Public-Private Partnerships, Government Guarantees, and Fiscal Risk

IMF Special Issues, April 28, 2006

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Bibliographic details

• Authors: M. Cangiano, Barry Anderson, Max Alier, Murray Petrie, Richard Hemming
• Published: April 28, 2006
• Series: IMF Special Issues
• DOI: https://doi.org/10.5089/9781589064935.058

Overview

• Public-private partnerships (PPPs) are arrangements under which the private sector supplies infrastructure assets and infrastructure-based services that traditionally have been provided by the government.
• PPPs are used for a wide range of economic and social infrastructure projects, and are used mainly to build and operate roads, bridges and tunnels, light rail networks, airports and air traffic control systems, prisons, water and sanitation plants, hospitals, schools, and public buildings.
• PPPs offer benefits similar to those offered by privatization, which is the sale of government-owned enterprises or assets.
• By the late 1990s, PPPs began to be widely seen as a means of obtaining private sector capital and management expertise for infrastructure investment; after a modest start, a wave of PPPs is now beginning to sweep the world.
• This Special Issue paper provides an overview of issues raised by PPPs with a particular focus on their fiscal consequences; it also examines government guarantees and consequences for debt sustainability.

Fiscal consequences of PPPs and role of government guarantees

• PPPs can transfer some project risks to the private sector but often involve government guarantees to shield the private sector from risk.
• Government guarantees are used fairly widely and are a common feature of PPPs.
• The interaction of PPPs and guarantees has implications for fiscal accounting, reporting, and the government balance sheet.

Debt sustainability and fiscal risk

• The paper examines the consequences of PPPs and guarantees for debt sustainability.
• Fiscal risks from PPPs and guarantees can affect the debt path and overall debt sustainability assessments.
• Contingent liabilities arising from guarantees need to be monitored and managed to avoid adverse effects on public finances.

Measures to maximize benefits and minimize fiscal risks

• The paper concludes with a list of measures that can maximize the benefits and minimize the fiscal risks associated with the use of PPPs.
• Measures include improving fiscal accounting and reporting of PPPs and contingent liabilities, clarifying risk transfer and appropriate accounting treatment, and designing guarantee frameworks that limit fiscal exposure.

Appendices, methodologies, and country experience

• Various appendices augment the discussion by:
  • Examining country experiences with PPPs.
  • Summarizing the statistical reporting framework used to discuss fiscal accounting and reporting.
  • Explaining accounting for risk transfer.
  • Examining how guarantees are modeled and estimated in Chile.
  • Summarizing international accounting and reporting standards for contingent liabilities.

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