Time period

Last completed fiscal year.

Measurement guidance

Central government usually has a formal oversight role in relation to units in other parts of the public sector and should be aware of, monitor, and manage at a central level any fiscal risks posed by those units. In addition, central government may be obliged, for political reasons, to assume responsibility for a financial default of other entities, such as the banking sector, even when no formal oversight role or legal obligation exists, thus adequate procedures to monitor those risks at the level of the whole of the public sector should be in place.

Fiscal risks created by public corporations and other structured financing instruments (such as PPPs) can take the form of debt service defaults from sovereign guarantees. These should be identified as part of the central government’s contingent liabilities and reported in annual financial statements. The risks of public corporations defaulting on the debt without guarantees issued by central government should be reported as well. Fiscal risks can also relate to operational losses caused by unfunded quasi-fiscal operations such as a central bank, large expenditure payment arrears, unfunded community service obligations of public corporations, and unfunded pension obligations. Significant fiscal risks are those that are potentially large enough to result in an urgent need to respond with resources allocated to other purposes, or that require governments to increase borrowing to fund actions to address the consequences of a risk-related event.

Dimension 10.1 assesses the extent to which information on the financial performance and associated fiscal risks of the central government’s public corporations is available through audited annual financial statements. It also assesses the extent to which the central government publishes a consolidated report on the financial performance of the public corporation sector annually.

Dimension 10.2 assesses the extent to which information on financial performance, including the central government’s potential exposure to fiscal risks, is available through the audited annual financial statements of subnational governments. It also assesses whether the central government publishes a consolidated report on the financial performance of the subnational government sector annually. Fiscal risks created by subnational governments can take the form of debt service defaults with or without guarantees issued by the central government, operational losses caused by unfunded subnational governments’ quasi-fiscal operations, expenditure payment arrears, and unfunded pension obligations. The net fiscal position of subnational governments that have direct fiscal relations with the central government should be monitored, at least on an annual basis, with essential information on fiscal risks reported to the central government official responsible for subnational government oversight.

Dimension 10.3 assesses monitoring and reporting of the central government’s explicit contingent liabilities from its own programs and projects, including those of extrabudgetary units. Explicit contingent liabilities include umbrella state guarantees for various types of loans—for example, mortgage loans, student loans, agriculture loans, and small business loans. Explicit contingent liabilities also include state insurance schemes, such as deposit insurance, private pension fund insurance, and crop insurance. The financial implications of ongoing litigation and court cases should be included, although these are often difficult to quantify. State guarantees for nonsovereign borrowing by private sector enterprises and guarantees on private investments of different types, including special financing instruments such as PPPs, should be reported. In many countries, governments have entered into PPPs in order to finance services to communities. While not explicitly guaranteed, such arrangements almost always generate a contingent liability for the government, should the commercial terms in the contract not be satisfied. For example, the forecast level of tolls generated from a road constructed and operated by the private sector may not be realized. Such contingencies may result in a significant and quantifiable financial risk for government and should be included in the assessment of this indicator.

Significant contingent liabilities are defined as those with a potential cost in excess of 0.5 percent of total BCG expenditure and for which an additional appropriation by the legislature would be required. Dimension 10.3 does not assess explicit