Quasi-fiscal expenditures

The MSG should first agree a definition of QFEs in line with the minimum required by the EITI Standard. Requirement 6.2 states that QFEs include “arrangements whereby SOEs undertake public social expenditure such as payments for social services, public infrastructure, fuel subsidies and national debt servicing, etc. outside of the national budgetary process.” It should clearly distinguish quasi-fiscal expenditures from social expenditures that are not undertaken on behalf of the state and infrastructure provisions undertaken in full or partial exchange for oil, gas or mining exploration or production concessions or physical delivery of such commodities (see Requirements 6.1 and 4.3 of the EITI Standard). In categorising an expenditure as quasi-fiscal, the MSG is encouraged to explain its rationale for considering an expenditure as being undertaken on behalf of the state.

The MSG may wish to consider the definition of quasi-fiscal activities in the IMF’s 2007 Fiscal Transparency Manual. The manual includes a typology of quasi-fiscal activities that MSGs may find useful and indicates how governments should cover quasi-fiscal activities in their budget documents. According to the manual, budget documentation should include statements on the purpose, duration and intended beneficiaries of each quasi-fiscal activity, based on information provided by those agencies that undertake such activities. Public corporations should include in their reports specific information on, for example, noncommercial services that the government requires them to provide or lending to other government-owned agenciesHideThe International Budget Partnership has also prepared a useful guide on quasi-fiscal activities. International Budget Partnership (2013) Guide to Transparency in Public Finances Looking Beyond the Core Budget: 3. Quasi-fiscal Activities. Where budget reports and SOE annual reports or financial statements are publicly accessible, these may be useful starting points for MSGs to understand the type of quasi-fiscal activities related to the extractive industries or revenues collected from the sector.

With reference to the definition of QFEs established in Step 1, the MSG should identify expenditures funded by extractives revenues not recorded in the national budget. The MSG should first undertake a comprehensive review of all extractive industry revenues that are collected by government or quasi-government entitiesHideIMF (updated March 2017), Government Finance Statistics Manual 2014, particularly SOEs. Then, it should review the detail of expenditures funded by extractive revenues that are not recorded in the national budget. Useful documents to review include budget documents and SOEs reports, such as annual reports and financial statements. In the absence of a clear categorisation of a revenue flow as off-budget, the MSG is encouraged to include the revenue flow in the scope of its review of potential quasi-fiscal expenditures.

The MSG should categorise off-budget expenditures using extractive revenues as quasi fiscal and distinguish from other types of social expenditures (e.g. mandatory or voluntary social expenditures). Social expenditures that are not undertaken on behalf of the state are covered under Requirements 6.1 of the EITI Standard. Infrastructure provisions undertaken in full or partial exchange for oil, gas or mining exploration or production concessions or physical delivery of such commodities are covered under Requirement 4.3 of the EITI Standard. The MSG should review the detail of expenditures funded by extractives revenues collected and retained by government-related entities such as SOEs. The categorisation should be consistent with the definition agreed under Step 1. The MSG might wish to consider whether the expenditure is a type of activity that would normally be expected to be undertaken by the government.

The MSG is encouraged to consult with locally-based experts on the issue of quasi-fiscal expenditures, including representatives from the IMF, the Ministry responsible for the state budget, economic think tanks, public accountants, academics, etc. The MSG should document its discussions on the categorisation of QFEs in EITI reporting, including a summary of its approach to categorising specific expenditures as quasi-fiscal through EITI reporting. In categorising an expenditure as quasi-fiscal, the MSG is encouraged to explain its rationale for considering an expenditure as being undertaken on behalf of the state.

Examples of public or quasi-fiscal missions assigned to SOEs are also available in the Natural Resource Governance Institute’s ‘Guide to Extractive Sector State-Owned Enterprise Disclosures’:

Source: NRGI (2018), ‘Guide to Extractive Sector State-Owned Enterprise Disclosures’.

The MSG should review the state of systematic disclosures of quasi-fiscal expenditures funded by extractives revenues. Often, countries under support programmes from international institutions like the IMF are required to bring their quasi-fiscal expenditures and contingent liabilities on-balance sheet, for these to be recorded in the national budget overseen by Parliament.

Based on the review of systematic disclosures, the MSG should consider what additional information ot be reported and agree on reporting templates for each of the relevant entities deemed to have information related to QFEs linked to extractives revenues. The reporting templates should be tailored to each of the specific types of QFE identified and to the individual reporting entities, such as for the Ministry of Finance and specific SOEs.

The reporting templates should be designed to ensure a level of disaggregation commensurate with other payments and revenues. Requirement 4.7 of the 2019 EITI Standard requires disaggregation of data by individual project, company, government entity and revenue stream. Disclosures of QFEs should include the value of payments for each type of QFE for the year under review, disaggregated by project, company, revenue stream and receiving entity.

MSGs are encouraged to include appropriate and comprehensive guidance alongside the reporting templates when these are sent to reporting entities and organise capacity-building workshops where needed.

The MSG should follow up with relevant reporting entities to ensure comprehensive reporting of all quasi-fiscal expenditures. This could include undertaking capacity-building seminars with reporting entities on a needs basis. EITI reporting should include a comprehensive description of all arrangements whereby SOEs undertake quasi-fiscal expenditures. Close collaboration between the MSG and the management of SOEs is needed to ensure that a robust reporting process is designed.