OECD BUDGETING OUTLOOK
FOCUS ON FISCAL RISKS
Senior Policy Analyst
Budgeting and Public Expenditure Division
Public Governance Directorate
• The size of the State and scope of government responsibilities has grown over time,
so has the range of risks to which government is exposed, as highlighted by regular
and significant deviations from economic and fiscal forecasts.
• Past OECD recommendations on:
– Disclosing risks of deviations from government economic forecasts as “key fiscal
risks” (Best Practices for Budget Transparency, 2002, Best Practice #2.1);
– Identifying, classifying, quantifying and mitigating fiscal risks (Principles of
Budgetary Governance, 2012, Principle #9).
• Fiscal Risks Survey in 2014, but limited scope; Budget Practices and Procedures
Survey for 2017-2018 is the 1st comprehensive stock-taking exercise on fiscal risks
management in OECD countries.
2. Definition and nature of fiscal risks
3. Identification and measurement
4. Reporting practices
5. Mitigation strategies
6. Institutional responsibilities
• Requirements laid out in supra-
national or national legislations
for a majority of countries.
• In most cases, consist in a legal
obligation to present an annual
listing of general or specific risks
and a description within each risk
category (i.e. disclosure policy).
• Legislation defines also, in rare
cases, institutional responsibilities
and comprehensive policies for
Definition of fiscal risks
• Fiscal risks are generally understood
as “possibility of deviations of fiscal
outcomes from what was expected at
the time of the forecast”, but are
• When choosing how to interpret the
concept, countries consider a
number of factors explicitly or
– Time-horizon (NT, MT, LT);
Note: “Other” corresponds to risks mentioned by less than a quarter of countries: e.g. government assets and
liabilities, war, global trading conditions or climatic conditions.
Identification and measurement
• Reports or statements on fiscal risks
are now common practice.
• In most cases, consists into a
section/chapter of the annual budget
documentation, alongside economic
and fiscal forecasts.
• One country publishes two specific
reports (analysis and management
• Two countries realise stress tests of
their balance sheets showing impacts
of fiscal risks realisation.
• In virtually all countries, mitigation of
fiscal risks is undertaken on several
fronts: accommodation, prevention and
• Prudent fiscal stance and counter-
cyclical stabilisation funds are principal
means for limiting exposure to longer
term and/or remote and large risks.
• Contingency reserves commonly used
as mitigation tools for near-term and
small scale risks.
• Stress testing is the systematic assessment of the impact of fiscal risks realization
on the government balance sheet (NZ, UK) or selected fiscal ratios (Finland).
• E.g., NZ’s 2018 Investment Statement:
– Identifies three separate “stress” scenarios (earthquake; outbreak of foot-and-
mouth disease; major international economic downturn);
– Considers how balance sheet would be impacted;
– Discusses targeted levels of net core Crown debt in light of necessary space to
respond to such shocks;
– Explains related policy choices (using funds to pay down debt vs. using funds
for projects that improve wellbeing of citizens).
Fiscal stress tests
• Responsibility for measuring and
disclosing fiscal risks is often
• Identification, monitoring,
mitigation is a responsibility of
relevant ministries and agencies in
• Countries increasingly involve
several stakeholders into risks
management, hence acknowledging
their complex and diverse nature.
• Most common aspects of managing fiscal risks are identification and
disclosure for greater transparency on potential deviations from fiscal
• Perceptible shift towards a more pro-active approach to fiscal risks
• Challenge for most countries is in using fiscal risks management for
informing policy decision making – in particular, inform decisions on what
should be contingencies and other reserves and fiscal targets.
• Persisting risk that approaches to fiscal risks management remain too