Back Matter

Annex I. Matrix of Prioritized Actions

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Source: Fund Staff

Annex II. Illustrative Example of a Fiscal Risk Statement

Macro-economic risks

The economic and fiscal forecasts presented in the Budget incorporate assumptions and judgments based on information available at the time of preparation. These medium-term forecasts are subject to uncertainty around the future evolution of economic conditions and implementation of government policies.

Unanticipated changes in macroeconomic conditions will cause fiscal forecasts to differ from those presented in the budget. For example, risks to the macro-economic outlook could arise from lower demand for key exports and subdued commodity prices, a slower recovery in mining and construction activities and if growth in South Africa deteriorates or if growth in Angola and other trading partners slows.

[For addition in subsequent statements: The following scenarios provide an indication of the sensitivity of expenditures, revenues and the budget balance to changes in the economic outlook over the medium-term forecast period. The first scenario incorporates weaker external conditions, lower commodity prices, reduced exports, a lower exchange rate, and nominal GDP. The second scenario assumes stronger than anticipated domestic growth because of more favorable trade conditions with major trading partners.

The remainder of this section would summaries the alternative scenarios developed, by presenting a comparison table of the key macroeconomic assumptions for the key aggregates – GDP, prices, employment, net exports – under the baseline and two scenarios, and showing the implications for total revenue, expenditure, budget balance, and debt].

An alternative approach to publishing these scenarios would be to include a summary table of the impacts on revenues and expenditures of changes in discrete macroeconomic parameters including GDP, Inflation, Exchange Rate, and key commodity prices.

Public Debt

General government debt is forecast to continue growing, reaching [61.9] percent of GDP by 2020. Deviations in macroeconomic parameters from forecasts will impact on government debt and debt servicing obligations. In particular, the debt portfolio is susceptible to a decline in the Southern African Customs Union (SACU) revenue.

External debt has been increasing, reading [xx] percent in 2016/17. Non-rand debt reaching [32] percent of total debt, increasing the exposure to a deterioration in the exchange rate. The majority of debt denominated in foreign currency is denominated in [set out currency composition, i.e. share in USD, EUR for major currencies]. [Provide a quantification of the impact of a change in the exchange rate on the value of the debt portfolio]. The impact of changes in real interest rates is small due to a sizeable share of fixed-rate debt.

The portfolio has some exposure to refinancing risks. The short-term debt comprises [42] percent of domestic debt and [27] percent of total debt. Refinancing risk has been mitigated somewhat, through the government diversifying its funding sources and borrowing instruments and extending maturities, including through the issuance of debt in the international capital markets.

[For inclusion in subsequent statements: Table X shows the sensitivity of the debt portfolio to changes in interest rates and the exchange rate.]

Public Enterprises

Namibia has [71] public enterprises of which [38] are classified as non-commercial enterprises, [22] as commercial, and [11] as financial institutions and extra-budgetary funds. Public enterprise assets total NAD [89.2] billion ([25] percent of GDP). The public enterprises are active in a range of sectors, with those in the energy, financial, transport and communications sectors accounting for just over [80] percent of the total public enterprise assets (see Figure A1).

Figure A1.
Figure A1.

Sector Breakdown of Public Enterprises Based on Assets1/

Citation: IMF Staff Country Reports 2018, 258; 10.5089/9781484373620.002.A999

Source: Ministry of Public Enterprises.1/ Size of assets as per latest available information.

The Public Enterprises Governance Act (PEGA) provides an overarching framework governing public enterprises and specifies the role played by government in their oversight. For each public enterprise, responsibility for exercising the ownership function has been assigned to a shareholding minister, with the Minister of Public Enterprises acting in an advisory capacity. Shareholder responsibilities are distributed as indicated in Figure A2. The government is in the process of amending the PEGA with the intention of moving all the commercial enterprises under the shareholder oversight of the Minister of Public Enterprises.

Figure A2.
Figure A2.

Responsibility for Public Enterprise Oversight Based on Assets1/

Citation: IMF Staff Country Reports 2018, 258; 10.5089/9781484373620.002.A999

Source: Ministry of Public Enterprises.1/ Size of assets as per latest available information.

In terms of the PEGA, board members are appointed by the shareholding Minister. The shareholding Minister enters into a performance agreement with each board member and a governance agreement with the board as a whole, which set out the government’s performance expectations for the enterprise. Annually, public enterprises are required to submit a business and financial plan for approval by the shareholding Minister as well as audited annual financial statements. Dividends are decided by the shareholding Minister based on proposals from the board.

There are [x] incorporated public entities,1 which are governed by the Companies Act. The Companies Act specifies the fiduciary duties of directors, processes for the appointment of auditors and circumstances where shareholder approvals are required. Many of the public enterprises are also regulated in terms of their own founding legislation. The majority of the public enterprises report on the basis of International Financial Reporting Standards (IFRS).

