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

In those cases when quantification of contingent liabilities is difficult, only a few 
countries provide information on the nature and scope of such unquantifiable risks 
(Australia, Canada, New Zealand). These risks include various indemnities (e.g., against 
prosecution for public officials or unauthorized disclosure of confidential information), land 
claims, costs of decontaminating defense sites, potential future litigation, legal challenges 
against legislation, insurance against terrorist acts, and others.
Some countries also provide explanatory information about the contingent liabilities 
incurred and efforts to mitigate them (Australia, Chile, Colombia, Peru, New Zealand, 
U.S.). This includes background information on the legislation or other source that gave rise 
to the contingent liability, the beneficiaries of guarantees, information on realized risks, such 
as past calls on government guarantees, assets available to meet potential calls on contingent 
liabilities, such as contingency or earmarked funds, and generally efforts to manage risks 
associated with contingent liabilities, including steps taken to challenge lawsuits against the 
state.
Most countries do not disclose implicit contingent liabilities. As discussed in the IMF 
Manual on Fiscal Transparency, it would generally be inappropriate to quantify and report 
implicit obligations as explicit contingent liabilities, since this would reinforce moral hazard 
if the private sector interprets this disclosure as a commitment or as an indication that the 
government is likely to provide future financial assistance. When such considerations are not 
at play or when the country has a clear history of taking on implicit liabilities, these are 
sometimes discussed in the context of contingent liability reports. For example, Chile reports 
as implicit liabilities potential measures to stabilize domestic fuel prices if these increase 
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Note that Australia and New Zealand do not disclose expected or unexpected losses, since in those cases 
when these can be estimated they are recognized as “provisions” on balance sheet, and hence disclosed. 

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excessively; this is done by reporting annual contributions to, withdrawals from, and 
balances in the Fuel Price Stabilization Funds.
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It also mentions in its Report on Contingent 
Liabilities the potential costs of a banking crisis of the magnitude experienced in the 1980s. 
Other countries discuss the performance of SOEs and stress the need to monitor these 
implicit liabilities (Indonesia). In the United States, where there was clear prima facie 
evidence of an implicit guarantee to the government-sponsored housing enterprises, such as 
Fannie Mae and Freddie Mac, in-depth studies of the costs and benefits of these guarantees 
have been made by both congress and the treasury.
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