What does the tool do?

• Assesses the financial vulnerability of up to 40 non-financial SOEs.
• Computes a set of financial vulnerability indicators based on income and balance sheet information.
• Assigns an overall risk rating to each SOE based on a combination of selected indicators.
• Provides ratios, charts, and risk matrix to enable analysis of individual SOEs.
• Produces summary outputs of the financial soundness of the SOE sector.
• Supports compilation of aggregate liabilities and balance sheet for the SOE sector as a whole.

Why analyze these risks?

SOEs comprise a significant share of economic and public sector activity in many countries, managing public assets equivalent to half of global GDP. Well-governed, SOEs can promote economic development and have the potential to support the provision of important goods and services to the public, while generating financial returns for taxpayers. But, poorly performing SOEs can be costly for public finances and generate significant fiscal risks.

Fiscal risks can arise from multiple sources, including lower than expected dividends, royalties or taxes received from SOEs, higher subsidies, the non-repayment of loans, need to service guarantees on their borrowing, or equity injections to cover previous losses. Poorly performing SOEs can also reduce the government's net worth. Historically, equity injections or other support provided to individual SOEs have cost on average, about 3 percent of GDP, and in some cases have been as large as 15 percent of GDP. Policymakers should regularly monitor the financial position and performance of SOEs and assess the potential for them to impact on public finances.

How can the tool support fiscal policymaking?

• Identifies SOEs with largest liabilities as an indication of government fiscal risk exposure.
• Provides high-level analysis to help identify which SOEs are more financially vulnerability and may be at higher risk of generating fiscal risks.
• Informs policymakers which SOEs may require more intense monitoring, need to be subject to more in-depth analysis, or require remedial actions to strengthen their financial position.
• Inform decisions on whether, and on what terms, to extend public support to SOEs.
• Provides the basis for disclosing information relating to the SOEs in line with sound fiscal transparency principles.

Linkages to other IMF fiscal risk and macro-fiscal analytical tools

The SOE HCT can be used in conjunction with the forward looking SOE Stress Test Tool to provide complementary information about SOEs financial vulnerabilities. The HCT is also based on the same methodology of the Discrete Loan and Guarantee Tool, which can help assess potential fiscal costs arising from state-support provided to SOEs. The outputs of the SOE HCT can also be used to inform further fiscal risk analysis using the IMF's Fiscal Stress Test approach, Public Sector Balance Sheet Assessments, or Debt Sustainability Analyses, by providing information on the overall assets and liabilities of SOEs, their exposures, and potential risks they pose.