Concept Paper On Contingent Liabilities of Bangladesh 12 Jan 2014

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Draft for Discussion and Comments
A Concept Paper on Contingent Liabilities of the Government of

Bangladesh- Identifications, Measurement, Policies,
Procedures, Guidelines and Legal System
C1.2 Team1
12 January 2014
Deepening MTBF and Strengthening Financial Accountability Project,
Ministry of Finance, Finance Division,
Government of the Peoples Republic of Bangladesh,
20th Floor, 6th Building, Bangladesh Secretariat,
Dhaka-1000, Bangladesh.
The paper has been prepared by Dr. Tarun Das, Technical Adviser (Debt Management and
Policy) in association with Dr. Ziaul Abedin and Mahmuda Begum, National Technical Experts
(Debt Management and Policy), DMTBF and Strengthening Financial Accountability Project.
1
Foreword
A key area of public debt management is the identification, quantification and
management of public contingent liabilities, which pose threats to fiscal sustainability
and overall macro-economic stability and, therefore, require better monitoring and
management. Contingent liabilities include exposures under obligations such as
government guarantees and counter-guarantees on loans; performance guarantees for
projects under public-private partnership, guarantees on trade credits extended by
EXIM banks, and fiduciary guarantees to public savings, pension, provident and
insurance funds and institutions. Other categories of public contingent liabilities include
various implicit obligations associated with bank failures and possible recapitalization of
failing financial organizations and bailouts of other public sector enterprises.
The present draft entitled A Concept Paper on Contingent Liabilities of the Government
of Bangladesh- Identifications, Measurement, Policies, Procedures, Guidelines and
Legal System deals with all these aspects for the government of Bangladesh. It also
suggests measures for strengthening legal system and institutional set up for issue,
approval and execution of guarantees and counter guarantees, and for identification,
measurement, monitoring and reporting of both explicit and implicit contingent liabilities
for the government of Bangladesh in the light of international best practices.
The Draft Concept Paper has been prepared by Dr. Tarun Das, International Expert
(Debt Management and Policy) in association with Dr. Ziaul Abedin and Ms. Mahmuda
Begum, National Experts (Debt Management and Policy). Authors have also benefitted
from valuable discussions with the officers of the Treasury and Debt Management Wing
(TDMW) of the Finance Division, Ministry of Finance.
The Draft Concept Paper is being circulated for general comments and to initiate further
consultations with multi stakeholders. We would welcome any suggestions and
comments from all stakeholders to verify facts, data and information contained in this
Concept Paper and to revise, update and improve the document. All stakeholders are
particularly requested to examine critically the recommendations given in Section-6 and
to provide their views regarding feasibility of the measures suggested for effective
management of contingent liabilities for the government of Bangladesh.
Mr. Md. Mahiuddin Khan

Component Director (C1)
12 January 2014
Abbreviations
ATM
ATR
BB
BaNCS
BTK
CCLU
CDMC
CDMTC
CGA
CIRR
CLM
DeMPA
DMB
DMD
DMFAS
DMTBF
DNS
DSA
DSLU
ERD
EXIM Bank
FABA
FD
FR
FRTMD
FSAP
FSMU
FX
FY
GDP
GFR
GFS
GFSM
GNP
GNI
HTLC
iBAS
ICT
IFMIS
Average Time of Maturity

Average Time to Re-Fixing
Bangladesh Bank
Software for BBs Central Bank Functions developed by TCS
Bangladesh Taka
Cash and Contingent Liability Unit
Cash and Debt Management Committee
Cash and Debt Management Technical Committee
Controller General of Accounts
Commercial Interest Reference Rate
Contingent Liability Management Section
Debt Management Performance Assessment
Debt Management Branch (of TDMW)
Debt Management Division (of the Bangladesh Bank)
Debt Management and Financial Accounting System
Deepening Medium Term Budgeting Framework
Directorate of National Savings
Debt Sustainability Analysis
Debt Services Liability Unit
Economic Relations Division
Export Import Bank
Foreign Aid and Budget Accounts Branch
Finance Division
Financial Rules
Foreign Exchange Reserve and Treasury Management Department (BB)
Financial Sector Assessment Programme
Financial Services Management Unit
Foreign Exchange
Financial Year
Gross Domestic Product
General Financial Rules
Government Finance Statistics
Government Finance Statistics Manual
Gross National Product
Gross National Income
Hard Term Loan Standing Committee
Integrated Budget and Accounting System
Information and Communications Technology
Integrated Financial Management Information System
3
IRD
IT
MOF
MTB
MTBF
MTDS
NPV
NSD
NSS
PF
PPPs
PSEs
SD
SDR
SNA
SOEs
TB
TBND
TDMW
TK
TR
UN
USD
WB
UK
USA
Internal Resources Division

Information Technology
Ministry of Finance
Medium Term Budget
Medium Term Budgeting Framework
Medium Term Debt Management Strategy
Net Present Value
National Savings Directorate
National Savings Schemes
Provident Funds
Public Private Partnerships
Public Sector Enterprises
Statistics Division (of the Bangladesh Bank)
Special Drawing Rights
System of National Accounts
State Owned Enterprises
Treasury Bills
Treasury Bonds
Treasury and Debt Management Wing
Taka (Bangladesh Taka)
Treasury Rules
United Nations
United States Dollar
World Bank
United Kingdom
United States of America
A Concept Paper on Contingent Liabilities of the Government of BangladeshIdentifications, Measurement, Policies, Procedures, Guidelines and Legal System
CONTENTS
Foreword
Abbreviations
1.
Background, Objectives, Scope and Methodology of the Study

1.1 Background and Objectives
1.2 Scope and Methodology
2.
Contingent Liabilities- Basic Concepts and Measurement

2.1 Definitions and Basic Concepts of Contingent liabilities
(a) United Nations System of National Accounts 1993
(b) Government Finance Statistics Manual 2001
(c) Explicit and Implicit Contingent Liabilities
2.2 Fiscal Risk Matrix and Fiscal Hedge Matrix
(a) Provisions of Contingencies
3. Legal System, Objectives and Practices, Procedures and Institutional Set Up for
Management of Contingent Liabilities by the Government of Bangladesh
3.1 Objectives and Benefits of Sovereign Guarantees in Bangladesh
(a) Objectives of issuing Sovereign Guarantee in Bangladesh
. (b) Benefits of the issue of Sovereign Guarantee
3.2 Legal System for Management of Sovereign Guarantees in Bangladesh

(a) Constitution of the Peoples Republic of Bangladesh, 1972
(b) The Contract Act 1872
(c) Rules of Business 1996
(d) Allocation of Business (Schedule 1 of the Rules of Business 1996)
(e) The Public Moneys and Budget Management Act, 2009 (ACT NO.40 of 2009)
3.3 Procedure and Institutional Set Up for Issue of Sovereign Guarantee in Bangladesh
(a) Demand for Guarantee
(b) Procedures and Processes for Issue of Guarantees
4. An Assessment of the System of Management of Contingent Liabilities in
Bangladesh as Judged by International Best Practices
4.1 Transparency- Recording, Monitoring, Reporting and Publishing of Reports s
4.2 Accountability, Auditing, Regulatory, Legal and Institutional System
4.3 Policy Framework, Comprehensive Guidelines and Practices5
4.4 Risk Management Systems and Capacities

5. Current Status of Contingent Liabilities of the Government of Bangladesh
5.1 Guarantees and Counter-Guarantees
5.2 Implicit Contingent Liabilities
5.3 Trends of Guarantees and Counter Guarantees
6. Recommendations
6.1 Transparency- Recording, Monitoring, Reporting and Publishing of Reports s
6.3 Policy Framework, Comprehensive Guidelines and Practices6.4 Risk Management Systems and Capacities
Annexes
Annex-1: Extract from the Constitution of the Peoples Republic of Bangladesh
4th November 1972
Annex-2: Extract from the Contract Act 1874 (ACT NO. IX OF 1872). [25th April, 1872
Annex-3: Disclosure Requirements for Contingent Liabilities
Annex-4A: List of Public Guarantees of Bangladesh Beyond 30 June 2013 (Crore BTK)
Annex-4B: List of Public Guarantees of Bangladesh Beyond 30 June 2013 (Crore BTK)
Annex-4C: List of Public Guarantees of Bangladesh Beyond 30 June 2013 (Crore BTK)
Annex-5: Questionnaire on Contingent Liabilities

A.
B.
C.
D.
Coverage and Scope

Selected Risks
Recording and Reporting: Transparency
Institutional Arrangements: Accountability
E. Policy: Practice
F. Risk Management: Capacities
Annex-6: Formats for Collecting Information on Guarantees and Implicit Contingent
Liabilities from SOEs, State Owned Banks and Other Entities
Part-A: Guarantees and Counter Guarantees
Part-B: Additional Information on Financial Performance for last three years
Part-C: Additional Information to be provided by Public sector Banks
A Concept Paper on Contingent Liabilities of the Government of BangladeshIdentifications, Measurement, Policies, Procedures, Guidelines and Legal System
1.
Background, Objectives, Scope and Methodology of the Study

1.1 Background and Objectives
This Concept Paper is a part of studies of the sub-component C1.2 on Developing Capacities
for Debt Policy and Management under a wider project on Deepening Medium Term
Budgeting Framework (DMTBF) and Strengthening Financial Accountability being executed
by the Finance Division of the Ministry of Finance. The sub-component C1.2 has the
following responsibilities:
(a) Improve governance, coordination, and monitoring mechanisms among all the agencies
dealing with debt management;
(b) Build capacity for preparation of debt strategy, debt policy formulation, data recording
and analysis in TDMW for better coordination with treasury and financial management;
(c) Build capacity to manage explicit and implicit contingent liabilities;
(d) Strengthen the regulatory framework for public borrowing.
The present concept paper focuses on the activity (c). A key area of public debt management is
the identification, quantification and management of public contingent liabilities, which pose
threats to fiscal stability and overall macro-economic stability and, therefore, require better
monitoring and management. These liabilities include exposures under obligations such as
government guarantees on loans; performance guarantees to projects under public-private
partnership, guarantees on guarantee institutions and deposit insurance and fiduciary
guarantees to public savings, pension, provident and insurance funds and institutions. Certain
other categories of government's contingent liabilities include forward contracts for foreign
exchange, various implicit obligations associated with bank failures and possible recapitalization
of failing financial organizations and other public sector enterprises.
1.2 Scope and Methodology
This report examines the largest components of contingent liabilities such as exposures under
government guarantees on loans given to public sector enterprises, projects under publicprivate partnerships, guarantees to guarantee institutions, public pension, provident and
insurance funds, deposit insurance, hidden subsidies and un-funded liabilities of pension
institutions. The report also deals with guidelines, legal framework, policies, processes and
institutional arrangements for issue of guarantees and systems for monitoring and dissemination
of information on outstanding guarantees of the government.
The report identifies the key issues and concerns, and describes, analyzes and assesses the
steps already taken and those which need to be taken by the government to deal with explicit
and implicit contingent liabilities. In addition, it provides country-specific recommendations in the
short-, medium- and long term for improvement as per international sound practices.
In May 2012 the Treasury and Debt Management Unit (TDMU) prepared an excellent paper 2
entitled Government Contingent Liabilities: Concept, Issues & Bangladesh Perspective. The
said paper were based on examination of available reports on the subjects and discussions with
the concerned entities involved in issuing, approving, receiving, managing and recording public
contingent liabilities focusing on mainly explicit contingent liabilities (which are recognized under
legal laws and contracts for domestic and external liabilities). The present paper goes deeper
into the subject and makes an attempt to deal with both explicit and implicit contingent liabilities
keeping in view the international best practices for management of contingent liabilities.
2.
Contingent Liabilities- Basic Concepts and Measurement3
2.1 Definitions and Basic Concepts of Contingent liabilities