[Provide any further details on institutional arrangements, legal framework and ownership policy for overseeing public enterprises]

Financial Relations between the Central Government and Public Enterprises
Transfers to public enterprises

Subsidies to public enterprises that are included in the initial budget proposal, have been declining. During 2016/17 funding totaling NAD [6.4] billion was allocated to public enterprises, a [20] percent reduction as compared to 2015/16 when NAD [8.0] billion was allocated. The 2015/16 allocation was [16] percent lower than the allocation made in 2014/15 allocation of NAD[9.5] billion. In 2016/17 the main recipients were the Namibia Students’ Financial Assistance Fund (NSFAF), University of Namibia (UNAM), Air Namibia, the Namibia Training Authority (NTA) and the Namibia University of Science and Technology. The funding for NSFAF was to provide loans and financial assistance to students. The universities received funding to cover operational and capital expenditure. The allocations to Air Namibia and NTA were for operational expenditure.

[Provide a table summarizing the main allocations, preferably covering 3-5 years of history as well as forward looking projections that cover the MTEF. Also add in information regarding the actual allocations and explain any areas where these deviated from the budgeted allocations]

Loans to public enterprises

[Explain the government’s policy on providing both on budget loans as well as on-lending to public enterprise (e.g. under what circumstances would the government provide a loan to a public enterprise? What interest rate is the public enterprise charged? If the government is required to service an on-lent loan on behalf of the public enterprise, does the amount paid by the government become a debt owned by the public enterprise to the government? How is the debt that is raised for on-lending reflected in the government’s accounts? What process are in place to mitigate risks, e.g. assessments of the public enterprises ability to repay? How does the government monitor and manage the outstanding loan portfolio?]

The central government provides loans financed from budget resources to public enterprises and on-lends funds borrowed from International Financial Institutions (IFIs). As at [date], the total debt outstanding to public enterprises totaled NAD[xx] million.

[Provide a summary explanation and table of the main loans to public enterprises, preferably providing data covering the preceding 3-5 years. Highlight where any new loans were provided in the reporting period and the purpose of these loans?]

[Outline what the repayment has experience is. Indicate where any companies are in arrears on their repayments, the reasons and remedial actions that have been taken].

Guarantees and contingent liabilities issued in favor of public enterprises

[Explain the government’s policy on issuing guarantees (e.g. under what circumstances would the government provide a guarantee to a public enterprise? Are guarantee fees charged? If the government is required to service loan on behalf of a public enterprise, does the amount paid by the government become a debt owned by the public enterprise to the government? What process are in place to mitigate risks, e.g. assessments of the public enterprises ability to repay the guaranteed debt? How does the government monitor and manage the outstanding guarantee portfolio?]

To date, the government had an outstanding contingent liability exposure to public enterprises totaling NAD[8.6] billion ([6] percent of GDP). The most significant exposures are to Air Namibia, the Development Bank of Namibia (DBN) and the Namibia Ports Authority. The details of the main exposures are summarized in Table A1 below.

[Insert table showing the main guarantee exposures by PE. Ideally, expand the table to provide historical information on the beneficiaries and guarantee exposures over the preceding 3-5 years]

[Highlight where any new guarantees were provided during the reporting period and the purpose of these guarantees?]

[Indicate whether any companies are not up-to-date in servicing their guaranteed debt]


Each year the boards of commercial public enterprises are required to submit a proposal on the distribution of profits for the past financial year to the Minister of Public Enterprises, who agrees the final amount that is payable with the board and submits recommendations to Cabinet. Cabinet may also direct public enterprises to pay dividends. The Companies Act prohibits companies from paying dividends where this would result in them becoming insolvent or being unable to meet their debts.

[Further explain the government’s dividend policy, in particular has a percentage of profits that public enterprises are required to pay as dividends been set?]

[Provide a summary explanation and a table indicating the dividends that have been paid to government, ideally including historical information for the preceding 3-5 years and ideally projections of the dividends that are expected to be received over the MTEF period]

Public policy activities

Public enterprises may undertake non-commercial activities to fulfill public policy objectives. If public enterprises are not properly compensated for the costs incurred, their financial position can be eroded, increasing the likelihood of unanticipated fiscal support being required. Currently, provision has been made to cover the costs of some of these activities from the budget in line with international best practice. The government has begun identifying other non-commercial public policy activities being undertaken by public enterprises. The main examples include:

  • Nampower smooths and moderates electricity price increases using funds collected through the long-run marginal cost levy and a grant that was previously provided by government;

  • DBN and Agribank manage a number of different facilities, which were funded by government and donors, that provide support to clients and farmers, finance project preparation and other similar activities;

  • Air Namibia operates a number of unprofitable routes with the aim of promoting connectivity to support trade and tourism, to which the government makes a contribution through servicing the lease payments on the aircraft used by the airline;

  • Transnamibia provides freight transportation services on which it does not fully recover the costs. The governments provide some support through annual allocations in addition to being responsible for the rehabilitation of the rail network;

  • UNAM has been expanding its reach through the construction of new campuses, contributing to develop the skills for a knowledge-based economy; and

  • Several public enterprises are undertaking public investment projects on behalf of the government.

[Discuss any other non-commercial activities, if possible quantifying the annual costs of the activities, and provide any further details on the government’s policy relating to the mandating and funding of public policy objectives executed by public enterprises.]

Fiscal Risk Assessment

Public enterprises can be a source of fiscal risk. Poorer-than-anticipated financial performance, liquidity pressures or a weakening in the financial position of public enterprises could result in lower dividends and taxes being received, an increased need for funding, or an unanticipated call on government guarantees. This would result in actual budget outcomes and key fiscal metrics deviating from the forecasts.

