Government at Risk: Contingent Liabilities and Fiscal Risk

Government at Risk: Contingent Liabilities and Fiscal Risk

Government at Risk: Contingent Liabilities and Fiscal Risk

Government at Risk: Contingent Liabilities and Fiscal Risk

Synopsis

Governments at risk are facing major fiscal challenges as a result of their contingent liabilities. Contingent liabilities dubbed "hidden deficits" account for a large share of the rise in government debt and tend to remain outside the framework of conventional public financial analysis and institutions. In many countries, the reality or prospect of unbudgeted fiscal risks coming due has been a wake-up call to extend fiscal management beyond the budgetary framework.This book offers practical guidance to governments seeking to improve the management of fiscal risks. It explores difficult analytical and institutional challenges confronting reformers attempting to manage government fiscal risks. While discussing the inadequacies of conventional practices of dealing with fiscal risk, this book presents recent advances in managing fiscal risk and thereby helps to push the practice of fiscal analysis and management into the 21st century.A copublication of the World Bank and Oxford University Press.

Excerpt

In public finance, it no longer suffices for analysts and institutions to focus solely on budget revenues and expenditures. Recent history demonstrates that fiscal performance and, in turn, economic development can be seriously disrupted by the sudden, unexpected costs of hidden contingent liabilities and other unanticipated fiscal risks.

During the second half of the 1990s, unreported contingent liabilities and related fiscal risks contributed to economic crises and disrupted growth in a number of developing countries, motivating stepped-up efforts at the World Bank to devise new concepts and tools for analyzing and managing public finance. With the aim of improving the analysis of fiscal risks and supporting policy advice in this area, the Economic Policy Unit of the Bank’s Poverty Reduction and Economic Management Network established the Quality of Fiscal Adjustment Thematic Group. This book was produced as part of the effort by this Thematic Group to promote new thinking about public finance.

We now know that conventional frameworks for fiscal analysis that concentrate on direct, explicit liabilities fail to address contingent fiscal risks. For example, fiscal sustainability analysis that focuses, as is typically the case, on the officially reported budget deficits fails to detect possible future increases in government debt and payments that may emerge from both explicit and implicit government guarantees on enterprise credit, state insurance schemes, exchange rate guarantees, and commitments to assist failed banks. Similarly, the government budget process and documentation generally fail to scrutinize the substantial claims on public resources that are associated with contingent liabilities, realized and potential.

This book is a notable step forward in filling gaps in our understanding of fiscal risks and in developing suitable frameworks for managing them. Through country cases and advances in conceptual design, the book provides a menu of practical ideas for policymakers and scholars for bringing fiscal risk within the ambit of public finance. It demonstrates that government fiscal analysis needs to cover the entire . . .

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