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Ministries of finance are often asked to guarantee a state-owned electricity utility's payments to an independent power producer under a power-purchase agreement. To decide whether to grant the guarantee, the ministry should have at least a rough estimate of the guarantee's expected cost. Making use of an analogy between a power-purchase agreement and a debt contract, this paper shows how the ministry can get such an estimate by applying a method developed to estimate the expected cost of debt guarantees. An estimate of the probability of the utility's not being able to meet its obligations under the power-purchase agreement can be derived from the utility's actual or estimated credit rating in the absence of government support. The government's expected payments under the guarantee can then be estimated by multiplying the utility's payments under the power-purchase agreement by this probability. The estimates produced by the method will be imprecise, but the method may be easier to apply than alternative methods, and an imprecise estimate may be better for policy makers than no estimate.

Electric Power --- Electric Utilities --- Electricity --- Energy --- Energy Policies and Economics --- Fiscal Policy --- Fiscal Risk --- Guarantees --- Independent Power Producer --- Power Purchase Agreement --- Public Guarantee --- Public Sector Development --- State-Owned Enterprises --- Utilities

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Public-private partnerships (PPPs) can appeal to governments because they offer a new way of providing public services that is possibly more efficient than traditional public finance. But they can also appeal to governments because they allow new investments to be undertaken without any immediate increase in reported government spending or debt. This second motive for using PPPs rests largely on an illusion, because in the absence of efficiency gains (which are probably small relative to the total cost of the project), PPPs and publicly financed projects have a similar long-run effect on public finances. In some PPPs, the government defers payment, but ultimately must still pay the full cost of the project. In others, it concedes the right to collect user fees, and thus loses revenue it would have collected if the project had been financed traditionally.

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Central to making good decisions about debt guarantees is assessing their expected and possible fiscal cost, a task that many governments still struggle with. This paper therefore describes a relatively simple scenario analysis method for estimating potential payments from the government when a beneficiary faces difficulty with debt payments. The basic version of the approach estimates the payments in a given scenario to inform risk management decisions. The paper then extends the method for situations where more rigor is required or where the economic guarantee fee is to be estimated. The final part of the paper extends the method to assess the combined loss of multiple guarantees when simultaneously subjected to negative economic conditions.

Debt Management --- Debt Markets --- External Debt --- Finance and Financial Sector Development --- Public Finance --- Public Sector Development

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Policy toward fiscal rules is an important issue in the countries of the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia). According to a rough estimate, the countries with rules (all but North Macedonia) have complied with their debt and overall-deficit rules a little more than half the time. An online survey, conducted for this paper, suggests that public understanding of the rules is limited, which may reduce the political pressure for compliance. To get debt down to prudent levels, Albania and Montenegro will need a strong commitment to complying with their fiscal rules and will often have to do more than their deficit rules require. The following principles should guide future policy toward fiscal rules: more emphasis should be given to ensuring that fiscal rules are widely understood and enjoy the support of a broad range of stakeholders; policy toward the rules should be consistent with accession to the European Union, but the rules should be simpler than the European Union's and the debt limits lower; limits in rules should not be mistaken for targets; and public financial management should be improved to support the implementation of rules.

Debt Ceiling --- Debt Limit --- Deficit Ceiling --- Economic Policy, Institutions and Governance --- Fiscal and Monetary Policy --- Fiscal Governance --- Fiscal Policy --- Fiscal Rules --- Macroeconomics and Economic Growth --- Political Economy --- Public Financial Management --- Public Sector Development --- Stakeholder Engagement