Outline of the presentation

I. PPPs and fiscal management

II. Improving fiscal information

III. Changing rules that guide fiscal decisions

PPPs that pose a problem for fiscal management

• As we use the term, PPPs are long-term contracts in which a firm agrees to provide a service of public interest using an asset it constructs in return for fees from users or government

Stylized cash flows of PPPs and public finance

PPPs and fiscal management

• PPPs have possible advantages, e.g., a single contractor may be better than government at jointly managing construction and operations to minimize lifetime costs

• Governments should use a PPP when, holding quality constant, the PPP is expected to be affordable and cheaper in net present values than publicly financed investment

• But if governments focus on common measures of the deficit in the next few years, a PPP may seem attractive even if it costs more or is not affordable

• How can fiscal information and the rules guiding decisions be changed to address this problem?

Options for improving fiscal information

• Adopting state-of-the-art accounting and statistical standards (e.g., IPSAS 32 or similar standards and SNA 2008 and Public Sector Debt Guide)

• Presenting supplementary data on public finances that counts PPP companies as part of the public sector

• Publishing forecasts of expected future spending on PPPs and incorporate those projections in existing medium- and long-term fiscal forecasts, debt-sustainability analysis, and the like

• Describing fiscal risks of PPPs in statements of fiscal risk

• Publishing PPP contracts

Options for changing rules guiding fiscal decisions

• Budgeting that treats construction of the PPP asset as public spending—and thus requires standard budgetary approval

• Budgeting that ensures authorization by parliament of expenditure commitments over the term of the contracts

• Budgeting that requires all PPPs first to be approved in medium-term expenditure plans as publicly financed projects

• Changing accounting underlying fiscal rules so that typical PPPs as creating government assets and liabilities

• Setting limits on total commitments made in PPP contracts