## IMF staff report — Fiscal risks in Côte d’Ivoire (cr1895) ## Source details **Canonical URL:** [IMF staff report — Fiscal risks in Côte d’Ivoire (cr1895)](https://www.imf.org/-/media/files/publications/cr/2018/cr1895.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr1895.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr1895.pdf.json) --- ### Macroeconomic context and fiscal framework - National Development Plan (PND) 2016–2020: - Public and private investment: CFAF 30,000 billion (i.e., 140 percent of 2016 GDP). - PND GDP growth scenario: close to 9 percent per year on average. - Government deficit target: average public deficit of 3.8 percent of GDP per year; target to fall to 3 percent in 2019. - IMF forecasts: 7½% per year on average over 2016–2020. - Report purpose and scope: - Provide tools and recommendations to identify, analyze and disclose fiscal risks (Chapters II–V). - Support commitments in the Memorandum of Economic and Financial Policies, including expanding budget documentation to cover public enterprises and PPPs and publishing, by end 2018, a report on public enterprise performance. - FAD technical assistance to support implementation. ### Major fiscal risks (identification and prioritization) - Fiscal risk categories: macroeconomic shocks; specific fiscal risks (explicit or implicit). - Five most prominent fiscal risks for Côte d’Ivoire (based on initial analysis and available data): - Macroeconomic shocks on growth and on commodity prices, especially cocoa and oil. - Public enterprise debt, and arrears for some public enterprises. - Government quasi-fiscal activities (pricing support by public enterprises in energy and transport). - Explicit fiscal commitments (especially government guarantees) and implicit liabilities relating to PPPs. - Possible depletion of gas reserves by 2024. - Prioritization framework: - Two ranking criteria: (i) probability of occurrence; (ii) potential fiscal cost. - Quadrant approach (Figure 8): risks in quadrant B (high probability and high potential fiscal cost) are priorities for in-depth analysis. - Action Plan (AS OF SEPTEMBER 30, 2017) — selected items: - Systemize annual comprehensive identification and ranking of fiscal risks; lead: DPSB and DPBEP and Fiscal Risks Committee. - Prioritize the top five fiscal risks; lead: DPSB. - Build a database of default rates on PPPs and calls on government guarantees; lead: DDPD and CNP-PPP. - Prepare and publish a Fiscal Risk Statement (FRS) as an appendix to DPBEP 2019–21; lead: DGBF and DPBEP and Fiscal Risks Committee. ### Macroeconomic risk analysis — methods, data and illustrative results - Principal macroeconomic shocks analyzed: cocoa-price volatility, oil-price volatility, GDP growth shocks, CFAF/$ exchange rate volatility. Risks may be correlated. - Historical averages and standard deviations (Table 2): - GDP growth rate (%) — Historical average: 4.4; Standard deviation: 4.7 - Change in cocoa price (%) — Historical average: 2.0; Standard deviation: 18.9 - Change in oil price (%) — Historical average: 1.8; Standard deviation: 29.4 - Depreciation of CFAF against the $ (%) — Historical average: 2.5; Standard deviation: 8.0 - Recommended two-pronged analysis: - A. Sensitivity analyses (single shock), aligned with DPBEP three-year horizon and initially focusing on revenue, expenditure, fiscal balance and debt. - B. Alternative scenarios (multiple shocks), including historical, extreme, and personalized scenarios (example: including SIR debt). - Table 3 shock-assumption rule (mission): - Choc 1: GDP growth = Historical average minus one standard deviation; Change in cocoa price = Historical average minus one standard deviation; Change in oil price = Historical average plus one standard deviation; Depreciation of CFAF against the $ = Historical average plus one standard deviation. - Example sensitivity analysis (illustrative) — cocoa price shock: - Shock 1: fall around 17 percent in the cocoa price (one standard deviation, temporary one-year effect early 2018). - Assumptions and results: - Price elasticity of cocoa production assumed zero. - 17 percent fall in cocoa price ⇒ 17 percent decline in value of cocoa exports ⇒ drop of 2.2 points of GDP in export value. - Export tax rate applied: 14.6 percent ⇒ tax revenue loss ≈ 0.3 points of GDP. - Public spending impact assumed zero ⇒ fiscal balance impact ≈ -0.3 point of GDP in 2018; no persistent effect in 2019–2020 in this illustrative shock. - Recommendations on macro risk quantification and publication: - Short term: implement systematic sensitivity analyses internally using Table 3 variables. - Medium term: simulate alternative scenarios and extend scope to whole public sector (including public enterprises and possibly local governments). - Publish a selection of analyses and scenarios in the FRS per Appendix 3 timetable. - Strengthen modelling capacity; incorporate public enterprise debt and payment arrears into DSA alternative scenarios. ### Fiscal risks related to cocoa and oil — recent materializations and channels - Cocoa: - Côte d’Ivoire: 40% of worldwide cocoa production; cocoa accounts for 60% of exports and contributes directly and indirectly to one-quarter of all jobs. - Recent shock (since Q4 2016): 35 percent fall in the cocoa price. - Consequences reported: drop in tax revenues of around 0.9 percent of GDP; 0.9 percent reduction in agriculture sector income; downward revision of growth forecasts from 8.9 percent to 8.5 percent. - Stabilization mechanism (since 2012 under Coffee Cocoa Council): farmgate price guaranteed for six months at 60% of an average price (forward/spot weights 80%/20%); reserve fund financed by the national budget since 2011 at the BCEAO; large negative shocks can require budgetary support. - Oil: - Oil-price volatility affects tax revenues, subsidies and public enterprise current expenditure. - Public enterprises in transport and energy transmit oil-price risk to the budget via financial difficulties and quasi-fiscal actions. ### Exchange-rate and market-access risks - Currency composition of debt: - Around half of public debt denominated in foreign currency; one-third of that in dollars (around 7 percent of GDP). - Eurobond issuance and buybacks: - June 2017 issuance: $1.95bn eurobonds enabled buyback of $0.75bn of 2024/2032 eurobonds and financing of the deficit for $1.2bn. - Recent eurobond issuance split example: $1.25 billion (dollar) and 625 million (euro). - Refinancing risk: - Eurobonds maturing in 2024 and 2032 create refinancing risk; contingency measures include buybacks and possible escrow accounts. ### Explicit and implicit contingent liabilities — PPPs, guarantees, disputes - Guarantees: - End-June 2017: three guarantees in favor of Air Côte d’Ivoire totaling CFAF 28 billion (0.1 percent of GDP). To date none called. - Guarantee statistics (end-June 2017): total CFAF 28.1 billion identified by DDPD. - Planned guarantee: as part of SIR restructuring, government undertook to issue CFAF 378 billion guarantee (1.7 percent of GDP) in October 2017. - Public-Private Partnerships (PPPs): - Projected PPP investment very large: total cost of construction estimated at 60 percent of GDP between 2016 and 2020. - Government intends to finance over 40% of PND investments (around 60% of 2016 GDP). - Example fiscal call: PPP for third Abidjan bridge in 2015 ⇒ fiscal cost 0.07 percent of GDP due to lower-than-expected traffic. - Recommendations: conservative feasibility studies; build PPP default-rate database; consider caps on total PPP commitments. - Dispute settlement: - Maritime border dispute with Ghana over offshore oil operations may yield positive or negative fiscal outcomes depending on arbitration. ### Public enterprises — scale, risks, monitoring and recommended reforms - Role and scale: - 2015 consolidated sales of public enterprises: close to 20 percent of GDP; they contribute 4 percent of tax revenues. - Public enterprises expected to ensure more than one-third of PND planned investments (more than CFAF 10,000 billion); two-thirds in transport/infrastructure; over 20 percent in energy. - Stock and arrears: - Public enterprise debt: CFAF 773 billion at end March 2017 (increase +55 percent vs end 2014), around 3½ points of 2016 GDP. - SIR recognized debt: CFAF 368 billion. - Payment arrears to suppliers/service providers: almost 1 point of GDP. - Examples of vulnerability: - FER debt ratio ≈ 4,300 percent of its share capital. - SIR foreign-exchange losses CFAF 92 billion (8 percent of turnover) after dollar appreciation. - Air Côte d’Ivoire: 25 percent of transactions in dollars. - SOTRA fuel purchases ≈ 15 percent of expenditure; 10 percent fuel price increase raised expenditure by CFAF 1 billion (~11 percent of EBITDA in 2015). - Governance and monitoring developments: - Creation in 2016 of DGPE to professionalize government as shareholder; sectoral specialization; new portfolio segmentation; experiment with performance contracts for seven enterprises representing 40 percent of targeted public enterprise investment under PND. - Legal limitation: existing law does not give DGPE explicit general competence to coordinate monitoring/managing fiscal risks of public enterprises. - SIGEP (information/management system for public enterprises) under rollout; interface not yet available in enterprises visited. - Audit committees and risk audit/management committee mandatory within all public enterprises since 2016 but not yet widely implemented. - Recommended measures (selected): - Set up audit committees in enterprises and design a shared risk-analysis framework; implement in waves (first 7 enterprises, then 8, then extend). - Finalize rollout of SIGEP, provide training, resolve technical issues and generalize rollout; lead: DGPE. - Modify legal bases to specify DGPE’s role in supervision, coordination and monitoring of fiscal risks; propose draft amendments to organic law on fiscal transparency. - Develop risk-management training for board members and public enterprises; systematize annual seminar. - Amend regulations on public enterprises’ debt and guarantees to make authorization procedures more effective; propose amendment to order 399 of 2015 to extend to subsidiaries. - Publish a specific government public-enterprise portfolio strategy until 2020, defining objectives, portfolio management and dividends strategy, governance framework, performance targets and risk management policy; lead: DGPE. - Extend the Report on the Economic and Financial Situation of Public Enterprises to include forward-looking performance and risk-management elements and multi-year targets tied to performance contracts (PLF 2019–2021 sequencing for waves of contracts). ### Prior-authorization procedures and disclosure enhancements - Prior-authorization process for public enterprise borrowing: - Applications submitted to DGPE → transmitted to DDPD for analysis/validation; aim for consensus between MEF and MBPE. - DGPE consolidates information into a “monitoring matrix” distinguishing current debt positions per company. - Recommendation: integrate subsidiaries’ borrowings to avoid deconsolidation; ensure consistency between DGPE enterprise-level sustainability analyses and DDPD macro-level DSAs. - Disclosure and reporting gaps: - Since 2014 organic law increased information requirements, and since 2016 DPBEP appendices present consolidated indicators, but: - DPBEP chapter on fiscal risks is short (2–3 pages) and does not cover public-enterprise risks in depth. - Report on Economic and Financial Situation of Public Enterprises focuses on past history, lacking forward-looking analysis. - Reporting recommendations: - Add prospective component to PLF appendices: consolidated and itemized forecasts by enterprise for net earnings, investments, cash position, dividends, taxes. - Provide itemized disclosures: public financings allocated (tax/operating subsidies), guarantees, cash positions, debt summaries (private and retroceded public), payroll. - Publish a government-shareholder strategy consolidating internal road map and Council of Ministers communication into a public document. ### Financial sector, bailouts and environmental risks - Financial sector: - Past recapitalizations: CNCE recapitalized ≈ 0.1 point of GDP in 2016; additional smaller transfer expected in 2017–18. - UNACOOPEC deposit base: CFAF 93 billion (0.4 percent of GDP); restructuring could impose substantial budgetary impacts. - Environmental and natural-resource risks: - Droughts/floods: budget contingency lines for direct fiscal compensation <5 percent of government total budget. - Gas depletion risk: gas may run out by 2024 ⇒ annual production cost differential CFAF 60 billion at CI-Energies. - Other risks: water/ground pollution, bushfires, swollen shoot disease affecting cocoa requiring quarantine. - Fiscal overruns and legacy liabilities: - Wages arrears claims 2009–2013: CFAF 249 billion (1.2 percent of GDP) not yet provisioned. - “Overdue contracts” legacy liabilities circa CFAF 200 billion (0.9 percent of GDP) subject to audit. ### Fiscal Risk Statement (FRS) — format, contents, sequencing and institutionalization - Purpose and sequencing: - FRS formalizes government commitment to identify, analyze, monitor and manage fiscal risks and strengthens credibility of macro-fiscal forecasts. - Recommended phased approach: strengthen DPBEP fiscal risks section → Appendix FRS (2018) → progressively richer FRS (2019–2020) → standalone fiscal document by 2021. - Proposed FRS contents (Box 3 summary): 1. Introduction: fiscal risk framework and institutional assessment. 