4. Disclosing and Managing Fiscal Risks

Marco Cangiano

Rome, February 6-8, 2017

Outline

• Definitionandcategoriesoffiscalrisks

• Identifyingandmanagingfiscalrisks

• Contingentliabilities

• SpecificrisksemanatingfromPPPsandSOEs

2

What are fiscal risks?

4

Fiscalrisksarefactorsthatmaycausefiscaloutcomestodeviatefromexpectations

orforecasts.

Can Governments Realistically Eliminate Risks?

5

• Notreally.• Onecouldarguegovernmentshaveanobligationtotakeonrisks.• Otherargumentisriskpooling

• Marketfailures• Privatecosts/socialbenefits• Arrow-Lindtheorem(1970)

• undercertainassumptions,thesocialcostoftheriskmovestozeroasthepopulationtendstoinfinity,sothatprojectscanbeevaluatedonthebasisofexpectednetbenefitalone.

Defining fiscal risksFiscalrisksarefactorsthatmaycausefiscaloutcomes

todifferfromexpectations…

Generaleconomicrisks*relatedtogeneraleconomic

forecastparameters*Examples:domesticdemandshock;tradevolumeshock;commoditypriceshock

Specificfiscalrisks*Difficulttoisolateusinggeneraleconomicforecastparameters

*Giveriseorcontributetouncertaintyaboutspecificfiscaloutcomes

Otherspecificrisks*Arisefromchangingconditionslinked

toaspecificsource*Examples:changeinassetandliabilityvalues;taxavoidance;demographic

change

Contingentliabilities*Arisefromtheoccurrenceofa

specificevent

Implicit*Basedonexpectationorpressuretoprovidesupport

*Examples:failingPPP;bailoutsofSOEs,banks,andsub-nationalgovernment;naturaldisasters

Explicit*Basedonafirmlegal

obligationordeclaredpolicy*Examples:government

guarantees;PPPrelatedmin.guarantees;depositinsurance;

legalclaims.

Institutionalrisks*Constraintheeffectivenessoffiscal

riskmanagement*Examples:lackofexpenditurecontrol;poorcashmanagement;poorrevenue

collection

6

How do we identify fiscal risks?

7

Identifying and analyzing fiscal risks

9

Fiscalriskscommittee

PPPunit

Financialsectorpolicyunits

Debtmanagement

unit

Macroeconomicandfiscal

forecastingunits

Oversightofsub-national

government

Sub-nationalgovernment

Expenditurepolicyunits Lineministries

Revenuepolicyunits

Revenueadministrationdepartment

SOEunit SOEs

Secretariatprovidedbymacro- fiscal/budget

Identificationandmonitoringrequiresriskassessmentframeworkandinter-institutionalprocesstypicallyledby

theMoF

Economic and fiscal structures

10

StructuresNatureofthemacro-economy

• Keysectors• Linkagesbetweensectors

Structureofthepublicfinances• Sourcesofrevenue(tax/grants)• Structureofexpenditure• Sizeandcompositionofdebt

Structureofthepublicsector• Extra-budgetaryfunds• Sub-nationalgovernment• State-ownedenterprises

Internationalposition• Trade• Externaldebtobligations• Regionalarrangements

Otherstructuralissues• Environmentalrisks• Politicalrisks

RiskfactorsConcentration

• dependenceondominantsectorVolatility

• exposuretoglobalcommoditypricesUncertainty

• likelihoodofnaturaldisasteroccurringFeedbackmechanisms

• transmissionofshocksbetweensectorsInflexibility

• inabilitytoadjusttoshocks,eg non-discretionaryspending

Framework for managing fiscal risks

Identifyingandmonitoring• Establishingthecontext• Identifyingareasofrisk• Centralcoordinationunit• Informationcollection

Mitigating• Riskallocationstrategy• Institutionalresponsibility

Analyzing• Economicsensitivityanalysis• Asset-liabilityassessment• Valuingcontingentliabilities

Incorporatinginbudget• Budgetmargins/reserves• Stabilizationfunds• Debtlevel• Caps

Reporting• Economicsensitivityanalysis• Publicsectorbalancesheet• Fiscalriskstatement

11

Fiscal Risk Analysis and Management

Governments should disclose, analyze, and manage risksto the public finances and ensure effective coordination offiscal decision-making across the public sector.

