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Contingent government liabilities : a hidden risk for fiscal stability


  • 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?

Suggested Citation

  • Polackova, Hana, 1998. "Contingent government liabilities : a hidden risk for fiscal stability," Policy Research Working Paper Series 1989, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1989

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    References listed on IDEAS

    1. Peter S. Heller, 1997. "Aging in the Asian “Tigers”; Challenges for Fiscal Policy," IMF Working Papers 97/143, International Monetary Fund.
    2. George G. Pennacchi, "undated". "Government Guarantees for Old Age Income," Pension Research Council Working Papers 97-10, Wharton School Pension Research Council, University of Pennsylvania.
    3. William Easterly, 1999. "When is fiscal adjustment an illusion?," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 55-86, April.
    4. Mody, Ashoka & Patro, Dilip K, 1996. "Valuing and Accounting for Loan Guarantees," World Bank Research Observer, World Bank Group, vol. 11(1), pages 119-142, 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. 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.
    3. Agnès Bénassy-Quéré & Guillaume Roussellet, 2014. "Fiscal sustainability in the presence of systemic banks: the case of EU countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 436-467, June.
    4. 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).
    5. André De Palma & Luc E. Leruth & Guillaume Prunier, 2012. "Towards a Principal-Agent Based Typology of Risks in Public-Private Partnerships," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 57-73.
    6. Anto Bajo & Marko Primorac, 2011. "Government guarantees and public debt in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 35(3), pages 253-276.
    7. Dubravko Mihaljek, 2007. "Fiscal transparency from central banks’ perspective: off-budget activities and government asset funds," MNB Conference Volume, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(1), pages 9-17, December.
    8. Daniel Snethlage, 2015. "Towards Putting a Price on the Risk of Bank Failure," Treasury Working Paper Series 15/03, New Zealand Treasury.
    9. 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.
    10. Vigvári, András, 2009. "Atipikus önkormányzati eladósodás Magyarországon
      [Atypical local-government indebtedness in Hungary]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 709-730.
    11. Potrafke, Niklas & Reischmann, Markus, 2014. "Explosive Target balances of the German Bundesbank," Economic Modelling, Elsevier, vol. 42(C), pages 439-444.
    12. Israel Fainboim & Carlos Jorge Rodríguez, 1999. "Una discusión sobre la conveniencia de construir el metro de Bogotá y sobre las dificultades para financiarlo," COYUNTURA ECONÓMICA, FEDESARROLLO, September.
    13. Kalin Hristov & Martin Zaimov, 2003. "Shadowing the euro: Bulgaria’s monetary policy five years on," BIS Papers chapters,in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 61-78 Bank for International Settlements.


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