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Fiscal Management

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.

 

 

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    • 2014
    • Asian Development Bank (ADB), World Bank Group (WBG), Inter-American Development Bank (IDB), PPIAF

    Fiscal Management of PPPs

    PPP Reference Guide Version 2.0

    PPP contracts often have financial implications for governments. Payment commitments under PPP contracts are often long-term, and can be contingent on one or more risks which can create particular challenges for public financial management, which is generally geared to annual appropriations for expenditure. For this reason, PPP-specific approaches to public financial management have been developed. These are discussed in this Section 2.4 of the PPP Reference Guide. The PPP Reference Guide presents a global overview of the diversity of approaches and experiences in the implementation of PPPs, providing an entry point to the substantial body of knowledge on PPPs that has been built up by practitioners in governments, the private...

    • 2013
    • Katja Funke, Tim Irwin & Isabel Rial
    • Organisation for Economic Co-operation and Development (OECD)

    Budgeting and Reporting for Public-Private Partnerships

    International Transport Forum - Discussion Paper #7

    Public-private partnerships (PPPs) can appeal to governments because they offer a new way of providing public services that is possibly more efficient than traditional public finance. But they can also appeal to governments because they allow new investments to be undertaken without any immediate increase in reported government spending or debt. This second motive for using PPPs rests largely on an illusion, because in the absence of efficiency gains (which are probably small relative to the total cost of the project), PPPs and publicly financed projects have a similar long-run effect on public finances. In some PPPs, the government defers payment, but ultimately must still pay the full cost of the project. In others, it concedes the...

    • 2013
    • International Federation of Accountants

    2013 Handbook of International Public Sector Accounting Pronouncements

    This Handbook contains the complete set of the International Public Sector Accounting Standards Board’s (IPSASB’s) pronouncements on public sector financial reporting. It also includes Chapters 1–4 of the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities, which were approved in December 2012 and issued in January 2013.

    • 2014
    • Anand Rajaram, Tuan Minh Le, Kai Kaiser, Jay-Hyung Kim, and Jonas Frank

    The Power of Public Investment Management: Transforming Resources Into Assets for Growth

    This publication consists of seven chapters: building a system for public investment management; a unified framework for public investment management; country experiences of public investment management; approaches to better project appraisal; public investment management under uncertainty; procurement and public investment management; and public investment management for public-private partnerships.

    • 2013

    Implementing a framework for managing fiscal commitments from public-private partnerships

    This note provides guidance on managing fiscal risks from PPPs during approval and implementation. The note provides practical adivce on how to: consistently identify and assess fiscal commitments arising from PPPs during project preparation and implementation; incorporate these into the project approaval process, including budgeting for these appropriately; and stengthen the monitoring and reporting of fiscal commitments over the lifetime of the project.

    • 2010
    • Timothy Irwin, Tanya Mokdad
    • World Bank Group (WBG), PPIAF

    Managing Contingent Liabilities in Public-Private Partnerships: Practice in Australia, Chile, and South Africa

    Governments that use public-private partnerships (PPPs) to build infrastructure usually acknowledge contingent liabilities. Examples include contingent liabilities regarding early contract termination, or debt and revenue guarantees. Governments can face difficulties as they consider whether or not to assume these liabilities, and how to value, monitor, and limit liability. This report reviews how governments in Australia, Chile, and South Africa have tackled these problems, and explores whether other governments (such as governments with less administrative capacity) should adopt comparable practices. All three countries rely on careful project preparation, competitive bidding, and a review of proposed PPPs by a specialized unit in the...

    • 2014
    • Asian Development Bank (ADB), World Bank Group (WBG), Inter-American Development Bank (IDB), PPIAF

    Gestion de las Finanzas Publicas

    Asociationes Publico-Privadas: Guia de Referencia Version 2.0

    • 2016
    • International Monetary Fund (IMF), World Bank Group (WBG)

    Guidance Note for the Public-Private Partnerships Fiscal Risk Assessment Model (PFRAM)

    The Public-Private Partnerships Fiscal Risk Assessment Model (PFRAM) is an analytical tool to assist governments and country analysts in assessing potential fiscal costs and risks arising from a PPP project. PFRAM supports the dialogue of the IMF and the World Bank Group with their client countries on macroeconomic stability, debt sustainability, fiscal risk management, governance, public finance management and public investment management. PFRAM follows a five step decision-tree, automatically generating a set of outcomes: the expected cash flow for the private partner; the government’s income statement, balance sheet and cash statement; a series of charts comparing fiscal balance and DSA with/without the specific PPP project; a...

    • 2016
    • World Bank Group (WBG), International Monetary Fund (IMF)

    Public-Private Partnerships Fiscal Risk Assessment Model (PFRAM)

    The Public-Private Partnerships Fiscal Risk Assessment Model (PFRAM) is an analytical tool to assist governments and country analysts in assessing potential fiscal costs and risks arising from a PPP project. PFRAM supports the dialogue of the IMF and the World Bank Group with their client countries on macroeconomic stability, debt sustainability, fiscal risk management, governance, public finance management and public investment management. PFRAM follows a five step decision-tree, automatically generating a set of outcomes: the expected cash flow for the private partner; the government’s income statement, balance sheet and cash statement; a series of charts comparing fiscal balance and DSA with/without the specific PPP project; a...

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