• RiskDisclosureandAnalysis:– Governmentsshouldpublishregularsummaryreportsonriskstotheirfiscalprospects.

• RiskManagement:– Specificriskstothepublicfinancesshouldberegularlymonitored,disclosed,andmanaged.

• FiscalCoordination:– Fiscalrelationsandperformanceacrossthepublicsectorshouldbeanalyzed,disclosed,and

coordinated.

12

13

Reduceprobabilityofriskoccurring Reduceexposuretorisk

Createfiscalspacetoabsorbretained risk

Controlson activitiesofpublicentities§ Ceilingsforguarantees(Netherlands,CzechRepublic)

§ Limitsonliabilitiesorborrowingsoflocalauthorities

Incentivizebehavior§ Partialguarantees§ Chargeriskrelatedguaranteefees

§ Reducedebtbiasinthetaxsystem

Regulatethosebenefitingfromgovt.risk-bearing§ Financialsectorregulation(e.g.capitalrequirements)

Marketinstruments§ DisasterInsurance(CaribbeanCatastropheRiskInsuranceFacility)

§ Catastrophebonds(Mexicoearthquakebonds)

§ Hedginginstruments(Mexicooilpriceoptions)

Policyinstruments§ Regulatingbuildingcodes toinsulateagainstdisasters

§ Upper limitsondisasterordepositinsuranceschemes

Budgetprovisioning§ Contingencyreserves§ ExpenseexpectedcashflowsforcallsonCLs(Columbia,US)

§ Prudent priceassumptions(Chile)

Bufferfunds§ NaturalDisasterFunds(NZ,Mexico,Turkey)

§ StabilizationFunds(Chile)§ DepositInsuranceFunds(US)§ Guarantee Funds(Chili,Columbia,US,Sweden)

Fiscalheadroom§ Prudentdebtlimits(NZ)

Governmentmustfirstdecidewhethertobeartherisk:Pros:Publicpolicybenefit(e.g.auto.stabilizersforstability;guaranteeingbandepositstodiscourageruns)Cons:Moralhazard,risktransfersarelesstransparent,solvency

Mitigating fiscal risks

Portugal: Stochastic Simulations

Risk Management in Seven Areas• BudgetaryContingencies:

– Thebudgethasadequateandtransparentallocationsforcontingenciesthatariseduringbudgetexecution.

• AssetandLiabilityManagement:– Risksrelatingtomajorassetsandliabilitiesaredisclosedandmanaged.

• Guarantees:– Thegovernment’sguaranteeexposureisregularlydisclosedandauthorizedbylaw.

• PublicPrivatePartnerships:– Obligationsunderpublic-privatepartnershipsareregularlydisclosedandactivelymanaged.

• FinancialSectorExposure:– Thegovernment’spotentialfiscalexposuretothefinancialsectorisanalyzed,disclosed,and

managed.

• NaturalResources:– Thegovernment’sinterestinexhaustiblenaturalresourceassetsandtheirexploitationisvalued,

disclosed,andmanaged.

• EnvironmentalRisks:– Thepotentialfiscalexposuretonaturaldisastersandothermajorenvironmentalrisksareanalyzed,

disclosed,andmanaged. 15

Incorporating risks in the budget

16

• Lowdebt/Stabilizationfunds• Contingencyreserves/MarginsBuffers

• Virements• Supplementarybudgets

Budgetflexibility

• IncludeSOEflowsandstockswithinfiscalprojections,plansandobjectives

Publicsectorfiscalplanning

• Createbudgetceilingsforcontingentliabilitiessuchasguarantees,PPPsetcCaps

Incorporating in budget: Reserves

• Thedilemma:– sufficientbuffertoabsorbjustifieduncertainty– maintaindiscipliningrestrictioninthebudget

• Factorsaffectingtheappropriatesize:– timeframe

– compositionofexpenditure– riskexposure

• 1-3%oftotalexpenditureiscommonpractice• Robustaccesscriteriaandapprovalprocess

17

18

Reporting: fiscal risks statements

FiscalRiskStatement:Philippines

Contingent Liabilities• Potential claims that may or may not be incurred depending on

macroeconomic conditions and other events.

