Public financial management of PPPs relates to how fiscal commitments under PPPs are controlled, reported, and budgeted. Public financial management aims to reduce the risk of PPPs costing the government more than expected or placing undue burden on future generations.
PPP contracts commit governments to substantial payments years into the future. This can create challenges for public financial management which is generally geared to annual appropriations for expenditure. For this reason, PPP- specific approaches to public financial management have been developed.
Strong public financial management is desirable because poor financial management of PPPs can have wide reaching economic impacts. Rating agencies will examine the overall financial health of governments including the implications of PPP fiscal commitments when assigning a rating to government debt. If a government is not managing the financial commitments of their PPP contracts, the government bonds may be seen as a risky investment, increasing the overall government cost of debt.
This section first describes common types of fiscal commitments (section 1.8.1) and how those commitments can be quantified (section 1.8.2). It then outlines how to decide on making fiscal commitments (section1.8.3), and how budgeting for PPPs should be done (section 18.4). Finally, it shows how the effectiveness of commitments can be maximized (section 1.8.4) and how to account for and control PPP exposure (section 1.8.5 and section 1.8.6 respectively).