Publication: Monitoring Fiscal Risks of Subnational Governments
Loading...
Published
2002-03
ISSN
Date
2012-08-13
Author(s)
Ma, Jun
Editor(s)
Abstract
Growing experience with decentralization indicates that a country's public finance system suffers when subnational governments expose themselves to excessive risk. But central governments often lack the information needed to monitor the fiscal risks of subnational governments. Several countries, having experienced subnational fiscal crises, have established systems to monitor such risks. These systems assess subnational fiscal health and call for central government attention-and possible intervention-if preset indicators of fiscal imprudence are exceeded. In developing countries such systems also provide useful information for subnational credit ratings. This note describes several country experiences with indicators of subnational fiscal risks, identifies some limitations of such indicators, and suggests alternative indicators.
Link to Data Set
Citation
“Ma, Jun; Polackova, Hana. 2002. Monitoring Fiscal Risks of Subnational Governments. PREM Notes; No. 64. © World Bank. http://hdl.handle.net/10986/11355 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Fiscal Responsibility Laws for Subnational Discipline: The Latin American Experience(World Bank, Washington, D.C., 2004-05)This paper discusses fiscal responsibility laws in Latin America, with special attention to their provisions for fiscal discipline by subnational governments. It discusses why and when such laws might be useful-to help resolve the coordination problem in getting diverse governments to avoid overusing the common national credit market and to help individual governments make a time-consistent commitment for fiscal prudence. It examines the cases of Brazil, Colombia, Peru, and Argentina, as well as the case of Mexico where other types of laws and regulations aim to achieve the same objectives of solidifying incentives for fiscal discipline at all levels of government. Fiscal responsibility laws are found to be useful in some cases, although the experience is not long enough to be certain, but they are clearly not necessary in every case, nor always sufficient to assure fiscal stability.Publication Financing Infrastructure and Monitoring Fiscal Risks at the Subnational Level(World Bank, Washington, DC, 2012-05)This paper explores the building blocks of an institutional framework to govern borrowing by subnational entities to finance infrastructure investment. The framework should help in achieving sustainable financing of development needs and sound management of fiscal risks. Based on international experience, the authors suggest a minimum set of indicators for monitoring fiscal and debt developments. Recognizing the different nature and operations of the subnational entities, they propose specific indicators for special purpose vehicles and the government's general budget. The paper outlines an analytical framework to inform policy decisions concerning subnational debt limits, which are country-specific and should not be mechanically applied. Basic notions underpinning medium-term macro-fiscal frameworks and debt sustainability analyses provide effective guidance for identifying prudent levels of subnational debt. The authors argue that developing fiscal and debt indicators and setting borrowing limits should be part of a broader strategy to put in place an adequate fiscal architecture to coordinate and monitor the budgetary and borrowing policies conducted by individual subnational governments. Consistent with this general principle, they explore several areas of subnational public finance and management that need to be addressed with adequate governance structures and policy choices.Publication Impact and Implications of Recent and Potential Changes to Brazil's Subnational Fiscal Framework(Washington, DC, 2013-09-27)Brazil's subnational fiscal framework has remained a source of unabated controversy despite its relative stability over the past decade. The objective of this study is to evaluate the nature and impact of recent and expected changes to Brazil's subnational fiscal framework in light of these debates. More specifically, this work has focused on recent and proposed changes to: 1) the Tax on Goods Circulation, Communication and Inter-municipal and Inter-state Transportation Services (ICMS); 2) the State Participation Fund (FPE) as well as the transfers from oil and mining royalties; and 3) the subnational debt and borrowing framework. These three broad areas are precisely the ones that are the center of the current debate on Brazil's subnational fiscal framework. In order to achieve the proposed objective, three background papers were commissioned, each covering one of the issues outlined above. The main value-added of this study is an examination-and an attempt at a quantification of the impacts of the changes underway in these three dimensions of Brazil's intergovernmental fiscal framework. The remainder of this synthesis report is organized as follows. Section two provides a brief overview of how Brazil's subnational fiscal framework currently works. Section three describes the ongoing efforts to reform Brazil's subnational fiscal framework and points to the advantages of a more coordinated approach over a piecemeal one. Section four discusses the expected fiscal impact on subnational governments of the most likely reform scenarios. Section five concludes. Finally, the amended proposal also kept the original provisions regarding the validation of past tax incentives unchanged. It included a mandate for past tax incentives to be approved by state legislative and to be disclosed at the official Gazette. The main change was the creation of a provision to safeguard the existing tax incentives until their expiration or 2033, whichever comes first.Publication Laws for Fiscal Responsibility for Subnational Discipline : International Experience(2011-03-01)Fiscal responsibility laws are institutions with which multiple governments in the same economy -- national and subnational --can commit to help avoid irresponsible fiscal behavior that could have short-term advantages to one of them but that would be collectively damaging. Coordination failures with subnational governments in the 1990s contributed to macroeconomic instability and led several countries to adopt fiscal responsibility laws as part of the remedy. The paper analyzes the characteristics and effects of fiscal responsibility laws in seven countries -- Argentina, Australia, Brazil, Canada, Colombia, India, and Peru. Fiscal responsibility laws are designed to address the short time horizons of policymakers, free riders among government units, and principal agent problems between the national and subnational governments. The paper describes how the laws differ in the specificity of quantitative targets, the strength of sanctions, the methods for increasing transparency, and the level of government passing the law. Evidence shows that fiscal responsibility laws can help coordinate and sustain commitments to fiscal prudence, but they are not a substitute for commitment and should not be viewed as ends in themselves. They can make a positive contribution by adding to the collection of other measures to shore up a coalition of states with the central government in support of fiscal prudence. Policymakers contemplating fiscal responsibility laws may benefit from the systematic review of international practice. One common trait of successful fiscal responsibility laws for subnational governments is the commitment of the central government to its own fiscal prudence, which is usually reinforced by the application of the law at the national as well as the subnational level.Publication Public-Private Partnerships in the New EU Member States(Washington, DC: World Bank, 2007)Public-private partnerships (PPPs) operate at the boundary of the public and private sectors, being neither fully public nor fully private. PPPs are defined in this paper as privately financed infrastructure projects in which a private firm either: (i) sells its services to the government; or (ii) sells its services to third parties with significant fiscal support in the form of guarantees. Despite these common elements of PPPs across sectors, there are differences in the type of arrangements that are typical in each sector. This study focuses on whether and when using PPPs can create fiscal space for additional infrastructure investments in the EU8. In doing so, the paper will examine the fiscal risks of PPPs and the role of fiscal institutions in this regard, including how these affect the use and design of PPPs and thus the potential for creating fiscal space while promoting investment in infrastructure. Chapter 2 distinguishes the illusory from the real fiscal effects of PPPs. Chapter 3 relates the extent to which PPPs reduce fiscal costs to the nature of fiscal institutions. Chapter 4 explains how fiscal institutions can be improved to encourage fiscal prudence in the use and design of PPPs. Chapter 5 concludes.
Users also downloaded
Showing related downloaded files
Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.