1998年-世界发展银行全球_Contingent_Liabilities___A_Threat_to_Fiscal_Stability_4页_497kb

Contingent Liabilities: A Threat to Fiscal Stability

Core Content

Contingent liabilities represent a significant and often overlooked source of fiscal risk for governments. Traditional fiscal analysis, which focuses on budget deficits and public debt, fails to account for these hidden obligations, leading to incomplete assessments of a country's fiscal health. These liabilities can be triggered by uncertain events and may require substantial public outlay, thereby threatening fiscal stability even when budgets appear balanced.

Main Points

1. Definition and Types of Contingent Liabilities

Contingent liabilities are obligations that arise from uncertain events and are not guaranteed to occur. They can be further classified into:

• Direct liabilities: Obligations that are predictable and will arise regardless of the event.

  • Explicit liabilities: Legally binding obligations (e.g., sovereign debt, civil servant salaries).
  • Implicit liabilities: Moral obligations or expectations (e.g., future pension payments, health care costs).

• Contingent liabilities: Obligations that depend on the occurrence of a specific event.

  • Explicit contingent liabilities: Legal obligations triggered by specific events (e.g., guarantees for loans, insurance schemes).
  • Implicit contingent liabilities: Uncertain obligations that may arise from financial sector failures or market expectations (e.g., bank bailouts, defaults on subnational debt).

2. Sources of Contingent Fiscal Risks

• Private capital flows: Increased and volatile inflows can lead to asset bubbles and overborrowing.
• Shift in policy focus: Governments are moving from financing services to guaranteeing outcomes.
• Moral hazard in markets: Market actors may take excessive risks, assuming government support.
• Fiscal opportunism: Policymakers may exploit contingent liabilities for short-term gains.

3. Impact on Fiscal Stability

• Contingent liabilities can drain future government resources.
• They blur fiscal analysis and create hidden subsidies.
• In transition and emerging market economies, contingent liabilities are particularly high due to weak regulatory systems, limited transparency, and heavy reliance on foreign financing.

Key Information

• Fiscal risks are growing: Governments must consider obligations outside the budget to fully assess their fiscal position.
• Contingent liabilities are not always visible: Until an event occurs, the cost of these liabilities may not be apparent.
• Reserve funds can mitigate risk: However, they may create other issues if contingent liabilities are called.
• Fiscal discipline is essential: Governments that are risk-averse or have limited capacity should avoid contingent support programs.

Fiscal Risk Management

1. Understanding Fiscal Risks

Policymakers must identify, classify, and understand all fiscal risks, including contingent ones. This includes:

• Assessing the potential consequences of these risks.
• Avoiding those that are likely to emerge within a politically meaningful timeframe.
• Using tools like tables and figures to visualize and analyze risks.

2. Systemic Measures

• Fiscal policy: Consider full fiscal performance beyond the budget and debt.
• Public finance institutions: Internalize and disclose the full fiscal picture, including risks.
• Risk management: Determine optimal risk exposure and reserve policy based on capacity and preference.

3. Program-by-Program Risk Control

Steps to manage risks in individual programs include:

• Before accepting: Assess policy fit, consider financial risks, and announce program limits.
• When accepted: Stick to limits, monitor risk factors, and ensure reserve adequacy.
• When executed: Execute within limits, and for implicit liabilities, evaluate policy alignment and market behavior.

4. Disclosure and Transparency

• Governments should disclose all types of fiscal risk to enable better market analysis and risk assessment.
• Institutions like the IMF and World Bank can help by enforcing fiscal transparency and supporting risk management reforms.

Conclusion

Contingent liabilities pose a serious threat to fiscal stability and must be integrated into fiscal analysis and policy. Effective risk management requires a comprehensive understanding of these liabilities, transparency in reporting, and institutional reforms to control exposure. The World Bank and IMF have a role in promoting broader fiscal risk analysis and supporting countries in reforming their public finance frameworks.