Guidance Note: EITI Requirement 6.2
This guidance note refers to the 2019 EITI Standard.
Quasi-fiscal expenditures (QFEs) or off-budget expenditures can have a significant impact on the local and national economy, and on the government’s fiscal position. In many countries, state-owned enterprises (SOEs) undertake QFEs on behalf of the state such as payments for social services, public infrastructure, fuel subsidies and national debt servicing, which are not recorded on the national budget. The IMF Manual on Fiscal Transparency highlights the importance of identifying and quantifying quasi-fiscal activities.
Common governance challenges include opaque public spending (e.g. on defence), greater risks of fraud, lack of auditing of expenditures undertaken by quasi-public entities, and expenditures undertaken at a loss or below the usual rate of profit. QFEs are often considered sub-optimal compared to fiscal expenditures reported in the national budget, which usually has parliamentary oversight.
As Transparency International notes in its Public Financial Management guide, “off-budget activities pose problems in reporting and consolidating fiscal data and constitute a major transparency challenge. In terms of accountability, they are often submitted to less stringent requirements for reporting and public oversight.” This can be particularly acute in the extractive industries, where there are often several government and state-owned entities involved in managing significant amounts of revenues.
One of the key aspects of the EITI Standard is the traceability of extractive revenues that are not recorded in the state’s national budget. This note provides guidance to multi-stakeholder groups (MSGs) on how to address these issues as part of EITI implementation and offers examples of how implementing countries have reported on QFEs in the extractive industries.