(a) United Nations System of National Accounts 1993
Contingent liabilities are defined by the United Nations System of National Accounts 1993 as
contractual financial arrangements that give rise to conditional requirements either to make
payments or to provide objects of value. A key characteristic of such financial arrangements, as
distinguished from the current financial liabilities, is that one or more conditions or events must
be fulfilled before a contingent liability takes place. A key characteristic that makes such
liabilities different from normal financial transactions is that they are uncertain.
(b) Government Finance Statistics Manual 2001
As per Government Finance Statistics Manual 20014, contingent liabilities are defined as the
stock of explicit government (public sector) guarantees plus the net present value of the
obligations of social security schemes. Contingent liabilities arise as a result of financial
contracts that create a conditional financial claim on a unit. Such a claim becomes effective if a
stipulated condition arises. Collectively, such contingencies may be important for financial policy
and analysis. Accordingly the GFSM 2001 stipulates that important contingent contracts should
be recorded as a memorandum item in the budget and the financial balance sheet of the
government.
Contingent contracts can represent either potential assets or liabilities. A common type of
contingent liability of a general government unit is a guarantee of payment by a third party, such
as when the general government unit guarantees the repayment of a loan by another borrower.
Such arrangements are contingent because the guarantor is required to repay the loan only if
the borrower defaults. Other examples of contingent liabilities include letters of credit, lines of
credit, indemnities against unforeseen tax liabilities arising in government contracts with other
units, and damages and other legal claims against the government in pending court cases. An
2
Mohd. Rashedul Amin and Kazi Nahid Rasul (2012) Government Contingent Liabilities: Concept, Issues
and Bangladesh Perspective, pp.1-70, May 2012.
3
This section is extensively based on (a) Tarun Das (2002) Management of Contingent Liabilities in
Philippines- Policies, Processes, Legal Framework and Institutional Arrangements, pp.1-61, World Bank,
Washington D.C., March 2002 and (b) Tarun Das et. al. (2002) Contingent Liability Management- A Study
on India, pp.1-90. Commonwealth Secretariat, London.
4
Box-4.1, p.46, Government Finance Statistics Manual 2001, pp.1-179, International Monetary Fund,
Washington D.C., 2001.
example of a contingent asset is a pending legal case in which the government has claimed
damages against another party (GFSM 2001).
GFSM 2001 further states that Not all contingent assets or liabilities are easily quantifiable in
terms of the net value of economic benefits expected to be received or paid. For example, the
original nominal value of all loans guaranteed should be known, but the present value of the
future payments by the government as guarantor depends on the likelihood and timing of default
of each loan. Although precise recommendations cannot be specified for contingencies, a
description of the nature of the various contingencies should be provided together with some
indication of their possible value (Para 7.148, p.130, GFSM 2001).
Thus contingencies are conditions or situations that may affect the financial performance or
position of the general government sector depending on the occurrence or nonoccurrence of
one or more future events. For example, a general government units guarantee of a loan may
result in an expense if the debtor defaults, but it will not be known whether the expense will be
incurred or, if it is incurred, how much the expense will be until a default occurs or the loan is
repaid fully. In another example, a government units tax assessment may be contested in court
by the unit assessed. This contingent revenue will not be resolved until an agreement is
reached by the two parties or a court issues a ruling and no further appeals are possible or
planned.
Contingent liabilities represent potential claims against the government, which have not yet
materialized, but which could trigger a firm financial obligation or liability under certain
circumstances. Several studies have shown that contingent liabilities, once materialized, can be
a major factor in the build-up of public sector debt and can pose significant risks to the
governments fiscal balance sheet.
(c) Explicit and Implicit Contingent Liabilities
Contingent liabilities are mainly of two types- explicit and implicit. Explicit contingent liabilities
are based upon legal and contractual commitment or formal acknowledgement of a potential
claim, which can be realized in particular situations. Explicit contingent liabilities include bonds
or other liabilities contracted by the government with put options for lenders, credit-related
guarantees, performance guarantees, various types of government insurance schemes (e.g.,
against banking deposits, crop failure, natural disasters, etc.), or legal proceedings representing
claims for tax refunds or against government providers of services such as health care,
education, defense, housing, etc.
Implicit contingent liabilities represent potential claims where the government does not have a
contractual obligation to provide financial support, but society expects the government to
provide assistance because of moral considerations. Implicit contingent liabilities arise when the
cost of not assuming them are considered to be very high in terms of social, political and
economic disruptions. For example, bailing out weak banks or the Central Bank or bankrupt
public sector enterprises or failed financial institutions or meeting the obligations of the subnational (local) governments in the event of default following systematic crisis may be viewed as
an implicit contingent liability of the government. BOX-2.1 provides an example of implicit
contingent liabilities for the government of Bangladesh.
Other implicit contingent liabilities include disaster relief, corporate sector bail outs, municipal
bankruptcy, defaults on non guaranteed debt of the sub-nationals and state-owned enterprises
or government obligations under exchange rate fluctuations to defend the stability in the
9
exchange rate. These risks can be particularly significant in emerging market economies
undergoing financial sector liberalizations and capital convertibility reforms and where the
regulatory and disclosure standards may be considered to be weak.
BOX 2.1
An Example of Implicit Contingent Liability of Bangladesh Government
In December 2013 in the first phase of bailout package the Ministry of Finance
has injected TK 4,100 Crore into four State-Owned Commercial Banks (viz.
Somali Bank TK 1,995 crore, Again Bank TK 1,081 crore, Ajanta Bank TK 814
crore and Replay Bank TK 210 crore) in the process of recapitalization of
these banks against their combined capital shortfall of TK 8,863 crore at the
end of September 2013 as estimated by the Bangladesh Bank. These capital
shortfalls include Somali Bank (TK 4638 crore), Again Bank (TK 2480 crore),
Janata Bank (TK 1573 crore) and Rupali Bank (TK 169 crore). Most of these
liabilities were due to the accumulation of non-performing assets as a result of
defaults by the private borrowers from these banks.
In line with the International Monetary Funds conditions tagged with loans
provided under the Extended Credit Facility (ECF) Program, the Bangladesh
Government has taken steps to meet the capital shortfall of the banks in two
phases, and in return the banks are committed to take credible steps to
improve significantly asset quality, liquidity management and internal audit
and control systems and procedures. As per the conditions imposed by the
IMF, the Bangladesh Bank conducted diagnostic studies of financial health of
these banks and observed that banks are extending loans to the corporate
enterprises without proper appraisal and analysis of risks and costs and
without adequate documentation and monitoring of non-performing assets.
Banks also lack proper strategic planning for portfolio management.
Now the banks have prepared business plans and got these plans approved
by their respective boards. The state banks have incorporated a sector wise
credit growth plans and fixed limits for credits growth in various sectors (such
as 8 to 12 per cent for trading sector and 2 percent for industrial sector) as a
part of their risk management policy.
The Ministry of Finance has also injected TK 67 crore into the government
controlled private bank, the Bangladesh Commerce Bank, to improve its
capital adequacy ratio. Government has a share of 32 percent in the equity
capital of the Commerce Bank and three state owned banks viz. Sonali,
Janata and Agrani hold another 12 percent of shares and the residual 56
percent of shares are held under private ownership.
Source: Newspaper Reports in Star Business, of the Daily Star, Bangladesh,
Dhaka, 27 Dec 2013 and 3 Jan 2014. www.thedailystar.net/business/
10
(d) Provisions of Contingencies

Contingent liabilities are different from the provisions for contingencies in the budget
accounting framework. In addition to the expected gross revenue or expense, the budget makes
a provision for unexpected revenue shortfalls or expenditure overruns during the budget
period. In accounting framework, these are called contingencies. This position is somewhat
different from that of contingent liabilities (GFSM 2001). Only future events will confirm that an
asset has been impaired or a liability incurred and that a reasonable estimate of the contingent
liability can be made.
Contingent liabilities are complex and not easy to quantify. A single and uniform framework for
their measurement may not be appropriate. The choice of a technique depends on the type of
contingent liability being measured and the availability of requisite data and information. It is well
recognized that cash based accounting systems, even supplemented by off-budget and offbalance sheet transactions, are not suited for managing contingent liabilities. Only the accrual
based accounting systems can capture contingent liabilities as they are created. Within such
systems, contingent liabilities can be recorded at full face value or maximum potential loss as
well as expected value and expected present value of contracts.
Following Polackova (1998), contingent liabilities can be best described in terms of a Fiscal
Risk Matrix cross-classifying sources of potential risks on government finance by two distinct
characteristics: direct or contingent and explicit or implicit. Direct liabilities will arise in any event;
while contingent liabilities arise only if a particular event occurs. As explained earlier, explicit
liabilities are based on either a law or a contract or formal acknowledgement of a potential
claim. On the other hand, implicit liabilities are the moral and political liabilities of the
government arising out of public and pressure group expectations.Table-2.1 presents a typical
fiscal risk matrix for the Bangladesh government.
Another matrix called a Fiscal Hedge Matrix has been proposed by the economists. While a
Fiscal Risk Matrix helps identify the sources of future possible financing pressures facing the
government, the Fiscal Hedge Matrix illustrates the different financial sources that can serve
the governments to cover their obligations in future. For both matrices, items and their
classification vary according to the legal systems and practices for a government.
Fiscal Hedge Matrix (Table-2.2) illustrates different sources of potential government revenues
to cover its obligations. These sources can also be cross-classified as direct or contingent, and
explicit or implicit. Direct explicit sources reflect the governments legal power to raise revenues
from its existing assets. Direct implicit sources are based on the exiting assets, which are not
under the governments direct control. Contingent explicit sources relate to the governments
legal power to raise finances in the future from sources other than its own assets, while
contingent implicit sources are not available to the government until a major fiscal pressure
occurs and even then requires the government to make a special case for their utilization.
11
Table-2.1: Fiscal Risk Matrix for Bangladesh Government

Liabilities
Explicit:
Government
liability
created by
law or by a
contract
Implicit:
A moral and
political
obligation of
government
which
reflects
public and
interest
group
pressures
Direct: Obligation in
Any event
Sovereign debt and
associated debt services
(domestic and external)
Budgeted expenditures of
different departments
Expenditures nondiscretionary and legally
binding in the long term
(civil service salaries and
pensions)
Future recurrent costs of

public investment projects
Future public pensions (as
opposed to civil service
pensions), if not required by
any law
Social security schemes, if
not required by any law
Future health care
financing, if not required by
any law
investment projects under
public-private partnership
Contingent: Obligation if a
Particular event occurs
Direct government guarantees for
borrowings by local governments, public
sector enterprises and banks
Guarantees on currency risks of foreign
loans of public sector / EXIM banks
Guarantees on various types of risks
(including market, currency, regulatory,
political, service purchase contract) under
Public Private Partnership (PPP) projects
Umbrella guarantees for various types of
loans (mortgage loans, and loans for
education, agriculture, housing, microfinance, small business)
State Insurance for bank deposits, crop
failures, flood, droughts, war risk etc.
Guarantees on benefits of social security
system and public provident funds
Tax credits/ refund certificates
Obligations of public litigations
Trade and exchange rate guarantees
issued by State on private investments
Claims by public sector entities to assist
in covering their losses, arrears, deferred
maintenance, debt, guarantees
Claims by local governments to assist in
covering their own debt, guarantees,
arrears, letters of comfort etc.
Claims by financial institutions, such as
state-owned banks, social security funds,
and credit and guarantee funds)
Non-contractual claims arising from
private investment, for instance in
infrastructure projects under PPP
Other obligations, such as environment
commitments for still unknown damages
and nuclear and toxic waste
Failure of a non-guaranteed pension fund,
employment fund, or social security fund
Bailouts following a reversal in private
capital flows
12
Source: Tarun Das (2002) and Hana Brixi (2006) Government Contingent Liabilities and Fiscal Risk,
World Bank, May 2006.
13
Table 2.2 Fiscal Hedge Matrix

Sources of
Financial
safety
Explicit
Based on
government legal
powers (ownership
and the right to
raise revenues)
Direct
Based on stock of existing
resources
Asset recovery (workout

and sales of nonperforming assets and
sales of equity)
Privatization of state
owned enterprises and
other public resources
Recovery of government
loan assets and debt
services (resulting from
earlier government
lending)
Contingent
Dependent on future events such as
value generated in the future
Implicit
Based on
government indirect
control
Central Bank risk adjusted

net worth (mainly excess
foreign reserves adjusted
for their liquidity)
Government revenues from

resource extraction and sales
Government customs revenues
Tax revenues
o Minus tax expenditures
(exclusions, exemptions,
deductions which reduce taxable
income)
o Minus revenue commitment to
local governments or private
sector under the public-private
partnership
o Minus revenues sold forward
(commodity forward sales) and
pledged as a collateral (partly at
risk)
Savings from expenditure cuts
Hedging instruments and
reinsurance policies purchased by
the government from financial
institutions
Profits from state owned
enterprises
Contingent credit lines and
financing commitments from official
creditors
Current account surpluses across
currencies
Source: Hana Brixi (2006) Government Contingent Liabilities and Fiscal Risk, World Bank, May 2006.
14
3.
Legal System, Objectives and Practices, Procedures and Institutional Set Up for
Management of Contingent Liabilities by the Government of Bangladesh5
3.1 Objectives and Benefits of Sovereign Guarantees in Bangladesh
In Bangladesh, Government issues Contingent Liabilities in the form of Guarantees and

Counter- Guarantees for the borrowings of the Public Sector Enterprises (PSEs) and other
agencies from the lending organizations such as Bangladesh Bank, State Owned Commercial
Banks, Private Sector Banks, Multi-national Banks, Suppliers of Goods and Services etc. in
order to enable PSEs and other agencies to carry out activities of public importance, which may
not be otherwise feasible due to financial problems faced by these agencies. However, if
beneficiary agency fails to repay the loans, it becomes liability of the government to pay back
the loans to the lending institutions. Thus Sovereign Guarantee or the counter-guarantee
creates liability of the government contingent upon defaults of the borrowers.
Efforts to streamline contingent liabilities and to manage them with due diligence started
recently in Bangladesh. Policy makers in the Ministry of Finance now pay more attention to the
hidden risks of contingent liabilities. Attempts were made to formulate policy guidelines for
approval and issue of guarantees after the global financial crisis and associated debt crisis
faced by some developed countries since 2008.
(a) Objectives of issuing Sovereign Guarantee in Bangladesh
Although there are no published guidelines, a review of the previous guarantees granted by the
government to state owned enterprises indicate that the sovereign guarantee is normally
extended to achieve the following objectives:
To improve financial viability of projects or activities undertaken by government entities,

which have significant social and economic benefits;
To enable public sector companies to raise resources at lower interest charges or on

more favorable terms and conditions;
To fulfill the requirements where sovereign guarantee is a precondition for grant of

concessional loans by bilateral/ multilateral agencies to sub-sovereign borrowers.
To support a particular enterprise, such as the National Airline, Power Development

