Contingent liabilities hit: sovereign guarantees soar to $1.3 billion after CPEC

The amount of sovereign guarantees has increased from $ 0.2 billion in 2012 to $ 1.3 billion in 2016 and this would lead to increase in contingent liabilities with negative impact both on budget and prosperity. "The sovereign guarantees are believed to have gone up mostly due to numerous energy and infrastructure projects under China Pakistan Economic Corridor," economist and former caretaker Finance Minister Dr Salman Shah stated while talking to BR.
He said contingent liabilities increased due to extending sovereign guarantees mostly construction of power plants and other energy projects under the CPEC. "If the government purchases electricity at a high price from power plants and provides it to people at low price, this liability would have to be paid by the government by imposing taxes or getting loans which ultimately impacts the budget and people of the country," he said.
He said if any project fails or is damaged the state would have to pay liabilities of sovereign guarantees which would increase the budget deficit and/or debts. Ministry of Planning Adviser Asif Sheikh said most of sovereign guarantees have been extended under the CPEC projects. However, he said sovereign guarantees are extended by the government under the law and must be viewed in the context of growth of Gross Domestic Product (GDP).
Economist Dr Ashfaque Hasan Khan said that sovereign guarantees are part of debt and liabilities. He said that increase in sovereign guarantees actually raises publicly guaranteed debt which impacts negatively on the budget. He said sovereign guarantees increase the budget deficit which ultimately negatively impacts on the general public because it implies raising taxes or imposing new taxes and/or borrowing.
"The sovereign grantees are included in contingent liabilities and the government pays from the budget which fuels the budget deficit. Public debt is sum of public and publicly guaranteed debt, the IMF loans and short-term debt," he said. He said that sovereign guarantees rose due to investment of China in Pakistan under CPEC.