Managing government debt guarantees is difficult because the potential costs of guarantees are hard to estimate and typically do not show up in the reported budget deficit. A good framework for managing guarantees can, however, help governments overcome the difficulties, enhance the transparency of guarantees, and reduce the fiscal risks.
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 course therefore covered two primary methods for quantifying the risk from guarantees: scenario stress testing and scorecards. The training presented tools developed by the World Bank in these areas, and elaborated on how the participants can customize such models or adapt other models to estimate the risks. The primary focus was on debt guarantees for new projects and for state-owned infrastructure, transport, and industrial companies. The scenario analysis was also extended to cover revenue-guarantees and portfolios of guarantees to multiple entities.
Participants, who work typically in ministries of finance, were invited to test the use of Excel-based models through practical examples included in the training, and apply their skills to estimate the possible costs from government guarantees.
Lilia Razlog, Senior Debt Specialist, World Bank