Board (PDB) etc. for commercial reasons or strategic alliances by the government.
(b) Benefits of the issue of Sovereign Guarantee

Various benefits are kept in view by the government while granting guarantees to the public
sector enterprises. The dominant benefits include the following:
This section draws extensively facts and information from the paper entitled Government Contingent
Liabilities: Concept, Issues and Bangladesh Perspective, pp.1-70, prepared by Mohd. Rashedul
Amin and Kazi Nahid Rasul, TDMW, Finance Division, May 2012.
15
A guarantee may be a more attractive fiscal for the government than the direct
borrowing for financing a project and thereby avoiding a build-up of unsustainable
public debt. This is more important in the case of huge borrowing requirements with
subsequent obligations for repayment of debt and payment of interest charges.
Guarantee improves the flexibility of the borrowing options as the loan could be
tailored to reflect the borrowers needs regarding the maturity and terms of payment.
Guarantee offers spin-off benefits, particularly for large scale projects by bringing the
borrowers into direct contact with the lenders, providing direct and quick access to
new financing arrangements and market instruments.
Guarantees lead to diversification. This is a great advantage when the State
borrowing requirement is already large. In that case, small, cheap loans with a
specific structure may not suit the States borrowing plans, at least not for that
moment. Such loans may, therefore, suitably be channeled to the Beneficiaries.
Loans raised under sovereign guarantees do not increase State borrowing.
3.2 Legal System for Management of Sovereign Guarantees in Bangladesh
At present, the government of Bangladesh does not have a comprehensive Act for issue,
approval, directions and monitoring of all contingent liabilities. Except for guaranteed loans to
SOEs; other types of government contingent liabilities (export guarantee, supplier credits,
government insurance programs, natural disaster spending etc.) are largely unmonitored. In
addition, there is currently no mechanism for bringing together information on the current and
up-to-date position of outstanding guarantees and counter-guarantees issued by the
government (after deducting the portion which has been already redeemed or expired).
Finance Division of the Ministry of Finance is entrusted by the legislation to deal with contingent
liabilities. The main Act, Rules and Regulations dealing with contingent liabilities are as follows:
(a) Constitution of the Peoples Republic of Bangladesh, 19726
Chapter II of Part-V of the Constitution of the Peoples Republic of Bangladesh, 1972 deals with
the Legislative and Financial Procedures of the Government7. It provides powers to the
Government as regards:
the borrowing of money or the giving of any guarantee by the Government, or

the amendment of any law relating to the financial obligations of the
Government; [Article-81(b)]; and
all debt charges for which the Government is liable, including interest, sinking
fund charges, the repayment or amortization of capital, and other expenditure
6
Constitution of the Peoples Republic of Bangladesh 1972, pp.1-57, Government of the Peoples
Republic of Bangladesh. 4th November 1972.
7
Chapter II of Part-V of the Constitution of the Peoples Republic of Bangladesh, 1972 on Legislative
and Financial Procedures of the Government is reproduced in Annex-1 of this Concept Paper.
16
in connection with the raising of loans and the service and redemption of debt;
[Article-88 (d)].
(b) The Contract Act 18728
Under the Contract Act 1972, a contract is defined as an agreement enforceable at law, made
between two or more persons, by which rights are acquired by one or more to acts or
forbearances on the part of the other or others.
Section 2(h) of the Contract Act, 1872, provides the authoritative definition of a contract, an
agreement enforceable by law is a contract. It is a simple definition of the term contract given by
the Act. From the definition, it is found that, to be a lawful contract, an agreement is necessary
and that agreement must be lawful that is enforceable by law. A contract is thus a combination
of two ideas agreement and obligation.
In terms of the Contract Act, 1872 contract of guarantee is a contract to perform the promise,
or discharge the liability of a third person in case of his default. Where only two parties are
involved, i.e. where one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other person, such a contract is called
a contract of indemnity. Sections 124 to 134 of Chapter-VIII 9 of the Contract Act 1872 specify
the common law provisions relating to the contracts of indemnity or guarantee. These sections
are reproduced in Annex-2 of this Concept Paper.
(c) Rules of Business 199610
Rule 13 on Consultation with Finance Division stipulates that:
(1) No Ministry shall without previous consultations with Finance Division authorize any
orders not covered by the approved budget, which will affect directly or indirectly the
finances of the Republic and which in particular involves
(i)
relinquishment, remission or assignment of revenue, actual or potential, or

grant of guarantee against it;
(ii)
expenditure for which no provision exists in the budget;
(iii)
levy of taxes, duties, cesses or fees;
(iv)
floatation of loan;
(v)
re-appropriation between major heads within budget grants;
The Contract Act, 1872, pp-1-73, governs the laws of contract in Bangladesh. The Act came into force
in the then Bengal on 1st September 1872, and was adopted by the Government of Bangladesh without
any change. It contains the common rules relating to all contracts in Bangladesh.
9
Relevant sections 124 to 147 of chapter-VIII of the Contract Act 1872 are reproduced in Annex-2.
10
Rules of Business 1996 (Revised up to January 2009), pp.1-29, Cabinet Division, Government of
the Peoples Republic of Bangladesh.
17
(vi)
alteration in the method of compilation of accounts or of the budget

estimates;
(vii)
receipt or expenditure of foreign exchange unless already allocated;
(viii)
change in the terms and conditions of service of Government servants, and

employees of public corporations which have financial implications; and
(ix)
interpretation of rules made by Finance Division.
(d) Allocation of Business (Schedule 1 of the Rules of Business 1996)11

Finance Division is responsible for:
(17) Borrowing and floatation of market loans.
(23) Administration of public debt including loans and aids.
(24) Provident Fund.
(25) Matters relating to borrowing by public bodies such as Corporations, Municipalities etc.
(26) Institutional finance for development of industry, trade, agriculture and housing.
All these activities may lead to some sort of contingent liabilities.
(e) The Public Moneys and Budget Management Act, 2009 (ACT NO.40 of 2009)12
Chapter VI (Borrowings and Guarantee)
Act 21. Borrowings
(1) The Government may borrow from domestic and external sources.
(2) No Ministry, Division, Other Institution, department or agency shall borrow any loan
other than the Ministries or Division or Other Institutions which have been
authorized to borrow on behalf of the Government.
(3) The Government may borrow to achieve following objectives:(a) To finance budget deficit;
(b) To implement any project or programme;
(c) On-lending to any agency;
(d) To pay back previous loans or financing any loans on their maturity;
(e) For any other purposes approved by the Parliament.
Act 22. Guarantees
No Ministry or Division shall issue any guarantee on behalf of the Government other than the
Finance Division.
11
12
Allocation of Business Among the Different Ministries and Divisions (Schedule I of the
Rules of Business, 1996) (Revised up to July 2012), pp.1-86, Cabinet Division, Government of
the Peoples Republic of Bangladesh
The Public Moneys and Budget Management Act, 2009 (ACT NO.40 of 2009), pp.1-9, 9 July 2009.
18
3.3 Procedure and Institutional Set Up for Issue of Sovereign Guarantee in Bangladesh
(a) Demand for Guarantee
In general, State Owned Enterprises (SOEs) of Bangladesh usually demand for Sovereign
Guarantee as they have poor credibility or very low credit rating due to their financial insolvency
and poor performance. Their previous transaction records with Financial Institutions are not
satisfactory and so the Financial Institutions are reluctant to provide additional loans or impose
conditions of the Government Guarantee. Since SOEs provide essential public goods and
services, in public interest the government agrees to provide guarantees or counter guarantees
for their borrowings from commercial banks and other financial Institutions.
(b) Procedures and Processes for Issue of Guarantees
There exist an elaborate system of standard procedures and processes for the grant of
guarantees to the public sector enterprises, when demanded by them in public interest. The
system and procedures are shown with the help of flow charts in Flow Chart-1. If SOEs/
agencies face Cash shortages, they approach commercial banks/ financial agencies for loans.
On the basis of the financial and physical performance/ credit worthiness/ repayment capacity
and past repayment records, financial agency demands for Sovereign Guarantee (SG) before
granting any loans to the SOEs. Then the SOEs approach the Finance Division through their
concerned ministry which examines the terms and conditions of the commercial banks before
recommending provision of guarantees. If the proposed interest rate is higher than 5%, the
proposal is placed to the Hard Term-Loan Standing Committee13 for its approval.
After obtaining necessary vetting from the M/O Law on proposed SG, the proposal is forwarded
to the Contingent Liability Management (CCLM) Section14 of the Finance Division, Ministry of
Finance. On receiving request from the line ministry, CCLM, seeks comments from the
Monitoring Cell, and if needed, from the Budget Wing for processing of Sovereign Guarantee.
After favorable recommendations, CCLM section processes line ministrys request for Sovereign
Guarantee for the final approval by the Honble Finance Minister. Once approved by the Finance
Minister, Sovereign Guarantee is issued in favor of the lending financial agency, and it is
executed and monitored by the Administrative Ministry concerned. The concerned Ministry is
also required to annually report the status of the guarantee in this regard, until the guarantee
falls due or expires.
13
Hard Term Loan Standing Committee (HTLC) under the administrative control of the Treasury and
Debt Management Wing (TDMW) of the Finance Division (FD), Ministry of Finance (MOF) was formed in
1980 to consider cases of public borrowing that is non-concessional and tenure of which is relatively
short. The Committee is headed by the Minister for Finance and includes the Minister for Planning,
Governor of Bangladesh Bank, Finance Secretary, Secretary of Commerce, Secretary of ERD and Joint
Secretary of ERD as members.
14
Contingent Liability Management (CLM) Section under the Debt Management Branch (DMB),
Treasury and Debt Management Wing (TDMW) of the Finance Division (FD), Ministry of Finance, on
behalf of the Government of Bangladesh, issues guarantees and counter-guarantees and maintains their
records. It is also responsible for preparing debt database.
19
20
4.
An Assessment of the System of Management of Contingent Liabilities in

Bangladesh as Judged by International Best Practices
International best practices for management of contingent liabilities (summarized in Tables 4.1
to 4.4) indicate that:
(a) There exists a centralized unit (generally within the Ministry of Finance) which acts as a
front and middle office for management of contingent liabilities.
(b) Both explicit and major implicit contingent liabilities are clearly defined, measured and
monitored by the centralized unit.
(c) There is transparency and accountability for recording, monitoring, preparing and
publishing comprehensive reports on contingent liabilities at regular intervals.
(d) Contingent liabilities need to be disclosed in the budget to encourage public debate.
Disclosure requirements under IMF GFSM 2001, IMF Code and Manual, OECD best
practices and IPSAS are presented in Annex-3.
(e) There exist effective acts, regulations, guidelines, legal and institutional system for issue,
approval, execution and overall management of contingent liabilities.
(f) Contingent liabilities are effectively accounted and audited and published as
memorandum items in the Annual Budgets. The reports are also put up on the websites
of the Ministry of Finance for general dissemination and encouraging public debate and
discussion which is the first line of defense against any critical situation in future.
(g) There exist Contingent Liability Redemption Funds in most countries.
(h) There are limits on the annual and total outstanding contingent liabilities (either in
absolute amounts or in terms of percentages to GDP or revenues);
(i) In some countries there is also a sunset clause on the life of guarantees and other
contingent liabilities;
Tables 4.1 to 4.4 summarize the practices for management of contingent liabilities in selected
countries compared to those in Bangladesh. Column-1 of these Tables lists the best practices
for management of contingent liabilities, column-2 indicates the general practices followed in
ten selected countries viz. Australia, Canada, Columbia, Czech Republic, Hungary, India, New
Zealand, Philippines, UK and USA, while column-3 presents the systems and procedures
followed in Bangladesh. It is evidenced from these tables that strengthening fiscal discipline
and responsibility there is a need for significant improvement in the present systems and
procedures for management of contingent liabilities of the government of Bangladesh.
4.1 Transparency- Recording, Monitoring, Reporting and Publishing of
Reports on Contingent Liabilities
Finance Division, the Ministry of Finance is empowered by Law to approve and issue of
sovereign guarantee. Contingent Liability Management (CLM) section, Treasury and Debt
Management Wing (TDMW) as well as Monitoring Cell of Finance Division, Ministry of Finance
are in charge of monitoring of guarantees. Concerned Ministries/ Divisions also monitor and
report guarantees. Outstanding Sovereign guarantees /counter guarantees are disclosed in the
budget document (Budget in Brief) for every fiscal year. However, guarantees are reported in
terms of book value (Face Value) without netting out the value of the guarantee which has either
expired or has been partly discharged due to repayment of principal of loans.
21
After invocation of any Guarantee, Budget Wing of Finance Division takes initiative to repay the
liabilities of beneficiary to the borrower either by paying cash or by requesting the Domestic
Debt Management Section of TDMW to issue Special Treasury Bond (STB) against the lender.
For better fiscal analysis and risk assessment, it is necessary to prepare more comprehensive
records of live and outstanding guarantees and counter guarantees after netting out deleted,
discharged or expired part of guarantees and counter-guarantees. It is also necessary to keep
records of major implicit guarantees such as bail outs of state owned commercial banks and
other enterprises. It is also necessary to build capacities for to develop methodologies for
identification, measurement and valuation of risks related to major implicit contingent liabilities
associated with the major components (viz. National Savings Schemes, State Provident Funds
and various Deposit Schemes etc.) of the Public Accounts.
Table-4.1 Transparency- Recording, Monitoring, Reporting and Publishing of Reports
On Contingent Liabilities - Country Experiences and Status in Bangladesh
Items
(a) Types of contingent
liabilities considered,
recorded and monitored
regularly by the government
(b) Authority for Approval and

