Analyzing and Managing Fiscal Risks - Best Practices

Policy Papers ◽  
2016 ◽  
Vol 16 (25) ◽  
Author(s):  
Keyword(s):  
Risk Management ◽  
Technical Assistance ◽  
Global Financial Crisis ◽  
Fiscal Stress ◽  
Stress Tests ◽  
Medium Term ◽  
Quarter Century ◽  
Public Finances ◽  
Fiscal Risk ◽  
Fiscal Risks

Comprehensive analysis and management of fiscal risks can help ensure sound fiscal public finances and macroeconomic stability. This has been underscored by the global financial crisis and the more recent collapse in commodity prices, which starkly illustrate the vulnerability of public finances to risk. Indeed, over the past quarter century, governments experienced on average an adverse fiscal shock of 6 percent of GDP once every 12 years, with some of the largest stemming from financial crises. Countries need a more complete understanding of these potential threats to their fiscal position. Existing fiscal risk disclosure and analysis practices tend to be incomplete, fragmented, and qualitative in nature. A more comprehensive and integrated assessment of the potential shocks to government finances, in the form of a fiscal stress test, can help policymakers simulate the effects of shocks to their central forecasts and their implications for government solvency, liquidity, and financing needs. Comprehensive, reliable, and timely fiscal data covering all public entities, stocks, and flows are a necessary foundation for such analysis. Countries should also enhance their capacity to mitigate and manage fiscal risks. Fiscal risk management practices are often blunt, ad hoc, and too focused on imposing limits on the creation of exposures. Countries need to expand their toolkits for fiscal risk management and adopt the use of instruments to transfer, share, or provision for risks. In doing so, countries need to weigh the possible benefits from reducing their exposure to shocks against the financial and other costs of the policies that may be needed. Finally, countries should make greater use of probabilistic forecasting methods when setting long-run objectives and medium-term targets for fiscal policy. The paper illustrates how simple probabilistic tools can be used to map the uncertainty around medium-term trajectories for public debt. In combination with fiscal stress tests, these tools can provide valuable information regarding the probabilities that a country will stay within the debt ceilings embedded in their fiscal rules. The Fund is playing an important role in supporting improvements in fiscal risk analysis and management among its members. This includes technical assistance in constructing public sector balance sheets; developing institutions and capacity to identify specific fiscal risks and to quantify their potential impact; undertaking fiscal stress tests; and integrating risks into the design of medium-term fiscal targets.

scholarly journals Ukraine

2019 ◽  
Vol 19 (359) ◽  
Author(s):  
Keyword(s):  
Risk Management ◽  
Action Plan ◽  
Electronic System ◽  
Medium Term ◽  
Management Committee ◽  
Fiscal Risk ◽  
Risk Management Committee ◽  
Made In ◽  
Fiscal Risks

Good progress has been made in improving the disclosure and management of fiscal risks since the embedding of fiscal risks in the Budget Code in December 2018, including: • Development of a resolution setting out procedures for assessing different fiscal risks, which was being considered by the Cabinet of Ministers of the Ukraine; • An order to establish sanctions where required information is not submitted has been drafted but has not yet been submitted for approval; • The electronic system for gathering SOE data is now operational; • An action plan for enhancing fiscal risk management over the medium term (including creating a fiscal risk register (Q2 2020), and a fiscal risk management committee in the MoF (Q2 2021)) has been developed.

scholarly journals Modern Approaches to Management of Fiscal Risks: The Methodology and Practice

2021 ◽  
Vol 5 (520) ◽  
pp. 339-348
Author(s):  
L. B. Ryabushka ◽  
◽  
T. H. Kubakh ◽  
I. M. Pavlenko ◽  
◽  
...  
Keyword(s):  
Risk Management ◽  
Negative Impact ◽  
Budget Process ◽  
Public Finances ◽  
Fiscal Risk ◽  
Significant Negative Impact ◽  
Methodological Principles ◽  
The Stability ◽  
Main Components ◽  
Fiscal Risks

The formation of public finances in Ukraine is significantly influenced by fiscal risks, which, first of all, are associated with macro-economic shocks, accumulated through the State and guaranteed debt, natural disasters and other circumstances that have a significant negative impact on the stability of indicators of the budget system. The article is aimed at disclosing the essence, systematize methodological principles and practical approaches to managing fiscal risks for assessment, minimization of their impact on budget indicators in modern conditions of economic uncertainty. Comparison and generalization of existing developments of this problematics made it possible to systematize and characterize the following: the main approaches to understanding the economic essence of fiscal risks (functional, institutional, causal, structural, managerial); categorize risks in accordance with the current recommendations of international institutions (IMF, World Bank, OECD); reveal the peculiarities of the main components of the best practices of fiscal risk management in the countries of the world. Attention is focused on expanding the classification of fiscal risks in the national methodological provisions and their taking into account in the tax and customs spheres; directions of integration of the fiscal risk management system into the budget process of local budgets, amalgamated hromadas; development of scientific provisions on the substantiation of the integral indicator of assessing the fiscal risks, characterized by the nonlinear nature of the development of economic processes and the creation of powerful think tanks for qualitative measurement and forecasting of possible threats in the sphere of public finances.

scholarly journals Islamic Republic of Afghanistan

2021 ◽  
Vol 21 (57) ◽  
Author(s):  
Keyword(s):  
Public Finance ◽  
Risk Management ◽  
Public Private Partnerships ◽  
Islamic Republic ◽  
The Public ◽  
Fiscal Risk ◽  
Fiscal Risks

This remote mission provided the authorities with advice in fiscal risk management. The mission covered three interrelated topics: (i) the Public Finance and Expenditure Management (PFEM) Law and fiscal risks oversight and management; (ii) the Stated-Owned Corporations (SOC); and (iii) the Public-Private Partnerships (PPP). This report focuses especially on reforms that could be implemented during the life of the next IMF program.

