subnational and supranational ifis from airef's perspective - josé luis escriva, spain
TRANSCRIPT
Subnational and Supranational IFIs from
AIReF’s perspective
José Luis Escrivá, AIReF’s President
8th Annual Meeting of OECD PBOs and IFIs
Session 6- National, Subnational and Supranational IFIs
Paris, 12 April 2016
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1. Does the EFB pose a threat to national IFIs?
2. Is there a case for subnational IFIs in all decentralized countries?
AGENDA
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Double response to the euro crisis
Rules-based coordination system
Sovereignty sharing and common institutions
Post- crisis reforms (6pack, FC, 2pack)
SGP reinforced: more rules, more sophisticated and more stringent
Focused on sustainability of national public finances
IFIs: decentralization of fiscal surveillance
5 Presidents’ Report (June 2015)
Admits rules have become too complex. Forthcoming reform?
More attention to stabilization function and euro area dimension
EFB: risk of recentralization?
2011 Directive: monitoring natl rules
2012-FC:
Common pples + FC monitoring
2013- 2 Pack:
Macro forecasts
EU/ntl rules monitoring
German rules- based
model
Anglo-Saxon model
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External and domestic threats
National pressures: need for a strong position to be effective
EFB set up raises many issues:
On its mandate:
o Advisor and watchdog: potential conflict?
o Fiscal stance?
On its institutional setting:
o Independent, transparent enough?
o Sufficient resources?
EFB and national IFIs: conflicting institutions?
Subsidiarity to be respected
Efficient division of tasks
EFB advice not to jeopardize national IFIs’ role and rules enforcement
National IFIs - well grounded
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Proximity
• Information access advantages
• In-depth knowledge of institutional and social setting
Focus
• Single and concrete mandate
• Fully focused on sustainability
Communication
• Targeted to country specificities
• Single channel to disseminate the benefits of sustainability
Complexity
• Non observable variables
• Complex rules
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Conclusions
The euro area is bound to rely on a hybrid model where the most promising element should be national commitments to strengthen domestic frameworks, as a pre-condition to sustain sound and responsible fiscal policies
Better use of the energy of the center if directed towards promoting robust fiscal frameworks at the local level, rather than fostering one-size-fits-all solutions and recentralization trends (EFB)
IFIs can play a relevant role in this context. Protection from the center to facilitate its consolidation will be decisive
Need for safeguarding national IFIs
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1. Does the EFB pose a threat to national IFIs?
2. Is there a case for sub-national IFIs in all decentralized countries?
AGENDA
Spain- high degree of decentralization
and very complex structure
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CENTRAL ADMINISTRATION 34,8% AUTONOMO
US REGIONS 48,5%
LOCAL ENTITIES
16,7%
Spain Public Expenditure by levels of government
2 levels of SNGs: • 17 regions • 13,000 local entities
(municipalities 8,119 + provinces + others).
Source: OECD. Subnational data set. * OECD average: of 9 federations or quasi- fed countries
Subnational Expenditure 2013 As % of General Government Expenditure
77
48 49
26
0
10
20
30
40
50
60
70
80
AUS AUT BEL CAN GER MEX ESP CH USA OECDavg*
GBR
3 models of fiscal surveillance
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CANADA
State of the nation's finances (2006-PBO)
State of the Province's finances (2013-Ontario)
UK
Forecasts of devolved taxes (2010-OBR)
Assessment of regional gov. tax forecasts (SFC-2014)
SPAIN
GG + every single public administration
(2014-AIReF)
------
National IFI
Subnational
IFIs
Clear separation of tasks
Very strong subnational IFI (consistent with Ontario’s size)
Broadest remit
Huge challenge
Viable? Would a fully decentralized model work better?
Two competing forecast. (OBR- Scottish gov) Divergences?
Limited SFC remit
AIReF legally mandated to oversight SNGs
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Fiscal Policy Planning
Regional budgetary
Targets
Regional macroeconomic
Forecasts
Budgetary monitoring
Ex ante
Draft budgets
In year
Approved budgets
Identification of risks
Enforcement
Asking central government to activate
all the preventive, corrective and coercive
mechanisms
Rebalancing Plans
AIReF monitors the whole budgetary cycle of SNGs: grey (regions and municipalities); pink (only regions).