Issue of government
guarantees
(c) Centralized Unit for

monitoring of government
guarantees
International Practices
Status in Bangladesh
Guarantees by India,
Australia, Canada,
Columbia, Czech
Republic, Hungary,
New Zealand,
Philippines, UK, USA.
Debt reliefs and bail
outs by the government
in India.
Indemnities and
uncalled capital by
Australia, New Zealand
All explicit contingent
liabilities by Canada,
Columbia, UK, USA.
Quantifiable and
unquantifiable by
Australia, New Zealand
MOF/ DOF/ Treasury
in most countries
Respective Ministries/
Departments in UK
Guarantees and counterguarantees issued by the

Finance Division to State
Owned Enterprises (SOEs).
MOF/ DOF/ Treasury

in most countries
Public Debt Office in
Columbia, Hungary and
New Zealand
22
Finance Division, Ministry of

Finance as per Allocation of
Business (Schedule 1 of
Business Rules).
Contingent Liability
Management (CLM) Section
under FD issues guarantees
and counter-guarantees
CLM and concerned line
Ministries/ Divisions monitor
and report guarantees.
Items
(d) Are there automatic or adhoc guarantees?
India: Small savings,

PF and Life Insurance
Australia: Certain
items under legislation
to government
controlled financial
institutions
Canada : Crown
corporations on
insurance
Hungary: Reinsurance
of priority lending
Philippines: Some
GOCCs under charter
UK: Items of national
security
USA and New Zealand:
Not in general
In general, implicit
contingent liabilities
relating to Pension,
Provident and
Insurance are not
monitored regularly due
to lack of proper
methodology and
adequate information.
For Savings Certificates,

Saving Bonds, Postal
Savings and Life Insurance,
small deposits in banks,
State Provident Funds,
Welfare Funds, and Various
Deposits kept with the Public
Accounts of the Republic.
(e) Contingent liabilities not

monitored
(f) Does there exist up-to-date

data for other CLs?
(g) Are all monitored liabilities

reported to public?
o Yes, in Australia,
Canada, Hungary, New
Zealand, UK & USA,
o But no such data,
except for government
guarantees, are made
available for India,
Columbia, Philippines,
Czech Republic.
Yes, by all countries.
However, contingent
liabilities related to
national security and
commercial
confidentiality are not
reported by the
government of UK.
23
No implicit contingent
liabilities are monitored.
No comprehensive and upto-date data base even for
explicit contingent liabilities
(as the outstanding
guarantees are not netted
out of the .repayment of part
of the principal of the
guaranteed loan).
No such data, except for
government guarantees, are
made available.
No comprehensive and upto-date data base even for
guarantees and counterguarantees.
Yes, list of government
guarantees and counterguarantees issued to state
owned enterprises, and also
items in Public Accounts are
published in the Budget in
Brief, submitted to
Parliament as a part of
Annual Budget documents
Items
by the Finance Division of

the Ministry of Finance.
There is no comprehensive act in Bangladesh which deals with all aspects for the management
of contingent liabilities encompassing various steps such as identification, issue, approval,
execution, monitoring, accounting, auditing, preparing and publishing reports. Constitution of
the Peoples Republic of Bangladesh 1972, The Contract Act 1872, Rules of Business 1996,
Allocation of Business (Schedule 1 of the Rules of Business 1996) and the Public Moneys and
Budget Management Act, 2009 (Act No.40 of 2009) deal with various aspects relating to
management of public debt and contingent liabilities.
The legislative arrangements clearly indicate that the Ministry of Finance is accountable to the
parliament for issuance, approval and management of guarantees and its management. The
Controller General of Accounts (CGA) under the general guidance from the Comptroller &
Auditor General (C&AG) of Bangladesh is responsible for accounting and auditing of contingent
liabilities under general accounting principles and procedures.
It is advisable to formulate a framework and comprehensive guidelines for management of
contingent liabilities incorporating all relevant acts, laws, principles and describing the
organizational set up for more effective management of contingent liabilities in Bangladesh.
In Bangladesh there are no limits either on the annual flow or on the outstanding sovereign
guarantees. As per international best practices, it is advisable to fix such limits on sovereign
guarantees by the government for fiscal prudence. It is also desirable to strengthen capacities in
the Contingent Liability Management (CCLM) Section within TDMW to make it a centralized unit
to act as both front and middle office for management of contingent liabilities.
Table-4.2 Accountability, Auditing, Regulatory, Legal and Institutional SystemCountry Experiences and Status in Bangladesh
Items
(a) Legal Requirements for
approval, issue, monitoring
and reporting of contingent
liabilities
-India: Fiscal
Responsibility & Budget
Management Act 2003
and FRBM Rules 2004
under article 292 of the
Constitution.
- Australia: Charter of
Budget Honesty Act
(BHA) 1998
- Canada: Financial
Administration Act
-Columbia: Law 448
enacted on 21-07-1998
-Czech Republic: Law of
Budgetary Rules
Constitution of the Peoples

Republic of Bangladesh,
1972.
The Contract Act, 1872.
Rules of Business 1996.
Allocation of Business
(Schedule 1 of the Rules of
Business 1996).
The Public Moneys and
Budget Management Act,
2009 (Act No.40 of 2009).
The legislative arrangements
clearly indicate that the
Ministry of Finance is
accountable to the
24
Items
(b) Contingent liabilities

regulated by law
(c) Limits on individual

guarantees/ counter
guarantees
-Hungary: Public Finance

Act 1992
-New Zealand: Fiscal
Responsibility Act, Public
Finance Act, Local
Government Act,
- Philippines: Republic
Act 4860
- UK: Code of Fiscal
Stability
-USA: Federal Credit
Reforms Act 1990.
-India: Guarantees,
Provident Fund, Small
Savings Instruments
-Australia, Canada, New
Zealand: Guarantees,
indemnities, uncalled
capital
-Columbia- CLs of state
entities
-Czech Rep-Guarantees,
hidden debt
-Hungary- Guarantees,
reinsurance
-PhilippinesGuarantees to GOCCs
-UK, USA-All material
contingent liabilities.
No limits in Australia,
Columbia, Philippines.
EU State Aid Rules
prohibit the government
from guaranteeing more
than 80% of any loan.
- In Canada the govt.
limits its guarantees to at
most 85%.
- United States Small
Business Administration
guarantees up to 85% of
the loans to SMEs.
- In Chile, credit
guarantees to SMEs are
auctioned by commercial
banks resulting in govt
guarantees on average
7080% of the loans.
parliament for issuance of

guarantees and its
management.
25
Guarantees and counterguarantees issued by the

government
No legal limits on individual

guarantees/ counter
guarantees
Items
(d) Limits on total flows of
new guarantees during any
fiscal year
(e) Limits on total stock of

guarantees/ counter
guarantees
(f) Sunset clause or time

limits on the expiry of
guarantees or counter
guarantees
(g) Sharing risks of contingent
liabilities in the case of
projects under Public Private
Partnerships
(h) Audit by Independent
Auditors
- India New issue of CL

not more than 0.5% of
GDP in any year.
- New Zealand- Limit as
% of GDP.
Hungary- As % of
revenue.
USA-Automatic limits
through appropriation of
subsidies relating to
- Many countries such as
Bulgaria, Czech
Republic, Hungary, Israel,
Japan, Kazakhstan,
Latvia, the Netherlands,
Pakistan, Portugal,
Russia, Sri Lanka,
Tunisia, and Tanzania
have imposed overall
ceilings on government
guarantees, or on
combined debt and
guarantee ceilings.
(Hemming et al., 2006).
- South Africa has a limit
as 50% of GDP on net
debt and guarantees.
Yes in Australia,
But no such provision in
law in India
No legal limits on total flows

of new guarantees during
any fiscal year.
Yes in all countries
Yes in Bangladesh
-India: Yes, Controller

General of Accounts
-Australia: Yes, by
National audit Office
Canada, Columbia,
Czech Rep: Yes
Hungary- Yes, by State
Audit Office
New Zealand: Yes,
applies Generally
Accepted Auditing
Principles (GAAP)
Yes, by the Controller

General of Accounts (CGA)
under the general guidance
from the Comptroller &
Auditor General (C&AG) of
Bangladesh regarding
accounting principles and
procedures.
26
No legal limits on stock of

guarantees/ counter
guarantees
No such provision in
Bangladesh
Items
Philippines- Yes by
Commission on Audit
UK: National Audit Office
USA- Yes, applies
Federal Financial
Accounting Standards.
4.3 Policy Framework, Comprehensive Guidelines and PracticesIn Bangladesh, there is no written comprehensive policy framework or guideline for approval or
issue of contingent liabilities. As per international best practices, at present, no Medium Term
Fiscal Policy Framework Paper is presented by the government, although it has been planned
to submit a Medium Term Budget Strategy Paper starting with the 2014-15 Budget.
There is no guarantee fee for issue of guarantees, and no Contingent Liability Redemption Fund
(CLRF) in Bangladesh. As per international best practices, it is desirable to charge guarantee
fees for issue of guarantees, which may vary depending on associated risks. It is also advisable
to set up a Contingent Liability Redemption Fund and to make appropriate provisions to the
Fund in the Annual Budget. Guarantee fees can also accrue to the CLRF.
At present, contingencies are subsumed in the MoF appropriations. For transparency, it is better
to make separate appropriations for contingencies in order to meet unforeseen and urgent
spending needs (e.g., for emergencies or unexpected large increases in obligations). But, as
mentioned in Section-2 on basic concepts, provisions for contingencies should be distinguished
from the Contingent Liability Redemption Fund. While contingencies provisions are used for
financing unexpected increases of the budgetary provisions of items already mentioned under
different heads of the Budget, Contingent Liability Redemption Fund is used only in the case of
invocation of guarantees or bail out of public sector enterprises and financial bodies in the case
of severe financial crisis.
As mentioned earlier, it is also advisable to formulate a comprehensive framework and
guideline for management of contingent liabilities dealing with all aspects such as objectives,
benefits, eligible sectors, processes and procedures for issue, approval, execution, auditing,
accounting, reporting and the required legal system and institutional set up for effective
management of both explicit and implicit contingent liabilities of the Bangladesh government.
Table-4.3 Policy Framework, Comprehensive Guidelines and PracticesCountry Experiences and Status in Bangladesh
Items
(a) Is there any policy
framework or guideline for
approval and issue of
contingent liabilities?
Yes- In India, Australia,
Canada, Columbia,
Czech Republic,
Hungary, New Zealand,
But not in Philippines.
27
There is no written policy
framework or guideline for
approval or issue of
Items
(b) Does the Annual Budget

present a Medium Term
Fiscal Policy Framework?
Yes- In India, Australia,

Canada, Columbia,
Czech Republic,
But not in Philippines.
At present, no Medium Term

Fiscal Policy Framework
Paper is presented.
However, it has been
planned to submit a Medium
Term Budget Strategy Paper.
(c) Is there a Designated

Contingent Liability
Redemption Fund?
India, Australia,
Canada, Columbia,
UK and U.S.A. have
designated
Contingency
Redemption Fund,
which can be used in
the case of recall of
guarantees.
But the governments of
Czech Rep, Philippines
do not have such fund.
At present, no such Fund

exists in Bangladesh.
(d) Is there bail out of PSEs?
Yes in all countries.
Yes, recently the MOF bailed

out four weak State Owned
Banks and one private bank.
No guarantee fee (?)
(e) Is there any fee for issue

of guarantees?
In Norway, guarantee
fees are fixed on self
financing principal.
Canada charges fees
that cover estimated
future losses and
administrative costs.
Colombia charges a
guarantee fee for
external debts.
India charges 1% on
guaranteed domestic
loans of public sector,
28
Items
2.5% on domestic
loans by other sectors,
0.25% on borrowings
from RBI and 1.5% on
external loans on
outstanding value of
loans and interests.
Turkey charges one
time guarantee fee of
1% of loan.
29

