PI-15. FISCAL STRATEGY
ABOUT THE INDICATOR
This indicator provides an analysis of the capacity to develop and implement a clear fiscal strategy. It also measures the ability to develop and assess the fiscal impact of revenue and expenditure policy proposals that support the achievement of the government’s fiscal goals. It contains the following three dimensions and uses the M2 (AV) method for aggregating dimension scores:
• Dimension 15.1. Fiscal impact of policy proposals
• Dimension 15.2. Fiscal strategy adoption
• Dimension 15.3. Reporting on fiscal outcomes
IMPACT ON BUDGETARY OUTCOMES
A fiscal strategy enables government to clearly articulate to central government units, the legislature, and the public its fiscal policy objectives, including specific quantitative and qualitative fiscal targets and constraints. It provides a framework against which the fiscal impact of revenue and expenditure policy proposals can be assessed during the annual budget preparation process. This ensures that budget policy decisions align with fiscal targets thereby supporting aggregate fiscal discipline and the strategic allocation of resources to policy priorities.
Dimension 15.1. Fiscal impact of policy proposals
DIMENSION MEASUREMENT GUIDANCE
15.1:1. This dimension assesses the capacity of the government to estimate the fiscal impact of revenue and expenditure policy proposals developed during budget preparation. The assessment of the fiscal implications of policy changes is critical to ensure that policies are affordable and sustainable. A failure to accurately estimate the fiscal implication of policies may result in a shortfall in revenues or higher expenditures, leading to unintended deficits and increased debt, undermining the ability of the government to deliver services to its citizens.
15.1:2. The fiscal impact of policy proposals should be documented and prepared by the ministry of finance (or equivalent central government entity) or consolidated by the ministry of finance in cases where individual budgetary units prepare the estimates for their respective policy areas. With regard to revenue policy, assessors should focus on proposals with significant and direct impact on revenue, including, for example, changes to the rates and coverage of corporate income tax, value added tax, personal income tax, customs and excise taxes, and taxes on natural resources. Revenue policy proposals should specify the estimated revenue impact for the budget year and the two following fiscal years. Similarly, for
Dimension 15.1. Scoring
| Score | Minimum requirements for scores |
|---|---|
| A | The government prepares estimates of the fiscal impact of all proposed changes in revenue and expenditure policy for the budget year and the following two fiscal years, which are submitted to the legislature |
| B | The government prepares estimates of the fiscal impact of all proposed changes in revenue and expenditure policy for the budget year and the following two fiscal years. |
| C | The government prepares estimates of the fiscal impact of all proposed changes in revenue and expenditure policy for the budget year |
| D | Performance is less than required for a C score |
PEFA Handbook Volume 1: The PEFA Assessment Process – Planning, Managing and Using PEFA
