A toolkit to strengthen government budget surveillance

In this paper we develop a comprehensive short-term fiscal forecasting system of use for the real-time monitoring of the Spanish government’s borrowing requirement. Spain has been at the centre of the recent European sovereign debt crisis, not least because of sizeable failures in meeting public deficit targets. The system comprises a suite of models, with different levels of disaggregation (bottom-up vs top-down; general government vs sub-sectors), which are suitable for the automatic processing of the large amount of monthly/quarterly fiscal data currently published by the Spanish statistical authorities. Our tools are instrumental in the ex-ante detection of risks to official projections, and can thus help reduce the ex-post reputational costs of budgetary slippage. On the basis of our results, we discuss how official monitoring bodies could expand, on one hand, their toolkit to evaluate regular adherence to targets (moving beyond a legalistic approach) and, on the other, their communication policies as regards sources of risks to (ex-ante) compliance with budgetary targets.