47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Annex 1Contingent LiabilitiesIntroductionContingent liabilities are possible obligation thatarises from past events and whose existence will beconfirmed only by the occurrence or nonoccurrenceof one or more uncertain future eventsnot wholly within the control of the government.Contingent liabilities should be examined in thesame manner as a proposal for a loan, taking intoaccount, inter alia, the credit-worthiness of theborrower, the amount and risks sought to becovered by a sovereign guarantee, the terms of theborrowing, justification and public purpose to beserved, probabilities that various commitments willbecome due and possible costs of such liabilities.Hence, such off balance sheet transactions cannotbe overlooked in order to gain a holistic view of acountry’s fiscal position and unveil the hiddenrisks associated with the obligations made by thegovernment outside the budget. Similarly, reporteddebt levels of a sovereign may be understatedowing to the non-inclusion of contingent liabilities,explicit or implicit, which may materialize infuture.Table 1 Guarantees Outstanding as of March 31,2012 (Rs. Billion)Outstanding Guarantees extended487to PSEs-Domestic Currency 256Memo:-Foreign Currency 231Foreign Currency (US$ Million) 2,544Source: Debt Policy Coordination OfficeIn the case of Pakistan, these include, for instance,explicit and implicit guarantees issued to PublicSector Enterprises (PSEs) and unfunded losses ofState Owned Entities. Total outstanding stock ofgovernment guarantees as of March 2012 stood atRs. 487 billion.The Fiscal Responsibility and Debt Limitation(FRDL) Act 2005 stipulates that the issuance ofguarantees, including those for Rupee lending,bonds, rates of return, output purchase agreementsand all other claims and commitments that may beprescribed from time to time as well as renewal ofexisting guarantees, should not exceed 2.0 percentof the estimated gross domestic product in anyfinancial year. As of March 2011, Government ofPakistan issued new guarantees aggregating to Rs.146.6 billion or 0.7 percent of GDP [as shown inTable 2].Table 2: Guarantees Issued DetailsFiscal YearIssuance As % of(Rs. Billion) GDP2007 140.7 1.62008 138.8 1.42009 276.3 2.22010 224.0 1.52011 62.4 0.32012* 146.6 0.7Source: Budget Wing & Debt Policy Coordination Office* : July - March 2012The outstanding contingent liabilities as of March31, 2011 stood at Rs.487 billion against the end-June 2011 position of Rs. 559 billion (Table 3).259