Can subnational accounting give an early warning of fiscal risks?

How to Manage Fiscal Risks from Subnational Governments

“…They also point to a relative lack of information on off-budget subnational funds and local public enterprises and autonomous bodies. Irwin and Moretti (2020) report that some of those weaknesses persist. According to a recent World Bank study of global debt transparency practices, only 18 percent of low-income countries publish debt statistics consistent with their legal framework and borrowing practices, and data on subnational debt are not available for 60 percent of these countries (Rivetti 2021).…”

Fiscal rules for subnational governments

“…As noted in a recent study of the fiscal network (Irwin and Moretti, 2020), accounting standards can be classified as "cash basis" or "accrual basis". Common wisdom is that cash-based accounts are easier to prepare because they are simpler and require fewer judgements and estimates.…”

Managing rising subnational fiscal risks

“…It also shows, however, that the effectiveness of rules as a disciplining mechanism depends on several conditions: an adequately strong legal basis; an appropriately comprehensive definition of the base of the rule (e.g., the inclusion in it of the expected value of calling of guarantees); a careful balancing of predictability and flexibility (including through clear escape clauses and correction requirements); and, especially, a close monitoring and enforcement of their compliance. Appropriate and timely accounting and reporting requirements for the SNGs are, in turn, key to allowing effective monitoring by the NG of the observance of the rules (Irwin and Moretti, 2020).…”

“…Irwin and Moretti (2020) document weaknesses in accounting systems and practices in a number of OECD countries.…”