PPPs as a Source of Hidden Fiscal Risk
A significant danger in public financial management is treating PPPs as “free” infrastructure. While availability payments or revenue guarantees do not appear on the active national debt balance sheet during the construction phase, they create massive Fiscal Contractions and Contingent Liabilities that can compromise long-term fiscal stability.
Quantifying and Ceiling PPP Commitments
To prevent the executive from over-committing future tax revenues, modern PFM frameworks enforce strict limits on PPP exposure:
[ PFM PPP Ceilings ]
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          +---> Aggregate Cap: Total PPP contingent liabilities cannot exceed a set % of GDP (e.g., 5%)
          +---> Flow Cap: Annual availability payments cannot exceed a tiny % of domestic revenues (e.g., 1%)
          +---> Valuation Mandate: Government must value and report the probability of guarantee triggers

The Role of the Treasury’s Fiscal Commitment and Risk Assessment (FCRA) Unit
The National Treasury maintains a specialized FCRA unit separate from the PPP promoting unit. The FCRA unit must review every proposed PPP contract to calculate its maximum fiscal exposure, run probability simulations on guarantee triggers, and formally sign off on the project’s long-term affordability before procurement can begin.
 
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