• Unlike direct liabilities, such as pension obligations, which are predictable and will arise in the future with certainty, contingent liabilities are obligations triggered by discrete but uncertain events.

• By nature, contingent liabilities are difficult to measure.•

– Explicit liabilities are those recognized by a law or contract, such as government guarantees for non-sovereign borrowing and obligations issued by subnational governments and public or private sector entities or trade and exchange rate guarantees.

– Implicit liabilities are obligations that may be assumed by government due to public and interest-group pressures, such as financial sector bailouts, or bailouts of non-guaranteed social insurance funds.

20

Contingent liabilities: large, correlated, non-linear

21

• DistributionofFiscalCostsofContingentLiabilitiesRealizations(PercentofGDP)

Note:82countries(34AEs,48EMs)over1990-2014,usingbroaddefinitionofcontingentliabilities(Ceborati andothers,2009).ConsistentwithevidenceonskeweddebtshocksinGasparandEscolano(2015).

0

5

10

15

20

25

30

35

0 5 10 15 20 25 30 35 40 45 50 55

Fiscal Cost (% of GDP)Median: 2.4

Mean: 6.3

Fiscal Costs of Contingent Liabilities(Percent of GDP)

0

10

20

30

40

50

60

70

1990199219941996199820002002200420062008201020122014

Financial SectorLegalNatural Disaster(s)OtherPPPsPrivate Non-Financial SectorSOEsSubnational Government

Portugal: Central Government Guarantees, 2008-12

0

5

10

15

20

25

2008 2009 2010 2011 2012

Guarantees to EPR Guarantees to EP (not reclassif ied) Financial sector Others

0

20

40

60

80

100

Ireland: Government Guarantees

Largeexposuretothefinancialsector

Fiscal Coordination

• Sub-NationalGovernments:– Comprehensiveinformationonthefinancialconditionandperformanceofsub-nationalgovernments,individuallyandasaconsolidatedsector,arecollectedandpublished.

• PublicCorporations:– Thegovernmentregularlypublishescomprehensiveinformationonthefinancialperformanceofpubliccorporations,includinganyquasi-fiscalactivityundertakenbythem.

25

Costa Rica: Distribution of Municipal Debt

(percent of total)

26

0

5

10

15

20

25

Sub-nationalrisksaresmallbutrelativelyconcentrated

PRT: Municipalities’ Ratios of Liabilities and Arrears to Revenue

0

1

2

3

4

5

6

7

0

100

200

300

400

500

600

700

Arrears(LHS)Debt(LHS)Cumulativedebt+arrears(RHS)

OrderedMunicipalities

Percentofmunicipal revenue PercentofGDP

Lisbon

Outline

• WhatarePPPs?

• WhyPPPs?

• WhyworryaboutPPPs?

• ManagingfiscalrisksfromPPPs

• Concludingremarks

29

What are PPPs?

30

Long-termarrangementswheretheprivatesectorsuppliesinfrastructureassetsandservicesthattraditionallyhavebeenprovidedbythegovernment• Maincharacteristics

– Longterm(25,30,ormoreyears,arecommon)

– Privateexecutionandfinancingofpublicinvestment

– Jointcontractingofdesign,construction,andmaintenance

– Risktransfertoprivatesector(performance-basedcontracts)

PPPs are…

– Whopaysforthecontract?• Government-funded(e.g.availabilitypayments)• User-funded(e.g.userfees,tolls)• Combination

– Contractualvs.institutional• Contractbetweenpublicentityandprivatepartner• ContractbetweenaSpecial-PurposeVehicle(SPV)andprivatepartner

– SPV,publicorprivateentity?

