Identifying the Fiscal Risk of Subnational Governments in Peru

This paper presents two methodologies, clustering and scoring analysis, which could be useful to manage fiscal risk efficiently, considering subnational government's contribution to aggregate fiscal risk and the heterogeneity between them, in order to assure sound and sustainable fiscal accounts. To do so, we analyze three dimensions that capture subnational government's contribution to fiscal risk: economic size, leverage degree and fiscal revenue dependency to income sources that are not of their control. For the 1861 subnational governments for whom information is available for 2015, the first methodology identifies 134 subnational governments with major fiscal risk while the second methodology refines that classification, establishing a more transparent ordering between each of the subnational governments. (Audio: Department of Economic Publications)