2. Macroeconomic and macro-fiscal risks: qualitative and quantitative analyses, sensitivity analyses to cocoa/oil/$/CFAF, alternative macro scenarios and budget/debt impact. 3. Political and security risks. 4. Public enterprises: portfolio overview (assets/liabilities/arrears), fiscal flows, performance summary, sensitivity analyses. 5. PPPs: list of approved PPPs, cumulative commitments, gross exposure of guarantees, mitigation discussion. 6. Guarantees and contingent liabilities: comprehensive list above thresholds, fiscal costs of calls on guarantees. 7. Financial sector: contingent liabilities, financial soundness indicators. 8. Environmental risks/natural disasters. 9. Regional/local governments: debts and contingent liabilities. 10. Long-term risks: alternative scenarios over 10 years coherent with DSA. - Committee model and institutional arrangements: - Preferred approach: extend existing DPBEP Committee to become “DPBEP and Fiscal Risks” Committee rather than create a new committee. - Rationale: DPBEP Committee already includes most relevant directorates; DPSB as natural technical secretariat. - Committee tasks: prepare the FRS, coordinate identification/analysis/monitoring, extend to mitigation and management, provide training and communication activities. - Validation: committee outputs to be reported to MEF and MBPE director generals; approval via either committee of directors general or informal transmission to directors general. - Legal anchoring: - Fiscal risk notion not currently in Ivoirian legislation; recommendation to anchor FRS preparation/publication in the organic law on the transparency code (amendment planned for 2019). - Law should cover identification, monitoring, analysis, mitigation measures and declaration phases. - Classification of fiscal risk management measures (Box 4): 1. Mitigating measures — direct/indirect controls and risk transfer instruments. 2. Provisioning — expensing costs up-front, budget contingencies, buffers (stabilization fund, deposit insurance). 3. Creation of fiscal headroom — ensure safety margins to preserve debt sustainability when risks materialize. ### Sequenced recommendations and timetable (selected) - Very short term (2017): - Include simple macro sensitivity analyses (cocoa, fuel, $/CFAF) consistent with DSA; present abridged DSA; draw up PPP table. - Short term (2018): - Prepare an “Appendix: Fiscal Risk Statement” structured around main national fiscal risks; enrich qualitative analyses with quantitative elements. - Medium term (2019–2020): - Enhance quantitative analysis; hold in-depth discussions on risk mitigation measures; for 2021 envisage a standalone FRS independent of DPBEP. - Institutional and legal steps: - Extend DPBEP Committee missions; revise composition; validate committee work at director-general level; anchor committee by regulatory text; include FRS development plan in action plan (Appendix 3); increase capacity and training. - Proposed legal amendment to organic law on transparency code planned for 2019 to incorporate FRS obligations. *Source: IMF Fiscal Affairs Department mission report (cr1895).* ### PREFACE __________________________________________________________________________________________ 5 ### PREFACE ### Mission purpose and timing - Responding to a request by Mr. Adama Koné, Minister of the Economy and Finances, and Mr. Abdourahmane Cissé, Minister of the Budget and Government Portfolio, a mission from the Fiscal Affairs Department (FAD) of the IMF visited Abidjan over the period from June 27 to July 10, 2017 to support the Ivoirian government in the improvement, identification, analysis, and transparency of fiscal risks. - A report-back meeting presenting preliminary conclusions was held on Wednesday, July 5. - A provisional version of the report was provided to the MEF and MBPE staff at the end of the mission, during a concluding session chaired by Mr. Cissé. ### Mission leadership and team - Mission headed by Mr. Fabien Gonguet (economist, FAD). - Team included Mr. René Tapsoba (economist, FAD), Mr. Thomas Kurkdjian (FAD expert), and Mr. Clemens Mungenast (FAD expert). ### Principal counterparts and in-country engagement - Welcomed by: - Mr. Adama Koné, Minister of the Economy and Finances, and his chief of staff, Mr. Adama Coulibaly. - Mr. Sidy Cissé, deputy chief of staff of the MBPE. - Close collaboration with MBPE technical advisor Mr. Hilaire Séa. - Work sessions and meetings held with MBPE and MEF officials, including: - At the MBPE: Mr. Bamba Seydou (Director General of the Government Portfolio, DGPE), Mr. Thiekoro Doumbia (Director of Strategy), Mr. Roger Diaba (Deputy Director General of the Budget and Finances, DGBF), Mr. Fiacre Adopo (Director of Fiscal Policies and Summaries, DPSB), Mr. Tiédié Traoré (Director of the National Budget, DBE), Mr. Mamadou Coulibaly (Deputy Director of the Directorate of Fiscal Reform and Modernization of Public Administration, DRBMGP), Mr. Alain-Serge Ehouman (Deputy Director of the Directorate of Wages and Salaries), and their staff. - At the MEF: Dr Sain Oguié (Director General of the Economy, DGE), Mr. Vakaramoko Doumbia (Deputy Director General), M. Hien Sansan (Director of Economic Forecasts, Policies and Statistics, DPPSE) and their staff; Mr. Mamadi Koné and Mr. Marius Kpazara (both Deputy Directors of the Directorate of Public Debt and Grants, DDPD) at the General Directorate of the Treasury and Public Accounting (DGTCP). - Mr. Moussa Kouyate, Interim Chairman of the National Steering Committee for Public Private Partnerships (CNP-PPP) and his staff. - Mr. Demba Boundi, technical advisor in the office of the Ministry of Transport. - Ms. Fatimata Thes, Deputy Chief of Staff at the Ministry of Oil, Energy and Development of Renewable Energies, and her staff. - Mr. Vehi Touré, General Director of Rural Development and Water Control at the Ministry of Agriculture and Rural Development (MADR), and his staff. - Mr. Auguste Bédié, expert on the Coffee-Cocoa Advisory Board (CCC). - Representatives of public companies including the CEO of Air Côte d’Ivoire, General Abdoulaye Coulibaly, and his General Manager, Mr. René Decurey; the technical and financial directors of Côte d’Ivoire – Energies (CI-Energies), Société Nationale d’Opérations Pétrolières de Côte d’Ivoire (PETROCI), Société Ivoirienne de Raffinage (SIR), Société des Transports Abidjanais (SOTRA), and their staff. - Mr. Klotioloma Silué, Departmental Head at the National Directorate for Côte d’Ivoire at the Central Bank of West African States (BCEAO). ### Stakeholder outreach and seminar - The mission organized a half-day seminar on the identification, analysis and transparency of fiscal risks, attended by around forty staff members of many MBPE and MEF structures. - The mission met with technical and financial partners in Côte d’Ivoire, including representatives of the European Union, the Japanese International Cooperation Agency (JICA), and the governments of the United Kingdom, Spain, France, Japan and the Netherlands. - Additional consultations were held with resident AFRITAC advisors Mr. Bacari Koné and Mr. Severin Kamgna; Mr. Jacques Morisset, chief economist and program director for Côte d’Ivoire at the World Bank; and Ms. Amina Coulibaly, economist. ### Acknowledgements - The mission thanked the Ivoirian authorities for their warm welcome and availability, and in particular Mr. Hilaire Séa for his support in organizing the mission. - The mission also thanked Mr. José Gijon, IMF resident representative; Mr. Hermann Yohou, local economist; and Ms. Marguerite Signe, employee, for facilitating its work. *IMF Fiscal Affairs Department mission report (Preface).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Macroeconomic context and policy framework - Since 2012, Côte d’Ivoire has maintained a virtuous dynamic of strong economic growth driven by the revival of infrastructure investment, a sustainable fiscal policy and renewed confidence of international donors, lenders and markets. - The National Development Plan (PND) for the 2016-2020 period aims to achieve the economic emergence of the country by 2020, supported by close to CFAF 30,000 billion in public and private investment (i.e., 140 percent of 2016 GDP). - The PND is based on an ambitious macro-fiscal framework in terms of growth targets and deficit reduction. - The scenario of the PND is based on GDP growth of close to 9 percent per year on average. - The government targets an average public deficit of 3.8 percent of GDP per year over the period and intends to fall to 3 percent in 2019, in line with WAEMU convergence criteria. - IMF forecasts are more conservative, at 7½% per year on average over 2016-2020. ### Major fiscal risks identified - Fiscal risks are categorized as: - Macroeconomic shocks or risks (unforeseen changes in macroeconomic variables). - Specific fiscal risks (financial obligations contingent on uncertain events), which can be explicit or implicit. - By combining probability of occurrence and potential fiscal costs (based on available data), the most prominent fiscal risks in Côte d’Ivoire are: - Macroeconomic shocks on growth and on commodity prices, especially cocoa and oil; - The debt of public enterprises, as well as arrears for some of these companies; - Quasi-fiscal activities of the government (support to public enterprise pricing in the energy and transport sectors); - Explicit fiscal commitments (in particular, guarantees issued by the government) and implicit fiscal commitments related to public-private partnerships (PPP); - The possible depletion of natural gas reserves by 2024. ### Diagnosis of existing practices - Existing practices for identifying, monitoring and disclosing fiscal risks are limited and fall below emerging country standards. - No centralized process exists at the level of the economic and financial ministries for comprehensive identification, quantification, monitoring, and consolidation of fiscal risks. - Analyses of risks such as debt or commodity price volatility are often ad hoc and conducted after risks materialize rather than in anticipation. - Public enterprises often perform risk analyses locally, but the Directorate General of the Government Portfolio (DGPE) does not consolidate these analyses across the whole