Fiscal and budgetary accounting system in Bangladesh mainly uses cash accounting system,
which cannot fully account for financial obligations relating to contingent liabilities. It is
necessary to strengthen the capacities in the CLM section within TDMW to develop
methodologies for assessment and measurement of risk and future financial obligations relating
to both explicit contingent liabilities (guarantees and counter guarantees) and implicit contingent
liabilities such as bail out of public sector enterprises and financial institutions, and future
obligations for major items (such as National Savings Schemes, State Provident Funds,
Reserve & Depreciation Funds, Deposit Accounts, Suspense Accounts and Remittance
Accounts etc.) under the Public Accounts15, agricultural credits etc.
It is desirable to prepare a Medium Term Fiscal Policy Framework indicating fiscal risk matrix
and to submit it to the Parliament along with Medium Term Budget Framework (MTBF). A
statement on fiscal risks could include an analysis of debt sustainability and debt-related risks
over medium term, risks relating to government guarantees and counter guarantees, and
implicit contingent liabilities relating to projects and programs under the pubic-private
partnership and for major items under the Public Accounts etc.
Provident and Pension Funds in Bangladesh are partially funded and partially contributory. For
fiscal sustainability, it is desirable to move towards fully funded or fully contributed systems.
Off-budgetary activities may also create implicit contingent liabilities for the government. These
should be included in financial reports of the general government (including local governments),
and overall balance sheets of the public sector (including general government, State Owned
Enterprises and Public Private Partnerships).
Extra budgetary funds refer to general government transactions, often with separate banking
and institutional arrangements not included in the annual budgets of the governments. These
funds may also be shown in the budget as memorandum items.
Various tax expenditures can be another form of off-budget spending. Tax expenditures are
exemptions and concessions that fall outside the usual benchmarks for taxes. They are adopted
to provide benefits to a specific activity or class of taxpayers. Although it is not easy to measure
tax expenditures fully, given their quasi-budgetary nature, parliament needs to be informed as to
their expected amount, so as to exercise financial control over their size. Therefore, budget may
also include a statement on tax expenditures (i.e. loss of tax revenues due to tax cuts, tax
exemptions, duty drawbacks, and tax breaks due to tax holidays or deferment of taxes).
Table-4.4 Risk Management Systems and Capacities15
Government financial statement comprises two separate accounts- the Consolidated Fund and the
Public Accounts. While all revenues received and all loans raised by the government (including
repayment of loans and interest receipts) accrue to the Consolidated Fund, all other receipts by the
government or on behalf of the government (such as National Savings Schemes, State Provident Funds,
Reserve & Depreciation Funds, Deposit Accounts, Suspense Accounts and Remittance Accounts etc.) are
credited with the Public Account of the Republic. Government is the owner of the Consolidated Fund
and so it has no obligations to anybody else for the receipts under it. But government is only a custodian,
and not the owner, of the Public Account. Therefore, government has obligations to pay back the dues
relating to the items under the Public Accounts to their respective owners when they fall due.
30
Country Experiences and Status in Bangladesh

Items
(a) Accounting practices for

budgeting
Australia, Canada,
UK use accrual
accounting system.
Columbia, Czech Rep,
India, Philippines use
modified cash or mixed
accounting system.
USA uses Committed
Accounting system.
Government of Bangladesh
uses mainly cash but mixed
accounting system for certain
items.
(b) Statement on fiscal risk

included in the budget
Australia, Canada,
Czech Rep, Columbia,
Hungary, India, New
Zealand, Philippines,
U.K.,
U.S.A. include a
statement on fiscal
risk in their budget.
No statement of fiscal risk is

included as a part of budget
papers.
(c) Does there exist a fullfledged and independent

public debt office?
In Australia, Canada,
Columbia, Hungary,
New Zealand, U.K.,
and U.S.A., a fullfledged Public Debt
Office (PDO) exists.
The PDO is in charge
of managing overall
risk of both loans and
guarantees in the
framework of Asset
Liability Management.
But, no such integrated
PDO exists in India,
Czech Republic and
Philippines.
(d) Are the concerned

organizations capable of
evaluation and control of
contingent liabilities?
Some countries such as

USA, UK have put in
place frameworks to
ensure early and
comprehensive
attention to risks
associated with
31
In Bangladesh the debt

management offices are
dispersed in various
Divisions in the Ministry of
Finance and Bangladesh
Bank.
No such integrated PDO
exists in Bangladesh.
Capacity building within

TDMW of the Finance
Division is required for
identification, assessment,
valuation and management
of risk relating to both explicit
and implicit contingent
Items
liabilities.
- About half of the OECD
In Bangladesh no such
countries16 require
parliamentary approval is
parliamentary approval of
required, although stock and
loan guarantees and
statement on contingent
about a third require
liabilities are given as
memorandum items in the
PPPs.
Budget.
Other countries where
contingent liabilities is
required include Brazil,
Chile, Colombia, Mexico,
Peru, Russia.
In India no such
parliamentary approval is
required, although stock
and statement on
contingent liabilities are
given as memorandum
items in the Budget.
(f) General fiscal measures
Yes by all countries
It is proposed to prepare
taken to prevent fiscal risks.
through preparation of
a Medium Term Budget
Medium Term Fiscal
Strategy Paper and submit it
to Parliament along with 2014Policy Framework and
15 Budget.
Strategy
(g) Are the Pension Fund or
Most of the countries
As in India, Bangladesh
Provident Fund systems fully
have moved towards fully
has both funded and
funded?
contributed system. India
contributed provident fund
and Philippines have both
systems. It has also high
contributory and partially
administrative costs, low
funded systems.
returns on invested funds and
However, in India and
high risks for recovery.
Philippines, the
administrative costs are
high, returns of
investments are low and
retirement rates are high.
Sources for all tables: Current research by the authors for Bangladesh and Tarun Das (2002)
for other countries.
(e) Is Parliamentary approval
required for grant of
guarantees?
16
About half of the OECD countries require parliamentary approval of loan guarantees- these
countries include Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Poland,
Spain, Sweden, U.K., U.S.) and about a third require parliamentary approval of PPPs (including
Denmark, Iceland, Italy, Mexico, Norway, Poland, Sweden, Turkey, U.K.) (Lienert and Jung, 2004; OECD,
2007). Generally, the requirement for parliamentary approval of loan guarantees is included in ordinary
laws (budget system laws or specific debt or borrowing laws). In Finland and Germany the requirement
for parliamentary approval of loan guarantees is written in the constitution (Lienert and Jung, 2004).
32
5. Current Status of Contingent Liabilities of the Government of Bangladesh

5.1 Guarantees and Counter-Guarantees
As explained in Section 4, the Government of Bangladesh provides Guarantees and CounterGuarantees against loans taken by the State-owned financial and non-financial enterprises from
the Bangladesh Bank and commercial banks. Guarantees are also provided for export and
import credits taken from the national and foreign EXIM banks. Most of these loans are taken for
implementing different public policies and programmes. If the contracting organizations fail to
pay their loans in time, the guarantees are invoked and the liabilities for payment are passed on
to the Government. Consequently, guarantees create contingent liabilities and future fiscal
obligations for government.
For transparency, Budget in Brief submitted to the Parliament as a part of Annual Budget
documents provides a list of all guarantees given by the government and valid for future.
Annex-4A to Annex-4C reproduces the list of guarantees and counter-guarantees (valid
beyond 30th June 2013) as given in the Budget in Brief for Budget 2013-14. Each Guarantee/
Counter Guarantee indicated in this list has been demonstrated in face value (book value).
The information on guarantees and counter-guarantees is summarized in Table 5.1, which
demonstrates that the petroleum sector has attracted most of the guarantees accounting for
57.7 per cent of total face value of all guarantees valid beyond 30 June 2013, followed by
miscellaneous sectors accounting for 29 per cent and Agriculture Sector accounting for 12.9
percent of total guarantees, while trading sector has a negligible share of 0.3 per cent. Most of
the guarantees under the miscellaneous sector were provided for execution of various
development projects and in favor of foreign companies or foreign banks. .
Table 5.1: List of Guarantees and Counter-Guarantees Valid Beyond 30 June 2013
(In Crore Bangladesh Taka)
Sector
Face Value
(Crore BTK)
7,655
Percentage in Total
34,160
57.7
205
0.3
4. Miscellaneous Purpose
17,155
29.0
Total
59,175
100.0
1. Agriculture Sector
2. Bangladesh Petroleum Corporation
3. Trading Sector
12.9
Source: Summarized on the basis of Table 5.2.

5.2 Implicit Contingent Liabilities
As explained in Section-4, government adopts an approach of Pay As You Go for various
items in the Public Accounts. Therefore, these items may create contingent liabilities for the
government if the current inflows are not sufficient for financing the current outflows under
different heads. However, Public Accounts for the years 2011-12 to 2013-14 presented in Table5.2 indicate that at present there is no such problem for the government as the Public Account
has some surplus.
33
Table 5.2: public Accounts of the Republic of Bangladesh
Source: Budget in a Brief as a part of Budget for 2013-14.
34
5.3 Trends of Guarantees and Counter Guarantees

The Concept Paper on Contingent Liabilities prepared by Mohd. Rashedul Amin and Kazi Nahid
Rasul of TDMW in May 2012 provides trends of Guarantees and Counter Guarantees issued by
the Finance Division and the domestic debt, external debt and total public debt of the
government during the years 1997-98 to 2010-11, which are presented in Tables 5.3.
Guarantees and public debt are expressed as percentages of GDP at current market prices in
Table-5.4 while these items are expressed as percentages of total public debt in Table-5.5.
Table-5.3 Explicit Contingent Liability and Total public Debt (Amount in Billion Taka)
Year
Guarantees
CounterGuarantees
Total
Outstanding
Flow
Domestic
Debt
External
Debt
1997-98
2.5
0.0
2.5
2.5
205.9
637.9
Total
Public
Debt
843.8
GDP at
current
MP
2001.8
1998-99
2.7
0.0
2.7
0.2
285.8
713.4
999.2
2197.0
1999-00
22.2
0.0
22.2
19.5
361.5
815.6
1177.0
2370.9
2000-01
29.0
0.0
29.0
6.8
432.9
813.4
1246.3
2535.8
2001-02
54.1
0.0
54.1
25.1
508.6
934.8
1443.4
2732.0
2002-03
79.0
0.0
79.0
24.8
541.9
1008.1
1550.0
3005.8
2003-04
150.9
25.3
176.2
97.3
608.0
1091.0
1699.0
3329.7
2004-05
152.8
84.9
237.7
61.0
693.3
1184.0
1877.4
3707.1
2005-06
203.4
146.3
349.7
112.5
796.8
1302.7
2099.5
4157.3
2006-07
197.9
313.5
511.3
161.6
914.1
1429.8
2343.9
4724.8
2007-08
226.0
374.1
600.0
88.7
1094.2
1460.8
2555.0
5458.2
2008-09
265.1
370.5
635.7
35.6
1270.3
1440.5
2710.9
6148.0
2009-10
363.1
388.2
751.3
115.6
1365.2
1411.9
2777.1
6943.2
2010-11
387.6
391.1
778.7
27.4
1640.3
1749.4
3389.6
7875.0
Source: Mohd. Rashedul Amin and Kazi Nahid Rasul of TDMW (May 2012)
Notes:
(1) In the FY 2003-04, the outstanding was increased substantially because from this year
the Finance Division has started to streamline the issuance of sovereign guarantee/
counter guarantees. Before that the guarantees were being issued from different
sections of Budget wing. So, the number of guarantees/counter guarantees issued could
not be identified properly.
(2) Effective contingent liabilities will be much lower because the reported amount of
contingent liabilities in this table show only the initial face value or book value of the
guarantees and counter guarantees and are not netted out are not netted out of the
contingent liabilities which have fully or partially expired after repayment of guaranteed
debt either partially or fully.
(3) As per official record of FD, expiry date was not included in the guarantees/ counter
guarantees issued by the government. The beneficiaries/ related line ministries are also
reluctant to inform about the status of guarantees/ counter-guarantees. As a result, FD
is not aware of the usage and termination of guarantees/ counter-guarantees and so
the actual amount of contingent liabilities.
35
Table-5.4 Explicit Contingent Liability and Total public Debt

as Percentage of GDP at Current MP
Year
Guarantees
1997-98
0.12
CounterGuarantees
0.00
Total
Outstanding
0.12
Flow of
Guarantees
0.12
Domestic
Debt
10.29
External
Debt
31.87
Total Public
Debt
42.15
1998-99
0.12
0.00
0.12
0.01
13.01
32.47
45.48
1999-00
0.94
0.00
0.94
0.82
15.25
34.40
49.65
2000-01
1.14
0.00
1.14
0.27
17.07
32.08
49.15
2001-02
1.98
0.00
1.98
0.92
18.62
34.22
52.83
2002-03
2.63
0.00
2.63
0.83
18.03
33.54
51.57
2003-04
4.53
0.76
5.29
2.92
18.26
32.76
51.03
2004-05
4.12
2.29
6.41
1.64
18.70
31.94
50.64
2005-06
4.89
3.52
8.41
2.71
19.17
31.34
50.50
2006-07
4.19
6.63
10.82
3.42
19.35
30.26
49.61
2007-08
4.14
6.85
10.99
1.63
20.05
26.76
46.81
2008-09
4.31
6.03
10.34
0.58
20.66
23.43
44.09
2009-10
5.23
5.59
10.82
1.67
19.66
20.34
40.00
2010-11
4.92
4.97
9.89
0.35
20.83
22.21
43.04
Source: Prepared by the authors on the basis of Table 5.3.