31

Types of PPPs

Why do PPPs?Goodreasons:PotentialincreaseinefficiencyandVfM

– Containingcostoverrunsanddelays– Improvingprojectdesignandqualityofservice– Internalizemaintenancestrategy,thusprotectingthevalueoftheasset– Redirectgovernmentfocusfrom hiring/buyinginputsanddecidingontechnologiesandprocessesto defining

publicpoliciesandexpectedoutputs

Badreasons:Circumventannualspendinglimitsandmovedebtoffbalancesheet– Governmentsworldwidearestrugglingtocloseinfrastructureneeds– PPPstemptingforcashstrappedgovernmentstryingtomeetfiscaltargets– Allowgovernmentstodeferspendingwithoutdeferringbenefit

Infrastructure“forfree”?

– Tempting,particularlyforcashstrappedgovernmentstryingtomeetfiscaltargets

– Dotheyreallyofferinfrastructure“forfree”?

– Short-termvs.medium-termperspectiveof“fiscalspace”

• PPPsdonotcreatefiscalspace“perse”

• OnlygoodPPPprojects“may”createfiscalspace“if”efficiencygaysarelargerthathigherfinancialandtransactioncosts

32

020406080

100120140

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Budget year

$

020406080

100120140

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Budget year

$

33

Why do PPPs? Cash flow vs. NPV

NPVofthecost(T=0);5%discountrate:$123.5

NPVofthecost(T=0);5%discountrate:$123.5

Government procurement

PPP

Acquisitionofasset Maintenance

Costofservicefees,debtservice

NPVofthecost

NPVofthecost

Why worry about PPPs?Fiscal icebergs

FiscalcostsandrisksfromPPPsarepotentiallylarge

- GovernmentstendtousePPPstobypassfiscalconstraints

- GovernmentstendtotreatPPPsoutsidebudgetcycle/MTFF,threateningtheintegrityofbudgetprocess

- PPPsreducebudgetflexibilitybycommittingpublicfundinlong-termcontracts,and

- PPPscreatefirm “and”contingentliabilities.

34

WhyworryaboutPPPs?Fiscalrisksarepotentiallylarge

35

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Portu

gal

Cyprus

Ireland

Hung

ary

Unite

dKing

dom

Slov

akia

Nethe

rland

sSp

ain

Estonia

Belgium

Denm

ark

Croa

tiaMalta

Austria

Latvia

Finlan

dIta

lyGr

eece

Bulgaria

CzechRe

public

Fran

ceLit

huan

iaLu

xembo

urg

Poland

Roman

iaSlov

enia

Swed

en

PPPsLiabilitiesOff-balanceSheet,EU2013(In% ofGDP)

Sources:EUROSTAT

Off balance sheet items

PPPs Portfolio

0.10.10.10.20.30.40.40.50.60.60.70.91.11.1

1.51.8

2.33.2

4.14.5

77.4

12.50

0 2 4 6 8 10 12 14

DenmarkSlovenia

LuxembourgFinlandLatvia

GermanySwedenAustria

CzechRepublicBulg aria

ItalyNetherlands

PolandFrance

Belg iumSlovkiaIrelandSpain

CyprusHungary

UnitedKingdomGreeecePortug al

0

1

2

3

4

5

6

7

8

9

10

Total Roads Railways Health Security

Presentvalue ofpayments Nominalcommitments

CumulativeInvestmentinPPPs,1990-2011

(PercentofGDP)

EstimatedSizeofPPPsinPortugal,2013-41

(PercentofGDP)

0

3

6

9

12

15

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

PPPCa

pitalStock(%

GDP

)

0

3

6

9

12

15

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Median75thPercentile

25thPercentile

0

3

6

9

12

15

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Rising use of PPPs

37

• Advanced • EmergingLowIncomen= 16 n= 73 n= 54

Sources: European Investment Bank; World Bank; and IMF staff estimates.

What does the experience show?

38

• Renegotiationsarecommonandfrequent,andtheytendtofavorprivate-sectoroperators– automaticpass-throughtotariffsofincreasesincost;delays

anddecreasesinprivatesectorinvestment,etc.