A fiscal risk assessment was undertaken based on the [2015/16] financial results of the ten public enterprises with the largest outstanding liabilities (both guaranteed and unguaranteed). As at [31 March 2016], these public enterprises’ liabilities totaled NAD[31.4] billion and account for approximately [80] percent of the total liabilities of public enterprises.

The public enterprises were classified into three risk categories, based on five key financial indicators. The five indicators examine the enterprise’s dependency on fiscal support, and assess its profitability, solvency, and liquidity (see Box A1). Each of the indicators was assessed as being either (i) sound; (ii) low risk; (iii) moderate risk; (iv) high risk; or (v) very high risk. The assessment of the five indicators was consolidated into an overall risk rating for the public enterprise. of high, medium, or low.

Key Indicators for Assessing Financial Soundness of Public Enterprises

The assessment was based on the following five key financial indicators:

  • Financial dependence: Indicates whether the company depends on fiscal support through subsidies, equity, loans, guarantees to remain financially viable.


  • Return on equity: Determines the relationship between profit and equity and indicates whether the company is generating profits and whether these are in line with commercial rates of return. For loss making companies, it indicates how quickly the equity is being eroded.


  • Debt ratio: Determines the relationship of liabilities to assets and indicates whether the company is solvent (assets are larger than the liabilities) and the degree to which the company is leveraged. Highly leveraged companies have less financial flexibility.

  • Debt to EBITDA: Determines the relationship between debt to profit and indicates the company’s ability to service its debt from operating cash flows.


  • Current ratio: Determines the relationship of current assets to current liabilities and indicates the company’s ability to meet is short term liabilities using its short-term assets.

Based on this analysis [five] of the public enterprises were classified as high risk, with their total outstanding debt amounting to NAD[11.5] billion or [xx] percent of GDP as of the end of the [2015/16] financial year. The remaining companies were assessed as being of low risk.

The government is taking to improve the financial condition of the high-risk entities. Plans for restructuring Air Namibia and Transnamib are being developed. In addition, reforms to the legislative framework governing public enterprises are in the pipeline, which will strengthen supervision and financial controls.

[Indicate any other remedial actions that are being taken]

Aggregate Financial Results of the largest Public Enterprises

In [2015/16], the [ten] top public enterprises generated NAD[11.8] billion in revenue, a [9.7] percent increase from [2014/15] when revenues totaled NAD[10.8] billion. However, the profit generated by the public enterprises declined from NAD[828] million in 2014/15 to NAD[220] million in 2015/16 due to the growth in costs ([19.2] percent) outpacing the growth in revenues ([9.6] percent). The return on equity of [0.9] percent was also lower than in 2015 ([4.8] percent).

The performance of Nampower had a significant influence on the aggregate performance of the public enterprises sector. In 2016, Nampower’s financial performance was temporarily negatively impacted by higher than anticipated costs relating to power imported from Mozambique to ensure energy security. The costs are being recovered through adjusted electricity tariffs. The company’s performance recovered in 2017.

The leverage of the sector improved slightly with [just over half] of the public enterprises funding coming from debt (2015: [58] percent), but the ability of the public enterprises to generate cash and liquidity remains low.

Summary financial statistics are presented in the table below.

Table A1.

Summary Financial Statistics for the Largest Public Enterprises

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Source: Analysis of public enterprises’ annual financial statements.1/1/ Current metrics based on staff analysis of public enterprises’ annual financial statements that were available, to be updated by the authorities before publishing.
Financial Results of Selected Public Enterprises

The financial performance and financial position of the major state-owned enterprises, particularly those with significant debt exposures, is discussed in more detail below to provide a fuller picture of the financial sustainability of these specific enterprises and the potential fiscal risks.

[Add in an analysis of as many as possible of the public enterprises – try to cover all of the top-10 public enterprises]

University of Namibia

[Update based on the 2016 annual financial statements]

The University of Namibia (UNAM) is the largest institution of higher education in the country, with 12 campuses nationwide and 7 regional centers serving 24,759 students. It is overseen by the Minister of Higher Education. The company’s [2014/15] financial statements received an [unqualified audit opinion].

In [2014/15] the entity’s performance improved with a surplus of NAD[72] million being achieved (2014: NAD[68] million shortfall). This was the result of an increase in the government grant to NAD[871] million to cover operating expenditure of the university (2014: NAD[608] million) as well as an increase in student fees due to both an increase in the number of students and the fee per student.

Table A2.

Summary Financial Statistics for UNAM

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Source: Analysis of annual financial statements.

2015/16 annual results not yet available.

UNAM has high levels of debt, especially relative to its cash generating ability: the debt to EBITDA ratio in [2014/15] was [25] times. The liquidity position is weak with current liabilities [exceeding] current assets at the end of [2014/15]. Trade payables increased by [67] percent from NAD[140] million in [2013/14] to NAD[235] million in [2014/15].

The university is undertaking a significant investment in physical infrastructure to expand its campuses. This has been funded from its operations and cash reserves. UNAM entered into a public-private partnership (PPPs) for the construction and operation of student accommodation at the University of Windhoek and is investigating the possibility of using similar arrangements to expand student accommodation at its other campuses.


