Fiscal Risk in PPPs: Defining the Problem
Public-Private Partnerships (PPPs) can sometimes be perceived as a means for delivering infrastructure for free. A more nuanced view is that they are a mechanism to overcome fiscal constraints, a tool to realize public investments—especially large public infrastructure—when the government does not have the resources to implement these projects on budget. Some argue, and perhaps rightly so, that often governments enter PPP contracts without fully understanding their fiscal implications or impact.
The International Monetary Fund (IMF) and the World Bank have updated an important tool to help governments assess fiscal costs and risks arising from PPPs: the Public-Private Partnership Fiscal Risk Assess- ment Model (PFRAM) 2.0. The tool goes further to help governments manage PPPs proactively—so that identified risks are allocated, managed, and priced correctly—and, ideally, so that they don’t materialize. PFRAM has been in use since 2016 as part of IMF and World Bank technical assistance and has also been used by developing-country authorities working on these issues. Version 2.0 incorporates feedback from developers and users, is easier to understand by non-PPP experts, and extends the tool’s coverage and functionalities.