• Weakmonitoringcapacityacrossthepublicsector– WeakroleoftheMinistryofFinance(i.e.,budgetary

authority)asthegate-keeperofpublicfinances

• LackofintegrationofPPPsinbudgetaryprocess

• Lackoftransparencyinfiscalreporting– PPPsgraduallypushedoutsidethegeneralgovernment– State-ownedenterprises,parastatals,etc.

What determines success in PPPs?

39

• Efficiencygains+effectivemitigationoffiscalrisk

• Governmentscancontrolthesefactorsby:– Goodprojects– Goodinstitutions– Goodlaws– Goodfiscalaccountingandreporting

Goodprojectsà Requireadequatepublicinvestmentplanning,projectselection,implementation,andmonitoring

– Commonproblemsinbudgetingforpublicinvestment

1. Determinehowmanypublicresourcesallocatetoinvestment

2. Selectthemostbeneficialinvestmentprojects

3. Ensurethatinvestmentprojectshavetheexpectedimpacts

Goodinstitutionsà TheMinistryofFinancehastoestablishavalidationprocess(“gatewayprocess”)tolookintoproblems:

... poorvalueformoney;currentbudgetconstraints;anythreattomacroeconomicstability

§ EachstephastobevalidatedbyMoF (planning,preparation,tendering,negotiation,contractawardingandrenegotiation)

§ APPPspecializedentityisneededintheMinistryofFinance... toassisttheMoF inensuringthatPPPareonlypursuedwhentheyareaffordableandnotjeopardizedfiscal

sustainability

TheneedforaspecializedPPPentity intheMinistryofFinancedoesnotprecludeotherspecializedentitiesatotherlevelsofgovernment

• PPPspecializedentitiescanhavevariousformsandroles…bethefocalpointforacquiring,developing,andsharingknowledge(centerofexcellence,standardizationofcontractsand

procedures,advisoryroletoprocuringagencies,etc.);

…bethesolecontactpointfortheprivatesector(promotionwithininternationalanddomesticinvestors,coordinationofcommunicationstrategy,etc);

…beresponsibleofriskassessmenttoproperlyevaluatetheimplicationsofPPPcontractsà ThisroleshouldberetainedattheMoF

40

Good institutions

Phase1:Planning

Phase2:Feasibility

Phase3:Tendering

Phase4:Biding,negotiationandcontractsigning

Phase5:ConstructionandOperation

Checkspre-feasibility,ValueforMoney(VfM),andbudgetaffordabilityofprojectconcept1

2

3

4

5

6

Checksfeasibility,VfM,andbudgetaffordabilityofbusinesscase

ReviewstenderingdocumenttoascertainVfM andbudgetaffordability

ReviewscontracttoascertainVfM andbudgetaffordability

TasksofthePPPUnitforadvisingtheMoFonapproval/rejectionofPPPprojects

Monitorsprojectimplementation,budgetimplications

Ifcontractrenegotiation,ascertainsVfM andaffordability

A “gateway” process for PPPs

Good institutions

Source:Ballingall,2014. 42

InfrastructureUK:KeyStages—ApprovalsandAssurance

Goodlawsà ForPPPstobesuccessful,theremustbeasoundlegalframeworkwhich:

…establishesalegalenvironmentthatisclear,fair,predictable,andeasilyaccessible;and

...givestheprivatesectorassurancethatthepublicsectorwillhonoritscommitments

§ ItislesscommonforPPPstoberenegotiatediftheframeworkforsettingthemupandimplementingthemislaiddowninlegislation(forwhichtherenegotiationrateis17%),ratherthanbyministerialdecree(28%)orunderaPPPcontractalone(40%)

43

ManagingFiscalRisksGoodlaws

Goodlawsà Arobustlegalandregulatoryframework

– IntroducesaclearandconsistentPPPlawand/orharmonizesexistinglawstoprovideaconsistentlegalframework

– Clarifiesrolesandresponsibilities(e.g.,acrossdifferentministriesandlevelsofgovernment)

