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OECD Budgeting Outlook: Focus on fiscal risks - Delphine MORETTI, OECD

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This presentation was made by Delphine MORETTI, GOV-BUD, OECD, at the 39th Annual SBO meeting held in Jerusalem on 6-7 June 2018.

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OECD Budgeting Outlook: Focus on fiscal risks - Delphine MORETTI, OECD

  1. 1. OECD BUDGETING OUTLOOK FOCUS ON FISCAL RISKS Delphine Moretti Senior Policy Analyst Budgeting and Public Expenditure Division Public Governance Directorate
  2. 2. • 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 To Begin…
  3. 3. 1. Framework 2. Definition and nature of fiscal risks 3. Identification and measurement 4. Reporting practices 5. Mitigation strategies 6. Institutional responsibilities 3 Agenda
  4. 4. 4 Framework • 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 risks management.
  5. 5. 5 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 rarely defined. • When choosing how to interpret the concept, countries consider a number of factors explicitly or implicitly, incl.: – Time-horizon (NT, MT, LT); – Thresholds; – Categories.
  6. 6. 6 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
  7. 7. • 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 response). • Two countries realise stress tests of their balance sheets showing impacts of fiscal risks realisation. 7 Reporting practices
  8. 8. • In virtually all countries, mitigation of fiscal risks is undertaken on several fronts: accommodation, prevention and alleviation. • 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. 8 Mitigation strategies
  9. 9. • 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). 9 Fiscal stress tests
  10. 10. • Responsibility for measuring and disclosing fiscal risks is often centralised. • Identification, monitoring, mitigation is a responsibility of relevant ministries and agencies in most cases. • Countries increasingly involve several stakeholders into risks management, hence acknowledging their complex and diverse nature. 10 Institutional responsibilities
  11. 11. • Most common aspects of managing fiscal risks are identification and disclosure for greater transparency on potential deviations from fiscal forecasts. • Perceptible shift towards a more pro-active approach to fiscal risks management. • 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 narrow. 11 To conclude…
  12. 12. http://www.oecd.org/gov/budgeting/ 12

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