Contingent Liabilities: Issues and Practice; Aliona Cebotari; imf working Paper 08/245; October 1, 2008

 
D. Other Safeguards against Risks Related to Contingent Liabilities 
Parliamentary Approval of Contingent Liabilities 
A further way of limiting exposure to contingent liabilities is to ensure parliamentary 
involvement in the decision to take on contingent liabilities. This could range from 
receiving information about the contingent liabilities that are taken on and how they can be 
expected to affect the fiscal position in the future to direct approval of contingent liabilities. 
The rationale for the latter rests on the similarities between conventional and contingent 
debts. Explicit contingent debts, just like conventional government debt instruments, are 
based on contracts or laws, involve a commitment of resources that cannot be freely used for 
other purposes, and affect deficits and debt in similar ways (OECD, 2005a). Therefore, 
contingent expenditures should be treated in ways similar to conventional expenditures and 
decisions about them should be taken by the parliament in the context of the traditional 
budget process.
Parliamentary approval of contingent debts is required in many countries. About half of 
the OECD countries require parliamentary approval of loan guarantees (including Belgium, 
Canada, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Poland, Spain, Sweden, 
U.K., U.S.) and about a third require parliamentary approval of PPPs (including Denmark, 
Iceland, Italy, Mexico, Norway, Poland, Sweden, Turkey, U.K.) (Lienert and Jung, 2004; 
OECD, 2007). Other countries where parliamentary approval of various contingent liabilities 
is required include Brazil, Chile, Colombia, Mexico, Peru, Russia. Generally, the 
requirement for parliamentary approval of loan guarantees is included in ordinary laws 
(budget system laws or specific debt or borrowing laws), although in Finland and Germany 
this requirement is written in the constitution (Lienert and Jung, 2004). In Sweden, the State 
Budget Act allows the government to issue guarantees for purposes and amounts that are 
approved by parliament. In some countries, the authority to approve contingent debts rests 
with the ministry of finance (South Africa, although the public entities that issue guarantees 
are required to report to parliament on the circumstances related to any payment on the 
guarantees).
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However, the net lending of the Swedish National Debt Office, which administers the fund, is included as part 
of the overall fiscal balance. 
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In South Africa, a guarantee certification committee, made up of officials from the National Treasury, reviews 
all requests for issuing of guarantees to state-owned entities, including the associated financial and other risk 
exposures, and makes a recommendation to the Minister of Finance. The committee’s mandate also includes the 
management of all other contingent liabilities that may affect the budget.

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