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Contingent Liabilities (CLs)

In addition to conventional government debt, countries are also responsible for managing contingent debt. Contingent debt refers to debt that is conditional upon predefined events or circumstances. CLs are associated with major hidden fiscal risks. In fact, be they explicit, such as those liabilities defined by law or by contract, or implicit, because they are not officially recognized, they are not visible until they are triggered or until a problem occurs. As such CLs pose a threat to future government finances.

To insure proper management of debt, both conventional debt and contingent debt need to be included in the risk management process, and CLs have to be managed in a more prudent and systematic fashion. Countries need to identify a set of best practices for the management of explicit contingent liabilities and implement a system of disclosure on their exposure to all types of fiscal risk.

To promote better accounting, budget transparency and discipline, and to help countries make provisions for risk LAC Debt Group promotes research and discussion on CLs in different fronts.

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