• Inparticular,theroleofMoFshouldbeclearlystated,givingtheMoFthemandatetoadministerthePPP“gatewayprocess”

44

Legal Framework

• Theissue– sincethelong-termcostsofPPPsarenotreflectedinthebudgetaryapprovalprocess,

thereisabiasinfavorofselectingPPPsinsteadofprojectsimplementedwithtraditionalpublicprocurement

• Bestpractice(VictoriaStateofAustraliaapproach)– anyagencyinterestedinPPPprojectmustfirstseekapprovalforthecapitalspending

thatwouldbeneededasiftheprojectweretobefinancedpublicly– IfaPPPisused,theapprovedspendingisconvertedintospendingonthePPP’sservice

paymentsduringtheoperationphaseoftheproject

45

Good fiscal accounting & reporting à Need to integrate accounting/reporting and good budgetary planning, selection, and approval procedures

Good accounting and reporting

Fiscal Risks from State-Owned Corporations

Outline

• ThePublicCorporationsSector• SourcesoffiscalrisksfromPCs• Quasi-fiscalactivities• Strategiesforreducingrisks• Reportingofrisks• Concludingremarks

47

The Public Enterprise Sector

• GFSM2001definessub-sectorsofthepublicsector:– Nonfinancialpubliccorporations(enterprises):deliveringservicessuchaselectricity,communications,transport,water

– Financialpubliccorporations:banks,andnon-bankinstitutions- insurancecompanies,pensionfunds

– TheCentralBank

• Boundarywithgovernmentsector:PublicEnterpriseshavesalesrevenuesmorethan50%ofexpenses

• Boundarywithprivatesector:governmentcontrolandauthoritytodirect

48

Managing SOEs fiscal risksIdentifyingandmonitoring• Riskassessmentframework• Centralcoordinationunit• Informationcollection/consolidation

Mitigating• Riskallocationstrategy• Institutionalresponsibility

Analyzing• Economicsensitivityanalysis• Asset-liabilityassessment• Valuingcontingentliabilities

Incorporatinginbudget• Debtlevel• Budgetmargins/reserves• Budgetforcontingentliabilities• Stabilizationfunds• Privatizationfunds

Reporting• Economicsensitivityanalysis• Publicsectorbalancesheet• Fiscalriskstatement

49

Context• PublicEnterprisesectoras

%GDP• FinancialPublicCorpsas%

GDP• Typesofpublicenterprise

Sources of Fiscal Risks from SOEs

• SomeSOEdebtmaybeexplicitlyguaranteed• AllSOEdebtsubjecttoperceptionofimplicitguaranteebySOEmanagers

andcreditorsetc...• Fluctuationsintaxes,royalties,dividends• Fluctuationsinvalueofequity• Requirementsforcapitalfromgovernmentfornewinvestment(on-

lending,orcapitalinjections)• Requirementsforoperatingsubsidies• Requirementsforperiodicbail-outs,perhapsduetoQFAs• Lumpyone-offreceiptsfromprivatizations• Reclassificationsofentities• Opportunitiesfor‘creativeaccounting’

50

Factors that increase risk

• FiscalrisksfromSOEstendtobegreatestwhen:– Theneedtoimprovepublicservicesisgreat– Financialsectorisunderdeveloped– Thecentralgovernmentistryingtoreduceitsowndebtanddeficit

– Usedtodeliverpoliticalpatronageandrents– Theyoperatewithlittlegovernmentoversight– Thereisaneconomicdownturn– ThepoliticalwilltoliquidateinheritedSOEswhicharebankruptorclosetobeingbankrupt

51

Quasi-fiscal activitiesDefinition and identification

• QFA:whereacorporationconductsanon-commercialactivityonbehalfofgovernmentforwhichitisnotcompensated.

