Transcript d1-am_-_session_2_-_ioana_burla_romaniax

Risks - Identification, management
and mitigation strategies
Ioana Burla, General Director - Budget Department
Ministry of Public Finance
ROMANIA
28-29 JUNE 2016
Ljubljana, Slovenia
FISCAL TRANSPARENCY EVALUATION FOR ROMANIA
INTERNATIONAL MONETARY FUND
OCTOBER 2014
Risks - Identification, management and mitigation strategies
Analysis of Fiscal Risks
• Macroeconomic Risks
• Specific Fiscal Risks
• Comparability of Fiscal Data
(Basic)
(Basic)
(Not met)
Management of Fiscal
Risk
• Budgetary contingencies
• Tax expenditure
• Asset and liability management
• Guarantees
• Public-private partnerships
• Exposure to the financial sector
• Natural Resources
• Environmental risks
(Basic)
(Not Met)
(Basic)
(Good)
(Not Assessed)
(Not met)
(Not Met)
(Not Met)
• Sub-national governments
• Public corporations
(Advanced)
(Basic)
Fiscal Coordination
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Risks - Identification, management and mitigation strategies
In 2016, the analysis for fiscal policy are in:
(i) Convergence Program 2016 –2019 link:
http://www.mfinante.ro/programDeConvergenta.html?pagina=domenii
(ii) Fiscal and Budgetary Strategy for 2016 –2018 link:
http://www.mfinante.gov.ro/strategbug2015.html?pagina=domenii
(iii) Report on the Macroeconomic Situation of 2016 and Forecasts for the Years 2017–2019 link:
http://discutii.mfinante.ro/static/10/Mfp/proiect_buget_2016/Raportbuget2016.pdf
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Long-Term Fiscal Sustainability
Long term forecast of pension expenditures
Pension Pillar 1
Pension Pillar 2
2013
2014
2020
2030
2040
2050
2060
8.2
‐
8.2
‐
8.1
‐
8.1
0.1
8.4
0.4
8.4
0.7
8.1
0.8
Source: National Prognosis Commission
 The estimates of the pension model indicate an increase of pension expenditures share under Pillar 1,
from 8.2% of GDP in 2013 to around 8.4% of GDP at the beginning of the 2040-50 decade, followed by a
gradual decrease towards the end of the forecasting interval, until below the share of the baseline year.
 The Pension Pillar 2 will have an increasingly substantial share in the total pension expenditures, and is
expected to amount to around 0.8% of GDP at the end of the forecasting interval.
Convergence Program 2016–2019 –extras
In the Fiscal Sustainability Report 2015, European Commission, for Romania no significant risks of fiscal
stress arise in the short-term, but high risks appear in the medium term.
Medium-level risks emerge from the analysis of the sustainability gap indicator S1, due mainly to the
unfavorable initial budgetary position and partly to the projected age-related public spending.
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Tax expenditure
Tax expenditure – mandatory publication of data - legal basis: art.32 of Fiscal Responsibility Law: „The report that
accompanies the state budget law includes detailed information regarding the impact of tax expenditures on the
budgetary revenues.”
For estimating the tax expenditures, Romania uses the "lost income” method Under the circumstances, the tax
expenditures were projected at 27,479 million lei (3.9% of GDP) in 2015, and are expected to trend slightly up in 201618. VAT-related expenditures have the highest share in the total tax expenditures.
GDP (million lei)
Tax expenditures* (in million lei)
(% of GDP)
of which:
Corporate Income Tax (million lei)
(% of GDP)
2015
704,500
27,452
(3.9)
2016
746,600
30,262
(4.1)
2017
795,300
30,578
(3.8)
2018
848,700
31,970
(3.8)
936
(0.13)
997
(0.13)
351
(0.05)
9,605
(1.29)
10,334
(1.38)
41
(0.01)
5,572
(0.75)
3,362
(0.45)
841
(0.11)
361
(0.05)
9,968
(1.25)
10,093
(1.27)
43
(0.01)
794
(0.09)
370
(0.04)
10,251
(1.21)
10,879
(1.28)
46
(0.01)
6,092
(0.72)
3,539
(0.42)
Tax on microbusinesses income (% of GDP)
Personal Income Tax (million lei)
(% of GDP)
Value-Added Tax (million lei)
(% of GDP)
0
8,653
(1.23)
10,069
(1.43)
Excise duties (% of GDP)
Social Contributions (million lei)
(% of GDP)
Local Taxes and Charges (million lei)
(% of GDP)
0
4,437
(0.63)
3,357
(0.48)
5,819 (0.73)
3,452
(0.43)
Report on the Macroeconomic Situation of 2016 and Forecasts for the Years 2017–2019 - extras
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Environmental risks
The amount of damages caused by natural disasters in 2005-2014
Year
The damage's amount
- thousand lei -
- % of GDP -
2005
5,975,202
2.1
2006
887,500
0.3
2007
708,585
0.2
2008
1,600,693
0.3
2009
2010
0
3,736,150
0.0
0.7
2011
0
0.0
2012
464,011
0.1
2013
705,917
0.1
2014*
279,261
0.0
* only expenditures with snow removal and floods in April 20-21 2014
Report on the Macroeconomic Situation of 2016 and Forecasts for the Years 2017–2019 - extras
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Asset and liability management
Sensitivity analysis of public debt[1] is having regard to:
1) the influence of economic growth, the domestic currency depreciation and fiscal slippages on the government debt; and
2) the impact of domestic currency depreciation and interest rates changes on interest payments.
