ISLAMABAD: The government issued fresh and rollover guarantees of Rs368 billion, equivalent to 1.2 per cent of GDP, during the first half of fiscal year 2016-17.
The outstanding stock of guarantees on Dec 31, 2016 stood at Rs838bn, according to Economic Survey 2016-17 released on Thursday.
The fresh guarantees were issued under the Fiscal Responsibility and Debt Limitation Act, which stipulates that the government will not give guarantees aggregating to an amount exceeding 2pc of the GDP in any financial year.
This condition also includes rupee lending, rate of return, output purchase agreements and other claims and commitments, provided the renewal of existing guarantees will be considered as issuing a new guarantee.
The guarantees were issued against the commodity financing operations undertaken by the Trading Corporation of Pakistan, Pakistan Agricultural Storage and Services Corporation Ltd and provincial governments. On Dec 31, 2016, the outstanding stock issued against commodity operations was Rs563bn.
The share of rupee guarantees increased during the past few years and accounted for 89pc of the total guarantees stock by end-December, according to the economic survey.
Guarantees issued against commodity operations are not included in the stipulated limit of 2pc of GDP as the loans are secured against the underlying commodity and are essentially self-liquidating and thus should not create a long-term liability for the government.
The quantum of these guarantees depends on the supply-demand gap of various commodities, their price stabilisation objectives, volume procured, and domestic and international prices.
Contingent liabilities of Pakistan are guarantees issued to public sector enterprises, and the sovereign guarantee is normally extended to improve financially viability of projects or activities undertaken by the government entities with significant social and economic benefits.
It allows public sector companies to borrow money at lower costs or on more favourable terms.
In some cases it allows fulfilling the requirement where sovereign guarantee is a pre-condition for concessional loans from bilateral or multilateral agencies to sub-sovereign borrowers.
Contingent liabilities are conditional obligations that arise from past events that may require an outflow of resources embodying economic benefits based on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the government.
Contingent liabilities can be distinguished from the liabilities as they are conditional and do not represent the present obligations of the government.
Accordingly, contingent liabilities are not recognised as liabilities regardless of the likelihood of an uncertain future event.
Published in Dawn, May 26th, 2017