• FourbroadtypesofQFA:i. Operationsrelatingtocommercialenterprises,e.g.charging

belowcommercialprices;deliveringsocialservicesii. Operationsrelatedtothefinancialsystem,e.g.subsidizedlending,

directedlendingiii. Operationsrelatedtotheexchangeandtradesystem,e.g.

multipleexchangerates,exchangerateguaranteesiv. Operationsrelatedtotheprivatesector,e.g.resourcesfor

infrastructureprojects

52

Reporting of QFAs

• Oneoftheweakestareasoffiscaltransparency• QFAsoftenhiddeninsideSOEaccounts,sometimesreportedinSOEAnnualReports

• Fourgroupsofcountries:I. OneortwocountriesassessedinOpenBudget

Surveyaspublishingextensiveinformatione.g.ChileII. CountriesthathavestartedtoeliminatesomeQFAs

bypayingbudgetsubsidiese.g.Indonesia,FranceIII. Verysmallnumberofcountriesthatconductno

materialQFAse.g.NZIV. Therest:nomovetoreduceQFAs,andnodisclosure

53

Pro-active monitoring of fiscal risks from SOEs

Ø Thecentralfinanceagency(andcentralbankforFPCs)shouldbepro-activeinmonitoringfiscalrisks:qRoutineandregularinternalmonitoringreportstodecision-makersonfinancialperformanceandfinancialpositionofindividualSOEs

qReportstocontaininformation,analysis,recommendedactionstoreducerisks

qReportssubmittedtoseniorofficialswithnecessaryauthoritytoact

qWheredecision-makershavenottakenactiontomitigateasignificantrisk,monitoringreportscontinuetohighlighttheriskanditspossibleescalation

54

0

20

40

60

80

100

Reporting fiscal risksIMF assessment of Ireland

Assetsandliabilities:Publicsectorbalancesheet(percentofGDP)

Contingentliabilities:guaranteestothefinancialsector(percentofGDP)

Largeexposuretothefinancial

sector

-400 -300 -200 -100 0 100 200 300 400

Net Worth

Public Sector

Consolidation

Central Bank

Financial Public Corp

Non-Fin Public Corp

General Government

Reported

Unreported

Liabilities Assets

Onlyaquarterofpublicsector

liabilitiesreported

Country practices on disclosure of fiscal risks from SOEs

• OpenBudgetSurvey:– 2010survey:15outof94countriespublishedextensiveinformationontransfersto

SOEswhile27countriesnone– 2015survey:21outof102countriespublishedextensiveinformationontransfers

toSOEs,while26publishednone

• ExplicitgovernmentguaranteesdisclosedinNotestotheFinancialStatementsforcountrieswhichfollowIPSAS

• Handfulofadvancedcountries,andmostofLatinAmerica,publishfiscalstatisticscoveringentirepublicsector

• SomecountriespublishannualoverviewsofSOEsector,e.g.France• PublishedFSAPreportsincludedisclosuresonpublicfinancialcorporations• 42countriesreportingonextractiveindustriesincompliancewithEITI

standards

56

Conclusions

• Fiscalriskscannotbeavoided…• .....butretaheridetifiedanddisclosed,evenqualitatively.....

• ...soastobeminimizedandmanaged....• Itrequiresa360viewacrossnatureofpotentialrisks.....

• ....andtheircovariance....• Importantifthefirtsstep...theotherswillfollow

57

Selected references• Budina,Nina,andMurrayPetrie,2013,“ManagingandControllingFiscalRisks,”

Chapter5inPublicFinancialManagementanditsEmergingArchitecture,editedbyCangiano,Marco,TeresaCurristine,andMichelLazare,(InternationalMonetaryFund:WashingtonDC).

• Brixi,Hana,andAllenSchick,2002,(eds),GovernmentatRisk:ContingentLiabilitiesandFiscalRisk(NewYork:OxfordUniversityPress).

• Hemming,Richard,etal.,2006,Private-PublicPartnerships,GoverenmentGuarantees,andFiscalRisk (Washington:InternationalMonetaryFund).

• InternationalMonetaryFund,FiscalTransparency,AccountabilityandRisk,PolicyPaper,FiscalAffairsDepartment,August2012,availableat:www.imf.org/external/np/pp/eng/2012/080712.pdf

58