portfolio. - Since 2014, Côte d’Ivoire has published a chapter on fiscal risks in the DPBEP appended to the PLF; this chapter is only 2-3 pages long and presents a selection of a few risks in a qualitative and limited manner. - Weaknesses in analysis and communication of fiscal risks can hamper market confidence and threaten fiscal sustainability and the PND’s success. ### Strategic objective and comparative position - Developing analysis, monitoring, and communication practices for fiscal risks will facilitate the transition to economic emergence. - Côte d’Ivoire has room for improvement compared with emerging countries such as Brazil, South Africa, and the Philippines. - Comprehensive fiscal risk monitoring should be complemented by proactive management of fiscal risks, a medium-term process requiring time and resources. - Full implementation of recommendations would position Côte d’Ivoire as a frontrunner in West Africa on fiscal risk monitoring and align it with emerging market standards; the country would achieve excellent above-average scores on the “Fiscal Risks” pillar of the Fiscal Transparency Evaluation (FTE). ### Priority recommendations (summary) - Systemize the comprehensive identification and ranking of fiscal risks in accordance with the analytical framework set out in Appendix 2. - Gradually develop methods to quantify macroeconomic risks (short-term sensitivity analyses, complemented by medium-term alternative scenarios, which include public enterprises). - Publish a specific strategy for the government’s public enterprise portfolio until 2020. - Extend the report on the economic and financial situation of public enterprises to performance and risk management. - Prepare and publish a fiscal risk statement based on a gradual development plan (Appendix 3). - Expand the missions of the existing DPBEP to the analysis, monitoring, disclosure, and, in time, management of fiscal risks (“DPBEP and Fiscal Risks Committee”). ### Action Plan (AS OF SEPTEMBER 30, 2017) — key actions and timeline - Identifying fiscal risks: - Systemize comprehensive identification and ranking of fiscal risks annually; lead institutions: DPSB and DPBEP and Fiscal Risks Committee. - Prioritize top five fiscal risks based on high probability and high potential fiscal costs; lead institution: DPSB. - Gradually build a database of default rates on PPP projects and calls on government-issued guarantees; lead institutions: DDPD and CNP-PPP. - Analyzing macroeconomic risks: - Initiate internal sensitivity analyses for key macroeconomic variables (Table 3). - Extend scope of sensitivity analyses and initiate alternative scenarios, including public enterprises and, later, local governments; lead institutions: DPPSE, DDPD and DGPE. - In DSA, draw up alternative scenarios that incorporate the debt and recognized payment arrears of public enterprises; lead institutions: DDPD, DGPE. - Monitoring and managing fiscal risks related to public enterprises: - Set up audit committees in enterprises and design a shared framework for risk analysis (Table 6); carry out risk studies in waves (first 7 enterprises, then 8, then extend to all); lead institutions: DGPE, public enterprises. - Finalize roll-out of SIGEP (information and management system for public enterprises), provide user training, resolve technical issues, and generalize roll-out; lead institution: DGPE. - Modify legal bases to specify DGPE’s role in supervision, coordination and monitoring of fiscal risks related to public enterprises; propose draft amendments to organic law on fiscal transparency; lead institution: DGPE. - Develop risk management training for board members and public enterprises and systematize an annual seminar on risk management; lead institution: DGPE. - Amend regulations on public enterprises’ debt and guarantees to make authorization procedures more effective; propose amendment to order 399 of 2015 to extend to subsidiaries; lead institutions: DGPE and DDPD. - Publish a specific strategy for the government’s public enterprise portfolio until 2020, defining objectives, portfolio management and dividends strategy, governance framework, performance targets, and risk management policy; lead institution: DGPE. - Extend the report on the economic and financial situation of public enterprises to performance and risk management; include enhanced qualitative explanations, finalize performance contracts for the first wave of 7 enterprises, increase data on public funding, cash positions, liabilities and payroll costs, specify targets for indicators (net income, investment, cashflow, taxes and dividends) for enterprises with performance contracts (PLF 2019), launch a second wave of performance contracts for 8 enterprises (PLF 2020) and extend performance contracts to 10 other enterprises (PLF 2021); lead institution: DGPE. - Publishing a Fiscal Risk Statement (FRS) and strengthening governance: - Prepare and publish a Fiscal Risk Statement as an appendix to DPBEP 2019-21 focused on main Ivoirian fiscal risks, enrich qualitative analyses with quantitative and analytical elements (Appendix 3), and discuss mitigation measures (see Box 4 and Appendix 3); consider publishing the FRS in a budget document separate from the DPBEP; lead institutions: DGBF and DPBEP and Fiscal Risks Committee. - Extend missions of the DPBEP committee to preparation of the FRS, analysis and monitoring of fiscal risks, formalize the “DPBEP and Fiscal Risks Committee” with a statutory text and revised composition, and begin work in its extended format; lead institution: DGBF. - Draw up and implement an action plan for the analysis and management of fiscal risks that defines: (1) gradual extension of committee’s work to management of fiscal risks, (2) capacity building plan for committee members, and (3) development plan for the FRS; propose integration of the FRS into the organic law on fiscal transparency when amended; begin implementation and continue to implement action plan; lead institutions: DGBF and DPBEP and Fiscal Risks Committee. ### Purpose and scope of the report - The report proposes recommendations and practical tools to identify, analyze and disclose fiscal risks: - Chapter II provides a grid for comprehensive identification of fiscal risks. - Chapter III sets out best practice for analysis of macroeconomic risks. - Chapter IV makes recommendations on monitoring and management of fiscal risks linked to public enterprises. - Chapter V recommends publication of a fiscal risk statement and advises on its preparation and contents. - The recommendations support commitments in the Memorandum of Economic and Financial Policies for the program supported by the IMF, including expanding budget documentation to cover risks related to public enterprises and PPPs, and publishing, by end 2018, a report on the performance of public enterprises. - IMF Fiscal Affairs Department (FAD) is providing technical assistance for implementation. *EXECUTIVE SUMMARY (cr1895).* ### 9. The Ivoirian economy has to cope with various macroeconomic shocks which have a ### cr1895 - 9. The Ivoirian economy has to cope with various macroeconomic shocks which have a ### Major sources of macroeconomic fiscal risk - The analysis focuses on four principal macroeconomic shocks that affect the government budget: - Volatility of cocoa prices. - Volatility of oil prices. - Shocks on GDP growth. - Exchange rate volatility, especially vis-à-vis the dollar. - Risks may be correlated; each is presented independently but interactions and joint likelihoods are important. ### Cocoa price volatility — fiscal exposure and recent materialization - Cocoa is the country’s main crop; Côte d’Ivoire is the world’s largest producer of cocoa (40% of worldwide production). Cocoa accounts for 60% of the country’s exports and contributes directly and indirectly to one-quarter of all jobs. - Channels of fiscal impact: - Direct: volatility in cocoa-related public revenues—registration fees and taxes on exporting cocoa. - Indirect: effects on overall tax revenue through impacts on economic growth. - Recent shock (since Q4 2016): - 35 percent fall in the cocoa price since the last quarter of 2016. - fiscal and economic consequences: a drop in tax revenues of around 0.9 percent of GDP; a 0.9 percent reduction in the agriculture sector’s income; and a downward revision of growth forecasts from 8.9 percent to 8.5 percent. ### Oil price volatility — fiscal channels and public enterprise exposure - Volatility of oil prices affects tax revenues, subsidies, and current expenditure of public enterprises. - The oil price adjustment mechanism can reduce taxes on oil products when international prices rise, limiting pump-price transmission and social tensions. - Public enterprises in transport and energy are a channel for fiscal risk from oil price shocks (financial difficulties could transmit to the budget). ### GDP growth shocks — sensitivity and feedbacks - Côte d’Ivoire has experienced several growth-shock episodes driven by political crises, commodity price instability, and agricultural production fluctuations (prices, rainfall). - Fiscal impacts of a sudden drop in GDP: - Reduction in tax revenues, which are very sensitive to growth rates. - Risk of accumulation of payment arrears if spending is not adjusted promptly. - Spending cuts—especially on investment—could further harm growth, creating a vicious cycle between GDP and public spending. ### Exchange rate volatility and currency composition of debt - Although the CFAF is pegged to the euro, around half of public debt is denominated in foreign currency, of which one-third is in dollars (around 7 percent of GDP). - Exchange-rate risk: - Depreciation of the CFAF against the dollar would increase the cost of servicing dollar-denominated debt and dollar-denominated imports, and increase the public debt stock. - Revenues based on imports denominated in dollars would increase if the CFAF depreciates. - Policy response example: - Recent eurobond issuance split into two components — one denominated in dollars (1.25 billion) and the other in euros (625 million) — could be a strategy to mitigate FX risk. ### Loss of access to international markets (refinancing risk) - Two eurobonds maturing in 2024 and 2032 create refinancing risk if access to international capital markets suddenly tightens. - Contingency measures underway: - Authorities have started to buy back part of these Eurobonds. - Possible measures for remaining stock: gradual buyback of securities, opening an escrow account. - Historical issuance and buyback: - In June 2017, Ivoirian authorities issued $1.95bn in eurobonds, enabling them to buy back part of the eurobonds maturing in 2024 and 2032 ($0.75bn) and to finance the deficit ($1.2bn). ### Other macro-financial risks (inflation, interest rates, budgetary support) - Inflation: - Some tax revenue projections are sensitive to variations in inflation. - Inflation remains low because the CFAF is pegged to the euro; the fiscal risk linked to inflation is considered marginal. - Interest rates: - Limited fiscal risk: since 2012, practically the whole of the Ivoirian public debt portfolio is at a fixed rate. - Budgetary support: - Uncertain disbursement calendars could pose a risk (10 percent of investment spending is based on budgetary support), but authorities have been cautious in forecasting budgetary support in recent years. ### Explicit fiscal contingencies (guarantees, PPPs, dispute settlements) - Government guarantees to support public enterprise borrowing: - At end-June 2017, three guarantees in favor of Air Côte d’Ivoire identified by the DDPD totaling CFAF 28 billion (0.1 percent of GDP). - Table of guarantees (end-June 2017): total CFAF 28.1 billion; specific lenders include Afreximbank and Export Development Canada; interest rates and maturities as recorded by authorities. To date, none of these guarantees has been called in. - Public-Private