Notes: As in Table-5.3.
Table-5.5 Explicit Contingent Liability and Total public Debt a
s Percentage of Total Public Debt
Year
Guarantees
CounterGuarantees
Total
Outstanding
Flow of
Guarantees
Domestic
Debt
External
Debt
1997-98
0.30
0.00
0.30
0.30
24.40
75.60
100.00
1998-99
0.27
0.00
0.27
0.02
28.60
71.40
100.00
1999-00
1.89
0.00
1.89
1.66
30.71
69.29
100.00
2000-01
2.33
0.00
2.33
0.55
34.73
65.27
100.00
2001-02
3.75
0.00
3.75
1.74
35.24
64.76
100.00
2002-03
5.09
0.00
5.09
1.60
34.96
65.04
100.00
2003-04
8.88
1.49
10.37
5.73
35.79
64.21
100.00
2004-05
8.14
4.52
12.66
3.25
36.93
63.07
100.00
2005-06
9.69
6.97
16.66
5.36
37.95
62.05
100.00
2006-07
8.44
13.37
21.81
6.89
39.00
61.00
100.00
2007-08
8.85
14.64
23.49
3.47
42.82
57.18
100.00
2008-09
9.78
13.67
23.45
1.31
46.86
53.14
100.00
2009-10
13.08
13.98
27.05
4.16
49.16
50.84
100.00
2010-11
11.44
11.54
22.97
0.81
48.39
51.61
100.00
Source: Prepared by the authors on the basis of Table 5.3. Notes: As in Table-5.3.
An analysis of the Tables-5.3 to 5.5 leads to the following main observations;
36
Total Public
Debt
(1) Over the period from FY 1999 to FY 2011, while total public debt as a percentage of
GDP at current market prices increased from 42.1 percent in FY 1999 to 52.8 percent in
FY 2002 followed by a continuous declining trend and reached 43 per cent in 2011, the
stock of contingent liabilities to GDP ratio showed an increasing trend starting with a
marginal value at 0.1 percent in FY 1999 and reaching 9.9 percent in FY 2011 with a
peak ratio at 11 percent reached in FY 2008.
(2) However it should be kept in mind that contingent liabilities were not fully captured in FY
1999 and subsequent contingent liabilities show only the initial issued amount in terms of
book value or face value and are not netted out of the contingent liabilities which have
expired after repayment of guaranteed debt either partially or fully.
(3) Flow of guarantees as a percentage of GDP at current market prices was as high as
2.92 percent in FY 2004 and 3.42 percent in FY 2007.
(4) Guarantees as a percentage of total public debt increased from 0.3 percent in FY 1999
to 23 percent in FY 2011.
(5) Ratio of domestic debt as a percentage of total public debt increased from 24 percent to
48 percent while ratio of external debt as a percentage of total public debt declined from
76 percent to 52 percent over the period.
In addition, the study on contingent liabilities made by Mohd. Rashedul Amin and Kazi Nahid
Rasul of TDMW (May 2012) also made the following observations;
(1) In recent years government has issued several guarantees and counter-guarantees in
large amounts to boost up the development and capacity enhancement for the priority
sectors like power, energy and communication etc. These may create huge liabilities for
the government in case of defaults of repayments or delay in the commercial operations
of the plants.
(2) The growth rate of the stock of sovereign guarantees/ counter guarantees decelerated in
recent years as some liabilities of BPC and BJMC were assumed by the government in
the FY 2008 and FY 2011.
(3) The BPC was issued the highest number of guarantees (75 out of 203) during the years
1998-2011 due to huge demand of fuel faced by the country.
(4) Guarantees were issued mainly against loans for working capital shortage, re-financing,
procurement, suppliers credit and temporary fund crisis.
(5) Counter Guarantees were issued mainly against loans for procurement of Petroleum
Products, Urea, TSP, MOP fertilizer, white sugar, soybean oil, as well as Syndicated
Murabaha operation.
(6) Defaults for repayments of borrowing can be directly correlated with the financial
performance of the organizations. As judged by the financial data of FY2008-09,
financial performance of BJMC, BSFIC and BADC was very weak; while financial
performance of BCIC was moderate and that of BPDB can be considered to be strong 17.
So, the Government needs to monitor financial performance of the beneficiaries.
17
Benchmarks for strong financial strength: Current Asset to Current Liability Ratio : 1:1; Debt to Equity
Ratio: 40:60 for power sector, and 40:60 for other sectors.
37
6. Recommendations
6.1 Transparency- Recording, Monitoring, Reporting and Publishing of
Reports on Contingent Liabilities
(a) At present, Contingent Liability Management (CLM) Section, Treasury and Debt
Management Wing (TDMW) and the Monitoring Cell of Finance Division (FD), Ministry
of Finance (MOF) are in charge of monitoring of guarantees/ counter-guarantees.
Outstanding Sovereign guarantees/ counter guarantees are disclosed in the budget
document (Budget in Brief) for every fiscal year. However, guarantees are reported in
terms of Book Value (Face Value) without netting out the value of the guarantees which
have either expired or have been partly discharged due to repayment of principal of
loans. Non-payment or delay of interest payment is also not reflected in the outstanding
guarantees/ counter-guarantees.
(b) It is desirable to maintain data base as per requirements for fiscal disclosure mandated
under the IMF Government Finance Manual (GFSM) 2001, IMF Code and Manual on
Fiscal Transparency (2007) and International Public Sector Accounting Standards
(IPSAS) (2013)18.
(c) It is desirable to strengthen the capacities of the Contingent Liability Management
Section19 to make it a centralized unit to act as a front and middle office for
management of contingent liabilities. It will have the responsibility of defining clearly,
and measuring and monitoring both explicit and major implicit contingent liabilities.
(d) It is also necessary to build capacities for to develop methodologies for identification,
measurement and valuation of risks related to major implicit contingent liabilities

associated with the major components (viz. National Savings Schemes, State Provident
Funds and various Deposit Schemes etc.) of the Public Accounts.
(e) Upgraded CLM Section will also ensure that there is transparency and accountability for
recording, monitoring, preparing and publishing comprehensive reports on contingent

liabilities at regular intervals.
18
19
Disclosure requirements under IMF GFSM 2001, IMF Code and Manual, OECD best practices and
IPSAS are presented in Annex-3.
Contingent Liability Management Section has the following responsibilities;
(i) In consultation with the Monitoring Cell and Budget Wing, process the demands, get approval and
issue guarantees/ counter-guarantees and government promissory notes; collect information,
keep records, monitor, analyze and prepare reports on guarantees/ counter-guarantees and
government promissory notes at regular interval.
(ii) Collect information, keep records, monitor, analyze and prepare reports on other Contingent
Liabilities and Quasi Fiscal Liabilities.
(iii) Prepare and maintain data base on loans and related information.
(iv) Coordinate activities of various wings and sections dealing with loans.
(v) Any other works and duties assigned by higher authorities.
38
(f) For better fiscal analysis and risk assessment, it is necessary to prepare and maintain
comprehensive records of live and outstanding guarantees and counter guarantees

after netting out deleted, discharged or expired part of guarantees/ counter-guarantees
and adding interest payments which are due. It is also necessary to keep records of
major implicit guarantees such as bail outs of state owned commercial banks and
PSEs.
(g) In order to compile with internationally practices disclosure requirements, all the public
sector enterprises, state owned banks, local governments and other beneficiaries who
have been issued guarantees/ counter-guarantees may be directed to provide annual
information as per the format indicated below:
Entities could be broadly classified as:
i. Agricultural Credits
ii. Bangladesh Petroleum Corporation (BPC)
iii. Trade Credits
iv. Miscellaneous Sectors
For each category mentioned above, build data base on the following information relating to
guarantees and counter-guarantees as on 30th June, of the current fiscal year.
Sector (as classified above): ___________________________________
FD Ref. No. with
original date of
issue
Purpose of
guarantee/
counterguarantees
(3)
Amount in USD
(million)
Exchange rate
(BTK per US$)
(1)
Guarantee or
counterguarantee
(specify)
(2)
(4)
(5)
Amount in Crore
BTK
(6)
Date of
extension
(7)
Expiry date
Beneficiary entity
In favor of
(8)
(9)
(10)
For counter
guarantee, name
the original
guarantor
(11)
Outstanding
amount at the
beginning of FY
(crore BTK)
(12)
Additions during
the year
(crore BTK)
(13)
Deletions other
than invoked
during the year
(crore BTK)
(14)
Invoked and
discharged
during the year
(crore BTK)
(15)
Invoked, but not

discharged,
during the year
(crore BTK)
(16)
Outstanding
amount at the
end of FY
(crore BTK)
(17)
Guarantee
commission fee
received
(crore BTK)
(18)
Guarantee
commission fee
receivable
(crore BTK)
(19)
Other material
information, if
any
39
(20)
(h) In order to analyze risks and associated implicit contingent liabilities in case of defaults,
the beneficiary Entities and the Public Sector Banks, International EXIM Banks and
other financial institutions, in favor of which the guarantees and counter guarantees
have been issued, may be requested to provide additional information on their financial
performances during last three years as per Formats given in Part-B of Annex-6.
(i)
Public Sector Banks and other financial institutions may also be requested to provide
additional information as regards their credit ratings, credit worthiness, sectoral
distribution of credits, risk weighted Capital Adequacy Ratios (CAR) and Non
Performing asst (NPAs) as per Proforma given in Part-C of Annex-6.
(a) Constitution of the Peoples Republic of Bangladesh 1972, The Contract Act 1872,
Rules of Business 1996, Allocation of Business (Schedule 1 of the Rules of Business
1996) and the Public Moneys and Budget Management Act, 2009 (Act No.40 of 2009)
deal with various aspects relating to management of public debt and contingent
liabilities. It is advisable to formulate a detailed framework and comprehensive
guidelines for management of contingent liabilities incorporating major requirements
under all relevant acts, laws, rules and describing the organizational set up and
procedures and standards for identification, issue, approval, execution, monitoring,
accounting, auditing, preparation and publishing reports on both explicit and implicit
contingent liabilities in Bangladesh. An Outline of the Comprehensive Guidelines is
indicated below:
An Outline of the Guidelines on the Management of Contingent Liabilities
1
Preamble
2
Definitions
3
General legal provisions relating to guarantees
4
Objectives of Guarantees/ counter Guarantees
5
Classification of Guarantees
6
Conditions for provisions of guarantees/ counter guarantees
7
Procedure for approval/ execution of guarantees
8
Risk profiling and Prioritization
9
Ceilings on annual and total outstanding and new guarantees
10
Guarantee Redemption Fund/ Contingent Liability Redemption Fund
11
Guarantee Fees/ Commissions
12
Data recording and reporting arrangements for transparency
13
Assessment of fiscal risk of guarantees and measures to mitigate risks
14
Accounting of Guarantees
15
Auditing of Guarantees
16
Conclusions
Annexes
1.
Extracts from Constitution of Bangladesh 1972
2.
Extracts from contracts Act 1872
3.
Extracts from Allocation of Business 1998
4.
Extracts from Allocation of Business Rues Revised 2012
5.
Format for disclosure of guarantees and financial statements
40
(b)
It is also desirable to formulate Accounting and Auditing Standards for Disclosure and
Financial Statements on government guarantees and counter guarantees.
An Outline of the Accounting Standards/ Disclosure Requirements for the
Government Guarantees
1
2
3
4
5
6
7
8
9
Introduction
Objectives and Scope
Definitions
Disclosures
Classes of guarantees/ counter guarantees
Broad sectors
Formats for Sector-wise disclosures of Guarantees for each class
Formats for Class wise details of Guarantees for each sector
Conclusions
(c) As per international sound practices, it is desirable to set limits on the issue of new
guarantees and counter-guarantees per annum for individual issues and total issues
and total outstanding sovereign guarantees in terms of absolute amounts or
percentages of either GDP or revenues.
(d) The Bangladesh Bank may review the current prudential requirements for provisioning
and income recognition for guaranteed loans and investments, capital adequacy norms
for commercial banks and financial institutions, investment in Government guaranteed
bonds for infrastructure development and financing of Special Purpose Vehicles
(SPVs). However, it may be mentioned that application of enhanced risk weights for
capital adequacy norms is not a substitute for effective appraisal of projects.
(e) The Bangladesh Bank may advise all commercial banks and financial institutions that
while they are free to sanction term loans and guarantees for technically feasible,
financially viable and bankable projects undertaken by both public sector and private
sector enterprises, they shall fully satisfy themselves that the projects financed by them
have income generating capacity sufficient to service such loans and that these loans
and guarantees would not become contingent liabilities for the government.
(f) Commercial banks and financial institutions should also give due diligence to judge the
credit-worthiness of the public sector and private enterprises and monitor efficiently the
proper utilization of the funds borrowed from only for the specific purposes. In brief,
lending/ investment decisions of the commercial banks and financial institutions should
be based solely on their commercial judgment. There should be no compromise on
proper credit appraisal and close monitoring of the projects financed and banks should
ensure that only projects that are intrinsically viable are financed.
(g) Guarantees issued by the Bangladesh Bank and guarantees and counter guarantees
provided by the Government should never be taken as a substitute for satisfactory exante and ex-post credit appraisal of projects.
41
6.3 Policy Framework, Comprehensive Guidelines and Practices(1) As per international best practices, it is advised to prepare a paper no Medium Term
Fiscal Policy Framework and present it to the Parliament. It is understood that the
Finance Division has planned to submit a Medium Term Budget Strategy Paper starting
with the 2014-15 Budget.
(2)
There is no guarantee fee for issue of guarantees, and no Contingent Liability

