According to international practice, fiscal risk is defined as fiscal aggregates deviation opportunity from expected indicators, which were defined during budget planning phase or formation of fiscal forecasts. Ignorance or inefficient management of these risks leads to increase of state liabilities (i.e., as a result of the sudden changes in macroeconomic environment extra expenses of the state budget or deviations from the expected level of revenues), difficulty of refinancing and endanger the state's short and medium-term fiscal sustainability. From the possible negative influence is derived the need for adequate analysis, reporting and management in this regard.

Depending on the above mentioned importance, international standards of managing public finances and better practice manuals draw particular attention to fiscal risks in terms of transparency and management principles, among them can be drawn up, International Monetary Fund's Fiscal Transparency Code (IMF, 2014), recommendation of the council on budgetary governance (OECD, 2015), as well as framework for assessing public financial management (PEFA, 2016).

In recent years, substantial improvement has been made in reporting and management of fiscal risks in Georgia. In particular, in the International Monetary Fund's fiscal transparency evaluation, published in 2017, has been mentioned that the practice of fiscal risk analysis and management in Georgia largely coincides with good or advanced practices, however, in assessment has also identified the existing challenges and the relevant recommendations have been presented. It should be noted here that the majority of these recommendations, as for 2019, are already envisaged. Namely:

1. In terms of fiscal risk analysis and reporting, according to the IMF's evaluation, analysis of Georgia's macroeconomic and specific fiscal risks satisfies the requirements of the advanced practice, however, the challenge was to prepare long-term fiscal sustainability analysis. Taking into consideration this recommendation, time cover of the government's debt sustainability analysis expanded up to 10 years and was also integrated into the document shock of contingent liabilities for better assessment of fiscal risks.
2. In terms of fiscal risk management, the IMF estimate that the management of state assets and liabilities, state debt guarantees and fiscal risks associated with the financial sector are good practices, however, the most notable challenges were:

• State budget reserve funds management, where recommendations were specified to improve existing criteria for use of funds from reserve funds. In response to the recommendation, the maximum limit of reserve funds for government and president has been reduced from 2% of total outlays to 1%. In addition, restricted increase of overall volume of the reserve funds by 20% compared to the overall approved volume of each.
• Issue of fiscal risks related to public and private partnerships, where two main recommendations were presented: On the one hand, general refinement of reporting on contingent liabilities in the fiscal risks report; On the other hand, limit of public and private partnership projects and energy procurement contracts by means of annual budget law for better control of risks. Considering the recommendations, the fiscal risk statement (FRS) attached to the draft Bill of 2019 includes information on fiscal expenses related to electricity guaranteed purchase agreements. As for the limitation, according to the amendment to the organic law of Georgia on "economic freedom" in 2018, along with other components, limit on the government's debt at the level of 60% of GDP also includes the current value of liabilities under the public and private co-operation projects.

3. In terms of fiscal coordination, an important challenge in IMF evaluation was the management of fiscal risks related to state enterprises. The main recommendations in this direction can be summarized as follows:

• Issue of classification of state enterprises as a public corporation: according to IMF, some part of the material enterprises for Georgia on the basis of a "Market Test", is possible to slip into the state governance sector rather than public corporations, which can have a substantial impact on fiscal aggregates. According to the Ministry of Finance, the process of determining the status of enterprises, including the details of the criteria and the financial situation of enterprises is under process at this stage.
• Among with central government and state enterprises improvement of financial operations accounting: according to the IMF, funds transferred from the state budget to the lending and capital growth of the enterprises for classification increase in financial asset shall be subject to transparent criterion of commercial returns expected on investment, otherwise, it should be classified as expenditure and consequently has to influence the budget deficit. This recommendation was reflected in the updated budget classification in April 2019.
• Further increase in transparency on fiscal risks associated with state enterprises: in regard to this, substantial improvement in the fiscal risks report attached to the budget law is demonstrated, specifically, this document, along with other information related to state enterprises, includes sensitivity assessment of financial indicators of major state enterprises for 7 large enterprises macro environment basic and for 5 alternative scenarios.

4. As well as fiscal coordination, IMF assessment emphasized the challenges of reporting on the finances of local self-government units. In response to this recommendation, it is important that since 2018 on web-site of Ministry of Finance of Georgia, is available main indicators of budget performance of the A/R and local self-government units, while on preparing a consolidated annual report, the Ministry of Finance informs that at this stage the work is in progress.

Apart from the review of above-mentioned issues, publication also provides a brief overview of the fiscal risk statement (FRS) attached to the State Budget of 2019, in which compared to that same analysis, attached to the state budget of 2018, in certain components, there is substantial improvement in reporting and includes a detailed analysis of fiscal risks for 2018-2021, in three main directions: macroeconomic environment, state enterprises and public-private partnership projects.

For more details, see the complete document (available in Georgian)