Partnerships (PPPs): - Expected high recourse to PPPs under the PND poses growing explicit and implicit contingent liability risks. - Projected PPP investment volume is very high: total cost of construction of 60 percent of GDP between 2016 and 2020. - Government intends to finance over 40% of investments planned in the PND (around 60% of 2016 GDP). - Example: Call on a government guarantee in the PPP for the third Abidjan bridge in 2015 resulted in a fiscal cost of 0.07 percent of GDP due to lower-than-expected traffic. - Dispute settlement: - The maritime border dispute with Ghana over offshore oil operations could result in a positive or negative fiscal outcome depending on arbitration. ### Implicit fiscal contingencies (public enterprises, PPPs, financial sector, environmental) - Public enterprise debt, arrears, and quasi-fiscal activities: - Large stocks of debt and arrears and quasi-fiscal actions (priced below cost, off-budget activities) create significant implicit risks; political pressure can force government takeover of liabilities. - PPPs without explicit guarantees: - Even absent explicit guarantees, the government may need to replace a failing private partner or execute projects itself, incurring budgetary costs. - Recommendations for PPP risk management include: - Base feasibility studies on conservative assumptions. - Compile a database of historical default rates of PPPs. - Consider caps on total PPP commitments. - Bailouts of financial institutions: - Several financial entities have required government support (CNCE, BNI, UNACOOPEC). - Government recapitalized CNCE with around 0.1 point of GDP in 2016; another smaller transfer expected in 2017-18. - Restructuring of UNACOOPEC (deposit base CFAF 93 billion, 0.4 percent of GDP) could have substantial budgetary impacts. - Environmental risks: - Droughts and floods threaten agriculture and infrastructure; direct fiscal compensation for affected farmers comes from budget contingency lines (less than 5 percent of the government’s total budget). - Depletion of gas reserves threatens cheaper electricity generation: annual production cost differential of CFAF 60 billion at CI-Energies; gas may run out by 2024 according to projections. - Other environmental risks: water and ground pollution, bushfires, swollen shoot disease affecting cocoa (requires quarantine of plantations in impacted zones). ### Other specific risks (institutional, political, security, fiscal overruns) - Credibility of forecasts: - Lack of credibility in macroeconomic and fiscal forecasts could be a risk, though recent government forecasting has tended to be cautious. - Fiscal overruns and legacy liabilities: - Wages arrears claims accumulated over 2009-2013: CFAF 249 billion (1.2 percent of GDP), not yet provisioned. - “Liabilities” or “overdue contracts” (expenditure outside the system before the 2011 post-electoral crisis): initially valued at around CFAF 200 billion (0.9 percent of GDP); valuation to be refined by an audit. - Additional potential overruns: new investment costings, cost of new tax exemptions. - Political and security risks: - Strikes, electoral crises, terrorist attacks may reduce economic activity and tourism receipts and raise security spending. - Example: around 0.6 percent of GDP was paid by the government to bring an end to soldier “mutinies” in the first half of 2017; this amount was not provisioned in spending forecasts. ### Comparative costs and data limitations - Potential costs related to identified fiscal risks compare favorably with those assessed for other countries in a sample (Figure 7), but this result is tentative. - Full quantification of potential costs was not possible with available mission information; refined analysis and better data are essential for improved fiscal risk monitoring. ### Proposal for a fiscal risk analysis grid and classification - Classification axes proposed: - Source-based: endogenous (probability influenced by government actions) vs exogenous (probability beyond government control). - Frequency-based: permanent (regular occurrence) vs temporary (irregular occurrence). - Temporary risks further classified by probability: probable (high probability), possible (medium probability), undefined (high potential fiscal impact but probability difficult to predict). - The note suggests applying this typology to the identified risks in Côte d’Ivoire and proposes an analysis grid (Appendix 2) to structure fiscal risk analysis. - The framework is intended as a living guide to be updated regularly as more information becomes available. *Source: IMF staff summary of Chapter 9 (cr1895).* ### 30. It will be essential to prioritize fiscal risks if more refined analyses are to be ### 30. It will be essential to prioritize fiscal risks if more refined analyses are to be achieved. ### Prioritization framework and illustration - Prioritization should follow a comprehensive identification of fiscal risks and then focus on the most prominent risks for in-depth analysis. - Two criteria for prioritization: - (i) the probability of occurrence of the risk; - (ii) the potential fiscal cost in the event of its materialization. - Fiscal risks are to be classified in ascending order on: - probability/frequency of occurrence (see Appendix 2); and - potential fiscal cost. - Illustration (Figure 8): potential fiscal costs on the horizontal axis; probabilities of occurrence on the vertical axis. Intersection of the two rankings yields four quadrants: A, B, C, and D. - Risks in quadrant B (high potential fiscal costs and high probability of occurrence) are the most prominent and merit extra attention when analyzing fiscal impact. ### Five most prominent fiscal risks identified for Côte d’Ivoire (based on initial analysis and available data) - Macroeconomic shocks on growth and on commodity prices, especially cocoa and oil; - Public enterprise debt, as well as arrears for some of them; - Government quasi-fiscal activities (pricing support by public enterprises in the energy and transport sectors); - Explicit fiscal commitments (especially government guarantees) and implicit liabilities relating to public private partnerships (PPPs); - The possibility of gas reserves running out by 2024. ### Recommendations on prioritization and data - Systemize the comprehensive identification and ranking of fiscal risks in accordance with the analytical framework set out in the report and update it once a year. The frameworks suggested in Figure 1 and Appendix 2 could serve as a starting point. This internal work could provide data to be included in fiscal documentation (see V). - Prioritize risks for which more in-depth impact analyses will be carried out. The fiscal risks in quadrant B (Figure 8) could be considered as priorities for carrying out more in-depth analyses on their potential fiscal impacts. - Gradually build up a database of default rates on PPPs and calls on government-issued guarantees, in order to better identify the expected costs of the materialization of fiscal contingencies. ### III. ANALYZING THE IMPACT OF MACROECONOMIC RISKS — key findings on current practice - Some macroeconomic risks are analyzed by the authorities, but often in a disorganized manner, and after the risks have materialized. Scenarios are often based on moderate variations. - Existing practices include: - The Directorate of Forecasts, Policies and Economic Statistics (DPPSE) within the General Directorate of the Economy (DGE) at the MEF carries out sensitivity analyses on certain macroeconomic risks using a computable general equilibrium model, based on a social accounting matrix dating back to 2007. These sensitivity analyses are based on the assessment of the impact of risks after they have occurred, rather than before. - The DDPD carries out regular debt sustainability analyses (DSAs). Sensitivity analyses and related alternative scenarios are limited to central government. The debt and payment arrears of public enterprises are not incorporated into the DSAs. - Some public enterprises carry out, themselves and on an individual basis, sensitivity analyses, financial flow simulations and long-term projections based on diverse macroeconomic situations (see §50). ### Two risk analysis approaches recommended - A. Sensitivity analyses (single shock) - Sensitivity analyses assess the impact of a change in a macroeconomic variable on fiscal variables, all other things being equal. - Focus sensitivity analyses on macroeconomic variables prioritized (upper quadrants in Figure 8): GDP growth rate, cocoa and oil prices, CFAF/$ exchange rate. - In the short term limit fiscal result variables to revenue, expenditure, the fiscal balance and debt; then gradually extend to debt service, present value of debt and stock variables (assets, liabilities, balance sheet). - Align time period of sensitivity analyses with that of the DPBEP: three years. - Choice of shock assumptions: - Reuse shocks already simulated in the DSA for consistency and credibility. - For shocks not in the DSA, base assumptions on historical values; start with a table summarizing historical deviations/shocks (similar to Table 2). - Table 2. Historical Averages and Standard Deviations for Macroeconomic Shocks - Historical average Standard deviation - GDP growth rate (%) 4.4 4.7 - Change in cocoa price (%) 2.0 18.9 - Change in oil price (%) 1.8 29.4 - Depreciation of CFAF against the $ (%) 2.5 8.0 - Sources: DSA from the latest IMF report for growth figures, and calculations by the IMF based on WEO figures for the other variables. - Table 3. Assumptions of Simulated Macroeconomic Shocks - Choc 1 - GDP growth rate (%) Historical average minus one standard deviation - Change in cocoa price (%) Historical average minus one standard deviation - Change in oil price (%) Historical average plus one standard deviation - Depreciation of CFAF against the $ (%) Historical average plus one standard deviation - Source: Mission. ### Example sensitivity analysis: cocoa price shock (illustrative) - Shock 1 corresponds to a fall of around 17 percent in the cocoa price (one standard deviation, temporary impact of one year, materializes early in 2018). - Impact reasoning and results (Table 4): - Impact of shock 1 on fiscal revenues stems mainly from export tax (14.6 percent). - Assumed price elasticity of cocoa production is zero. A 17 percent fall in the cocoa price results, all other things being equal, in a 17 percent decline in the value of cocoa exports, i.e., a drop amounting to 2.2 points of GDP. - Applying the export tax (14.6 percent) to this decline in exports yields a tax revenues loss estimated at 0.3 points of GDP. - Impact on public spending assumed to be zero here (no direct transfer from the central government budget to guarantee the minimum farmgate price to producers). - Result: negative impact of around 0.3 point of GDP on the fiscal balance. - Figure 9: Shock on Cocoa Prices Applied in This Sensitivity Analysis (2010–2018 baseline and shock series shown; source: Mission). - Table 4. Sensitivity Analysis: Impact of Macroeconomic Shocks (in points of GDP) - Year: 2018 | 2019 | 2020 - Impact 1 (Change in cocoa price (%) Shock 1): Revenue -0.3, Expenditure 0, Fiscal bal. -0.3; 2019: Revenue 0, Expenditure 0, Fiscal bal. 0; 2020: Revenue 0, Expenditure 0, Fiscal bal. 0 - Note: 1 in points of GDP. 2 The shock is meant to have a temporary effect (one year). - Box 1. Elements on Cocoa Price Stabilization Methods - Stabilization mechanism (in force since 2012 under Coffee Cocoa Council) guarantees a farmgate price for six months, equivalent to 60% of an average price defined as the average of a forward sale price and the spot price (weighting coefficients of 80% and 20% respectively). - When spot > forward, excess revenue goes into a compensation fund; funds are withdrawn to guarantee the minimum price when spot < forward. In a major negative shock, the minimum farmgate price is adjusted