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

Statistical 
Standards 
(GFSM 2001) 
Contingent liabilities should be disclosed as a memorandum item to the balance sheet, including 
a description of the nature of the various contingencies and some indication of their possible 
value. 
OECD Best 
Practices 
All significant contingent liabilities should be disclosed in the budget, the mid-year report, and 
the annual financial statements. Where feasible, the total amount of contingent liabilities should 
be disclosed and liabilities classified by major category reflecting their nature; historical 
information on defaults for each category should be disclosed where available. In cases where 
contingent liabilities cannot be quantified, they should be listed and described. 
IMF Code and 
Manual 
Statements describing the nature and fiscal significance of central government contingent 
liabilities should be part of the budget documentation, together with an assessment of all other 
major fiscal risks (IMF Code). The Manual (Box 18) suggests that a common core of 
information to be disclosed annually for each guarantee or guarantee program should include
2/
: 
• A brief description of the nature, intended purpose, beneficiaries, and expected 
duration; 
• The government’s gross financial exposure; 
• The possibility of a reimbursement, recovery, or financial claim by the government on 
the guarantee recipient should the contingency occur; 
• Where feasible, an estimate of the most likely fiscal cost or impact, either as a point 
estimate or a range; 
• Any change in each item or category since the previous reporting period, including any 
payments made, any financial claims established against defaulters as a result of those 
payments, and any waivers of such claims; 
• Any guarantee fees or revenue received. 
In addition, budget documents should provide: 
• Details of payments made under individual guarantees or guarantee programs for each 
of the previous two years; 
• An indication of what allowance, if any, has been made in the budget (e.g., in 
contingency appropriation) for expected payments under guarantees; 
• A forecast and explanation of the total new guarantees issued in the budget year. 
1/ Based on International Public Sector Accounting Standards (IPSAS), Government Finance Statistics Manual 2001, OECD 
Best Practices for Budget Transparency (2001) and IMF Manual on Fiscal Transparency (2007). 
2/ The Manual also suggests that it is generally inappropriate to quantify and report implicit liabilities, as such disclosure could 
result in greater moral hazard if the private sector views this disclosure as a commitment or as an indication that the government 
is likely to provide future financial assistance. 

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• Information on major individual contingencies, above some minimum country-specific 
threshold, including a description of their nature, scope, and their quantification where 
possible. In the case of individual contingencies, quantification should focus on the total 
exposure under the liability, and could also include the expected cost if this is judged not 
to give rise to moral hazard. Contingencies below this threshold need not be separately 
disclosed, but should be included as part of the major categories discussed above. 
• To the extent that they are material to the understanding of the disclosed risk, significant 
terms and conditions of the arrangement to take on risk (such as the disclosure of 
circumstances under which contingent liabilities would be called).
• Information on the past calls on the government to meet contingent liabilities. 
• For each new contingent liability: its public policy purpose, duration, and the intended 
beneficiaries. 
• Information about reserve assets set aside against specific contingencies
(e.g., contingency funds that may have substantial dedicated assets available to be drawn 
down should guarantees be called upon). Details of these assets should be reported, 
together with the extent of the government’s remaining loss exposure.