A Compendium of Good Practices on Managing the Fiscal Implications of Public Private Partnerships in a Sustainable and Resilient Manner

Public-private partnerships (PPPs) can sometimes be perceived as a means for delivering infrastructure for free. A more nuanced but still inexact view is that they are a mechanism to overcome fiscal constraints. Some argue, perhaps rightly, that governments often enter PPP contracts without fully understanding their fiscal implications.

These misconceptions lead to several challenges. There is evidence that fiscal sustainability is often overlooked or ignored by countries with PPP programs-with long-term fiscal implications the governments did not understand or manage well. Governments also struggle with perceptions that they are not fully transparent about the real, ultimate costs of PPP projects.This is especially true in cases where there is no systematic assessment of fiscal implications or the impact of PPPs. Although the full extent of the fiscal commitments and contingent liabilities (FCCL) exposure caused by COVID-19 on PPPs is unclear, evidence from an analysis of the post-1997 Asian crisis revealed that if countries such as the Republic of Korea had had better fiscal risk management frameworks in place on PPPs, they would have been better prepared to deal with the exacerbated impacts of the crisis when PPP contingent liabilities transformed into immediate obligations. It is likely that the ongoing COVID-19 impact on the economy will have similar effects-countries may need to step in to address existing FCCL, while getting ready to comprehensively support new investments to boost a sustainable post-COVID-19 recovery.

In this context, this report aims to illustrate how to improve fiscal risk management and treatment of FCCL arising from PPP projects, to build better Infrastructure following the COVID-19 pandemic. It is a resource for World Bank client countries, including low income and fragile economies, for designing their fiscal PPP management frameworks in a viable way that helps them develop their PPP programs while maintaining medium-to-long-term fiscal sustainability and resilience. With that in mind, Volume I highlights and contextualizes the main findings from a set of case studies that assessed the PPP fiscal risk management framework in select countries, and synthesizes the observable and qualitative results in managing the impact of crises, in particular the COVID-19 pandemic. Based on that, it also explores how this crisis has affected PPP projects and overall PPP programs, and suggests improvements to FCCL management frameworks in order to strengthen the capacity of countries to continue with their PPP programs in a sustainable fiscal manner. Volume II contains the detailed case studies on which Volume I is based.