downwards. - A reserve fund, financed by the national budget since 2011, has been opened at the BCEAO to strengthen resilience of the stabilization mechanism. - Possible default of a player in the chain (e.g., buyers of futures contracts) could cause malfunctioning and require financial support from the budget. - Source: Mission. - B. Alternative Scenarios (multiple shocks) - Principle: simulate impact of a combination of one-standard-deviation shocks applied to key macroeconomic variables. - Focus in the short term on revenues, expenditure, the fiscal balance and public debt as result variables; later extend to debt service, financing needs, and in medium/long term to stock variables (liabilities, balance sheet). - Initially align analyses of alternative scenarios to DPBEP’s time period (three years); later extend to 10 years, then 30 years to detect long-term vulnerabilities (social security, pensions). - DSA three alternative scenarios that could be carried over to fiscal risk analysis: - (i) Historical scenario (macroeconomic variables at their historical average values); - (ii) Extreme scenario, consistent with a combination of shocks on macroeconomic variables; - (iii) Personalized scenario, in which the debt of Société Ivoirienne de Raffinage (SIR) (CFAF 368 billion) is integrated into the DSA. - Adjustments proposed: - Historical scenario assumptions of the DSA could be strictly maintained; - Extreme shock scenario could be adjusted to reflect a combination of individual shocks tested in sensitivity analyses; - Personalized scenario could be extended to include total debt and payment arrears recognized by public enterprises (CFAF 773 billion at end March 2017), and possibly local governments, if reliable data is available. - Table 5. Alternative Scenarios: Impact of the Combination of Shocks (illustrative layout) - Years: Short-medium term (2018, 2019, 2020, 2021 ... ) Long term (... 2046, 2047) - Assumptions rows: Historical scenario, Extreme shock scenario (shock cocoa price + shock CFAF/$ exchange; shock cocoa price + shock oil price; growth shock + shock cocoa price), Personalized scenario (Historical + public enterprises debt; Extreme + public enterprises debt) - RESULTS rows: Basic scenario, Historical scenario, Extreme shock scenario, Personalized scenario — with result variables: Fiscal balance (% GDP); Debt (% GDP); Present value of debt; Service of debt / revenues - Source: Mission. - Longer-term probabilistic methods - When simulation capacities are developed, consider probabilistic methods (used in advanced countries such as Canada, the United States, New Zealand, and the United Kingdom) to estimate the probability of public debt sustainability while accounting for a variety of extreme shocks and fiscal reaction functions. ### Recommendations on macroeconomic risk quantification and publication - Gradually develop methods to quantify macroeconomic risks: - Short term: achieve systematic sensitivity analyses internally by initially focusing on the macroeconomic assumptions identified in Table 3, using the methodology described in III.A.; - Medium term: simulate alternative scenarios using the methodology described in III.B and extend scope to the whole public sector (including public enterprises and possibly local governments). - Publish a selection of these analyses and scenarios in the fiscal risk statement (see V) in line with the timetable suggested in Appendix 3. - Strengthen technical capacities of macroeconomic modelling teams. - In the DSA, draw up alternative scenarios that incorporate the debt and recognized payment arrears of public enterprises (especially for companies in which the government has a majority and public enterprises with mostly quasi-fiscal activities). ### IV. IMPROVING THE MONITORING AND MANAGEMENT OF FISCAL RISKS RELATED TO PUBLIC ENTERPRISES — key findings - Public enterprises play an important part in the Ivoirian economy and public finances: - In 2015, consolidated sales of public enterprises accounted for close to 20 percent of GDP, and they contribute 4 percent of tax revenues. - Public enterprises are key to implementation of the 2016-2020 PND: they must ensure more than one-third of the total planned investments over the period, i.e., more than CFAF 10,000 billion, two-thirds of which are in transport and infrastructure and over 20 percent in energy. - Identification, monitoring and management of fiscal risks linked to public enterprises are essential for ensuring enterprises can support the emergence strategy while maintaining public finance sustainability. - Report scope: covers public enterprises included in the portfolio managed by the DGPE; includes public companies as defined in the Manual of Public Finance Statistics. DGPE portfolio exceptionally includes 18 non-commercial structures and four public policy operators with roles and financial structures similar to public administrative bodies. - This chapter proposes recommendations to: - Consolidate existing risk monitoring procedures (A); - Strengthen coordination of these procedures (B); - Communicate enterprise performance in a transparent manner (C). - Figure 10: Mapping of Financial Relationships Between Public Enterprises and the Central Government (2015). Source: Mission, based on data in the report on the economic and financial situation of companies in the government portfolio for 2015 – PLF 2017. _Italic: Source: cr1895 - 30. It will be essential to prioritize fiscal risks if more refined analyses are to be achieved._ ### 45. The conditions for supervising government holdings have been strengthened since ### The conditions for supervising government holdings have been strengthened since ### Strengthening of supervision and portfolio management - Creation in 2016 of the General Directorate of the Government Portfolio (DGPE) to professionalize the government as shareholder. - Improvements attributed to sectoral specialization and development of expertise in law, accounting, portfolio management and information systems. - Attachment of the DGPE to the MBPE, replacing the Directorate of Holdings and Privatizations, to provide stronger fiscal and financial monitoring. - New segmentation of the portfolio into five categories to adapt government involvement and oversight to each enterprise’s nature. - Experimentation with performance contracts for seven enterprises, representing 40 percent of the target public investment attributed to public enterprises in the 2016-2020 PND, including individual multi-annual targets as part of a 2016/2020 strategic plan and a costed business plan. - Legal limitation: given existing legislation (the organic law on the transparency code and the 1997 laws covering public enterprises), the DGPE does not have explicit general competence to ensure coordinated monitoring and managing of fiscal risks associated with public enterprises. ### Sources of fiscal risks linked to public enterprises - Fiscal risks can affect both the central government budget balance and treasury operations via: - Declining revenues and/or increasing expenses inside enterprises due to: (i) exogenous risks (e.g., commodity price volatility), (ii) government-controlled prices for public services, (iii) delays or cost overruns in investment projects, (iv) uncontrolled borrowing policy. - Government fiscal balance impacts: payment of balancing subsidies, decline in tax and non-tax revenues (corporate income tax and dividends), increase in earmarked revenues, need for recapitalization. - Treasury plan impacts: defaults on repayment of retroceded loans or cash calls linked to government guarantees. - Exogenous risk examples: - 47 percent drop in oil prices in 2015 reduced export revenues of Société Ivoirienne de Raffinage (SIR) by 58 percent. - For Société de Transports Abidjanais (SOTRA), fuel purchases account for close to 15 percent of expenditure; a 10 percent increase in fuel prices increased its expenditure by CFAF 1 billion, i.e., nearly 11 percent of its EBITDA in 2015. - SIR recorded foreign exchange losses of CFAF 92 billion or 8 percent of its turnover, following the 20 percent appreciation of the dollar. - 25 percent of Air Côte d’Ivoire’s transactions are carried out in dollars, making turnover sensitive to exchange rate movements. - Endogenous risk examples: - Public enterprise debt stood at CFAF 773 billion at end March 2017, +55 percent compared with end 2014, or around 3½ points of 2016 GDP. - Concerns about debt sustainability for some enterprises that can no longer access market financing. - Alarming debt ratios: Fonds d’Entretien Routier (FER) ratio amounts to almost 4,300 percent of its share capital. - Payment arrears to suppliers and service providers (example: delays of nearly five months at the Azito and Ciprel plants); these arrears amount to almost 1 point of GDP and could prompt government assumption of full or partial responsibility. - Quasi-fiscal activity exposure: social prices unchanged since 1994 for SOTRA and social pricing for oil and gas products undermine profitability and create contingent fiscal risk. ### Risk analysis and monitoring practices - Existing monitoring tools and practices: - Fiscal document on the financial and operational situation can monitor indicators (cashflow, debt, other liabilities). - Mandatory governance reports since 2015 help identify “zones at risk” for each enterprise. - DGPE’s internal “dashboard” assesses zones based on three-year expenditure analysis and SWOT analyses. - SIGEP (information and management system for public enterprises) under development to automate monitoring, with planned data collection and data management platform; interface with SIGEP not yet available in public enterprises met by the mission. - Enterprise-level advanced practices that DGPE could leverage: - Technical tools: sensitivity analyses and long-term projections for macro risks (e.g., oil price for CI-Energies); simulations of financial flows based on supply/demand equilibrium scenarios (CI-Energies); risk analysis matrices presented at management committee meetings (PETROCI). - Institutional mechanisms: some enterprises (e.g., SIR) have economic studies units to simulate risk impacts. - Risk audit and management committee mandatory within all public enterprises since 2016; required to examine accounts and management reports, budgets and all documents with financial impact; chaired by director representing MBPE, meets at least four times a year and produces reports for the Board of Directors. Enterprises met by the mission have not yet set up such committees. ### Recommendations to strengthen risk identification, monitoring, and information flows - Improve identification and management of risks within public enterprises (further technical assistance in 2018 could support implementation): - Ensure effective and widespread implementation of audit committees at public enterprises, initially for the first seven enterprises negotiating performance contracts (2018) prior to systematic introduction at all enterprises by 2020. - Comprehensively list and trace government financial flows to public enterprises, including earmarked revenues, and draw up a list of comfort letters signed between the government and public enterprises. - Design a common risk analysis framework steered by the DGPE and shared with all enterprises to facilitate reporting and consolidation. Framework components: - (1) a systematic risk identification grid according to the segment or sector of each enterprise; and - (2) technical tools (sensitivity analyses, alternative scenarios, risk matrices) in line with the nature, size and probability of occurrence of risks (see Table 6 examples). - Finalize roll-out of the SIGEP to ensure more efficient flow of risk-related information between public enterprises and the DGPE. ### Improving coordination among stakeholders and DGPE’s pivotal role - Current situation: - Risk management mainly at enterprise