Transnamib provides rail and road transport solutions within and across the borders of Namibia. It was established in terms of the National Transportation Service Holding Company Act, 28 of 1998. The company is wholly owned by the Namibian government with the Minister of Works and Transport exercising the ownership function on behalf of the government. In [2015/16] the company received a qualified audit opinion.

In 2015/16 the company realized a loss of NAD[83] million, however this was an improvement compared with the previous year when a loss of NAD[456] million was realized. The improvement was due to a reduction in operating costs despite a NAD[181] million increase in the provision for retirement benefits having to be made. The improvement was also a result of the increase in the grant from government to NAD[353 million] (2015: NAD[150] million) [Note this amount is larger than the NAD[301] million that was budgeted]. The grant was for the maintenance of the railways and the management of the Northern Railway station.

Transnamib is technically insolvent, with its liabilities exceeding its assets by NAD[282] million ([21] percent). The company is currently revaluing its assets which are currently reflected at depreciated historical book value. The company has loans from the government amounting to NAD[410] million. Of this NAD[328] million was originally on-lending, but the government has already settled the underlying loan, whilst the remaining NAD[81] million relates to financial assistance provided to Transnamib to finance its payroll and the settlement of creditors. The company’s liquidity position is weak: current liabilities exceed current assets, but the company did reduce outstanding arrears during the 2015/16 financial year.

The company has developed a restructuring plan aimed at returning the company to profitability over a 5-year period through [downsizing the business, investing in rolling stock complemented by investments in rehabilitating the rail infrastructure by the government and growing the volumes transported by rail.] The proposal is currently being considered by government.

Table A3.

Summary Financial Statistics for UNAM

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Source: Analysis of annual financial statements.

Financial sector

Financial sector risks would arise should the government decide to provide support to troubled banks that was not anticipated in the budget, to protect depositors and prevent the crisis spilling over into the rest of the financial sector. Vulnerabilities arise from the strong interlinkages between the sovereign and the banking sector as well as the close integration with the South African financial market, which can result in economic or financial shocks there being transmitted to Namibia.

Generally, the banks remain profitable and well-capitalized. Under baseline and adverse scenarios, the capital adequacy ratio remains above [16] percent. However, banks’ reliance on wholesale funding creates a vulnerability to liquidity shocks: moderate liquidity shortfalls could be experienced by some of the big banks within one or two months after a shock. The banks are also exposed to counterparty and portfolio concentration risks.

To mitigate these risks, financial sector oversight is being strengthened. The legislation governing the sector is being overhauled in line with international norms, which will improve regulation. The quality of on-site supervision of banks has been enhanced. A new deposit guarantee scheme is being established, which will be managed by the Bank of Namibia in line with international norms.

Annex III. Managing Contingent Liabilities in Colombia

At the turn of the century, Colombia experienced an economic recession paired with a fiscal crisis and materialization of large fiscal contingencies. As a result, authorities were forced to implement a framework for managing contingent liabilities to strengthen the government’s capacity to identify, assess, mitigate and monitor contingent liabilities.

Four areas were recognized as the main sources of fiscal risks during the economic crisis of 1999-2002: natural disasters, legal proceedings against the state, debt guarantees and PPP’s guarantees, particularly those related to infrastructure, transport and electricity.

A procedure was defined for the identification and recording of fiscal risks to guarantee that new liabilities were appropriately recorded. Comprehensive databases were permanently updated, and a management software to store and analyze the information was designed. The contingent liabilities databases have played a key role in the strategy to strengthen the country’s legal defense to mitigate (reduce) payments of claims against the Government.

Additionally, the MoF was given the mandate to review all contracts that have the potential to constitute a contingent liability for the government; without the MoF approval, the contract cannot move forward.

Specific methodologies based on probabilistic models for assessing each one of the four types of contingent liabilities were developed and are constantly reviewed for improvement. A common feature is the estimation of expected costs, which is calculated based on the gross exposure that would impact the fiscal accounts and the probability of the event occurring. This estimate is fundamental for determining the viability of the contract, the commitments that will be required from the interested party and the overall risk assumed by the government.

Mitigation strategies for each type of risk were developed:

Natural disasters: additional resources for strengthening public infrastructure were appropriated, insurance coverage increased and a financial strategy with contingent lines of credit, CAT bonds was implemented.

Debt guarantees and PPP contracts: a state contingency fund was created, to which entities make contributions based on the risk assessment carried out by the MoF. These contributions are updated periodically to reflect changing economic conditions.

Legal contingencies: appropriating of resources in the annual budget to cover the expected payout.

Monitoring was strengthened with the approval of the Fiscal Responsibility Law in 2003 which requires the government to present a 10-year rolling forecast with detail of contingent liabilities and lump-sum amount for future years, distributing the commitments’ information between sectors, projects and/or type of risk. In 2012, a PPP Law was approved with clear guidelines for the presentation, analysis and approvals of PPPs and, in particular, it requires that all contingent liabilities be assessed and valued.

Source: “Ministry of Finance and Public Credit, Colombia “Contingent Liabilities: The Colombian Experience,” 2011.

