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Establishing a PPP Framework

21.8.5 Accounting for, and Reporting on, Fiscal Commitments

Governments need to account for and report on their financial commitments, including those under PPP contracts. Fiscal reporting on PPPs needs to be consistent with fiscal reporting generally. There are three main types of fiscal reporting.

  • Government finance statistics: These are summary statistics on the state of a government’s finances, which are intended to be internationally comparable. These statistics may follow regional or international standards, such as those set by Eurostat for European Union countries, or the International Monetary Fund (IMF) publication Government Finance Statistics Manual (GFSM) published in 2001;[143]
  • Government financial statements: Most governments publish audited financial statements. There are internationally recognized standards on what should be in those financial statements, although in practice few governments meet those standards. The International Public Sector Accounting Standards (IPSAS) is a modified version of the International Financial Reporting Standards (IFRS). IPSAS is designed for use in the public sector, and IFRS applies to companies. Some governments use simplified versions of the IPSAS standards (for further information see; and
  • Budget documentation and reporting: Most governments prepare reports on financial performance as part of budget preparation and reporting. These are not subject to any international standards, although there are international guidance materials that promote transparency. For example, the IMF’s Manual on Fiscal Transparency (2007) and the Organization for Economic Co-Operation and Development’s (OECD) Best Practices for Budget Transparency (2002).[144],[145]

In general, the standards referred to above set rules or guidelines for whether and how various kinds of liabilities and expenditures should be recognized or disclosed.

Recognizing PPP liabilities in government accounts

Governments need to decide whether and when PPP commitments should be recognized, that is, formally recorded in financial statements as a liability or expense. This is important because limits or targets are often set on the government’s overall liabilities and expenditures, and depending on how PPPs are reported and incorporated in national accounts, this may create a dangerous bias in favor of the PPP tool (see chapter 1.5.1). The extent to which PPP commitments are recognized as government capital expenditure or liabilities can therefore influence a government’s decision to pursue PPPs, including how to structure them.[146]

The financial standards vary in their treatment of PPP fiscal commitments. Two standards specifically address when and how direct liabilities and assets of PPP projects should be recognized by the contracting governments in its accounts.

  • IPSAS Standard 32: Introduced in 2011, IPSAS 32 defines when PPP assets and liabilities should be recognized, assuming a government is following IPSAS accrual accounting standards. Under IPSAS 32, the asset will be regarded as belonging to the government’s. Therefore, PPP assets and liabilities should be included in the government’s balance sheet if (i) the government controls or regulates what services the operator must provide with the PPP asset, to whom, and at what price; and (ii) the government controls any significant residual interest in the asset at the end of the contract. Under this definition, government-pays PPPs would appear on the government’s balance sheet; the treatment of user-pays PPPs is less clear, and may depend on the details of the contract; and[147],[148]
  • Eurostat guideline: Before the introduction of IPSAS 32, the only standard specifically addressing PPPs was a Eurostat ruling. This ruling requires European governments to recognize PPP liabilities in debt statistics where the government does not transfer to the private sector “the majority of risks”, including construction risks and either demand or availability risk. Chapter 4.12 provides more detail on Eurostat criteria.[149]

Most accounting and reporting standards do not require governments to recognize contingent liabilities, including those arising from PPP contracts. There is one exception: IPSAS standards for governments implementing accrual accounting require contingent liabilities to be recognized if it is likely that the underlying event will occur and the amount of the obligation can be measured with sufficient reliability.[150] In this case, the net present value of the expected cost of the contingent liability should be recognized as a liability (a provision) and as an expense when the contract is signed.

As part of the appraisal exercises, the respective country may require a specific analysis to determine whether the asset (and associated liabilities) should be recorded on the public balance sheet or on “off government accounts”. This will influence whether the government proceeds with the PPP route (or with the project in any form) depending on the regulatory or policy limits that may be in place for government debt and deficit. This analysis is further explained in chapter 4.12.

When governments have IMF or other international donor agreements, the accounting and reporting standard may differ from IPSAS and Eurostat. In this case, the debt limits and reporting guidelines will be set by the donors.

Disclosing PPP liabilities

Most international reporting and statistical standards agree that even when PPP commitments are not recognized as liabilities, they should be disclosed in notes to the accounts and reports.

Disclosing useful information on contingent liabilities is complicated. In principle, it would be useful to disclose the expected value of payments. The expected value of a contingent liability is difficult to predict. It is also useful if the magnitude and the likelihood of a liability being incurred are disclosed. Such disclosure could usefully be substantiated by a report with additional information. Examples of this are provided in box 2.21.


BOX 2.21: Examples of PPP Liability Disclosure

Cebotari’s paper on Government Contingent Liabilities describes international guidelines for how contingent liability exposure should be disclosed including those under PPP programs and provides examples from several countries.

Cebotari’s paper also describes how some countries have interpreted these standards in practice. For example, Australia and New Zealand disclose contingent liabilities including to PPPs in notes to financial statements available online.[151] Since 2007, Chile’s Budget Directorate[152] of the Ministry of Finance has published an annual contingent liabilities report which initially presented information on contingent liabilities from revenue and exchange rate guarantees to PPPs. This report has since been expanded to cover other types of government contingent liability.

Source: Cebotari (2008) Contingent Liabilities: Issues and Practice.


[143] International Monetary Fund (IMF) (2001) Government Finance Statistics Manual.

[144] International Monetary Fund (IMF) (2007) Manual on Fiscal Transparency.

[145] OECD (2002) Best Practices in Budget Transparency.

[146] In addition to potentially favoring PPPs when there are restrictions on debt or the budget, when PPP accounting depends on risk transfer (for example ESA 2010) this may influence the PPP structure by incentivizing the government to transfer more risk than the optimum, therefore destroying the VfM of the PPP.

[147] As of January 2012, no government has fully adopted IPSAS standard 32, so it remains to be seen how it will be interpreted in practice.

[148]International Public Sector Accounting Standards Board (2011) IPSAS 32 Service Concession Agreements: Grantor.

[149]Schwartz, Corbacho and Funke (2007) Public Investment and Public-Private Partnerships. International Monetary Fund.

[150] Cebotari (2008) Contingent Liabilities: Issues and Practice.

[151] For New Zealand, see; for Australia, see

[152] Dipres (2010) Dirección Presupuestaria from the Ministerio de Hacienda of Chile.

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