Redemption Fund (CLRF) in Bangladesh. As per international best practices, it is
desirable to charge guarantee fees for issue of guarantees, which may vary depending
on associated risks.
(3) It is also advisable to set up a Contingent Liability Redemption Fund (CLRF) or

Guarantee Redemption Fund (GRF) and to make appropriate provisions to the Fund in
the Annual Budget. Guarantee fees can also accrue to the CLRF/ GRF.
(4) At present, contingencies are subsumed in the MoF appropriations. For transparency, it
is better to make separate appropriations for contingencies in order to meet unforeseen
and urgent spending needs (e.g., for emergencies or unexpected large increases in
obligations).
(1) It is necessary to strengthen the capacities in the CLM section within TDMW to develop
methodologies for assessment and measurement of risk and future financial obligations
relating to both explicit contingent liabilities (guarantees and counter guarantees) and
implicit contingent liabilities (bail out of public sector enterprises and financial
institutions), and future obligations for major items (such as National Savings Schemes,
State Provident Funds, Reserve & Depreciation Funds, Deposit Accounts, Suspense
Account, Remittance Accounts etc.) under the Public Accounts20, agricultural credits etc.
(2) It is desirable to prepare a Medium Term Fiscal Policy Framework indicating fiscal risk
matrix and to submit it to the Parliament along with Medium Term Budget Framework
(MTBF). A statement on fiscal risks could include an analysis of debt sustainability and
debt-related risks over medium term, risks relating to government guarantees and
counter guarantees, and implicit contingent liabilities relating to projects and programs
under the pubic-private partnership and for major items under the Public Accounts etc.
(3)
Provident and Pension Funds in Bangladesh are partially funded and partially
contributory and adopt the system of pay as you go approach for payments. For fiscal
sustainability, it is desirable to move towards fully funded or fully contributed systems.
20
Government financial statement comprises two separate accounts- the Consolidated Fund and the
Public Accounts. While all revenues received and all loans raised by the government (including
repayment of loans and interest receipts) accrue to the Consolidated Fund, all other receipts by the
government or on behalf of the government (such as National Savings Schemes, State Provident Funds,
Reserve & Depreciation Funds, Deposit Accounts, Suspense Accounts and Remittance Accounts etc.) are
credited with the Public Account of the Republic. Government is the owner of the Consolidated Fund
and so it has no obligations to anybody else for the receipts under it. But government is only a custodian,
and not the owner, of the Public Account. Therefore, government has obligations to pay back the dues
relating to the items under the Public Accounts to their respective owners when they fall due.
42
(4) Off-budgetary activities may also create implicit contingent liabilities for the government.
These should be included in financial reports of the general government (including local
governments), and overall balance sheets of the public sector (including general
government, State Owned Enterprises and Public Private Partnerships).
(5) Extra budgetary funds refer to general government transactions, often with separate
banking and institutional arrangements not included in the annual budgets of the
Bangladesh government or local governments. These funds may also be shown in the
budget as memorandum items.
(6) Various tax expenditures can be another form of off-budget spending. Budget may also
include a statement on tax expenditures (i.e. loss of tax revenues due to tax cuts, tax
exemptions, duty drawbacks, and tax breaks due to tax holidays or deferment of taxes).
43
Annex-1
Extract from the Constitution of the Peoples Republic of Bangladesh
4th November 1972
CHAPTER II- LEGISLATIVE AND FINANCIAL PROCEDURES
80. Legislative procedure
(1) Every proposal in Parliament for making law shall be made in the form of a Bill.
(2) When a Bill is passed by Parliament it shall be presented to the President for assent.
(3) The President, within fifteen days after a Bill is presented to him shall assent to the Bill or, in
the case of a Bill other than a money Bill may return it to parliament with a message requesting
that the Bill or any particular provisions thereof by reconsidered, and that any amendments
specified by him in the message be considered; and if he fails so to do he shall be deemed to
have assented to the Bill at the expiration of that period.
(4) If the President so returns the Bill Parliament shall consider it together with the President's
message, and if the Bill is again passed by Parliament with or without amendments 51 by the
votes of a majority of the total number of members of Parliament , it shall be presented to the
President for his assent, whereupon the President shall assent to the Bill within the period of
seven days after it has been presented to him, and if he fails to do so he shall be deemed to
have assented to the Bill on the expiration of that period.
(5) When the President has assented or is deemed to have assented to a Bill passed by
Parliament it shall become law and shall be called an Act of Parliament.
81. Money Bills
(1) In this Part "Money Bill" means a Bill containing only provisions dealing with all or any of the
following matters(a) the imposition, regulation, alteration, remission or repeal of any tax;
(b) the borrowing of money or the giving of any guarantee by the Government, or the
amendment of any law relating to the financial obligations of the Government;
(c) the custody of the Consolidated Fund, the payment of money into, or the issue or
appropriation of moneys from, the Fund;
(d) the imposition of a charge upon the Consolidated Fund, or the alteration or abolition of any
such charge;
(e) the receipt of moneys on account of the Consolidated Fund or the Public Account of the
Republic, or the custody or issue of such moneys, or the audit of the accounts of the
Government;
(f) any subordinate matter incidental to any of the matters specified in the foregoing subclauses.
(2) A Bill shall not be deemed to be a Money Bill by reason only that it provides for the
imposition or alteration of any fine or other pecuniary penalty, or for the levy or payment of a
license fee or a fee or charge for any service rendered, or by reason only that it provides for the
imposition, regulation, alteration, remission or repeal of any tax by a local authority or body for
local purposes.
44
(3) Every Money Bill shall, when it is presented to the President for his assent, bear a certificate
under the hand of the Speaker that it is a Money Bill, and such certificate shall be conclusive for
all purposes and shall not be questioned in any court.
82. Recommendation for financial measures
No Money Bill, or any Bill which involves expenditure from public moneys, shall be introduced
into Parliament except on the recommendation of the President: Provided that no
recommendation shall be required under this article for the moving of an amendment making
provision for the reduction or abolition of any tax.
83. Mo taxation except by or under Act of Parliament
No tax shall be levied or collected except by or under the authority of an Act of Parliament.
84. Consolidated Fund and the Public Account of the Republic
(1) All revenues received by the Government, all loans raised by the Government, and all
moneys received by it in repayment of any loan, shall form part of one fund to be known as the
Consolidated Fund.
(2) All other public moneys received by or on behalf of the Government shall be credited to the
Public Account of the Republic.
85. Regulation of public moneys
The custody of public moneys, their payment into and the withdrawal from the Consolidated
Fund or, as the case may be, the Public Account of the Republic, and matters connected with or
ancillary to the matters aforesaid, shall be regulated by Act of Parliament, and until provision in
that behalf is so made, by rules made by the President.
86. Moneys payable to Public Account of Republic
All moneys received by or deposited with-(a) any person employed in the service of the
Republic or in connection with the affairs of the Republic, other than revenues or moneys which
by virtue of clause (1) of article 84 shall form part of the Consolidated Fund; or
(b) any court to the credit of any cause, matter, account or persons, shall be paid into the Public
Account of the Republic.
87. Annual financial statement
(1) There shall be laid before Parliament in respect of each financial year, a statement of the
estimated receipts and expenditure of the Government for that year, in this Part referred to as
the annual financial statement.
(2) The annual financial statement shall show separately(a) the sums required to meet expenditure charged by or under this Constitution upon the
Consolidated Fund; and
(b) the sums required to meet other expenditure proposed to be made from the Consolidated
Fund; and shall distinguish expenditure on revenue account from other expenditure.
88. Charges on Consolidated Fund
The following expenditure shall be charged upon the Consolidated Fund) the remuneration
payable to the President and other expenditure relating to his office;
45
(b) the remuneration payable to(i) the Speaker and Deputy Speaker
(ii) the Judges of the 53 Supreme Court 54* * *
(iii) the Comptroller and Auditor-General;
(iv) the Election Commissioners;
(v) the members of the Public Service Commissions;
(c) the administrative expenses of, including remuneration payable to, officers and servants of
Parliament, the Supreme Court 55* * the Comptroller and Auditor- General, the Election
Commission and the Public Service Commission;
(d) all debt charges for which the Government is liable, including interest, sinking fund charges,
the repayment or amortization of capital, and other expenditure in connection with the raising of
loans and the service and redemption of debt;
(e) any sums required to satisfy a judgment, decree or award against the Republic by any court
or tribunal; and
(f) any other expenditure charged upon the Consolidated Fund by this Constitution or by Act of
Parliament.
89. Procedure relating to annual financial statement
(1) So much of the annual financial statement as relates to expenditure charged upon the
Consolidated Fund may be discussed in, but shall not be submitted to the vote of, Parliament
(2) So much of the annual financial statement as relates to other expenditure shall be submitted
to Parliament in the form of demands for grants, and Parliament shall have power to assent to
or to refuse to assent to any demand, or to assent to it subject to a reduction of the amount
specified therein.
(3) No demand for a grant shall be made except on the recommendation of the President.
90. Appropriation Act
(1) As soon as may be after the grants under article 89 have been made by Parliament there
shall be introduced in Parliament a Bill to provide for appropriation out of the Consolidated Fund
of all moneys required to meet(a) the grants so made by Parliament; and
(b) the expenditure charged on the Consolidated Fund but not exceeding in any case the
amount shown in the annual financial statement laid before Parliament.
(2) No amendment shall be proposed in Parliament to any such Bill which has the effect of
varying the amount of any grant so made or altering the purpose to which it is to be applied, or
of varying the amount of any expenditure charged on the Consolidated Fund.
(3) Subject to the provisions of this Constitution no money shall be withdrawn from the
Consolidated Fund except under appropriation made by law passed in accordance with the
provisions of this article.
91. Supplementary and excess grants
If in respect of any financial year it is found(a) that the amount authorized to be expended for a particular service for the current financial
year is insufficient or that a need has arisen for expenditure upon some new
service not included in the annual financial statement for that year; or
(b) that any money has been spent on a service during a financial year in excess of the amount
granted for that service for that year. the President shall have power to authorize expenditure
from the Consolidated Fund whether or not it is charged by or under the Constitution upon that
46
Fund and shall cause to be laid before Parliament a supplementary financial statement setting
out the estimated amount of the expenditure or, as the case may be an excess financial
statement setting out the amount of the excess, and the provisions of articles 87 to 90 shall
(with the necessary adaptations) apply in relation to those statements as they apply in relation
to the annual financial statement.
92. Votes on account, votes of credit, etc.
(1) Notwithstanding anything in the foregoing provisions of this Chapter, Parliament shall have
power(a) to make any grant in advance in respect of the estimated expenditure for a part of any
financial year pending the completion of the procedure prescribed in article 89 for the voting of
such grant and the passing of a law in accordance with the provisions of article 90 in relation to
that expenditure;
(b) to make a grant for meeting an unexpected demand upon the resources of the Republic
when on account of the magnitude or the indefinite character of the service the demand cannot
be specified with the details ordinarily given in an annual financial statement;
(c) to make an exceptional grant which forms no part of the current service of any financial year;
and Parliament shall have power to authorize by law the withdrawal of moneys from the
Consolidated Fund for the purposes for which such grants are made.
(2) The provisions of articles 89 and 90 shall have effect in relation to the making of any grant
under clause (1), and to any law to be made under that clause, as they have effect in relation to
the making of a grant with regard to any expenditure mentioned in the annual financial
statement and to the law to be made for the authorization of appropriation of moneys out of the
Consolidated Fund to meet such expenditure.
(3) Notwithstanding anything contained in the foregoing provisions of the this Chapter, if, in
respect of a financial year, Parliament(a) has failed to make the grants under article 89 and pass the law under article 90 before the
beginning of that year and has not also made any grant in advance under this article; or (b) has
failed to make the grants under article 89 and pass the law under article 90 before the expiration
of the period for which the grants in advance, if any, were made under this article, the President
may, upon the advice of the prime Minister, by order, authorize the withdrawal from the
Consolidated Fund moneys necessary to meet expenditure mentioned in the financial statement
for that year for a period not exceeding sixty days in year, pending the making of the grants and
passing of the law.
47
Annex-2
Extract from the Contract Act 1874
(ACT NO. IX OF 1872).
[25th April, 1872
CHAPTER VIII
OF INDEMNITY AND GUARANTEE
"Contract of indemnity" defined.
124. A contract by which one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other person, is called a "contract of
indemnity."
Illustration
A contracts to indemnify B against the consequences of any proceedings which C may take
against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.
Rights of indemnity-holder when sued.
125. The promisee in a contract of indemnity, acting within the scope of his authority, is entitled
to recover from the promisor
(1) all damages which he may be compelled to pay in any suit in respect of any matter to which
the promise to indemnify applies ;
(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he
did not contravene the orders of the promisor, and acted as it would have been prudent for him
to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or
defend the suit;
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the
compromise was not contrary to the orders of the promisor, and was one which it would have
been prudent for the promisee to make in the absence of any contract of indemnity, or if the
promisor authorized him to compromise the suit.
"Contract of guarantee ", "surety", "principal debtor " and "creditor".
126. A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a
third person in case of his default. The person who gives the guarantee is called the "surety";
the person in respect of whose default the guarantee is given is called the "principal debtor",
and the person to whom the guarantee is given is called the "creditor". A guarantee may be
either oral or written.
Consideration for guarantee.
127. Anything done, or any promise made, for the benefit of the principal debtor, may be a
sufficient consideration to the surety for giving the guarantee.
Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will
guarantee the payment of the price of the goods. C promises to guarantee the payment in
consideration of As promise to deliver the goods. This is a sufficient consideration for C's
promise.
48
(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a
year, and promises that if he does so, C will pay for them in default of payment by B. A agrees to
forbear as requested. This is a sufficient consideration for C's promise.
(c) A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them
in default of B. The agreement is void.
Surety's liability.
128. The liability of the surety is co-extensive with that of the principal debtor, unless it is
otherwise provided by the contract.
Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonored
by C. A is liable not only for the amount of the bill but also for any interest and charges which
may have become due on it.
Continuing guarantee.
129. A guarantee which extends to a series of transactions is called a "continuing guarantee".
Illustrations
(a) A, in consideration that B will employ C in collecting the rents of B's Zamindari, promises B
to be responsible, to the amount of 5,000 rupees, for due collection and payment by C of those
rents. This is a continuing guarantee.
(b) A guarantees payment to B, a tea-dealer, to the amount of $100, for any tea he may from
time to time supply to C. B supplies C with tea to above the value of $ 100, and C pays B for it.
Afterwards B supplies C with tea to the value of $200. C fails to pay. The guarantee given by A
was a continuing guarantee, and he is accordingly liable to B to the extent of $100.
(c) A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to
be paid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four
sacks to C, which C does not pay for. The guarantee given by A was not a continuing guarantee,
and accordingly he is not liable for the price of the four sacks.
Revocation of continuing guarantee.
130. A continuing guarantee may at any time be revoked by the surety, as to future transactions,
by notice to the creditor.
Illustrations
(a) A, in consideration of B's discounting, at A's request, bills of exchange for C, guarantees to
B, for twelve months, the due payment of all such bills to the extent of 5,000 rupees. B
discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A
revokes the guarantee. This revocation discharges A from all liability to B for any subsequent
discount. But A is liable to B for the 2,000 rupees, on default of C.
(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall
draw upon him. B draws upon C. C accepts the bill. A gives notice of revocation. C dishonors
the bill at maturity. A is liable upon his guarantee.
Revocation of continuing guarantee by surety's death.
131. The death of the surety operates, in the absence of any contract to the contrary, as a
revocation of a continuing guarantee, so far as regards future transactions.
Liability of two persons, primarily liable, not affected by arrangement between them that
one shall be surety on other ' s default.
132. Where two persons contract with a third person to undertake a certain liability, and also
contract with each other that one of them shall be liable only on the default of the other, the third
person not being a party to such contract, the liability of each of such two persons to the third
49
person under the first contract is not affected by the existence of the second contract, although
such third person may have been aware of its existence.
Illustration
A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and
C knows this at the time when the note is made. The fact that A, to the knowledge of C, made
the note as surety for B, is no answer to a suit by C against A upon the note.
Discharge of surety by variance in terms of contract.
133. Any variance, made without surety's consent, in the terms of the contract between the
principal (debtor) and the creditor, discharges the surety as to transactions subsequent to the
variance.
Illustrations
(a) A becomes surety to C for B's conduct as a manager in C's bank. Afterwards, B and C
contract, without A's consent, that B's salary shall be raised, and that he shall become liable for
one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a
sum of money. A is discharged from his suretyship by the variance made without his consent,
and is not liable to make good this loss.
(b) A guarantees C against the misconduct of B in an office to which B is appointed by C, and of
which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the
office is materially altered. Afterwards, B misconducts himself. A is discharged by the change
from future liability under his guarantee, though the misconduct of B is in respect of a duty not
affected by the later Act.
(c) C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A's becoming surety
to C for B's duly accounting for moneys received by him as such clerk. Afterwards, without A's
knowledge or consent, C and B agree that B should be paid by a commission on the goods sold
by him and not by a fixed salary. A is not liable for subsequent misconduct of B.
(d) A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil supplied by C to
B on credit. Afterwards B becomes embarrassed, and, without the knowledge of A, B and C
contract that C shall continue to supply B with oil for ready money, and that the payments shall
be applied to the then existing debts between B and C. A is not liable on his guarantee for any
goods supplied after this new arrangement.
(e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment. C pays the
5,000 rupees to B on the 1st January. A is discharged from his liability, as the contract has been
varied, inasmuch as C might sue B for the money before the 1st March.
Discharge of surety by release or discharge of principal debtor.
134. The surety is discharged by any contract between the creditor and the principal debtor, by
which the principal debtor is released, or by any act or omission of the creditor, the legal
consequence of which is the discharge of the principal debtor.
Illustrations
.(a) A gives a guarantee to C for goods to be supplied by C to B.C supplies goods to B, and
afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to
them his property in consideration of their releasing him from their demands. Here B is released
from his debt by the contract with C, and A is discharged from his suretyship.
(b) A contracts with B to grow a crop of indigo on A's land and to deliver it to B at a fixed rate,
and C guarantees A's performance of this contract. B diverts a stream of water which is
necessary for irrigation of A's land and thereby prevents him from raising the indigo. C is no
longer liable on his guarantee.
50
(c) A contracts with B for a fixed price to build a house for B within a stipulated time, B supplying
the necessary timber. C guarantees A's performance of the contract. B omits to supply the
timber. C is discharged from his suretyship.
Discharge of surety when creditor compounds with , gives time to, or agrees not to sue,
principal debtor.
135. A contract between the creditor and the principal debtor, by which the creditor makes a
composition with, or promises to give time to, or not to sue, the principal debtor, discharges the
surety, unless the surety assents to such contract.
Surety not discharged when agreement made with third person to give time to principal
debtor.
136. Where a contract to give time to the principal debtor is made by the creditor with a third
person, and not with the principal debtor, the surety is not discharged.
Illustration
C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B,
contracts with M to give time to B. A is not discharged.
Creditor' s forbearance to sue does not discharge surety.
137. Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any
other remedy against him does not, in the absence of any provision in the guarantee to the
contrary, discharge the surety.
Illustration
B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year
after the debt has become payable. A is not discharged from his suretyship.
Release of one co-surety does not discharge others.
138. Where there are co-sureties, a release by the creditor of one of them does not discharge
the others; neither does it free the surety so released from his responsibility to the other
sureties.
Discharge of surety by creditor's act or omission impairing surety's eventual remedy.
139. If the creditor does any act which is inconsistent with the rights of the surety, or omits to do
any act which his duty to the surety requires him to do, and the eventual remedy of the surety
himself against the principal debtor is thereby impaired, the surety is discharged.
Illustrations
(a) B contracts to build a ship for C for a given sum, to be paid by installments as the work
reaches certain stages. A becomes surety to C for B's due performance of the contract. C,
without the knowledge of A, prepays to B the last two installments. A is discharged by this
prepayment.
(b) C lends money to B on the security of a joint and several promissory note made in C's favor
by B, and by A as surety for B, together with a bill of sale of B's furniture, which gives power to C
to sell the furniture, and apply the proceeds in discharge of the note. Subsequently, C sells the
furniture, but, owing to his misconduct and willful negligence, only a small price is realized. A is
discharged from liability on the note.
(c) A puts M as apprentice to B, and gives a guarantee to B for M's fidelity. B promises on his
part that he will, at least once a month, see that M make up the cash. B omits to see this done
as promised, and M embezzles. A is not liable to B on his guarantee.
51
Rights of surety on payment or performance.

