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

Emergency loans are also available to finance the costs of realized risks. The 
Interamerican Development Bank, for example, has several instruments for post-disaster 
operations, covering both natural hazard events and physical damage caused by technological 
or human driven disasters (e.g., structural collapse and explosion). These instruments include 
the Immediate Response Facility, the Emergency Technical Cooperation, and the Special 
Procurement Procedures for Emergency Situations.
50
In the case of low-income countries, on 
the other hand, international aid is frequently available to finance post-disaster spending. 
V. D
ISCLOSING 
C
ONTINGENT 
L
IABILITIES
 
Risks associated with contingent liabilities can affect the sustainability of the current fiscal 
position. However, they are often either not reported to decision-makers or the information 
presented in financial statements or budgets is not readily visible or easily understood. 
50
IADB, Preliminary Companion Paper to the Draft Disaster Risk Management Policy, December 2005. 

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Appropriate disclosure of consolidated information about contingent liabilities would make 
fiscal policy decisions more informed and may even trigger action to scale down the growth 
in balance sheet or off-balance sheet, contingent, obligations. Country experiences with 
contingent liability disclosure and the international transparency initiatives, which are 
discussed below, suggest that: 
• Institutionalizing the disclosure requirements in the country’s legislation provides a 
safeguard that this practice would continue even with political change;
• Even when comprehensive disclosure requirements are in place, adopting internationally-
accepted accounting standards for the public sector (IPSAS) could help strengthen the 
disclosure framework, as these standards require not only the identification, fair value 
measurement, and disclosure of the stocks of assets and liabilities, but also their 
systematic reconciliation with the respective flows, without which the accuracy of 
disclosed information is not assured;
• The disclosed information should be meaningful, in that it should provide relevant 
information to assess the potential fiscal impact of the contingent liabilities but not 
overwhelm with detail;
• The information helpful to assess the fiscal impact of the liabilities includes the face 
value of the contingent liability (i.e. their maximum cost), the expected cost where 
feasible, and some indication of the uncertainty associated with the contingency;
• Information should also be presented to explain government’s policy vis-à-vis various 
types of contingent liabilities, such as the legislation that supports government’s issuance 
of these liabilities, the rationale for such involvement, the beneficiaries, and the measures 
taken to mitigate associated risks;
• There are situations in which disclosure may not be desirable, but safeguards are needed 
to ensure these are not abused to justify nondisclosure, such as clear criteria under which 
items can be exempt from reporting and the presumption that at least information about 
the nature of the liability needs to be disclosed, even if the estimated fiscal impact cannot 
be; 
• There should be clear and strict responsibility for the provision of accurate reporting on 
contingent liabilities; and
• The venues for disclosing contingent liabilities could vary, including websites of 
government agencies managing contingent liabilities, but these should include budget 
documentation and financial statements.