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Is the Spanish centralized fiscal surveillance model viable?
AIReF proves a national IFI can perform fiscal watchdog functions at subnational level.
Of course, this very much depends on each country characteristics of its institutional stetting and status of the decentralization process.
AIReF established many years after the decentralization process begun. Implications:
• Regional governments: enjoy capacity to estimate own resources
• MoF: estimates info on resources from the regional financing system.
AIReF involved in the 2 (regional and municipal) coordinating bodies between CG and SNGs:
• Attending meetings (no voting right)
• Conducting studies requested by:
‐ the coordinating bodies
‐ individual regions and municipalities provided their scope does not go beyond their powers. In such a case, the request must be made by the coordinating bodies
Analytical capacity
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Factors facilitating AIReF’s performance on SNG’s fiscal surveillance:
• Appropriate legal backing (National Act).
• Ability to build a constructive and candid dialogue between AIReF and SNGs. SNGs very collaborative attitude (key for information provision and smooth relationships)
• High skilled human resources. Ability to attract senior staff with high expertise in SNGs budgetary surveillance. This allows to rapidly develop strong analytical capacity: AIReF could be a benchmark. Some examples:
o Regional level: 17 regions
o Quarterly estimates of GDP
o Risks to budgetary targets
o Debt sustainability analysis
o Municipal level: broadening the scope:
o From 6 to 16 municipalities (> 250,000 inhabitants) in 1 year
Is the Spanish centralized fiscal surveillance model viable?
(II)
Example 1- Risk to 2016 budgetary targets by region
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Lower Upper
Andalucía Likely compliance -0.6% -0.2%
Aragón Very high risk of non-compliance -1.2% -0.8%
Principado de Asturias Likely compliance -0.5% -0.2%
Illes Balears Medium risk of non-compliance -0.7% -0.4%
Canarias Likely compliance -0.1% 0.2%
Cantabria High risk of non-compliance -0.8% -0.5%
Castilla y León High risk of non-compliance -0.9% -0.6%
Castilla-La Mancha High risk of non-compliance -1.1% -0.7%
Cataluña Very high risk of non-compliance -1.5% -1.0%
Extremadura Very high risk of non-compliance -1.5% -1.0%
Galicia Likely compliance -0.4% 0.0%
Comunidad de Madrid High risk of non-compliance -0.9% -0.7%
Región de Murcia Very high risk of non-compliance -1.5% -1.2%
Comunidad Foral de N avarra Medium risk of non-compliance -0.7% -0.4%
País Vasco Likely compliance -0.5% -0.2%
La Rioja Likely compliance -0.6% -0.2%
Comunitat Valenciana Very high risk of non-compliance -1.7% -1.3%
Total CC.AA. Unlikely -1.0% -0.6%
Regions
AIReF estimates for 2016 target (0.3% GDP)
Assessment
Regional govt
balance
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GG
CG+ SSF
LG
AC
CAN
MAD
PVA
RIO
AST
GAL
CYL
NAV
AND
CNT
ARA
EXT
BAL MUR
CLM
CAT
CVA
2010 2015 2020 2025 2030 2035 2040 2045 2050
Year in which compliance with the debt objective would be attained
General government (GG): 60% of GDP • Central Administration (CG) + Social Security Funds (SSF): 44% • Autonomous Communities (AC = Regions): 13% • Local Entities (LE = municipalities): 3%
Example 2- Debt sustainability analysis of regions
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Example 3 – Local outstanding debt over current revenues
Estimates for 2016
Debt > 110%
current
No long-term
indebtedness
Debt <
75%current
revenues
Long-term
indebtedness
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
75% < Debt < 110% current revenues
Authorization for LT indebtedness required
AIReF estimate Local Govt estimate
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Conclusions
Institutional and political factors matter.
Size and heterogeneity of regions make subnational IFIs not viable for each single subnational level. Economies of scales not to be neglected.
History and state of competences devolved are key to understand each model.
Whatever the model, analytical capacity is a precondition for success.
AIReF is perceived as a useful institution by SNGs
The case for subnational IFIs is country- specific
Under the current setting, subnational IFIs in Spain
would be redundant
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