Fiscal risk management in Albania and Moldova
Eivind Tandberg from Vista Analysis is engaged in two projects to provide advice to the finance ministries in Albania and Moldova on management of their fiscal risks. Both countries have committed to preparing and publishing statements on fiscal risk as part of their annual budget documents. These projects are managed by the International Monetary Fund (IMF) and supported by the European Union and the Netherlands government.
Systematic identification, analysis, disclosure and mitigation of fiscal risks has emerged as a key priority in many countries once they have addressed more basic aspects of fiscal management. Fiscal risk management covers explicit and implicit risks. Explicit risks and liabilities are those that have direct and unequivocal impact on the budget or the government’s balance sheet, such as risks related to macroeconomic shocks, revenue overestimation, higher than planned expenditure or public debt exposure. Implicit risks, or contingent liabilities, are risks where the linkage to the budget is less certain. Such risks include the impacts of insolvency in state-owned enterprises or in the financial sector, payments related to public-private partnerships, transfers to local governments that are in financial difficulties or calls on state guarantees.
In Albania, the main sources of fiscal risks are arrears, incurred primarily by local governments, property compensation claims, public private partnerships and loss-making state-owned enterprises. The fiscal risks assessed to have highest importance in Moldova are macroeconomic shocks, fiscal risks resulting from state-owned enterprises, and financial sector fiscal risks, with several other risks of medium importance. The development of a fiscal risk statement requires a dedicated effort and capacity building, thus a phased implementation strategy is recommended.