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Contingent government liabilities : a hidden risk for fiscal stability


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  • Polackova, Hana


This paper points out that Governments are facing increasing fiscal risks and uncertainties. Two of the reasons for this situation are: first, the international integration of financial markets, which has meant greater volumes and volatility of cross-border flows of private capital; and, second, the privatization of state functions, accompanied by implicit or explicit state guarantees. The third reason is that policymakers pursuing a balanced budget or some deficit target tend to favor off-budget forms of state support that do not require immediate cash and that, at least for some time, hide the underlying fiscal cost. This paper first classifies and analyzes the potential obligations and fiscal risks governments face and their sources. It next outlines the options for reducing fiscal risks in the context of fiscal adjustment, with particular attention to the typology and analysis of specific fiscal risks, the high risk exposure of governments of transition and emerging-market economies, and the quality and bias in government decision-making at the time of fiscal adjustment. Several questions are addressed. How can policymakers be made accountable for recognizing the long-term cost of all forms of government activities? How can the moral hazard induced by government interventions be reduced? What standards for public sector accounting, budgeting, reporting, and risk management would foster sound fiscal performance in the long term?

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1989.

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Date of creation: 31 Oct 1998
Date of revision:
Handle: RePEc:wbk:wbrwps:1989

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Keywords: Labor Policies; Banks&Banking Reform; Insurance&Risk Mitigation; Payment Systems&Infrastructure; Environmental Economics&Policies; National Governance; Insurance&Risk Mitigation; Banks&Banking Reform; Environmental Economics&Policies; Health Economics&Finance;


References listed on IDEAS
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  1. Peter S. Heller, 1997. "Aging in the Asian "Tigers"," IMF Working Papers 97/143, International Monetary Fund.
  2. George G. Pennacchi, . "Government Guarantees for Old Age Income," Pension Research Council Working Papers 97-10, Wharton School Pension Research Council, University of Pennsylvania.
  3. Easterly, William, 1999. "When is fiscal adjustment an illusion?," Policy Research Working Paper Series 2109, The World Bank.
  4. Mody, Ashoka & Patro, Dilip K, 1996. "Valuing and Accounting for Loan Guarantees," World Bank Research Observer, World Bank Group, vol. 11(1), pages 119-42, February.
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Cited by:
  1. Jorge Martinez-Vazquez & Jameson Boex, 2000. "Budgeting and Fiscal Management in Transitional Economies," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0006, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. André De Palma & Guillaume Prunier & Luc E. Leruth, 2009. "Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships," IMF Working Papers 09/177, International Monetary Fund.
  3. Dubravko Mihaljek & Bruno Tissot, 2003. "Fiscal positions in emerging econimies: central banks' perspective," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 10-37 Bank for International Settlements.
  4. World Bank, 2005. "Kenya : Public Expenditure Review 2004, Report on the Structure and Management of Public Spending," World Bank Other Operational Studies 8511, The World Bank.
  5. Roberto Fernández Llera & María A. García Valiñas, 2010. "Efficiency and elusion: both sides of public enterprises in Spain," Working Papers 2010/5, Institut d'Economia de Barcelona (IEB).


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