To improve the fiscal management of PPPs, countries must focus on changing institutional roles and improving processes. Good PPP fiscal management improves fiscal sustainability and project selection by ensuring that projects are selected on the basis of their strategic importance and impact rather than any expectation of savings through off-budget reporting.
An emphasis on PPP fiscal management should prevent challenges to fiscal sustainability and improve project selection through a more competitive process, where PPP projects are selected by their socio-economic impact rather than off-budget characteristics.
With experience, a number of lessons are emerging. Measures being taken by countries to improve the fiscal management of PPPs focus on changing institutional roles and better processes:
- A more central role of the Ministries of Finance (MOF)
- A broader role of former PPP Units (now invited to address large or complex projects in general, and not simply PPP projects)
- The gradual adoption of less lax fiscal reporting practices,
- Better integration of PPPs in the public investment management (PIM) framework.
Improving fiscal reporting
There is broad consensus on the need for reducing laxity in accounting for PPPs. International Public Sector Accounting Standards (IPSAS), and particularly IPSAS-32, has published a public accounting standard based on the control criterion (and therefore highly compatible with private sector accounting), putting most PPP contingent liabilitys on the governments’ balance-sheet of government. Even standards based on the risks-and-rewards criterion, like Eurostat's ESA-95, have been revised towards increased scrutiny of PPPs. Funke et al (2013) identify what they call the "PPP bias" (pages 9-10) and discuss how budgeting and reporting may reduce the bias and improve fiscal management.
Improving fiscal management
Fiscal management is much more than fiscal analysis and reporting – it implies decision and action, on project selection and prioritization, on public procurement, and on critical contract management phases (namely during renegotiation and termination). Tools for fiscal management of PPPs are still scarce or missing and classification of fiscal risks is still rudimentary and non-exhaustive. The World Bank (2013) note on the framework for managing fiscal commitments describes the several components of fiscal management (page 7) and the government entities that are typically involved (pages 14-16).
Strengthening fiscal rules
Some governments have felt the need to cap the use of PPPs, presented as a percentage of government revenue, or a percentage of GDP – the implementation of these caps varies widely, and the real impact is dubious. But measuring fiscal commitments and fiscal risks, and testing project affordability and fiscal sustainability, is now considered critical for PPP success. Debt sustainability analysis is now incorporating commitments and risks accruing from PPPs. See Funke et al (2013, pages 23-24).
Reinforcing the role of the finance ministry
Countries with significant PPP experience are now increasingly reinforcing the role of the fiscal authorities in the PPP process – for instance, in the country with the largest volume of PPPs, the United Kingdom, Partnerships-UK (a joint venture) was replaced by Infrastructure-UK (a government body inside the British Treasury), and in the country with the largest percentage of public investment done through PPPs, Portugal, a new government body inside the ministry of finance (UTAP) is now leading PPP projects preparation and procurement. In all continents, this core role of ministries of finance in PPP processes is common to the countries where PPPs have been most impactfuls, for instance Australia, Chile, and South Africa.
PIMs for PPPs
Integrating PPPs in the public investment management (PIM) framework is now recognized as critical for assessing alternatives on a level playing field and for optimal project structuring.