ISLAMABAD, May 9: Pakistan's cumulative public enterprise losses and the cost of government guarantees through the end of this fiscal year are estimated at Rs400 billion or about 10 per cent of GDP and its pension liabilities alone are becoming a "time bomb".

The World Bank estimates that even with continued forceful reform of the public sector, the losses of the public enterprises are likely to total Rs150 billion during the medium term period i.e. upto 2007. These losses initially remained partly unfunded and took the form of arrears buildup or borrowings from the state- owned banks which cannot be serviced.

Chiefly for this reason, the government plans to put together the National Savings Schemes (NSS) and the pension liabilities and form a mutual fund to be listed at the stock exchange to ensure market-based returns to the people instead of continuing with it as a social obligation.

It is, however, expected the direct implicit liabilities would increase over the medium term. These included the unfunded part of public pension liabilities which are expected to rise considerably. "Pension liabilities must be estimated and made transparent so that proper measures can be taken in hand to avoid a pension time bomb", the Bank conveyed to the federal government recently.

The treatment of interest costs on NSS instruments leads to the buildup of a direct implicit liability to be paid when NSS instruments are redeemed. "In the medium term a certain lumpiness in redemption and interest payments is expected, materializing as a sudden large claim on the fiscal budget".

The Bank has been asking the government to assess the full impact on public finances beyond the budget and fiscal debt to include these extra-budgetary items, calculate the potential cost in expected value terms and make the potential fiscal cost of off-budget items visible, beforehand, to ensure a proper cost- benefit assessment of government support.

The bank now says federal and provincial governments could face serious fiscal costs as a result of their contingent liabilities. Contingent liabilities are fiscal obligations contingent on the occurrence of particular events and are not adequately budgeted and accounted for in the fiscal budget. These include government guarantees to autonomous bodies, public sector banks and the private sector as subsidies or fixed rates of return.

The impact of contingent implicit liabilities on the federal budget stemming from public enterprises was Rs127 billion or 3.4 per cent of GDP in fiscal 2002 including a major equity injection to KESC and Rs85 billion or 2.1 per cent of GDP in fiscal 2003.

Though other public enterprises have improved financially during the recent years, the power utilities remain major loss makers. There are many other contractual sovereign guarantees given to the IPPs, guaranteed returns and subsidies committed with oil refineries etc.