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

PPP-related liabilities could also be limited under guarantee, debt, or separate PPP 
ceilings. Since commitments under PPP arrangements are largely in the form of guarantees 
and since PPPs can be interpreted as a form of financial lease, countries whose debt limits 
include guarantees or financial leases could include PPP liabilities under the debt or 
guarantee ceilings. Alternatively, separate ceilings can be set on the overall size of the PPP 
program (stocks) and/or on the annual PPP-related payments (flows), which would help limit 
the government’s overall exposure to risks from PPPs. While such ceilings are usually 
defined in terms of the net present value or flows of noncontingent commitments, such as 
availability payments or subsidies (Brazil), they can be extended to include the present value 
32
IMF, “Czech Republic: Report on the Observance of Standards and Codes––Fiscal Transparency Module––
Update,” August 2004. 

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of contingent liabilities under PPPs as methods and capacity for quantifying guarantees 
improve.
33
Limits or strict control over issuance of contingent debt by subnational governments 
are also imposed in several countries, largely because of an implicit understanding that the 
central government stands behind subnational government obligations, even if there is no 
explicit guarantee. In South Africa, the Municipal Finance Act of 2003 stipulates that 
municipal debt guarantees can only be issued with national government approval and only if 
the municipality creates a cash-backed reserve or purchases insurance to cover the debt. 
External Control Over Contingent Liabilities 
Scrutiny of contingent debts by the national audit offices also helps instill discipline in 
taking on and managing contingent liabilities. The auditing of contingent debts by 
countries’ supreme audit institutions (SAIs) is quite widespread, although its scope varies. In 
a 2004 survey by the international organization of Supreme Audit Institutions (Intosai), all 
fifteen respondent countries stated that the responsibilities of their SAI included oversight 
and/or audit of contingent debts, although in several cases this responsibility is limited to 
verifying the accuracy of contingent liabilities as disclosed in financial accounts or 
compliance with the legislative framework for issuing such liabilities (e.g., Canada).
34
Nevertheless, the majority of the surveyed SAIs had the possibility, if not the obligation, to 
audit the future consequences of today’s budget or other economic decisions made by the 
government, implying that they could also examine the fiscal implications of contingent 
debts (e.g., Lithuania, Mexico, Portugal, Sweden) (Intosai, 2005). Indeed, about half of the 
countries reported having conducted performance audits relating to contingent debt, with a 
view to showing the existence of large fiscal exposures that could result in an outflow of state 
funds (Lithuania); assessing value for money on the management of guarantees (Sweden); or 
focusing on various aspects of government guarantee schemes (Norway). The SAI findings 
are generally reported to parliament, either as stand-alone reports or through annual reports 
on the work of the SAI.