This presentation was made by Nils SAKKS, Ministry of Finance, Latvia, at the 39th Annual SBO meeting held in Jerusalem on 6-7 June 2018.

1. Management of Fiscal Risks in Latvia
Nils Sakss
Ministry of Finance
nils.sakss@fm.gov.lv
39TH ANNUAL MEETING OF OECD SENIOR BUDGET OFFICIALS
6 June 2018, Jerusalem

2. 2
Management Architecture
Fiscal Risk
Managemen
t Reports
Register of
Fiscal Risks
Declaratio
n of Fiscal
Risks
(DFR)
Independen
t
assessment
of DFR
recommendations
Public,
Governmen
t Parliament
Fiscal
Safety
Reserve
Line ministries Ministry of Finance
Fiscal Council
Risk is deviation from projections
• Structural balance
• Headline balance
• General Government revenue
• Central Government expenditure ceilings.
No specific reference to debt!
≥ 0,1 %
GDP

3. Insitutional set up
Ministry of
Finance
General
management of
Fiscal Risks
1. Maintaining register of Fiscal
Risks
2. Monitoring and assistance to
central gov bodies in
managment of specific fiscal
risks
3. Proposals to CGB of
additional measures in risk
managment.
4. Calculation of size of fiscal
safety reserve.
5. Drafting the declaration of
Fiscal Risks
Terminilogy
• Specific risks
• Individual risk
• Risk event
• Sorce of fiscal risk

4. Register of Fiscal Risks
Nr. of
fiscal
risk
Source of
fiscal risk
Descripti
on of
fiscal risk
Assessment
of fiscal
impact and
fiscal
indicator
which is
affected by
the fiscal
risk
Assessme
net of
fiscal risk
probability
Description of current
management of fiscal risk
Additional
necessary
actions
(measures) to
reduce fiscal
risk
Additiona
l
necessar
y actions
to
eliminate
the
consequ
encesof
fiscal risk
Institution
which is
responsibl
e for fiscal
risk
managem
ent

5. Insitutional set up
Central
Government
Body (CGB)
Management of
specific risk
related to assigned
government funtion
1. Management of Specific Risk
and imrovement of
managment
2. Assesment of impact of
specific risk
3. Assesment of probability
4. Accumulation of information of
individual risk
5. Supervision of managment of
individual risks by public
agencies.

6. Insitutional set up
Government
Agency
Management of
individual risk
1. Managment of indicidual risk;
2. Assesment of impact
3. Ssesment of probability
4. Accumulation of information
Project
implementing
body (PIB)
and

7. Requests and reporting
Ministry of Finance
CGB
Government Agency
and PIB
Issue reguests
Including the task
to include risks
managment tasks
in PPP projects
Fiscal risks
managment report
Submission of
information

8. 8
• Information of incurred risk events during the reporting period.
• Information which needs to be updated in FR Register.
• Risks to be excluded from Register
• Risks to be included to Register.
Fiscal Risk management report
CGB report annually to Ministry of Finance

9. Fiscal risks managment
report
Whether the proposal for exclusion or
inclusion of specific risk into the register has
been justified
Whether the risk reduction measures are
sufficient to accept residual risk,
Ministry of finance
assesses
If necessary, makes its own assesment of
impact and probability
If necessary, proposes additional measures to
CGB
If no agreement between MoF and CGB – issue to b
discussed and decided by government.
Processing of FR management report

10. Probability and fiscal impact
probability Closer
to 0%
Closer to
10%
Closer to
30%
Closer
to 60%
Closer to
100%
value 1 2 3 4 5
Calibration of probability
ignored Fully included as
expenditure in
budget
Quantifiable and non –quantifiable risks
Calibrationn of impact
impact More than
0,5% GDP
Between
0,01 and 0,5
Less than
0,01% of
GDP
significant medium insignificant
non –quantifiable risks
𝑖𝑠𝑐𝑎𝑙 𝑠𝑎𝑓𝑒𝑡𝑦 𝑟𝑒𝑠𝑒𝑟𝑣𝑒 = 0,1 ∙
𝑓𝑖𝑠𝑐𝑎𝑙
𝑖𝑚𝑝𝑎𝑐𝑡
𝑟𝑖𝑠𝑘𝑠 𝑤𝑖𝑡ℎ
𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 2
+ 0,3 ∙
𝑓𝑖𝑠𝑐𝑎𝑙
𝑖𝑚𝑝𝑎𝑐𝑡
𝑟𝑖𝑠𝑘𝑠 𝑤𝑖𝑡ℎ
𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 3
+ 0,6 ∙
𝑓𝑖𝑠𝑐𝑎𝑙
𝑖𝑚𝑝𝑎𝑐𝑡
𝑟𝑖𝑠𝑘𝑠 𝑤𝑖𝑡ℎ
𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 4

11. 11
Quantifiable fiscal risks
• State guarantees and loans;
• Quantifiable risks in welfare sector;
• Contributions to the EU budget and international cooperation;
• Implementation of EU policy instruments and other foreign financial assistance
programs;
• State guarantees for study and student loans;
• Callable capital.
•
Non- Quantifiable fiscal risks
• Direct and indirect liabilities related to public and private partnership and
concession projects;
• Corporations reclassified to general government sector;
• Decisions of international courts and Constitutional Court;
• Financial sector;
• Tax reform.
Declaration of Fiscal Risks
http://titania.saeima.lv/LIVS12/saeimalivs12.nsf/0/093ae1cbb0ce07acc22581b60035134d/$FILE/FMinfo_10102017_FRDekl
.pdf

12. 12
1. Source of fiscal risk
2. Description of fiscal risk
3. Assessment of fiscal impact and fiscal indicator which is affected by
the fiscal risk
4. Assessment of fiscal risk probability
5. Description of current management of fiscal risk
6. Additional necessary actions (measures) to reduce fiscal risk, if
necessary
7. Additional necessary actions to eliminate the consequences of fiscal
risk, if necessary
Declaration of Fiscal Risks
Each risk the following information is provided:

13. 13
Independent assessment of DFR
Stipulated in the Law (Fiscal Discipline Law): Assessment of adequacy of
Fiscal Safety Reserve to the existing Fiscal Risks.
1. The Council urges the Government to establish a fiscal security reserve for 2019 in the
amount of 0.1% of GDP.
2. The Council welcomes improvements to expenditure estimates for the special budget.
3. The Council reiterates its objection to the wide application of the symmetry principle.
4. Recent experience suggests that the symmetry principle is not applied consistently.
5. Few risks are adequately quantified. While the Statement looks at a wide range of fiscal
risks, the majority are not assessed in terms of their potential impact and likelihood of
occurrence.
6. The Council urges the Government to move forward with the proposed improvements to
the management of state- and municipality-owned enterprises.
7. The Statement should include an assessment of the impact of macroeconomic shocks.
Extract from 2018-2020 assessment:
http://fiscalcouncil.lv/files/uploaded/FDP_1_08_1499_20171004_FDSR_without_ann
exes.pdf

14. 14
Fiscal Risks and Fiscal Safety
Reserve
Fiscal risks
Included in
Declaration
quantifi
ed
nonquantif
ied
Not included
FSR
Escape clause
No compensation
Below
0,1% IKP
No immediate
compensation
Above
0,1% IKP
Compensatory
measures
No compensation
Ex- post correction ( if having
impact on structural balance)
No ex post correction in long
term
Ex- post correction

15. 15
• Ownership
• Quantification
challenges

16. 16
Thank you!
Nils Sakss
Ministry of Finance
nils.sakss@fm.gov.lv