Parliamentary approval can apply to individual guarantees, guarantee programs or the
overall guarantee budget, or a combination of these. In some countries, guarantees are
approved on an individual basis, although this normally applies to large guarantees. In the
Czech Republic, for example, the proliferation of state guarantees during the transition to a
market economy led to a significant tightening of the guarantee policy in 2001, when
guarantees were made subject to parliamentary approval on an individual basis. As a result,
few guarantees were issued during 2001–03 and the government moved gradually to overall
annual limits on guarantees.
32
Approval of guarantees by program is more common,
especially where guarantees are authorized through individual legislation. In Chile, for
example, guarantees of SOE borrowing are approved by parliament through individual laws.
The practice of capping the overall budget for government guarantees is also widespread.
Countries that have imposed overall ceilings on government guarantees, some as combined
debt and guarantee ceilings, include Bulgaria, Canada, Czech Republic, Hungary, India,
Israel, Japan, Kazakhstan, Latvia, the Netherlands, Pakistan, Portugal, Russia, Sri Lanka,
South Africa, Tunisia, and Tanzania (Hemming et al., 2006, and country legislation). One of
the benefits of an overall ceiling on guarantees is that it forces trade-offs between guarantees
and hence prompts increased scrutiny. Ceilings are also a direct and efficient tool for
stemming the growth of guarantees.
The ceiling on contingent liabilities can be set either on the stock of guarantees or on the
flow of new guarantees to be issued during the year. Limiting the stock of the guarantees
could be difficult in countries that do not have comprehensive information on all guarantees
issued in the past, due to frequent revisions of stocks. Such limits have worked, however, in
South Africa, where the National Treasury’s risk management guidelines limit the sum of net
debt and contingent liabilities (measured at face value) to 50 percent of GDP. Most countries
with limits on guarantees set them on the flow of new guarantees that can be issued during
the next budget year or over a number of years (e.g., Chile, India, Netherlands, Norway,
Pakistan, Portugal, and Russia).
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