Annex IV. Accounting for PPPs: IPSAS32

This annex summarizes main features of IPSAS32. The accounting standard IPSAS 32, Service Concession Arrangements: Grantor, issued in 2011, provides a framework for accounting for and reporting PPP transactions in a government’s accounts that reduces significantly the bias in favor of PPPs.1

If IPSAS 32 conditions are met,2 both the deficit and gross debt would be affected during the construction of a PPP asset, as in the case of a publicly financed project. As detailed in the table below, if the government compensates the operator by making a predetermined series of payments during the life of the PPP (a government-funded PPP), it recognizes a liability equal to the full value of the asset (transaction 1 in the table below). Similarly, if the government grants the operator the right to earn revenues from users (a user-funded PPP), the value of the liability recognized equals the full value of the asset. In both cases, the counterpart entry for the increase in the government’s liabilities is the net acquisition of a nonfinancial asset, which increases the overall deficit—that is, a measure of the deficit that includes investment as spending—but not the net operating deficit. In turn, government’s gross debt increases by the amount of the liability, while net worth remains unchanged (i.e., increase in liability is compensated by the acquisition of a nonfinancial asset).

Table A4.

Accounting for PPPs in Public Sector Accounts

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Source: Funke, Irwin, and Rial, “Budgeting and Reporting for PPPs”, OECD/ITF Discussion Paper 2013/07.

Accounting on an accrual basis.

This is the deficit excluding net spending on nonfinancial assets (acquisitions minus disposals). Abstracting from some technical differences, it is the IPSAS definition of deficit and the statistical definition of the net operating balance.

The overall deficit corresponds to net lending/borrowing according to GFSM 2001 methodology.

Net worth equal total assets (financial and nonfinancial) minus total liabilities (debt liabilities and others).

Splitting asset and service component of service concession arrangements by fair value (estimation techniques).

The increase in expenses—consumption of fixed capital—is compensated by the reduction in nonfinancial assets by the same amount, so net lending/borrowing is not affected.

Annex V. PFRAM: Summary Description

The PFRAM provides a systematic approach for assessing regular fiscal costs and risks, typically present in PPPs projects, in line with international standards and good practices.

Assessing fiscal costs

Fiscal costs (direct liabilities) of a PPP project are estimated following IPSAS 32 (International Public Sector Accounting Standards No 32, Service Agreements). Although PFRAM is modeled following accrual standards (IPSAS 32), it estimates the impact of a project both on an accrual basis (i.e., income statement, balance sheet) and on a cash basis (i.e., cash statement). PFRAM simulates the impact on fiscal deficit, gross/net debt, and contingent liabilities, using both cash and accrual accounting. Main fiscal aggregates are presented in the GFSM 2014 format (Government Finance Statistics Manual, 2014) and in line with the PSDG 2011 (Public Sector Debt Guidelines for Users, 2011).


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Assessing fiscal risks

Eleven categories of fiscal risks (contingent liabilities) are evaluated and summarized in a project risk matrix (figure above, first column). Main categories of fiscal risks assessed by PFRAM are:

  • Governance risks. Risks of the PPP project not being aligned to national investment strategies, or not being a priority project (low rate of return).

  • Construction risks. Risks arising from the inability to implement the project, or to cope with some of the construction risks if they materialize (e.g. cost overruns in buying land, unexpected geological conditions, design errors, etc.).

  • Demand risks. Risks arising from reduction in demand for services.

  • Operational and performance risks. Risks of interruption of service delivery, or quality of services being below specification in contract agreement.

  • Financial risks. Risks of the private partner failing to obtain finance for the project, or facing interest rate risk and other financing risks (e.g., exchange rate risk).

  • Force majeure. Risks from unforeseeable circumstances that are beyond the control of the parties, and result in the impossibility for the affected party to perform its contractual obligations (e.g., natural disasters).

  • Material adverse government’s actions (MAGA). Also called “political force majeure,” arise from any act or omission by the relevant public authority during the term of the contract, and which (i) renders the private partner unable to comply with all or a material part of its obligations under the PPP contract; and/or (ii) has a material adverse effect on the cost or the profits arising from such performance.

  • Change in law. Following successful bid submission, change in law refers to any of the following events: (i) the enactment of new applicable laws; (ii) the repeal, modification or re-enactment of any existing applicable law; (iii) a change in the interpretation or application of any applicable law; (iv) the imposition by any government entity of any material condition in connection with the issuance, renewal or modification, revocation or non-renewal (other than in accordance with the existing applicable law) of any approval; or (v) the imposition or levying of any new taxes on the private partner or the increase or decrease in the rate or classification of any taxes.

  • Rebalancing of financial equilibrium. Some contracts (or jurisdictions) allow for the rebalancing of the financial equilibrium of the project, when affected by several events (e.g. severe macroeconomic shock).

  • Renegotiation. In the context of the PFRAM, renegotiation risks do not refer to the events that lead to renegotiation, but to the risks associated to the renegotiation process itself.

