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