FISCAL RISK DISCLOSURE

Mr. Dominick E. MarianoBureau of the Treasury

Department of Finance

18 September 2015

PHILIPPINE COUNTRY EXPERIENCE

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What are Fiscal Risks?What are Fiscal Risks?

• Refers to deviations of fiscal outcomes from expectations set at the time of the budget or other forecast

• Includes both realized risks and forward looking estimates

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Sources of Fiscal RisksSources of Fiscal Risks

• Possible sources of fiscal risks include:—Macroeconomic shocks—Economic growth, inflation, exchange

rates• Public Debt• Contingent liabilities—Explicit and Implicit obligations—PPPs—Natural Disasters

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GOP Fiscal RisksGOP Fiscal Risks1. Risks stemming from instability in the global

macroeconomy have abated but risks persist

2. Initiatives are being taken to further strengthen the management of public finances

3. Fortification of risk mitigation measures with regards to PPPs

4. Strengthened oversight over state owned enterprises

5. Heightened disaster risk awareness and pursuing disaster risk financing

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FISCAL RISKS

IDENTIFICATION

DISCLOSUREMANAGEMENT

Disclosure and ManagementDisclosure and Management

•Requires clear allocation of responsibilities

•Leads to proper monitoring and oversight

•Comprehensive•Should not engender implicit guarantee

•Proactive risk mitigation

•Responsive policies

Key Point #1 Identification, disclosure and management are mutually reinforcing activities

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The FRS is an inter-agency effort among departments engaged in Budget Economic planning Finance Monetary policy

Fiscal Risk StatementFiscal Risk Statement

Key Point #2 Collaboration is crucial

Key Point #3: Clear delineation of duties and responsibilities

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Why publish an FRS?Why publish an FRS?

1. Reinforces identification and monitoring of Fiscal Risks (FR)

2. Increases transparency and sends a clear message to stakeholders

3. Aids in formulation of proactive risk management policies

4. Strengthens fiscal performance

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GOP FRS CoverageGOP FRS Coverage1. Macroeconomic Risks

2. Public Debt

3. Contingent Liabilitiesa. Financial Sector

b. State-Owned Enterprises

c. Public-Private Partnerships

d. Sub-National Government Units

e. Natural Disasters

Key Point #4: The FRS is a work in Progress

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IdentificationIdentification

Macroeconomic Risks could come from: Accuracy of macroeconomic assumptions Government fiscal operations

Revenue generation Expenditures

External factors

Sensitivity analysis is done to determine the impact of variances between fiscal outturns and assumptions.

Macroeconomic RisksMacroeconomic Risks

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Quantification of RisksQuantification of Risks

Debt Sustainability Analysis (DSA) used to evaluate trajectory of public debt under alternative scenarios

Public DebtPublic Debt

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The Government is exposed to contingent

liabilities arising from awarded PPPs In response, a Contingent Liability fund has

been included in the GAA to cover immediate requirements

MitigationMitigation

Photos from PPP center websitePhotos from PPP center website

Contingent LiabilitiesContingent Liabilities

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Setting-up the FRS Setting-up the FRS

• Clear delineation of responsibilities

• Coordination among involved units

• Timelines

Key Point #5: Institutionalize FRS preparation

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Benefits of FR DisclosureBenefits of FR Disclosure Disclosure has increased awareness of FR Responsive policies have allowed GOP to

overperform vis-à-vis fiscal targets Prudent measures contribute to banking industry

resilience Disaster risk financing has eased the fiscal impact

of natural calamities Increased transparency and sound fiscal

management has contributed to credit rating upgrade

MABUHAY!MABUHAY!