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Fiscal reporting is intended to warn of fiscal crises while there is still time to prevent them. The financial crisis thus seems to reveal a failure of fiscal reporting: Before the crisis, even government reports on fiscal risk typically did not mention banks as a possible source of fiscal problems. One reason for silence was that the risk arose partly from implicit guarantees, and governments may have feared that disclosure would increase moral hazard. The crisis cast doubt, however, on the effectiveness of silence in mitigating risks. This paper discusses how fiscal risks from the financial sector could be discussed in reports on fiscal risk, with a view to encouraging their mitigation.

This paper identifies, quantifies, and assesses fiscal risks in Bangladesh. By performing sensitivity analysis and using stochastic simulations, it measures risks arising from shocks to gross domestic product growth, the exchange rate, commodity prices, and interest rates. It also analyzes specific fiscal and institutional risks, including those related to the pension system, issuance of guarantees, state-owned commercial banks, and external borrowing and debt management strategies. The paper finds that fiscal aggregates are particularly sensitive to shocks to commodity prices and the exchange rate. Other factors that could affect fiscal aggregates are the unfunded pension system and limited institutional capacity.