PI-10. FISCAL RISK REPORTING
ABOUT THE INDICATOR
This indicator measures the extent to which fiscal risks to central government are reported. Fiscal risks can arise from adverse macroeconomic situations, financial positions of subnational governments or public corporations, and contingent liabilities from the central government’s own programs and activities, including extrabudgetary units. They can also arise from other implicit and external risks such as market failure and natural disasters. This indicator contains the following three dimensions and uses the M2 (AV) method for aggregating dimension scores:
• Dimension 10.1. Monitoring of public corporations
• Dimension 10.2. Monitoring of subnational governments
• Dimension 10.3. Contingent liabilities and other fiscal risks
IMPACT ON BUDGETARY OUTCOMES
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. Such risks can undermine fiscal discipline.
INDICATOR MEASUREMENT GUIDANCE
10:1. Fiscal risks associated with the operations of public corporations and subnational governments, as well as other contingent liabilities of government can have a significant potential impact on central government operations and public financial management. Such risks need to be closely monitored, reported and where possible quantified.
Dimension 10.1. Monitoring of public corporations
DIMENSION MEASUREMENT GUIDANCE
10.1:1. This dimension 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.
10.1:2. 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.
Dimension 10.1. Scoring
|Score||Minimum requirements for scores|
|A||Audited annual financial statements for all public corporations are published within six months of the end of the fiscal year. A consolidated report on the financial performance of the public corporation sector is published by central government annually.|
|B||Audited annual financial statements are published for most public corporations within six months of the end of the fiscal year.|
|C||Government receives financial reports from most public corporations within nine months of the end of the fiscal year|
|D||Performance is less than required for a C score.|
PEFA Handbook Volume 1: The PEFA Assessment Process – Planning, Managing and Using PEFA