This paper discusses appropriate methods for disclosing fiscal risks from exogenous shocks and the realization of explicit or implicit contingent obligations of the government. Expanding on previous guidance prepared prior to the crisis, the note focuses on fiscal risks emerging from recent public interventions in the financial sector. Information on fiscal risks and its public reporting leads to a better understanding of the true state of the public finances. Thus, it helps policymakers design and gets public support for, appropriate responses to the realization of various contingencies. More specifically, in the context of the unfolding global financial crisis, a wide range of public sector interventions have been in support of the financial system. Although these interventions have been necessary, they have generated further fiscal risks. Comprehensive reporting would help governments to define a management strategy of the assets and liabilities that they have taken on their balance sheet and to prepare exit strategies for reducing their presence in the financial sector and eventually withdrawing support.
ratingsapproaches; (iv) description of government guarantees in PPP projects, alongside the projects’ face value, expected cash flow payments by the government and their net present value; and (v) the nature and scope of ongoing litigation against the state.
In addition, full-fledged general government or public sector accounts and timely audited SOE accounts provide a good source of information for a statement of fiscal risks.
Although it is generally desirable for disclosure to be as comprehensive as possible, in a few specific instances disclosure could
Mr. John D Brondolo, Annette Chooi, Trevor Schloss, and Anthony Siouclis
might also focus mainly on estimating a public debt interest impact of delayed collections.
Rather than repeating these aspects of an assessment, this example will focus on determining likelihood and consequence of the community expectation/tax administration reputation impacts of the on-time payment risk . For the purposes of this example, therefore, an assumption is that the base-case assessment of the risk from a revenue perspective would result in a “moderate” overall riskrating.
Approach : For this risk, given the community expectation context, the
Liechtenstein has a GDP of US$5.2 billion, of which 40 percent comes from industry and 30 percent from financial services. Currently, 15 banks operate in Liechtenstein (one additional bank is in the process of being wound down without loss to the depositors). The market is highly concentrated with the three largest banks accounting for 90 percent of the total banking balance sheet size; 86 percent of assets under management; 89 percent of operating profits before tax, and 63 percent of employment in the banking sector.
bank returns and a more critical assessment of the external auditors’ inspection reports. It has also facilitated the FMA’s being able to carry out its own on-site inspections.
Principle 17. Bank management contact
21. Both formal and informal meetings and communications take place as needed . The FMA’s knowledge of the banks has allowed it to develop a risk-ratingapproach to the supervision of the banks.
Principle 18. Offsite supervision
22. The prudential reports that the FMA receives are in keeping with international practice and it has the
Aliona Cebotari, Jeffrey M. Davis, Ms. Lusine Lusinyan, Mr. Amine Mati, Mr. Paolo Mauro, Murray Petrie, and Ricardo Velloso
assessed using a riskratingsapproach. 19
Disclosure varies considerably across countries in the areas of state-owned enterprises, subnational governments, and off-budget accounts . These often represent significant fiscal risks both to the budget of the central government, which might be called upon in the event of difficulties, and to the sustainability of the public sector more generally—thus highlighting the importance of broader coverage of the fiscal accounts to reduce fiscal risks. Several countries publish general government accounts or comprehensive public
***, **, * denote significance at 1%, 5%, and 10%, respectively, based on robust standard errors.
C. Improving the Framework for Determining External RiskRatingsApproach to Deriving Debt Thresholds
12. Debt thresholds should be derived in a manner that is consistent with the DSF’s aggregation rule to determine risk signals . In the 2012 review, thresholds were derived individually, without regard to the information content in other debt burden indicators for predicting external debt distress, thus likely
A number of member countries have expressed interest in advice regarding disclosure and management of fiscal risks (defined as the possibility of deviations of fiscal outcomes from what was expected at the time of the budget or other forecast). This paper analyzes the main sources of fiscal risks and—building on an overview of existing practices in a wide range of countries—provides practical suggestions in this area, including a possible Statement of Fiscal Risks and a set of Guidelines for Fiscal Risk Disclosure and Management.
using a riskratingsapproach. 19
28. Disclosure varies considerably across countries in the areas of state-owned enterprises, subnational governments, and off-budget accounts. These often represent significant fiscal risks both to the budget of the central government, which might be called upon in the event of difficulties, and to the sustainability of the public sector more generally—thus highlighting the importance of broader coverage of the fiscal accounts to reduce fiscal risks. Several countries publish general government accounts or comprehensive
Ms. Lusine Lusinyan, Aliona Cebotari, Ricardo Velloso, Mr. Jeffrey M. Davis, Mr. Amine Mati, Murray Petrie, and Mr. Paolo Mauro
This paper analyzes the main sources of fiscal risks, including from unexpected changes in macroeconomic variables and banking crises, which can have major consequences for countries fiscal and public debt sustainability. It builds on an overview of existing practices in a wide range of countries to provide practical suggestions on how to promote disclosure of such risks and on risk mitigation and management. The paper was written in response to requests from IMF member countries for advice on this subject. The paper also includes an example of a possible statement of fiscal risks.