and potentially triggering debt guarantees; (iv) commodity price risks, which could increase the cost of inputs; (v) political risks, for example related to protests of citizens negatively affected by an infrastructure investment (e.g. resettlements) and (vi) operational risks, related to poor project selection, nontransparent procurement practices, poor valuation, poor organizational structure, corruption and fraud.

Other operational risks are related to public investment management and procurement framework which would result in resource misallocation and overborrowing, through problems at the project selection, implementation, or management stages **.** For example, the government (or state-owned development bank) may struggle to identify viable and profitable projects, especially if non-economic considerations factor in decision making. Project implementation is likely to involve procurement-related risks, if contracts are awarded on a non-bid basis at above market prices, potentially reducing project viability. Once the infrastructure is constructed, there is a risk that recipient countries lack the capacity or financial resources to maintain the capital infrastructure. Poorly selected large-scale projects may contribute less than expected to jobs and growth. Moreover, such projects may create risk of negative economic impacts through burdening recipient countries with elevated levels of debt and debt servicing. Inefficient expenditure, investment and revenue management could result in additional future expenses for the government which would impact on debt ratios, the capacity to service public debt and the achievement of fiscal policy objectives. Fiscal risks would include also risks related to shortcomings in fiscal institutions, absorptive and implementation constraints, and potential new challenges facing revenue policies and administration (IMF, 2018b).

BRI-recipient countries need to manage also risks typical of megaprojects. While any infrastructure project financing would have an impact on fiscal sustainability and generate some fiscal risks, risks are likely to be much larger in connection to the realization of large projects. A megaproject is an infrastructure investment of US$ 1 billion or more. Of the 45 BRI-recipient countries with identified investments, 36 have investments exceeding US$1 billion. These kinds of projects are highly likely to experience large cost overruns and severe delays, which could become future large liabilities for the governments of BRIrecipient countries, potentially limiting other spending as debt service rises, and creating challenges for the implementation of fiscal policy and balance of payment (Box 1).

To manage fiscal risks, BRI recipient countries should adopt a comprehensive medium-term fiscal framework, which would regularly monitor fiscal risks. According to the Public Expenditure Performance Assessments (PEFA), the fiscal framework of BRI recipient countries is not, on average, worse than that of comparable countries. However, many countries receiving large BRI financing have significant unreported government operations, lack an adequate framework to monitor and

**Figure 19. Quality of the Fiscal Framework***

<!-- Start of picture text --> Sum of Proj in % of GDP % of indicatros not meeting minimum requirements<br>160% 100%<br>140%<br>120% 75%<br>100%<br>80% 50%<br>60%<br>40% 25%<br>20%<br>0% 0%<br>LIDCs EMs<br>TLS LAO KHM KGZ NPL BGD MMR KEN TZA MDA VNM AFG GEO ARM ALB MNG MDV PAK JOR IDN UKR THA BLR SRB PHL IND AZE<br><!-- End of picture text --> Source: PEFA, 2011.

1 Only 27 out of 43 countries with identified BRI planned and on-going investments have a PEFA assessment.

* Based on the following four indicators: P6 - Unreported gov. operations; P7 - Oversight of aggregate fiscal risk; P9 - Multi-year fiscal planning and budgeting; and P19 - Competition and controls in procurement.

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