Question 42

Does the Executive’s Budget Proposal or any supporting budget documentation present information on contingent liabilities, such as government loan guarantees or insurance programs, for at least the budget year? (The core information must include a statement of purpose or policy rationale for each contingent liability; the new guarantees or insurance commitments proposed for the budget year; and the total amount of outstanding guarantees or insurance commitments (the gross exposure) at the end of the budget year.)
 * a. Yes, information beyond the core elements is presented for all contingent liabilities.
 * b. Yes, the core information is presented for all contingent liabilities.
 * c. Yes, information is presented, but it excludes some core elements or some contingent liabilities.
 * d. No, information related to contingent liabilities is not presented.
 * e. Not applicable/other (please comment).

Guidelines
Question 42 focuses on contingent liabilities, asking whether “core” information related to these liabilities is presented. These core components include:
 * a statement of purpose or policy rationale for each contingent liability;
 * the new contingent liabilities for the budget year, such as new guarantees or insurance commitments proposed for the budget year; and
 * the total amount of outstanding guarantees or insurance commitments at the end of the budget year. This reflects the gross exposure of the government in the case that all guarantees or commitments come due (even though that may be unlikely to occur).

Contingent liabilities are recognized under a cash accounting method only when the contingent event occurs and the payment is made. An example of such liabilities is the case of loans guaranteed by the central government, which can include loans to state-owned banks and other state-owned commercial enterprises, subnational governments, or private enterprises. Under such guarantees, government will only make a payment if the borrower defaults. Thus a key issue for making quantitative estimates of these liabilities is assessing the likelihood of the contingency occurring.

In the budget, according to the OECD, “[w]here feasible, the total amount of contingent liabilities should be disclosed and classified by major category reflecting their nature; historical information on defaults for each category should be disclosed where available. In cases where contingent liabilities cannot be quantified, they should be listed and described.”

Beyond the core information, some governments may also provide other information about contingent liabilities, including for example: historical default rates for each program, and likely default rates in the future; the maximum guarantee that is authorized by law; any special financing associated with the guarantee (e.g., whether fees are charged, whether a reserve fund exists for the purpose of paying off guarantees, etc.); the duration of each guarantee; and an estimate of the fiscal significance and potential risks associated with the guarantees.

For more details on contingent liabilities, see Guide to Transparency in Public Finances: Looking Beyond the Core Budget and page 59 (Box 11) and Principle 3.2.3 of the IMF’s Fiscal Transparency Handbook (2018).

To answer “a,” the Executive’s Budget Proposal or supporting documentation must present for at least the budget year all of the core information related to contingent liabilities as well as some additional information beyond the core elements. To answer “b,” the Executive’s Budget Proposal or supporting documentation must present all of the core components noted above. Answer “b” is also accepted if one of the core elements is not presented but additional information beyond the core elements is presented. A “c” answer applies if some information related to contingent liabilities is presented, but some of the core pieces of information are not included. Answer “d” applies if no information is presented on contingent liabilities.

1) Case of Ukraine in OBS 2021
In OBS 2021, Ukraine had information on a ceiling for new guarantees, the amount of outstanding guarantees at the end of the budget year, and a generalized policy rationale without breakdown on each contingent liability. If there was information beyond the core, we would be able to count this as a “b” response, but we ended up scoring this question “c”. See Ukraine’s questionnaire for more details.

2) What if information covers only a portion of the budget year?
If a country has a policy rationale for each contingent liability, but the information on new contingent liabilities and the total amount of outstanding guarantees only goes up to a certain point in the budget year, we score this a “c”.

External References

 * IMF’s Fiscal Transparency Handbook (2018), Principle 2.1
 * Guide to Transparency in Public Finances: Looking Beyond the Core Budget