  • Contract termination. Termination of the contract prior to the normal term, either (i) by the contracting authority in the event of failure by the private partner to comply with its obligations or for public policy reasons; (ii) by the private partner in case of occurrence of a failure of the contracting authority to comply with its obligations; or (iii) by either party in the event of prolonged Force Majeure Event, MAGA or change in law. Termination provisions define the rules for computing the amount which will be payable by the contracting authority to the private partner.

Identifying fiscal risks

Not all risks will be present in every single PPP contract. The PFRAM assist the analyst to identify which are the most likely fiscal risks arising from the contract under evaluation.

Estimating fiscal impact

What would be the potential fiscal impact if risks materialize? To the extent possible, the potential fiscal impact of a risk should be evaluated in a holistic manner, providing as much information as possible to support a simple 3-scale assessment: low, medium, or high. A possible practical example is shown below:

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What is the likelihood of risks materializing in the future? Identifying whether the likelihood is low, medium, or high is a mainly a judgement call. There are several factors that can help determine the likelihood. For example, the following logic could be followed:

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Risks exposure

How big is the exposure of the government to this risk? This is estimated as fiscal impact times likelihood, resulting in a 5-scale ranking of risks in decreasing order: critical, high, medium, low, and irrelevant

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Mitigation measures

Does the government have mitigation measures in place? PFRAM requires the user to assess only whether mitigations measures are in place or not.

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Priority actions

Deciding what to fix. Once fiscal risks have been identified, rated, and mitigation measures checked, PFRAM assist the user to develop a prioritized list of required actions. As a general rule, the more severe risks (i.e., those critical and high) should be addressed first. Addressing the less important risks, even if they are an easy fix, does not improve the overall risk profile of the project, thus, does not reduce the risks for government. Not all risks are worth addressing, and some loss for government is not only expected, but admissible based on the cost of fixing the issue.

Sensitivity analysis

PFRAM allows to input alternative assumptions about key macroeconomic variables (e.g. GDP, inflation, nominal exchange rate) and project parameters (e.g. contract termination clauses). This is also useful when contract information is limited and/or when the PPP project is still under negotiation, allowing the user to check results based on alternative scenarios.

Source: Based on “Public-Private Partnerships Fiscal Risk Assessment Model—User Guide”, IMF/WBG, April 2016. The tool and user manual are available for download at:

Annex VI. Chile: Assessing Fiscal Costs and Risks from PPPs

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Figure 2.
Figure 2.

Forecast Payments from Chilean Revenue Guarantees

(million pesos)

Citation: IMF Staff Country Reports 2018, 258; 10.5089/9781484373620.002.A999

Sources: “Managing Contingent Liabilities in Public-Private Partnerships”, Timothy Irwin & Tanya Mokdad, WB. of Chile. Informe de Pasivos Contingentes, 2016

Annex VII. PPP Ceilings: International Experience

There is no simple benchmark for setting PPP ceilings, but international experience suggests that they should have the following key features.

  • Broad coverage. PPP ceilings should cover both, fiscal costs and fiscal risks arising from PPPs, and should be applicable for all types of PPP, regardless how are they funded (i.e., government-funded or user-funded PPPs). UK caps overall fiscal exposure arising from overall PPP commitments (fiscal costs and risks) at about 7 percent of total annual expenditures (Table 7 includes international examples of PPP ceilings).

  • Legally grounded. PPP ceilings can be specified in specific legislation (PPP laws and regulations), PFM Laws, Organic Budget Laws, Public Debt Management Laws, or even in annual budgets. While including ceilings in more permanent legislation seems prudent, lower level laws and regulations have the advantage of providing flexibility to test the adequacy of the limit and make it easier if a revision is warranted.

  • Easy to communicate and monitor. PPP ceilings should be simple and measurable. It is important for the ceiling measure to be unambiguous, so that it is credible and can be monitored and verified by independent experts. This means that caution should be used in employing complicated measures that are difficult to interpret. If complex measures are used, clarity should be provided on the parameters (e.g., the discount rate and probabilities of contingencies) and methods used, and ensuring that the latter are publicly available. Simpler methods may be preferable initially. For example, ceilings can be applied to stocks or flows (e.g., percentage of GDP or government revenues), either on maximum exposure (fase value) or taking into account likelihood in very simple ways. Experience suggest that ceilings are more credible and easier to monitor when they are set on maximun exposure, and accompanied with sensitivity analysis.

  • Linked to main macro fiscal concerns. Ceilings on the overall size of the PPP program (stocks) and the annual PPP-related payments (flows) can increase the predictability of the government’s exposure to PPPs and allow for a ready implementation of affordability tests. However, ceilings can be specified either in stocks or flows, depending on the objective that they want to achieve. If the main fiscal concern is debt sustainability—either because debt is on an unsustainable trend or the current level is dangerously approaching a debt ceiling—a ceiling expressed in terms of stock of total commitments of PPPs as ratio of GDP tends to be more effective. If the main fiscal concern is the government’s capacity to repay—either due to cash liquidity issues, or due to a large number of government-funded PPPs (for example, roads, prisons, or hospitals that require government payments for a period of 15-25 years)—then, ceilings expressed in flows (e.g., PPP payments as a percent of government revenues) tend to be more effective in safeguarding long-term fiscal affordability. Similarly, concerns about the reduction in budget flexibility implied in long-term contracts, such as PPPs, are better addresses through flow ceilings expressed as percentage of governmnet expenditures.