level; DGPE has not yet structured a comprehensive risk monitoring system. - DGBF accounts for the impact of risks on subsidies, guarantees and dividends only to a limited extent. - DGPE’s coordinating role: - DGPE interfaces with public enterprises (board presence and “focal points”) and with DGBF and DDPD through transmission of debt and guarantee information. - Organized into two sectorial directorates and a strategy directorate with cross-cutting monitoring by segment, DGPE has capacity to produce portfolio-wide and sectoral risk analyses. - Suggested responsibilities: - Consolidate analyses produced by enterprises; strategy directorate to produce cross-cutting summaries (e.g., foreign exchange impact). - Identify common risks across enterprises via audit committee feedback and enterprise risk mapping. - In medium term, develop fiscal risk expertise and strengthen reporting mechanisms (especially SIGEP) to produce direct analyses and compare with enterprise analyses. - Prepare and represent public enterprises on the future fiscal risks committee and draft its work program; transmit directions to public enterprises and audit committees. - Provide risk management training for DGPE teams and executive directors representing the government. - Coordination with DGBF and DPBEP Committee: - DGPE should work closely with DGBF and DPBEP Committee whose missions will extend to monitoring and management of fiscal risks. - Regular provision of analyses to DGBF, specifically to the Policies and Fiscal Summaries Directorate (DPSB), which must produce a comprehensive overview of fiscal risks. - DGPE should be prepared to produce ad hoc analyses on request from DGBF or DGE and to request additional information or analyses from public enterprises. ### Coordination in financing and guarantees - Procedures for granting explicit guarantees: - LOLF requires a Council of Ministers decree for allocation of any new guarantee, up to the limit authorized by parliament (CFAF10 billion in 2017 initial budget). - Guarantees are kept separately in a dedicated account monitored using a database that includes all guarantees. - Guarantee statistics and developments: - At end June 2017, only three guarantees were listed for Air Côte d’Ivoire, for CFAF 28 billion, i.e., less than 5 percent of total public enterprise debt. - As part of SIR’s debt restructuring plan following the KPMG audit, the Ivoirian government undertook to issue a CFAF 378 billion guarantee (1.7 percent of GDP) in October 2017 in favor of SIR’s lenders. *Source: Mission findings and analysis provided in the content unit.* ### 58. The process put in place for the prior authorization of public enterprise debt means ### 58. The process put in place for the prior authorization of public enterprise debt means ### Prior-authorization framework and monitoring - The framework makes provision for joint authorization by the MEF and the MBPE prior to any loan: - (i) applications are submitted by public enterprises to the DGPE which assesses the request; - (ii) the DGPE transmits it for analysis and validation to the DDPD (department responsible for financial risk analysis); - (iii) the aim is to achieve consensus between the two ministries. - The information is consolidated by the DGPE on the basis of information collected from enterprises by their sectoral mission heads, then transmitted to the DDPD in the form of a “monitoring matrix”. - For each company, it distinguishes between the present position of the various debts. - This matrix can be used by the government to respect its commitment to consolidate data relative to all of the enterprises concerned before end December 2017 and to publish a summary table showing the debt service of public enterprises on a quarterly basis. ### Identified gaps and recommended procedural enhancements - Issues to be specified to improve effectiveness: - Borrowings of the subsidiaries of public enterprises should be integrated into the procedure, so that they do not become structures for debt deconsolidation. - Consistency between the work of the DGPE (financial analysis of sustainability from the enterprise’s point of view) and that of the DDPD (overall view of public debt (DSAs)) needs to be ensured. - Recommendations (as listed in the source): - Expand the legal bases (organic law on the transparency code, 1997 laws on public enterprises, regulations) for establishing the general competence of the DGPE in terms of the supervision, coordination and monitoring of fiscal risks relating to public enterprises; - Develop a risk management training program for board members and public enterprises; - Amend regulations on public enterprises’ debt and guarantees in order to make the authorization procedure more effective by extending its application scope to public enterprise subsidiaries. ### Current disclosure and reporting on public enterprises - Financial and economic information has been improved in recent years: - The organic law on the transparency code promulgated in 2014 increased the amount of information to be provided to Parliament and citizens about the financial situation of public enterprises. - Existing PLF appendices and reports: - Since 2016 the DPBEP appended to the PLF has presented certain consolidated indicators concerning the financial situation of public enterprises over the last three years (changes in the portfolio, government’s share in capital, turnover, net earnings, non-tax revenues, subsidies and debt). However: - The DPBEP chapter on fiscal risks does not currently cover risks relating to public enterprises. - The DPBEP does not include projections on the future fiscal and financial situation of public enterprises. - The Report on the Economic and Financial Situation of Public Enterprises, appended to the PLF, provides a detailed history of individual financial situations and some overall and sectoral analyses, but analyses are focused on the past and no overall or sectoral forward-looking vision is provided. ### Recommended enhancements to reporting and strategic disclosure - Add a component on future performance to the PLF appendices: - Improve the existing report by adding analytical and prospective elements, consolidated for the whole portfolio and itemized by enterprise, on dynamics of past and forecast net earnings, investments, cash position and dividends. - Development of this report is already being studied at the DGPE with the aim of improving the analytical dimension of the PLF from its next edition by providing consolidated information by segment, deepening qualitative analyses and adapting information and graphics. - Suggested data and quantitative objectives to include: - Itemized information relating to each enterprise not currently in the report, in particular: public financings granted with details of allocated tax and operating subsidies, list of guarantees granted, enterprises’ cash positions, summary of debt (private and retroceded public) and other liabilities by enterprise, debt; staff paid by enterprises; - Quantitative objectives for at least three years for a limited number of indicators consolidated over the whole portfolio and itemized by enterprise: net earnings, investments, forecast cash position, taxes and forecast dividends. - Medium-term forecasts would be facilitated by the generalization of performance contracts (see §45), which should contain the multi-annual financial trajectory. - Make the government-shareholder strategy public: - Existing internal documents (2014 “road map” and April 2017 Council of Ministers communication) could be consolidated into a published government-shareholder strategy akin to a mission statement and guidelines. ### Integration with the Fiscal Risk Statement (FRS) and PLF timetable - DGPE should supply specific elements on public enterprises to the future fiscal risk statement (FRS) attached to the DPBEP: - For the 2019 PLF: a general and qualitative summary linked to public enterprises that could include: (i) a view of the whole of the portfolio and its interaction with public finances; (ii) a summary of its financial performances (overall net earnings, dividends); (iii) a list and assessment of risks to which it is exposed (macroeconomic shocks, quasi-fiscal activities, etc.) including their concentration (debt ratios, etc.). - For the 2020 PLF: beyond deeper analyses, fiscal flows from public enterprises (dividends, tax, etc.) could be taken into account in the sensitivity analyses described in chapter III, on the basis of costing done by the enterprises themselves. - DGPE will act as conduit for transmission of information on fiscal risks relating to public enterprises, in accordance with the system set out in B. ### International practices and sensitivity analysis examples - Box 2: International practices (summaries) - Morocco: PLF appendix includes past and forecast performances, targets (turnover, value added, expenditure projections, net result distinguishing profitable and loss-making entities), forecast investments itemized by enterprise/sector/region, and for each enterprise an itemized operational and financial management report and targets. - Sweden: activity report on public holdings includes target setting, allocation of individualized target figures (profitability, capital structure and share of debt, dividends), and information on risk management policy. - Table 7: Examples of sensitivity analyses by shock (as provided) - xx% drop in CFAF/USD exchange rate - Impact on net earnings - Impact on dividends - Impact on taxes - Scope: Commercial enterprises exposed to international markets in dollars (imports and/or exports) - xx% drop in oil prices - Impact on net earnings - Impact on dividends - Impact on taxes - Scope: Enterprises in the oil and transport sector - xx% drop in GDP - Impact on net earnings - Impact on dividends - Impact on taxes - Scope: All commercial enterprises ### Recommendations on strategy, reporting expansion, and risk management (from source) - Publish a specific strategy for the government’s public enterprise portfolio until 2020. This strategy could include: - (i) a general presentation of the objectives of the government shareholder, in accordance with the development strategy and the PND; - (ii) a presentation of the portfolio management strategy and the dividends policy, segment by segment; - (iii) the governance framework (appointments of director generals and compensation, executive directors, etc.); - (iv) performance targets within the portfolio (multi-annual performance contracts, monitoring methods); - (v) the risk control policy. - Extend the report on the economic and financial situation of public enterprises to performance and risk management by: - expanding the field of information to public sources of financing (tax allocated, operating subsidies, guarantees, letters of comfort), to the cash position, to debt (retroceded public and private) and other liabilities, and to salaried staff; - providing explanations and justification for past trends; - specifying, for a few circumscribed indicators consolidated over the whole of the portfolio and itemized by sector and by enterprise (net earnings, investments, cash, taxes and dividends), forecast targets based on objectives set within the framework of performance contracts, which could be generalized over the medium to long term. ### Publishing a Fiscal Risk Statement (FRS): scope and institutional implications - Purpose and benefits: - Publication of a FRS officially marks the government’s commitment to controlling fiscal risks, to monitor and to manage them. - A FRS enables decision-makers, the public and parliament to better understand risks and their potential impact on the budget, increases support for mitigation policies, and strengthens credibility of macro-fiscal forecasts. - Phased focus and capacity development: - The FRS should first focus on the most serious risks and over time extend to include all