PPPs and PFRAM

 

PUBLIC-PRIVATE PARTNERSHIPS (PPP) AND FISCAL RISK

As an option for governments to procure infrastructure assets and services, PPPs present both opportunities and challenges. They can create incentives to mobilize private capital, bring in private sector’s managerial capacity, and achieve higher level of services.

Yet, in many countries, investment projects have been procured as PPPs not for efficiency reasons, but to circumvent budget constraints and postpone recording the fiscal costs of providing infrastructure services. Hence, some governments procured projects through PPPs that either could not be funded within their budgetary envelope, or exposed public finances to excessive fiscal risks. Such PPPs can present significant risks for governments.

Thus, PPPs require governments to have strong infrastructure governance institutions in place to manage fiscal risks.

 

PPP FISCAL RISK ASSESSMENT MODEL (PFRAM)

The PFRAM was developed by the IMF and the World Bank as an analytical tool to assess the potential fiscal costs and risks arising from public–private partnership projects.

PFRAM provides a structured process for gathering information for a portfolio of public–private partnership projects in a simple, user-friendly, Excel-based platform, following a five-step decision-tree:

1. Who initiates the project?
2. Who controls the asset?
3. Who ultimately pays for the asset?
4. Does the government provide additional support to the private partner
5. What does the public–private partnership contract risk allocation tell us about macro-fiscal risks?

Based on project-specific and macroeconomic data provided by the user, PFRAM generates standardized outcomes. The outcomes include project cash flows, fiscal tables/charts on a cash and accrual basis, and debt sustainability analysis, with and without the public–private partnerships. Sensitivity analysis of main fiscal aggregates to changes in macroeconomic and project-specific parameters is also carried out, and a summary fiscal risk matrix of the project is produced.

Since it started in April 2016, PFRAM has been used not only in the context of IMF and World Bank technical assistance, but also by country authorities—mainly public–private partnership units in ministries of finance—to better understand the long-term fiscal implications of individual or a portfolio of public–private partnership projects. As an analytical tool, PFRAM helps country authorities quantify the macro-fiscal implications of public–private partnerships, understand the risks assumed by government, and identify potential mitigation measures.