff. The current secretariat of 2.5 analysts on a full-time equivalent basis is smaller than the average of four analysts in European Union (EU) IFIs with similar responsibilities. Further, the FDC’s capacity-building programme to expand its internal modelling with the support of the European Commission’s Directorate-General for Structural Reform will require additional permanent analytical capacity to implement and maintain for an enduring legacy. Recommendation: The Fiscal Discipline Law should be amended at the next opportunity to explicitly authorise the FDC to be supported by “a Secretary and staff” instead of only a Secretary. The legislation should specify a minimum baseline level of funding for secretariat staff that provides greater flexibility to increase staff numbers toward the average analytical staff levels of EU IFIs with similar mandates. The secretariat’s funding should be given multi-year protection in real terms in a similar manner as the existing remuneration of Council members and the Secretary. The limit on hours for which the Chair and Council members can be compensated should be raised to more closely reflect expectations for their analytical commitment. 6. Communication. The FDC’s reports are well-written and concise, but many stakeholders view them as too technical. This contrasts with the media appearances and public statements of the Chair and Council members, which are widely considered to be accessible. The FDC also does not currently monitor in detail its public engagement statistics and media mentions to track the effectiveness of its reports and communications over time. Recommendation: To an extent, this stakeholder feedback is expected, as a role of Council members is to communicate technical reports to the public. However, the FDC should nonetheless strive to increase the engagement of non-technical stakeholders through short summaries in plain language, infographics, and visuals with a distinct and consistent branding across reports and on social media. The FDC should also improve its monitoring of media mentions and public engagement so that it can track changes in engagement over time and adjust its approach to reports and communications accordingly
- Subjects
LATVIA; FISCAL policy; EUROPEAN Commission; EUROPEAN Union; GOVERNMENT policy; PUBLIC finance; GOVERNMENT aid; U.S. state budgets; LEGISLATIVE committees; TAX laws
- Publication
OECD Journal on Budgeting, 2021, Vol 21, Issue 3, p1
- ISSN
1608-7143
- Publication type
Article
- DOI
10.1787/72e1c9b6-en