  • Commensurate to PPP portfolio structure and PPP project pipeline. The effectiveness of a PPP ceiling in supporting short-term budget affordability and long-term sustainability will depend on the type of projects that comprise a PPP portfolio. A PPP portfolio with a high share of government-funded PPPs will have larger short-term implications in terms of budget affordability, which suggests that ceilings on flows relative to government revenues tend to be more effective. On the contrary, a PPP portfolio mostly comprising user-funded PPPs (concessions) tends to have a higher impact on government’s long-term fiscal sustainability, suggesting that ceilings on the stock of total PPP commitments might be better in safeguarding public finance.

  • Consistent with short, medium and long-term fiscal targets. The assessment of the maximum size of a PPP program should be guided by long-term strategic plans and fiscal sustainability, the MTBF, and the short-term budget affordability. It should also capture the capacity to formulate and implement high-quality projects.

International Examples of PPP Ceilings

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Sources: Fund’ staff and Government’s documents.

Annex VIII. Colombia’s Budget Commitments to PPPs through “Vigencias Futuras”

The mechanism of “Vigencias Futuras” (VF)—a possible but not precise translation would be future commitments—is a budget instrument in Colombia that allows the MoF and the budget, despite the fact that is a cash budget system, to guarantee the resources required, beyond the budget year, to complete a public investment or any multiannual program. This feature, is a cornerstone of the PPP agreements that the country has implemented for decades, since it provides certainty to the private party of the government’s commitment to the project. These are closely regulated, recorded and monitored by the MoF to avoid an over commitment that may reduce the flexibility of the budget, create excessive fiscal pressures and reduce the maneuverability of future administrations.

VFs are divided into three types depending on (i) the amount to be committed in the first year of the initiative; (ii) the number of commitment years; and (iii) if they are for a PPP. Strategic and fiscal consistency must be validated by two councils: the fiscal council (CONFIS) headed by the MoF and the CONPES, headed by the President, for the VF to be approved.

VF for annuities for PPP can extend up to 30 years into the future and the total amount that can be committed, can gradually increase up to a ceiling of 0.4 percent of GDP by 2020 and forward.

VFs can be used by any sector, most of the resources that have been approved thus far are for investments in transport (83 percent), including road infrastructures and public transportation systems. Other areas that have benefited from the use of this instrument are: housing, water and sanitation, and a reconstruction fund for flooded areas during 2010-11.

As any project that requires a commitment from the government, VF, even for PPPs, must adhere to the country’s PIM framework and follow the guidelines for approval, execution and monitoring of public investment.

Existing regulation demands comprehensive disclosure of VF information. These are recorded in the information systems of the Ministry of Finance and the National Planning Department. The Medium-Term Fiscal and Expenditure frameworks must include a section on the amount of fiscal commitments that the VFs represent for the next 30 years, and how the resources are distributed between sectors and programs. They must also include a “pipeline” of projects that are in the process of securing VF. Below is a graph from the 2017 MTFF reporting VF for the PPP (Alianzas Publico Privadas) program.


PPP Ceiling Execution (March 2015)

% of GDP

Citation: IMF Staff Country Reports 2018, 258; 10.5089/9781484373620.002.A999

Source: “Contingent Liabilities: The Colombian Experience,” Ministry of Finance and Public Credit, 2011.

IMF, Staff Report for the Article IV Staff Report Consultation, February 2018.


Large public entities with government guarantees are public corporations (e.g., Air Namibia and Nampower) and, to a lesser extent, municipalities.


Existing PPPs are small both in number and volume (except in the energy sector) and are concentrated in a few sectors (mainly housing).


IMF, Analyzing and Managing Fiscal Risks – Best Practices, June 2016.


Australia, Brazil, Cyprus, Georgia New Zealand, Sierra Leone, South Africa, the Central African Economic and Monetary Community (CEMAC), United Kingdom.


The PPP Act, approved on July 14, 2017, provides a legal framework for PPP projects. It prescribes the creation of the institutional units managing and monitoring PPPs (notable a Public Private Partnership Committee, and the PPP unit in the MoF) and it regulates PPP-relate operations from project initiation, preparation, procurement, conclusion, management through implementation.


The number 71 public entities, is based on the current definition, but may change, based on the classification process that is currently underway.


Data on the PEs, including on their main financial indicators has been provided by the MoPE from the Public Enterprises Management and Evaluation System (PEMES). According to the information provided, the data is based on the latest available annual financial statements of the entities, as follows 2012 (1), 2013 (1), 2014 (6), 2015 (11), and 2016 (31). For 19 entities, financial data was not available.


Refer to paragraph 44 for more information on public corporations.


Policymaker: determine polices that apply to the sector in which the public entity operates. Shareholder: Ensure the public entity operates efficiently and financially sustainably, whilst maximizing their contribution to the economy. Fiscal authority: ensure fiscal sustainability of public entity’s activities. These roles are frequently overlapping.


OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015.


Refer to IMF FAD note entitled “How to improve the Financial Oversight of Public Corporations” for guidelines on the key elements of the SOE law and the financial controls that are typically provided for in legislation.


