Economic Survey says contingent liabilities in FY09 rose by 27pc to Rs275.89bn
Friday, June 12, 2009
ISLAMABAD: WAPDA and the KESC are leading to increased hidden risks to the economy and pressure on the national budget, the Economic Survey 2008-09 revealed.
The Water and Power Development Authority (WAPDA), the Karachi Electric Supply Corporation (KESC) and implicit liabilities in the shape of subsidies to various sectors have been the largest drain on the budget, says the Economic Survey presented by the Adviser to Prime Minister on Finance Shaukat Tarin here on Thursday.
The survey repeated the last years paragraph, saying, Financial improvement plans of the two power utilities are currently under implementation to curtail these outflows, but leakages on these two major heads are increasing every next year and there is no improvement in sight.
It says that contingent liabilities (both explicit and implicit) during fiscal year 2008-09 rose by 27 per cent to Rs275.89 billion from Rs217.21 billion last year.
Contingent liabilities are costs the government will have to pay if a particular event occurs. A common example of a contingent liability is a government-guaranteed loan. At the time a guarantee is entered into, there is no liability for the government, since this is contingent upon the borrower failing to repay the loan as contracted.
It revealed that these liabilities as percentage of the GDP rose to 2.12 per cent in 2008-09 from 2.11 per cent in 2007-08.
Out of total Rs275.89 billion, explicit liabilities stood at Rs72.48 billion in 2008-09, up by 15 per cent as compared to Rs63.05 billion last year, indicating that it would have a direct impact on the federal budget in the shape of cash outflows.
Implicit contingent liabilities have also increased by 32 per cent to Rs203.44 billion in FY08-09 as compared to Rs154.17 billion in the fiscal year 2007-08. Substantial increase in contingent liabilities reveals more pressure on the economy and points towards less soundness of the countrys financial sector, macro economic policies, regulatory and supervisory system and information disclosure.
The explicit liabilities of Rs72.48 billion, comprise payments made on account of contractual guarantees issued on Ghee Corporation of Pakistan (GCP), Rice Export Corporation of Pakistan (RECP), Trading Corporation of Pakistan (TCP), Cotton Export Corporation (CEC) and Saindak Bonds; Pakistan Steel Mills Corporations liability payments contractually assumed by the Government and payments to Fauji Fertiliser Company Bin Qasim on account of the 1989 Investment Policy pertaining to the fertiliser industry.
Of the explicit liabilities, an amount of Rs2.356 billion has been paid on account of Pakistan Railways debt servicing liability (Government guaranteed loans) last year, whereas, in the corresponding period it was Rs2.53 billion.
Besides, an amount of Rs930 million was paid out as an interest (equity) to the restructured loans and Term Finance Certificates to PIA. GOP has guaranteed interest payments (restructured loans and TFCs) for five years starting in the FY01-02.
Water and Power Development Authority (WAPDA) borrowed Rs15.59 billion during FY 2008-09 from the National Bank of Pakistan as against Rs8 billion in the corresponding period last year.
From federal budget cash outflow to HBL, ABL, Bank Alfalah, Askari Bank and Brunal Investment Company stood at Rs48.9 billion during the fiscal under review against Rs44 billion last year.
The govts guarantee against Pakistan Steel Mills stood Rs736 million, PIA (interest on govt guaranteed TFCs and loans) Rs930 billion, FFC Jordan Rs231 million, People Steel Mills Rs155 million, Karachi Shipyard & Engineering Works Rs432 million, KESC system improvement (loan) Rs3 billion in the shape of explicit contingent liabilities.
Of the implicit contingent liabilities, the largest drain on the budget was on the Water and Power Development Authority (WAPDA) subsidy, non-recovered loans and other loans 113.16 billion against Rs58.72 billion last year.
The KESCs subsidy against the adjustment of additional surcharge against GST stood at Rs1.28 billion against Rs3.35 billion in the last fiscal. Pakistan Railways other operational shortfalls stood at Rs8.158 billion against Rs4.77 billion last year.
Subsidy was given to Trading Corporation of Pakistan (TCP) on import of wheat (Rs35 billion), sugar (Rs6.30 billion), and urea (Rs3.0 billion). Cumulative subsidies under these heads given to TCP were, Rs44.30 billion during FY 2008-09.
Besides, subsidies to the exporters of the textile sector stood at Rs4.81 billion, importers of phosphatic and potashic fertilisers Rs7.65 billion, manufacturers of phosphatic and potashic fertilisers Rs21.03 billion during the year under review.