Fiscalmanagement ₤ $ Ipsumtristique IpsLoumretrmistiqIpuesum ( L o re mIp sum Ip su mtr istiq ue 85% Loremipsum ANINFRASTRUCTUREGOVERNANCEAPPROACHTOFISCALMANAGEMENTIN STATE-OWNEDENTERPRISESANDPUBLIC–PRIVATEPARTNERSHIPS NOVEMBER2022 ASIANDEVELOPMENTBANK ANINFRASTRUCTUREGOVERNANCEAPPROACHTOFISCALMANAGEMENTIN STATE-OWNEDENTERPRISESANDPUBLIC–PRIVATEPARTNERSHIPS NOVEMBER2022 ASIANDEVELOPMENTBANK CreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO) ©2022AsianDevelopmentBank 6ADBAvenue,MandaluyongCity,1550MetroManila,PhilippinesTel+63286324444;Fax+63286362444 www.adb.org Somerightsreserved.Publishedin2022. ISBN978-92-9269-760-0(print);978-92-9269-761-7(electronic);978-92-9269-762-4(ebook) PublicationStockNo.TCS220410-2 DOI:http://dx.doi.org/10.22617/TCS220410-2 TheviewsexpressedinthispublicationarethoseoftheauthorsanddonotnecessarilyreflecttheviewsandpoliciesoftheAsianDevelopmentBank(ADB)oritsBoardofGovernorsorthegovernmentstheyrepresent. ADBdoesnotguaranteetheaccuracyofthedataincludedinthispublicationandacceptsnoresponsibilityforanyconsequenceoftheiruse.ThementionofspecificcompaniesorproductsofmanufacturersdoesnotimplythattheyareendorsedorrecommendedbyADBinpreferencetoothersofasimilarnaturethatarenotmentioned. Bymakinganydesignationoforreferencetoaparticularterritoryorgeographicarea,orbyusingtheterm“country”inthisdocument,ADBdoesnotintendtomakeanyjudgmentsastothelegalorotherstatusofanyterritoryorarea. ThisworkisavailableundertheCreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)https://creativecommons.org/licenses/by/3.0/igo/.Byusingthecontentofthispublication,youagreetobeboundbythetermsofthislicense.Forattribution,translations,adaptations,andpermissions,pleasereadtheprovisionsandtermsofuseathttps://www.adb.org/terms-use#openaccess. ThisCClicensedoesnotapplytonon-ADBcopyrightmaterialsinthispublication.Ifthematerialisattributedtoanothersource,pleasecontactthecopyrightownerorpublisherofthatsourceforpermissiontoreproduceit.ADBcannotbeheldliableforanyclaimsthatariseasaresultofyouruseofthematerial. Pleasecontactpubsmarketing@adb.orgifyouhavequestionsorcommentswithrespecttocontent,orifyouwishtoobtaincopyrightpermissionforyourintendedusethatdoesnotfallwithintheseterms,orforpermissiontousetheADBlogo. CorrigendatoADBpublicationsmaybefoundathttp://www.adb.org/publications/corrigenda.Notes: Inthispublication,“$”referstoUnitedStatesdollars. ADBrecognizes“Korea”astheRepublicofKoreaand“Russia”astheRussianFederation. Printedonrecycledpaper CoverdesignbyIngridSchroder. iii Contents Table,Figures,andBoxiv Forewordv AuthorBiographiesvii Acknowledgmentsvii Abbreviationsviii 1.Introduction1 2.AsiaInfrastructureInvestmentChallenges3 3.InvestinginQualityInfrastructure9 4.SourcesofEfficiencyGapsinInfrastructureInvestment13 Public–PrivatePartnershipsasaSourceofFiscalandDebtRisk21 ActualandContingentLiabilities22 AccountingStandards—DisclosureofActualandContingentLiabilities24 5.GovernanceApproachtoManagingFiscalRisks26 IntegratedPlanningandtheBudgetRule26 SubsidiesDisguisedasGuarantees27 ManagingContingentLiabilities28 6.Conclusions30 References32 Table,Figures,andBox Table InfrastructureInvestment—EstimatesofAnnualBenefitsfromEfficiency12 andProductivityAssociatedwithQualityInfrastructure Figures 1ADB-EstimatedInfrastructureInvestmentNeedsbySector,2016–2030,at2015Prices3 2InternationalMonetaryFundPublicInvestmentManagementAssessment5 forAsiaandthePacific 3GrowthinGovernmentDebt,PercentofGrossDomesticProduct6 4ClassificationofADBDevelopingMemberCountriesBasedonLevelsofDebtDistress7 5FiscalImpulsesinDevelopingAsia,2020–20238 6BuildingthePublicInvestmentFrontier10 7PublicCapitalandInfrastructurePerformance:HybridPublicInvestmentEfficiency11 ScorebyRegion 8GovernmentandState-OwnedEnterpriseFiscalRelationships16 9AverageReturnonEquity,State-OwnedEnterprisesversusPrivateFirms,2010–201817 10IllustrativeExampleCashFlowsforLoss-MakingState-OwnedEnterprise18 11ImplicitSubsidies,2010–201818 Box FiscalRiskManagementReforminArmeniaandthePhilippines23 iv Foreword T heAsiaandPacificregioniscommittedtoaclimate-resilientandsustainableeconomicfutureevenasitgrappleswithfiscalanddebtpressuresfollowingthevastincreaseofpublicexpendituretodriveeconomicrecoverywiththecoronavirusdisease(COVID-19)pandemic.TheRussian invasionofUkraineexacerbatesthesefiscalanddebtconcernsassanctionsonexportsandsupplychaindisruptionsfromBlackSeaportsseverelyimpacttheexportofenergyandfoodfromUkraineandtheRussianFederation.TheAsianDevelopmentOutlookoftheAsianDevelopmentBank(ADB)showsBrentcrudeoilspotpricesincreased64.3%fromJune2021toJune2022.1TheFoodandAgricultureOrganizationoftheUnitedNations(FAO)FoodPriceIndexreachedahistoricalhighinFebruary2022,rising21%over2021.2Theincreaseinwheatpriceswillaffectcountrieswherewheatisover10%ofthefoodconsumerpriceindexsuchasArmenia,India,Pakistan,thePhilippines,theRepublicofKorea,SriLanka,andTajikistan.TherapidincreaseinenergyandfoodpriceswillcontributetothegrowthofinflationinmostADBdevelopingmembercountries(DMCs)ofaround3.7%in2022,com