IMF, Fiscal Transparency Handbook (forthcoming), 2018.


These tripartite agreements are intended to govern the relationship between the MoPE, SOE and relevant policy ministry, particularly with respect to assigning SOEs to undertaken quasi-fiscal activities and the compensation thereof.


IMF, FAD, How to Improve the Financial Oversight of Public Corporations, 2016.


The draft Public Financial Management Act includes provisions for the classification of public entities. According to comments provided through AFRITAC South TA, the suggested classification is not sufficiently clear and not in line with international practice.


According to GFSM, corporations are legal entities that are engaged in market production, i.e., it provides all or most of its output at economically significant prices, and capable of generating a profit. The remaining PEs, even if they are legally constituted as corporations, should be reported as part of central government.


Transnamib and Air Namibia have been loss making for several years. Using the financial information over the last 3–5 years, their classification under the GFSM definitions should be reviewed to test whether they have been able to consistently generate revenues (excluding subsidies) to cover more than 50 percent of their operating expenditure (excluding financing costs). If not, they should be classified as government entities for reporting purposes. In the future, if they were to generate revenues that sustainably covered the majority of their operating costs, they could be reclassified as public corporations, as they are market producers.


Like UNAM (See paragraph 23 and Annex 2).


See IMF, 2007, Manual on Fiscal Transparency.


For more detail on good practice, see IMF, Manual on Fiscal Transparency, 2007; IMF, FAD, How to Improve the Financial Oversight of Public Corporations 2016; and OECD, 2015, Guidelines on Corporate Governance of State-Owned Enterprises.


The government would record financial transactions public in line with IPSAS and the public corporation would according to applicable accounting standards, e.g., IFRS.


The approach used by Lithuania, which could also be applied in the Namibian context where most of the public corporations are already reporting on the basis of IFRS, has been to require that public corporations report on quasi-fiscal activities as a separate operating segment in line with IFRS 8.


There are other long-term projects related to contract management and land servicing, among others, although they are not necessarily PPPs. Although there is no universally accepted definition of PPPs, FAD typically refer to PPPs as long-term arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided or financed by the government, where the public and private sectors share significant risks, and remuneration to the private is linked to performance. PPPs exclude simple joint ventures, the sale of public assets or of public company shares—which are part of a privatization process—and arrangements in which the private partner is not required to finance investment.


At the time of the mission, there is no enough information to estimate these risks.


UNAM projects and city of Windhoek water projects.


Yet, these risks are present in very small projects, such as water recycling project at the city and municipal level.


After the crisis, Portugal significantly improved its reporting of PPP commitments. The budget documents include a clear description of the current stocks on PPPs (liabilities in nominal value, percent of GDP and percentage of government expenditures), current and future payments (both annual nominal amounts and discounted NPV). “Parcerias Público-Privadas e Concessões – Relatório de 2011,” MoF, several publications.


At the request of the authorities, the report focused in assessing fiscal implications of PPP contracts (costs and risks). Other topics, such as risks sharing agreements, budgeting, accounting and reporting PPPs in government accounts, and others where discussed with the authorities in the context of a one-day workshop organized during the mission, and follow-up meetings. In particular, accounting for PPPs is discussed in Annex 4.


The proposed framework is in line with the principles prescribed by the IMF’s Fiscal Transparency Code (2014).


For a detailed discussion on accounting for PPPs, refer to Section 3.c and Annex 4.


Government-funded PPPs are contracts where the government pays back the private partner through fixed or variable routine payments over the life time of the project. Government payments can take different forms such as viability gap, availabilities, output-based payments.


User-funded PPPs are contracts where the private partner recoups its investment, operating costs, and a profit margin, through direct payments by users of the assets and/or services (e.g., road tolls).


The PFRAM, developed by the IMF and the WB, is based on international accounting and statistical standards (IPSAS32 and GFSM2014), as well as in good practices in assessing project risks.


The assessment was done with readily available information provided by the authorities with the purpose of training them on the use of the tool.


FAD commented on the Act in December 2017, after the Act had been approved. The comments had been shared with the AFR and the authorities.


Comments to the Act have been provided to the authorities in the context of the 2017 Article IV Consultation Report, while comments to the draft regulations were discussed during the mission and are being shared as a separate document.


In Namibia, PPP projects can be appraised, selected and approved through by a parallel process to that of regular public investment projects, which is not aligned with good practices.


The VFM analysis under the project proposal and project appraisal stages are done with different set of data. The first one with preliminary data, the second one with more solid project information. Therefore, they are not different in nature, but in the quality of the data they are based on.


The PIMA is a tool designed by the IMF, FAD to evaluate fifteen key institutional aspects representing three stages of the public investment cycle: (i) planning sustainable level of public investment, (ii) allocating public resources to the right sectors and projects, and (iii) delivering productive and durable public assets. The PIMA provides a summary of the strengths and weaknesses and targeted recommendations in a sequenced reform action plan.


The remaining public entities have other legal forms including funds, trusts and cooperatives.


Please check the conditions for asset recognition in the above link.

Namibia: Technical Assistance Report-Assessing and Managing Fiscal Risks from State-Entities and Public-Private Partnerships
Author: International Monetary Fund. Fiscal Affairs Dept.