How to Assess Fiscal Risks from State-Owned Enterprises: Benchmarking and Stress Testing

IMF How To Notes, August 19, 2021

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The size and operation of state-owned enterprises (SOEs) can imply significant risks for governments.
SOEs are present in virtually every country and are major players in domestic economies and global markets.
In some countries, SOEs number in the thousands and are owned by national or subnational governments.
SOEs are among the largest corporations in some advanced economies and comprise a third or more of the largest firms in several emerging markets.
Many SOEs operate with systematic losses and carry significant liabilities.
If SOEs face adverse shocks and financial distress they can impact the government budget or balance sheet through numerous transmission channels.

Describes a newly developed SOE risk assessment tool to help country authorities and IMF country teams.
Analysis can provide inputs for annual budgets and medium-term fiscal planning.
Outputs include estimates of possible transfers to and from SOEs to the budget and possible financing needs.

Step 1: Collect financial information on SOEs and their relation to the government budget, and provide a benchmark against other SOEs in similar sectors.
Step 2: Undertake a forward-looking analysis based on baseline forecasts and stress scenarios, to identify and analyze possible risks and their impact on government accounts.
The tool combines benchmarking of SOE financials (performance indicators, operating cash flow, current liabilities) with stress testing (stress scenario, stress testing) to assess fiscal risks.

Country authorities responsible for public enterprises and public financial management (PFM).
IMF country teams assessing fiscal risks and compiling inputs for fiscal planning.
Use cases: informing annual budgets, medium-term fiscal frameworks, and identifying potential contingent liabilities and financing needs.

Subjects: Currencies; Economic sectors; Financial crises; Financial sector policy and analysis; Financial statements; Fiscal risks; Money; Public enterprises; Public financial management (PFM); Stress testing.
Keywords: Currencies; current liabilities; Financial statements; Fiscal Affairs Department staff; Fiscal risks; Global; operating cash flow; performance indictor; Public enterprises; SOE financials; stress scenario; Stress testing.

How to Assess Fiscal Risks from State-Owned Enterprises: Benchmarking and Stress Testing, IMF How To Notes (2021/009).

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