risks. - Drafting a FRS requires a concerted effort to develop analytical and technical skills (see Table 8). - Box 3: Proposal for an Ivoirian FRS for the 2020 Budget (contents summarized) 1. Introduction - Overall view and presentation of the fiscal risk management framework in Côte d’Ivoire - Analysis of institutional strengths and weaknesses and presentation of measures under the Ivoirian plan of action in terms of fiscal risk management 2. Macroeconomic and macro-fiscal risks - Qualitative analyses of risks arising out of the world and regional economy - Quantitative analyses of differences between macroeconomic and macro-fiscal forecasts, fiscal sensitivity analyses with regard to the cocoa and oil price and the $/CFAF exchange rate, alternative macroeconomic scenarios and impact on budget and public debt 3. Political and security risks - Qualitative analysis of political instability and insecurity risks - Quantitative analysis of projects in preparation which have not yet been included in the DPBEP 4. Public enterprises - Overall view of the portfolio (sectors, number of entities, assets and liabilities (including arrears)) and its interactions with public finances (fiscal flows and explicit contingent liabilities for the sector: subsidies, transfers of capital, guarantees etc.) - Summary of financial performances: details of main financial aggregates and financial performance indicators for the sector as a whole - General qualitative and quantitative overview of risks and discussion of mitigation measures - Analysis of the sensitivity of the main aggregates of a limited number of identified risk scenarios (foreign exchange, raw materials, etc.) 5. PPPs - Comprehensive list of approved PPP projects; details of new PPPs approved since the previous FRS; cumulative multi-annual commitments for the PPP program, gross exposure of guarantees and any other undertakings attached to PPP contracts; existing indicators and projects concerning performance, rates and prices, risk allocation - Qualitative discussion of fiscal risk mitigation measures 6. Guarantees and other contingent liabilities - Comprehensive list of guarantees and other contingent liabilities (explicit) granted by the beneficiary; above a certain threshold, description of the amount of the debt or undertaking, the reason for granting the guarantee, maturity, and service history - Fiscal expenditure for calls on guarantees and revenue from guarantee costs 7. Financial sector - Explicit contingent liabilities, sector liabilities broken down into private sector and public banks liabilities; summary of financial soundness indicators (key financial indicators such as capital adequacy ratio and the percentage of non-performing loans) by relying on existing reports - Presentation of the history of aid to the financial sector and discussion of mitigation measures already taken or being prepared 8. Environmental risks / Natural disasters - Qualitative analysis of budgetary risks linked to natural disasters, economic costs of past natural disasters, frequency and related fiscal costs and discussion of mitigation measures 9. Regional and local governments - Debts of local governments and contingent liabilities for the central government 10. Long-term risks - Analysis of alternative scenarios over 10 years in coherence with the DSA scenarios - Abridged version of the existing DSA, with analysis of debt maturities - Institutional arrangements: - The DPBEP is prepared by the DPBEP Committee (directorates general that contribute to the document) with the DPSB as technical secretariat; the committee meets for DPBEP preparation and organizes a week-long seminar in June for in-depth drafting discussion. - Appendix 3 and Appendix 4 in the source outline development plans and examples from other African/emerging countries. *Source: IMF country report content provided in content unit "cr1895 - 58. The process put in place for the prior authorization of public enterprise debt means"* ### 70. There are several options for the format of the FRS. It could – depending on the ### cr1895 - 70. There are several options for the format of the FRS. It could – depending on the ### Options for the format and sequencing of the Fiscal Risk Statement (FRS) - The FRS could be included in the DPBEP as a more developed section on fiscal risks or as an appendix to the document. - The FRS could be presented as a fiscal document with the annual budget. - For Côte d’Ivoire, a step-by-step approach is recommended: start by enhancing the fiscal risks section of the DPBEP, then develop into a more substantial document. ### Purpose and ultimate goal of publishing an FRS - Publishing an FRS is important but must be complemented by proactive fiscal risk management. - The goal goes beyond identification, analysis, monitoring and publication: the ultimate goal is better management of fiscal risks in a proactive way by defining measures for mitigating, provisioning and freeing up fiscal space, adapted to the nature of the risks (see Box 4 for a classification of these measures). - This process will take time, mobilize resources, and in the medium term constitute a profound change in the approach to fiscal risks and public finance policies in the broader sense within the Ivoirian government. ### Institutionalizing monitoring and publication: committee model - A committee is proposed as the administrative structure responsible for fiscal risk monitoring and communication in Côte d’Ivoire. - Rationale: existing work should be more comprehensive and better coordinated technically and in publication of fiscal documents; a committee representing the many ministries and directorates could perform this function. - Proposed name: “Fiscal Risks Committee” or a broadened “DPBEP and Fiscal Risks” Committee (see paragraphs 73–74). ### Proposed tasks of the Fiscal Risks Committee - Handle the preparation of the FRS in accordance with the 2017-2020 development plan (see Appendix 3). - Coordinate identification, analysis and monitoring work with all administrative authorities, develop technical work, and gradually extend discussions to risk mitigation measures and fiscal risk management. - Hold discussions on fiscal risks with members of Ivoirian administrative authorities to instill administrative awareness of the importance of risk via training seminars, study visits, publications on the website, etc. ### Organizational mapping of responsibilities (FRS sections, data sources, analysis, drafting) - Introduction: DPSB, Multiyear Budget and Economic Programming Paper (DPBEP) Committee. - Analysis of institutional strengths and fiscal risks: DPSB, DPBEP Committee. - Macroeconomic and macro-fiscal risks: Directorate of Budget and Revenue (DGBF), Directorate of Forecasting, Policies, and Economic Statistics (DPPSE), Directorate-General of Taxes (DGI), Directorate-General of Customs (DGD); drafting: DGBF, DPPSE, DPBEP Committee. - Political and security risks: ad hoc; analysis/drafting: DGBF, DPPSE, DPSB, DPBEP Committee. - Public enterprises (nonfinancial): DGPE, sectoral ministries; drafting: DGPE, DPBEP Committee. - Public-private partnerships: National Steering Committee for Public-Private Partnerships (CNP-PPP); drafting: CNP-PPP, DGBF, DPSB, DPBEP Committee. - Guarantees and other contingent liabilities: DGBF, Small-Scale Enterprise Directorate (DGPE); drafting: DGBF, DGPE, DPBEP Committee. - Financial sector: Central Bank of West African States (BCEAO), Large-Scale Enterprise Directorate (DGE), DGPE; drafting: DGE, DGPE, DPBEP Committee. - Environmental risks: Ministry of Agriculture; drafting: Ministry of Agriculture, DPSB, DPBEP Committee. - Regional and local governments: Ministry of the Interior; drafting: DGBF, DPBEP Committee. - Long-term risks: Directorate of Public Debt and Grants (DDPD), DGE, DGBF; drafting: DDPD, DGE, DGBF, DPBEP Committee. ### Committee design and validation of outputs - To avoid creating a new committee, extend tasks of an existing committee (options: National Public Debt Committee, Committee for Monitoring the Economic and Financial Program, DPBEP Committee). - The DPBEP Committee is preferred because: - (1) it already includes directorates general most concerned by fiscal risks; - (2) its technical secretariat functions are performed by the DPSB, a natural coordinator for fiscal risks; - (3) it is already preparing the publication of a chapter on fiscal risks. - The DPBEP Committee, with a broader remit, could be called the “DPBEP and Fiscal Risks” Committee. - The extended Fiscal Risks format would include additional structures (e.g., CNP-PPP, Ministry of Agriculture) and meet more regularly throughout the year. - Differentiate between members who participate in all subjects (DPBEP and fiscal risks) and those participating only in fiscal risks discussions; exact composition depends on scope of fiscal risks covered by the FRS (see Figure 14). - Committee outputs must be reported to the two financial ministries (MEF and MBPE), after approval by the directors general concerned at the two ministries. - Approval could be via: (i) creation of a committee of directors general, or (ii) informal transmission of work to each director general (the latter being more agile). Given representation on the DPBEP committee, a formal validation structure may not be indispensable. ### Legal anchoring of the FRS - The notion of fiscal risk is not covered by Ivoirian legislation, which is not in line with best international practice. - Ideally, the legal framework should cover phases of managing fiscal risks: identification, monitoring, analysis, mitigation measures and declaration. - An FRS should be solidly anchored in law to ensure integration into fiscal procedure and submission of analysis to Parliament. - Anchoring options: - Include a provision concerning the FRS in the organic law on the transparency code for the management of public finances (organic law of June 5, 2014), as publishing an FRS is a question of transparency. - Make clear in law that main fiscal risks must be identified and assessed in a report included with fiscal documents provided to Parliament. - Note: According to information provided to the mission, an amendment to the organic law on the transparency code was planned for 2019 as part of the implementation of program budgeting. ### Box 4 — Classification of fiscal risk management measures (three major types) 1. Mitigating measures - Direct controls: limit extent of state ownership, withdraw from risky areas, impose caps on total PPP-related liabilities, set limits on the issuance on government guarantees, etc. - Indirect controls: capital adequacy, environmental standards, risk related fees, etc. - Risk transfer instruments: oblige banks to finance a deposit insurance regime, reinsurance, hedging instruments, etc. 2. Provisioning for those risks that are not mitigated - Expensing the costs up-front: budget for possible payments to address the occurrence of certain risks (based on statistics or history). - Creating a budget contingency for moderate risks: provision for natural disasters, provision for expected calls on guarantees, etc. - Buffer: fund for natural disasters, stabilization fund, deposit insurance fund. 3. Creation of fiscal headroom - Create the fiscal headroom necessary to accommodate residual risks: create a sufficient safety margin so that even in the event that fiscal risks materialize, the debt remains sustainable. ### Recommendations (sequenced timeline and institutional measures) - Prepare and publish a Fiscal Risk Statement (FRS) which, at least for the first years, will be presented as a chapter of the DPBEP. The analysis will be enriched over the next three years with new quantitative and qualitative elements and mitigation measures. - Very short term (2017): - Include simple macroeconomic sensitivity analyses (price of cocoa, fuel, $/CFAF exchange rate) that exist in consistency with the debt sustainability analysis (DSA). - Present an abridged version of the DSA. - Draw up a table of PPP projects with quantitative information if available. - Short term (2018): - Prepare an “Appendix: Fiscal Risk Statement” the structure of which stems from the main Ivoirian fiscal risks. - Enrich the qualitative analysis of quantitative and analytical elements. - Medium term (2019 and 2020): - Enhance the quantitative analysis and hold in-depth discussions on risk mitigation measures (see Box 3). - For the 2021 budget, envisage presenting the “Fiscal Risk Statement” as part of fiscal documentation but independent of the DPBEP. - Institutional and legal actions: - Extend the missions of the DPBEP committee to preparation of the FRS, analysis and monitoring of fiscal risks, and revise its composition. - Have the committee’s work validated by key directors general of the Ministry of the Budget and Government Portfolio and the Ministry of the Economy and Finance (MEF) before presenting it to the Ministers. - Anchor the committee in law through a regulatory text. - Draw up and implement an action plan for the analysis and management of fiscal risks. - Include the FRS development plan in the action plan (see Appendix 3); increase capacities and training to ensure quality of work for drafting the FRS. - Anchor preparation and publication of the FRS in the organic law on the transparency code for the management of public finances, as part of an amendment already planned for 2019. - Make long term plans to extend the scope of competence of the “DPBEP and Fiscal Risks” committee to the management of fiscal risks. *Source: cr1895 - 70.