Publication: Off the Books: Understanding and Mitigating the Fiscal Risks of the Power Sector
Loading...
Date
2023-05-01
ISSN
Published
2023-05-01
Author(s)
Editor(s)
Abstract
This Live Wire—based on Off the Books: Understanding and Mitigating the Fiscal Risks of Infrastructure (2023)—presents a systematic assessment of the magnitude and prevalence of fiscal risks from power investments and their root causes across a range of low- and middle-income countries. Drawing on important new sources of evidence, it shows just how much is at stake in the good governance of the power sector, how fiscal risks vary across contexts, and how they can be mitigated.
Link to Data Set
Citation
“Herrera Dappe, Matías; Musacchio, Aldo; Ter-Minassian, Teresa; Turkgulu, Burak. 2023. Off the Books: Understanding and Mitigating the Fiscal Risks of the Power Sector. Live Wire; 2023/128. © World Bank. http://hdl.handle.net/10986/39752 License: CC BY-NC 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Off the Books(Washington, DC : World Bank, 2023)Developing countries face massive infrastructure needs, but public spending on infrastructure is inadequate, and public investment has been declining in recent years. Rising debt levels and tightening fiscal and monetary conditions are putting further pressure on the funds available for infrastructure, heightening the importance of increasing the efficiency of infrastructure spending. Off the Books: Understanding and Mitigating the Fiscal Risks of Infrastructure shows that however governments deliver infrastructure—through direct public provision, state-owned enterprises (SOEs), or public-private partnerships (PPPs), the risk of fiscal surprises is high in both good times and bad. As a result, infrastructure service delivery often ends up costing significantly more than expected, eroding limited fiscal space for productive spending. This book makes a unique contribution by quantifying the magnitude and prevalence of fiscal risks from electricity and transport infrastructure and identifying their root causes across a range of low- and middle-income countries. Drawing on important new sources of evidence and compiling many others, the analysis sheds light on how much is at stake in the good governance of infrastructure sectors. It allows policy makers to weigh the magnitudes of different types of risks and examine how they vary across contexts. Off the Books shows how a deeper understanding of the fiscal risks of infrastructure can help policy makers target reforms to areas where they can be expected to have the greatest impact. It lays out a reform agenda for mitigating the fiscal risks associated with infrastructure based on building government capacity; adopting integrated public investment management and integrated fiscal risk management; improving fiscal and corporate governance of SOEs; and ensuring robust PPP preparation, procurement, and contract management. The book will be of enormous value to policy makers, practitioners, and academics who have an interest in infrastructure and fiscal policy.Publication Infrastructure State-Owned Enterprises(Washington, DC: World Bank, 2022-03-15)This paper examines the performance of infrastructure companies owned by the state, using the newly created World Bank Database of Infrastructure State-Owned Enterprises (SOEs). The data cover 19 countries and 135 SOEs between 2000 and 2018. The analysis reveals that infrastructure SOEs are large and have weak financial performance that generates significant fiscal risk. The paper introduces new measures of financial performance net of fiscal transfers and examines previously uncovered patterns of subsidies by sector. It examines the effect of state ownership by comparing the firms in the database with hundreds of comparable private firms, using coarsened exact matching. The findings show that relative to comparable private firms, infrastructure SOEs are less efficient, represent a larger share of gross domestic product, have larger liabilities as a share of gross domestic product and larger employment costs as a share of revenues, and yield lower returns on assets.Publication Smoke and Mirrors(Washington, DC: World Bank, 2022-03-15)Infrastructure is critical to economic development. When infrastructure companies are owned and operated by the government, however, they create significant sources of fiscal risk. These fiscal risks can be sizable, but they are often preventable with proper planning, risk assessment, and strict rules and procedures for corporate and fiscal governance. This paper examines fiscal risk stemming from state-owned enterprises (SOEs) in the infrastructure sector in a sample of 135 firms in 19 countries from an original database of SOE financials for 2009–18. The paper develops a typology of fiscal risks and their determinants, builds new measures of fiscal injections to SOEs, and documents them using the novel database. The results show that governments support SOEs through a remarkably