The government’s contingent liabilities have increased by Rs 146.6 billion which is around 0.7 percent of GDP, during the current fiscal year from Rs 62.4 billion in the last fiscal year, says the Economic Survey.
The major jump in contingent liabilities came from the new guarantees issued by the government in March 2012. The survey says that the explicit and implicit guarantees issued to Public Sector Enterprises (PSEs) and unfunded losses of State Owned Entities, pushed the total outstanding stock of government contingent liabilities to Rs 487 billion by March 2012.
Contingent liabilities are a kind of guarantee by the government due to the possibility of an obligation to pay dependent on future events. These are the secured loans obtained mainly for the public sector enterprises, with the defined obligations that the company must meet, but in case of any probability the loans are guaranteed by the government.
The survey has pointed out that out of Rs 487 billion, the total outstanding guarantees extended to the PSEs, liabilities amounting to Rs256 billion are in local currency and guarantees equivalent to Rs231 billion are in foreign currency. When translated into greenback the total contingent liability of the country stands at $2.544 billion.
Under the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005, the government guarantees, including those for Rupee lending, bonds, rates of return, output purchase agreements and all other claims / commitments as well as renewal of existing guarantees, should not exceed 2.0 percent of the gross domestic product (GDP) in any financial year.
However, the guarantees issued against commodity operations are not included in the stipulated limit of 2 percent of GDP. “This is because the loans for commodity operations are secured against the underlying commodity and self liquidating which do not create a long term liability for the government,” the survey notes.
It highlights that the quantum of these guarantees depends on the supply-demand gap of various commodities, their price stabilization objectives, volume procured, and domestic and international prices. The guarantees were issued against the commodity financing operations by TCP, PASSCO, and provincial governments which were reduced.
The survey notes that by June 2011, stock guarantee position was Rs397.5 billion but after ten months in April 2012 the outstanding stock remained at Rs303.9 billion, due to retirement of Rs93.6 billion on behalf of commodity financing operations.