Factors which impact the government debt
% GDP
50%
46%
42%
38%
34%
30%
2015
2016
2017
2018
2019
government debt (% of GDP) baseline scenario
government debt (% of GDP) 1% decrease
government debt (% of GDP) 10% national currency depreciation scenario
government debt (% of GDP) fiscal slippage scenario
government debt (% of GDP) scenario with all of the factors combined
Source: Ministry of Public Finance
[1]
All indicators used in this sub-chapter are consistent with the EU methodology.
Convergence Program 2016–2019 -extras
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Asset and liability management
Exposure to risk
Indicator
KEY RISK INDICATORS
Indicative targets for
2016 – 2018
40% (minimum) – 60%
80% (minimum) – 95 %
Currency risk
Share of domestic currency debt in total debt (% of total)
Share of EUR denominated debt in total foreign currency
denominated debt (% of total)
Refinancing risk
Debt maturing in 1 year (% of total)
Local currency debt maturing in 1 year (% of total)
15% - 25% (maximum)
20% - 30% (maximum)
ATM* for total debt (years)
ATM*for local currency debt (years)
Debt re-fixing in 1 year (% of total)
Local currency debt re-fixing in 1 year (% of total)
Average time to re-fixing for the total debt (years)
Average time to re-fixing for the debt in domestic currency (years)
5.5 years (minimum) – 7.0 years
3.0 years (minimum) – 5.0 years
15% - 25% (maximum)
20% - 30% (maximum)
5.0 years (minimum) – 6.5 years
3 years (minimum) – 5 years
Interest rate risk
Source: Government Public Debt Management Strategy 2016 – 2018 - Ministry of Public Finance
* Average time to maturity
Guidelines used for government borrowing in 2016 – 2018:
1. The net financing in local currency is to be favored as a move to further facilitate the development of the domestic market of government securities and help mitigate foreign
currency exposure, at the same time considering the market absorption capacity and, in general, the demand for debt instruments denominated in lei.
2. Pursue a smooth redemption profile, avoiding to the extent possible the concentration of principal repayments/refinancing of government securities in the short-term.
3. Mitigate the refinancing risk and the liquidity risk by maintaining a foreign currency buffer and possibly other instruments depending on the terms and conditions thereof.
4. Maintain a presence on the international capital markets, through issuances of Eurobonds mainly in EUR and access the USD market or other foreign currency markets on an
opportunistic basis, giving consideration to the extension of the debt portfolio average maturity and taking into account the cost/risk ratio associated thereto and the
diversification of the investment base.
5. In the process of external financing, the debt will be contracted mainly in EUR.
6. The issuances denominated in Euro on the domestic market can be considered only under the circumstances of reimbursement/refinancing of similar instruments issued on
the domestic market, which is, if there is a liquidity surplus in Euro on the domestic market, a very high demand and very favorable costs.
7. Maintain the exposure to interest rate risk under control by monitoring the share of domestic debt refixing within the next year and the average time to refix for the total
portfolio.
8. Use financing instruments offered by the international financial institutions to benefit of the favorable terms and conditions attached to those instruments.
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Asset and liability management
The fiscal Responsibility Law introduced limits on government debt, calculated according to the methodology of the
European Union. In case of Public Debt/GDP is:
 45% to 50%, Ministry of Public Finance presents a report on the evidence the government growth and
proposals to maintain this indicator at a sustainable level;
 50% to 55%, the Government initiate and adopt a program by law with measures to reduce the share of
this indicator in GDP, including the freeze in remuneration in the public sector;
 55% to 60%, additionally to the measures above, the Government will freeze the total expenditure on
social assistance expenditure in the public sector;
 Above 60%, the Government adopts the excessive deficit procedure annexed to the Treaties of the
European Union, and the public debt will be reduced by an average of 5% per year.
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Public corporations
Risks associated to the state-owned companies sector:





Total assets of SOEs amounted to 174.67 billion lei, accounting for 26.2% of GDP. Of these, the assets of
companies subordinated to the central government totaled 145.90 billion lei, accounting for 21.9% of GDP,
and the assets of companies subordinated to local governments amounted to 28.77 billion lei, accounting for
4.3% of GDP.
Total liabilities of the state-owned companies, i.e. 174.67 billion lei, accounted for 26.2% of GDP. Of these,
total debts (amounts that must be paid within one year and more than one year) of public companies
amounted to a total of 56.52 billion lei, i.e. 8.5% of GDP, of which the total debts of companies subordinated
to the central government were 42.01 billion lei, accounting for 6.3% of GDP, and the total debts of
companies subordinated to local governments amounted to 14.51 billion lei, i.e. 2.2% of GDP.
Of the total debt, the arrears of public companies amounted to 25.99 billion lei, which is 3.9% of GDP. Of
these, the arrears of companies subordinated to the central government amounted to 17.61 billion lei (2.6%
of GDP) and the arrears of companies subordinated to local government amounted to 8.38 billion lei (1.3% of
GDP).
The SOEs indebtedness calculated according to the formula (Total Debts/Total Assets was 32.36%, of which
28.79% for the public companies subordinated to the central government and 50.45% for the public
companies subordinated to the local governments.
In 2014, the public companies ran a loss of 7.32 billion lei, accounting for 1.1% of GDP, with the profit of
public companies amounting to 3.22 billion lei, i.e. 0.48% of GDP.
The Fiscal Budgetary Strategy 2016-2018 – extras
Liabilities of and assets of government controlled entities classified outside general government are published,
link: http://www.mfinante.ro/activepasive.html?pagina=buletin
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Thank you!
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