wide range of fiscal instruments. The fiscal cost of supporting infrastructure SOEs is usually below 1 percent of gross domestic product. Support is more prevalent and frequent than previously thought. The findings show that fiscal risk stems not only from “tail risk,” but also from the everyday operation of infrastructure SOEs. The paper calculates the Altman Z” score (a measure of default risk) and shows that it can be used to forecast the need for fiscal injections in SOEs.Publication State-Owned Enterprises as Countercyclical Instruments(World Bank, Washington, DC, 2022-03)This paper examines the effects of a negative macroeconomic shock on the financial performance of state-owned enterprises (SOEs) in infrastructure. It exploits the differential effects of a drastic fall in oil prices (in 2014–15) on SOEs in energy-rich countries relative to SOEs in non-energy-rich countries, matching firms based on their fuel expense ratio. The results—based on a balanced sample using coarsened exact matching and a differences-in-differences estimation—indicate that fully owned SOEs (FSOEs) that suffered a negative macroeconomic shock performed worse than those that did not. FSOEs that suffered a shock also received large fiscal transfers from the government to cope with the shock for three years after the shock. Despite the transfers, they reduced their capital expenditures as a consequence of the shock.Publication Fiscal Risks from Early Termination of Public-Private Partnerships in Infrastructure(Washington, DC: World Bank, 2022-03-15)Public-private partnerships (PPPs) in infrastructure provision have expanded around the world since the early 1990s. Well-structured PPPs can unleash efficiency gains, but PPPs create liabilities for governments, including contingent ones. This paper assesses the fiscal risks from contingent liabilities from early termination of PPPs in a sample of developing countries. It analyzes the drivers of early termination and identifies systematic contractual, institutional, and macroeconomic factors that can help predict the probability that a PPP project will be terminated early, using a flexible parametric hazard regression. Using the probability distributions from the regression analysis, it simulates scenarios of fiscal risks for governments from early termination of PPPs in the electricity and transport sectors, adopting a value-at-risk approach. The findings indicate that the rate of early terminations decreases with direct government support, greater constraints on executive power, and the award of the PPP by subnational governments; it increases with project size and macro-financial shocks. The simulations show that fiscal risks from infrastructure PPP portfolios are not negligible in some countries, reaching as high as 2.8 percent of GDP. A severe macro-financial shock substantially increases the estimates, with the value at risk the year after the shock 11–20 times larger.
Users also downloaded
Showing related downloaded files
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.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 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 The Journey Ahead(Washington, DC: World Bank, 2024-10-31)The Journey Ahead: Supporting Successful Migration in Europe and Central Asia provides an in-depth analysis of international migration in Europe and Central Asia (ECA) and the implications for policy making. By identifying challenges and opportunities associated with migration in the region, it aims to inform a more nuanced, evidencebased debate on the costs and benefits of cross-border mobility. Using data-driven insights and new analysis, the report shows that migration has been an engine of prosperity and has helped address some of ECA’s demographic and socioeconomic disparities. Yet, migration’s full economic potential remains untapped. The report identifies multiple barriers keeping migration from achieving its full potential. Crucially, it argues that policies in both origin and destination countries can help maximize the development impacts of migration and effectively manage the economic, social, and political costs. Drawing from a wide range of literature, country experiences, and novel analysis, The Journey Ahead presents actionable policy options to enhance the benefits of migration for destination and origin countries and migrants themselves. Some measures can be taken unilaterally by countries, whereas others require close bilateral or regional coordination. The recommendations are tailored to different types of migration— forced displacement as well as high-skilled and low-skilled economic migration—and from the perspectives of both sending and receiving countries. This report serves as a comprehensive resource for governments, development partners, and other stakeholders throughout Europe and Central Asia, where the richness and diversity of migration experiences provide valuable insights for policy makers in other regions of the world.