* ### Introduction ### Introduction ### Overview and framework - Overview and presentation of the framework for identification, analysis, monitoring, and publication of risks in Côte d'Ivoire - Overview and presentation of the framework for identification, analysis, monitoring, and publication of risks in Côte d'Ivoire - Analysis of institutional strengths and weaknesses and presentation of measures in connection with the action plan for Côte d'Ivoire in terms of fiscal risk management ### Macroeconomic and macro-fiscal risks - Quantitative analyses and macroeconomic and macro-fiscal forecasts; budget sensitivities to cocoa and fuel prices; and the US$/CFAF exchange rate - Qualitative analyses of risks deriving from the world and regional economies - Quantitative analyses of macroeconomic and macro-fiscal forecasts; budget sensitivities to prices of cocoa and fuel; and the US$/CFAF exchange rate - In-depth qualitative analysis of risks deriving from the world and regional economies - Quantitative analyses of discrepancies between macroeconomic and macro-fiscal forecasts; fiscal sensitivities to prices of cacao, fuel, and the US$/CFAF exchange rate; alternative macroeconomic scenarios and impact on the budget and public debt ### Political and security risks - Qualitative analysis of risks of political instability and insecurity - Qualitative analysis of risks of political instability and insecurity - Quantitative analysis of projects being prepared that have yet to be included in the multiyear economic and budget programming paper (DPBEP) ### Public enterprises (nonfinancial) - Overview of the portfolio (sectors, number of entities, assets and liabilities (including arrears) and interactions with the fiscal area (explicit contingent liabilities and budget flows for the sector): subsidies, capital transfers, guarantees, etc.) - Summary of financial performance: details of the key financial aggregates and financial performance indicators for the overall sector - General qualitative overview of risks (macroeconomic shocks, quasi-fiscal activities, etc.), and discussion of mitigation measures - Overview of the portfolio (sectors, number of entities, assets and liabilities (including arrears), and interactions with the fiscal area (explicit contingent liabilities and budget flows for the sector): subsidies, capital transfers, guarantees, etc.) - Summary of financial performance: details of the key financial aggregates and financial performance indicators for the overall sector - General quantitative and qualitative overview of risks and discussion of mitigation measures - Analysis of the sensitivity of the key aggregates to a limited number of identified risk scenarios (foreign exchange, inputs, etc.) ### Public-private partnerships - Comprehensive list of approved PPP projects, and quantitative information, if available - Comprehensive list of approved PPP projects, details of new PPPs approved since the previous Fiscal Risk Statement (FRS), cumulative pluriannual commitments under the PPP program, gross exposure in connection with guarantees, and other contingent liabilities relating to PPP arrangements - Comprehensive list of approved PPP projects, details of new PPPs approved since the previous FRS, cumulative pluriannual commitments under the PPP program, gross guarantee exposure, and other contingent liabilities in connection with PPP arrangements - Qualitative discussion of fiscal risk mitigation measures ### Guarantees and other contingent liabilities - Comprehensive list of guarantees and other contingent liabilities (explicit) granted by the beneficiary - Budget expenditure in connection with the activation of guarantees and guarantee expenditure revenue - Comprehensive list of guarantees and contingent liabilities (explicit) granted by beneficiary; description of the amount above a given threshold; reason for approving the guarantee; maturity and service history of the debt or liability - Budget expenditure in connection with the activation of guarantees and guarantee expenditure revenue ### Financial sector - Explicit contingent liabilities, liabilities of the sector broken down into liabilities of the private sector and public banks; summary of financial soundness indicators (key financial indicators such as capital adequacy ratios and the proportion of nonperforming loans) based on existing reports - Presentation of the financial sector aid history - Explicit contingent liabilities, liabilities of the sector broken down into assets of the private sector and public banks; summary of financial soundness indicators (key financial indicators such as capital adequacy ratios and the proportion of nonperforming loans) based on existing reports - Presentation of the history of financial sector aid and discussion of attenuation measures already taken and those in the preparation stages ### Environmental risks - Qualitative analysis of fiscal risks in connection with natural disasters, economic costs of past natural disasters, frequency, and related fiscal costs - Qualitative analysis of fiscal risks in connection with natural disasters, economic costs of past natural disasters, frequency, and related fiscal costs - Discussion of mitigation measures ### Regional and local governments - Qualitative analysis - Debts of local units of government and contingent liabilities of the central government ### Long-term risks - Abridged version of the existing debt sustainability analysis (DSA) - Abridged version of the existing DSA, with analysis of debt maturities. - Analysis of alternative scenarios over a period of 10 years consistent with the DSA scenarios - Abridged version of the existing DSA, with analysis of debt maturities. ### Appendix 4. Contents of the Fiscal Risk Statement: International Examples (FRS Section — South Africa, Kenya, Philippines) - Introduction - Summary and graph presentation of the government's fiscal risk framework - Economic context - Institutional context and reasoning to justify submission of a fiscal risk statement (DRB) - Brief (qualitative) summary of major risks with key mitigation measures - Prior to introduction: summary of new items incorporated into the DRB - Analysis of institutional strengths and fiscal risks - Analysis of fiscal risks from previous years and analysis of institutional strengths (the system, in terms of current fiscal management, the fact that most of the debt is denominated in local currency, etc.) - Macroeconomic and macro-fiscal risks - Analysis of discrepancies between growth and outturn - Analysis of macroeconomic scenarios - Presentation of debt maturities until 2030 and analysis of debt rollover risk until 2030 - Analysis of the sensitivity of budget aggregates to changes in macroeconomic assumptions - In-depth quantitative analyses of budget forecasts - Analysis of public debt indicators, 2017-2025 - Discrepancies between macroeconomic forecasts and outturn - Very in-depth discussion and analysis of macroeconomic risks (world and regional economies, inflation, oil prices, trade) and mitigation measures - Macro-fiscal analyses of the sensitivity of revenue and expenditure to growth in GDP, inflation rate, interest rates, and exchange rates - Quantitative analysis of revenue and detailed description of (legislative and other) reforms to improve fiscal performance - Analysis of under-execution of budget expenditure - In-depth quantitative analysis of debt risks (refinancing, interest payments, debt amortization, and exchange rate); DSA with probabilistic methods - Political and security risks - Short term: pressure on wages, under-execution, pressure on exchange rates - Medium term: contingency expenditure, although not endangering the MTBF ceiling - Terrorism: qualitative analysis - Technological disasters: qualitative analysis of risks in connection with mobile money transfer services - Public enterprises (nonfinancial) - Qualitative analysis of explicit and implicit risks - In-depth quantitative analysis of 14 major nonfinancial enterprises (consolidated public sector financial position, analysis of cash flows, liabilities, state guarantees, and budget flows) - Presentation of governance reforms - Public-private partnerships - Quantitative analysis of infrastructure projects and (nonquantified) list of projects included in the listing of 64 national priority PPP projects - Presentation of mitigation measures (a management tool and unit responsible for assessment) integration of contingent liabilities into the debt management process, and a revolving fund for management of contingent liabilities in connection with PPP projects - Comprehensive list with quantitative information of projects in the implementation stage - Comprehensive list with quantitative information of all projects (annexed); information on the stock of contingent liabilities - Risk mitigation measures and information on disputes in progress - Guarantees and other contingent liabilities - Presentation of total exposure and key contingent liabilities (description and total amount of contingent liabilities) - Qualitative analysis of uncapitalized retirement liabilities - See public enterprises, PPPs, and financial sector - Financial sector - Declaration of contingent liabilities deriving from the deposit insurance system - Quantitative sector analysis (growth, profitability, and key indicators) - Quantitative analysis of fiscal risks (direct and contingent liabilities, deposit insurance system) - Mitigation measures taken by the central bank and comprehensive description of prudential reforms - Environmental risks - Qualitative analysis of the impacts of natural disasters - Climate change: qualitative analysis - Quantitative analysis of the impacts of natural disasters - Mitigation measures - Climate change - Regional and local governments - Qualitative analysis - Quantitative analysis of fiscal risks with different indicators such as own resources - Detailed mitigation measures - Long-term risks - Brief analysis of demographic projections and projections of risks deriving from lower growth rates in local communities and mitigation measures - Debt sustainability analysis - see macroeconomic and macrobudgetary risks - Detailed mitigation measures *Source: cr1895 - Introduction* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr1895.pdf_