scholarly journals Significance and Key Challenges in Conducting Stress Testing for Islamic Commercial Banks

2015 ◽  
Vol 1 (2) ◽  
pp. 085 ◽  
Author(s):  
Jamshaid Anwar Chattha
Keyword(s):  
Risk Management ◽  
Commercial Banks ◽  
Financial Stability ◽  
Stress Testing ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Management Tool ◽  
Stress Tests ◽  
Management Tools ◽  
Simple Task

With the current cross-border growth in Islamic finance, Islamic commercial banks (ICBs) are looking forward to being perceived as an industry in the process of becoming mature. This would require the establishment of some basic infrastructure, including sophisticated risk management tools that enhance the soundness and resilience of the ICBS. This paper focuses on the latter that is the role and significance of stress testing as a risk management tool. The stress testing has become part of the regulatory and supervisory authorities within the financial stability analysis. The global financial crisis (2008) has placed the spotlight squarely on stress tests. Though, ICBs operate within the similar financial environment, and their balance sheet composition, however, calls for different treatment in stress testing. Apart from the specificities of ICBs, there are key issues and challenges that should be given due considerations in developing an appropriate stress testing regime. This paper explores key specificities and challenges. The paper argues that in the beginning, conducting the stress testing may not appear a simple task for the ICBs. However, a proper consideration to the challenges identified in the paper would certainly tend to improve the overall effectiveness and credibility of the stress testing programmes.

scholarly journals Determinants of enhanced risk disclosure of JSE Top 40 Companies: the board risk committee composition, frequency of meetings and the chief risk officer

2019 ◽  
Vol 20 (1) ◽  
pp. 208-235 ◽  
Author(s):  
C Viljoen ◽  
B W Bruwer ◽  
Z Enslin
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Risk Identification ◽  
The Other ◽  
Significant Determinant ◽  
Risk Disclosure ◽  
Risk Committee ◽  
Top 40 ◽  
Level Of Risk

Risk disclosure practices have received increasing attention in the wake of the 2008 global financial crisis. This study investigated possible determinants relating to the composition of the board committee responsible for risk management, the frequency of board risk committee meetings and whether the company employs a chief risk officer, which could manifest in an enhanced level of risk-related disclosure. Based on the possible determinants identified in the literature, nine hypotheses were developed in order to investigate which of these determinants relate to an enhanced level of risk disclosure by the selected companies. The first required integrated reports of non-financial companies in the Top 40 index of the JSE Securities Exchange were investigated in this study. Regarding one area of investigation, namely the level of risk management disclosure, it was found that the disclosure of companies whose risk committee met more frequently and the disclosure of companies that employed a chief risk officer, were of a relatively higher standard. With regard to the other area of investigation, namely the level of risk identification and mitigation disclosure, no clearly significant determinant of enhanced disclosure was identified.

scholarly journals Managing Risk Integration for Performance Orientation among Malaysian Firms

2018 ◽  
Vol 12 (1) ◽  
pp. 119
Author(s):  
Michael Tinggi ◽  
Shaharudin Jakpar ◽  
Ng Kim Hui
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Business Processes ◽  
Global Financial Crisis ◽  
Random Effect ◽  
Financial Risks ◽  
Performance Orientation ◽  
Managing Risk ◽  
Corporate Level

The study is potentially, to explore the effect of discounting for risk on performance of firms listed in Malaysian stocks’ market. Risk management has been part of the corporate philosophy in maximizing shareholders’ wealth and firms’ profit. Managing risk cannot be done in isolation. Too often common risks pertinent to operation, liquidity and financing may be taken for granted by many firms. Risks exist on stand alone, but its implication may negatively severe firms’ performance if not addressed or dealt with properly. Integrating and managing risks may potentially improve the quality of business processes, which may orientate towards attaining firms’ performance at the corporate level. The 2007 global financial crisis has incidentally highlighted the importance of integrating and managing risk and its effect on business. Empirical evidences from the Panel Random Effect (RE) analysis of the above companies showed that the firm’s ability to manage and integrate operating, liquidity, and financial risks steer the firms towards performance orientation.

scholarly journals Risk management of Islamic banks: A search for empirical evidences

2017 ◽  
Vol 14 (2) ◽  
pp. 8-16
Author(s):  
Sayed M. Fadel ◽  
Jasim Al-Ajmi
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Management Practices ◽  
Global Financial Crisis ◽  
Risk Mitigation ◽  
Balance Sheet ◽  
Islamic Banks ◽  
Risk Levels ◽  
Management Techniques ◽  
The Global Financial Crisis

The objectives of this study are to determine 1) the effect of global economic and financial crisis on risk management, 2) the severity of different types of risk facing Islamic banks, 3) the risk levels of Islamic financial modes, 4) risk assessment techniques, and 5) risk management techniques. The structure of the balance sheet, the nature of Islamic finance instruments and funding sources have a great impact on the level of risk exposure of banks and the instruments. Credit risk is found to be the most serious risk, followed by liquidity risk, market risk and operational risk, in descending order of importance. As for the riskiness of Islamic financing modes, mudarabah is perceived to be the riskiest, followed by musharakah, while murabahah ranked as the least risky mode. Moreover, Islamic banks are found to use traditional risk management techniques more than sophisticated measurements. They also adopt risk mitigation techniques that are used by conventional banks in preference to techniques that are considered to be unique to Islamic banks. This paper is the first to study the risk management practices of Islamic banks operating in Bahrain. It also provides evidence about these practices after the global financial crisis that affected all countries, including Bahrain.

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