ISLAMABAD, June 14: Pakistan’s explicit and implicit contingency liabilities, excluding pension payments, have touched a whopping Rs35.2 billion due to sovereign guarantees and losses incurred by public sector corporations.

This is despite the fact that these contingencies have eaten up around Rs125.2 billion of the tax payers’ money during the outgoing fiscal year 2001-02. Pension payments amounted to Rs33.6 billion in 2001-02 and expected to rise significantly next year.

Contingent liabilities are costs that the budget may have to incur if specific uncertain events occur in future. Such liabilities may be created through explicit contractual guarantees or implicit non-contractual commitments.

Of the total contingent liabilities of Rs35.2 billion, the explicit contingent liabilities in 2002-03 budget are estimated at Rs22.5 billion. This include Rs4.4 billion to be required for contractual guarantees issued on Ghee Corporation of Pakistan, Rice Export Corporation of Pakistan, Trading Corporation of Pakistan, and Cotton Export Corporation.

Another Rs2.8 billion are required to meet legal obligations of Saindak Metals Limited, one billion of Pakistan steel, Rs2.9 billion of Pakistan International Airlines, Rs10.5 billion of oil refineries and Rs1 billion of FFC Jordan. The budgetary cost paid during 2001-02 of past legal obligations amounted to Rs17.6 billion.

The implicit contingent liabilities or quasi-fiscal interventions as a result of the losses in public sector corporations for the next year are estimated at Rs13.1 billion. This will include Rs6 billion going to Karachi Electric Supply Company, Rs6 billion to Pakistan Railways, and remaining portion to Peoples Steel Mill, Utility Stores and Pakistan Engineering Company.

Liabilities assumed by the government, which it is not legally obligated to pay, are called implicit contingent liabilities. These accrue on account of government bailout package for strategically important corporations and banks etc.

During 2001-02, the government had to clear around Rs117.6 billion implicit contingent liabilities. These included Rs22 billion on behalf of Wapda, Rs87 billion on behalf of KESC, Rs6 billion to Pakistan Railways besides others.

PIA losses may represent an additional source or risk to the federal budget. The PIA had been faced with huge losses over the past several years due to mismanagement, obsolete business practices, uneconomical operational activities and overstaffing.

The survey elaborated that government guarantees issued on account of lending operations are another important source of government’s explicit contingent liabilities.

During 2001-02, the government issued guarantees equivalent to 0.4 per cent of GDP for rupee lending which is less than the average for the last decade. It has reduced from 1.2 per cent of GDP to 0.3 per cent of GDP during 1999-2000, but again climbed to 0.8 per cent in 2000-01.