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that future PPP regulations are kept consistent with the revised budget law, to ensure
appropriate budget coverage and maximum disclosure of information.
D. Good Accounting and Reporting
Standards and practices on PPPs vary across countries, but recent international standards
are in line with the best practices. Many countries have not established national accounting
and reporting standards for PPPs, while others’ practices can be considered more advanced in
monitoring all PPPs, including user-funded projects. For example, Australia and Canada record
most PPPs on the government balance sheet. France accounts for government-funded PPPs in
the government balance sheet, while it reports data on user-funded PPPs in complementary
budget documents. These best practices are consistent with the recently approved international
standards: For accounting purposes, International Public Sector Accounting Standards 32 (IPSAS
32); for reporting purposes, the IMF’s Government Finance Statistics Manual 2014 (GFSM 2014)
and the 2011 Guide on Public Sector Debt Statistics (PSDS 2011). These standards are all accrual-
based.
The adoption of IPSAS 32, GFSM 2014, and PSDS 2011 should lead, in practice, to most
PPPs being treated on-budget (Funke et al., 2013). For example, according to IPSAS 32, projects
undertaken in the form of a PPP should be considered public, and therefore affect the main fiscal
aggregates, as long as the government controls or regulates what services, to whom, at what
price the services are provided. Otherwise, the project carries out a commercial activity, and
should be recorded differently. As a result, the incentive to pursue PPPs as a way to circumvent
budgetary restrictions and/or debt limits would be minimized. This is because debt and the
overall deficit would increase, regardless of whether the infrastructure is procured through PPPs
or traditional public procurement.
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This would be a major improvement in government
reporting, where most PPPs are currently treated as off-budget. Appendix 3 provides further
details on the fiscal implications of the implementation of IPSAS 32. The IMF and the World Bank
have also jointly developed the PPP Fiscal Risk Assessment Model (PFRAM) to assess fiscal risks
from individual PPP projects based on IPSAS 32.
As in many other emerging economies, China’s government accounting is cash based
which tends to underestimate fiscal risks from PPPs. The discrepancy between cash and
accrual accounting of PPPs can be substantial, particularly at early stages of the project cycle. In
principle, cash-based systems do not require that expenditures or debt be recorded at early
stages of the PPP project cycle, when the private partner, instead of the government, spends
cash to construct the project. This can result in an underestimation of the medium and long-term
impact of PPPs (Appendix 2.B).
However, it should be stressed that transition from cash to accrual standards will take
time, which necessitates a gradual approach in China. Applying IPSAS 32 will most likely be a
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In China’s context, government liabilities will increase regardless whether the project will be procured through
PPPs or traditional public procurements, as long as the government controls or regulates what services, to whom,
at what price. Also in this case, government liabilities will increase regardless whether the private partner is an
SOE or a truly private company.