Fiscal-Risks-Toolkit-DGAT — DEBT GUARANTEES AND LOANS ASSESSMENT TOOL (DGLAT)
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- Fiscal-Risks-Toolkit-DGAT — DEBT GUARANTEES AND LOANS ASSESSMENT TOOL (DGLAT)
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Purpose and scope
- Analyzes loans or explicit debt guarantees to support debt raised by a public or private sector company on a corporate finance basis, where lenders have recourse to the cash flows and assets generated by the company as a whole.
- Focuses on the creditworthiness of the obligor, rather than the viability of the project for which the financing will be used.
- Aims to inform the decision to issue a guarantee or provide a loan and to support the management of loan and guarantee portfolios.
Key functions and analytical features
- Estimates the expected fiscal costs and risks from individual government loans or debt guarantees on borrowing of non-financial entities.
- Uses a credit scoring approach to assign a risk rating to each entity based on their financial health and underlying business risk characteristics.
- Provides analysis of:
- the government's maximum fiscal exposure, and
- estimates of expected fiscal costs based on input assumptions.
- Incorporates analysis under different scenarios.
Rationale for analyzing loans and guarantees
- Public loans and guarantees create substantial fiscal risk.
- IMF Public Sector Balance Sheet Database findings:
- the general government loan portfolio averages 6.5 percent of GDP across a group of 49 countries,
- and is as large as 20 percent of GDP in some of them.
- Governments provide loans and guarantees to address market failures, reduce borrowing costs for entities, and support project financing.
- During crises, loans and guarantees can support macroeconomic stability by ensuring the flow of credit during periods of severe market disruption or economic stress.
- Loans and guarantees often do not impact fiscal balances immediately but can expose governments to future costs:
- loans can produce balance sheet losses and increase the government's financing burden if they cannot be serviced,
- government guarantees create contingent liabilities that result in future fiscal costs if called.
- These risks should be understood, assessed, monitored, and transparently reported.
How the tool supports fiscal policymaking (uses and policy implications)
- Inform decisions on whether to extend a public loan or issue a government guarantee.
- Support ongoing risk monitoring of the government's loan and guarantee portfolio.
- Inform risk mitigation measures.
- Support the setting of risk-based fees.
- Identify budget provisions that may need to be made.
- Assist cash and debt management and fiscal sustainability analysis.
- Provide the basis for accounting, reporting, and disclosing risks (e.g., in debt reports, financial statements, and fiscal risk statements).
- Support macro-fiscal analysis to include fiscal costs and risks in baseline and shock scenarios for debt sustainability analysis, cash and debt management, and other macro-fiscal tools.
Linkages to other IMF fiscal risk and macro-fiscal analytical tools
- Complementary to the Standardized Guarantee and Loan Assessment Tool (SGAT):
- SGAT focuses on guarantee and loan schemes, while DGLAT focuses on discrete guarantees and loans.
- Builds on, and is consistent with, the methodological approach used for the SOE Health Check Tool and can be completed by the SOE Stress Test Tool.
- Outputs can help inform inputs for other IMF tools, including:
- the Fiscal Risk Assessment Tool;
- Fiscal Stress Test;
- Public Sector Balance Sheet Assessments;
- the IMF's Debt Sustainability Analysis, by informing the size of potential contingent liability realizations from guarantee calls and the balance sheet implications from loan exposures.