140. Where a guaranteed debt has become due, or default of the principal debtor to perform a
guaranteed duty has taken place, the surety, upon payment or performance of all that he is
liable for, is invested with all the rights which the creditor had against the principal debtor.
Surety ' s right to benefit of creditor ' s securities.
141.A surety is entitled to the benefit of every security which the creditor has against the
principal debtor at the time when the contract of suretyship is entered into, whether the surety
knows of the existence of such security or not; and, if the creditor loses, or, without the consent
of the surety, parts with such security, the surety is discharged to the extent of the value of the
security.
Illustrations
(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further
security for the 2,000 rupees by a mortgage of B's furniture. C cancels the mortgage. B
becomes insolvent, and C sues A on his guarantee. A is discharged from liability to the amount
of the value of the furniture.
(b) C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for that
advance from A. C afterwards takes B's goods in execution under the decree, and then, without
the knowledge of A, withdraws the execution. A is discharged.
(c) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B. Afterwards,
C obtains from B a further security for the same debt. Subsequently, C gives up the further
security. A is not discharged.
Guarantee obtained by misrepresentation invalid.
142. Any guarantee which has been obtained by means of misrepresentation made by the
creditor, or with his knowledge and assent, concerning a material part of the transaction, is
invalid.
Guarantee obtained by concealment invalid.
143. Any guarantee which the creditor has obtained by means of keeping silence as to material
circumstances is invalid.
Illustrations
(a) A engages B as a clerk to collect money for him, B fails to account for some of his receipts,
and A in consequence calls upon him to furnish security for his duly accounting. C gives his
guarantee for B's duly accounting. A does not acquaint C with B's previous conduct. B
afterwards makes default. The guarantee is invalid.
(b) A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B
and C have privately agreed that B should pay five rupees per ton beyond the market price,
such excess to be applied in liquidation of an old debt. This agreement is concealed from A. A is
not liable as a surety.
Guarantee on contract that creditor shall not act on it until co-surety joins.
144. Where a person gives a guarantee upon a contract that the creditor shall not act upon it
until another person has joined in it as co-surety, the guarantee is not valid if that other person
does not join.
Implied promise to indemnify surety.
145. In every contract of guarantee there is an implied promise by the principal debtor to
indemnify the surety; and the surety is entitled to recover from the principal debtor whatever
sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.
Illustrations
52
(a) B is indebted to C, and A is surety for the debt. C demands payment from A, and on his
refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but
is compelled to pay the amount of the debt with costs. He can recover from B the amount paid
by him for costs, as well as the principal debt.
(b) C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B
upon A to secure the amount. C, the holder of the bill, demands payment of it from A, and, on
A's refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing,
defends the suit, and has to pay the amount of the bill and costs. He can recover from B the
amount of the bill, but not the sum paid for costs, as there was no real ground for defending the
action.
(c) A guarantees to C, to the extent of 2,000 rupees, payment for rice to be supplied by C to B.
C
supplies to B rice to a less amount than 2,000 rupees, but obtains from A payment of the sum of
2,000 rupees in respect of the rice supplied. A cannot recover from B more than the price of the
rice actually supplied.
Co-sureties liable to contribute equally.
146. Where two or more persons are co-sureties for the same debt or duty, either jointly or
severally, and whether under the same or different contracts, and whether with or without the
knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are
liable, as between themselves, to pay each an equal share of the whole debt or of that part of it
which remains unpaid by the principal debtor.
Illustrations
(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes default in
payment. A, B and C are liable, as between themselves, to pay 1,000 rupees each.
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is a contract
between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of
one-quarter, and C to the extent of one-half. E makes default in payment. As between the
sureties, A is liable to pay 250 rupees, B 250 rupees, and C 500 rupees.
Liability of co-sureties bound in different sums.
147.Co-sureties who are bound in different sums are liable to pay equally as far as the limits of
their respective obligations permit.
Illustrations
(a) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty,
namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000
rupees, conditioned for D's duly accounting to E. D makes default to the extent of 30,000
rupees. A, B and C are each liable to pay 10,000 rupees.
(b) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty,
rupees; A is liable to pay 10,000 rupees, and B and C 15,000 rupees each.
(c) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty,
rupees. A, B and C have to pay each the full penalty of his bond.
53
Annex-3
Disclosure Requirements for Contingent Liabilities
International
Public Sector
Accounting
Standards
(IPSAS)
Statistical
Standards
(GFSM 2001)
OECD Best
Practices
IMF Code
and
Manual
IPSAS 19 Provisions, contingent liabilities and contingent assets

requires disclosure of the
following information for each class of contingent obligations
recognized as on-balance sheet
liability at fair value:
a brief description of the nature of the contingent liability &
expected timing of payments;
an indication of the uncertainties about the amount or timing of
these payments, including the major assumptions made concerning
future events;
the possibility of any reimbursement; and
amounts at the beginning and end of the period, and the breakdown
of the changes during the period, by cause.
For contingent obligations not recognized on balance sheeteither
because the contingency is not likely to materialize or because the
payments cannot be estimated reasonably wellthe same information
should be disclosed, unless the probability of payments is remote. In
addition, the government should present, where practicable, an
estimate of the financial effect of each class of contingent liabilities
(present value of expected payments). If it is not practicable, the fact
needs to be stated.
Contingent liabilities should be disclosed as a memorandum item to
the balance sheet, including a description of the nature of the various
contingencies and some indication of their possible value.
All significant contingent liabilities should be disclosed in the budget,
the mid-year report, and the annual financial statements. Where
feasible, the total amount of contingent liabilities should be disclosed
and liabilities classified by major category reflecting their nature;
historical
information on defaults for each category should be disclosed where
available. In cases where
contingent liabilities cannot be quantified, they should be listed and
described.
Statements describing the nature and fiscal significance of central
government contingent
liabilities should be part of the budget documentation, together with
an assessment of all other major fiscal risks (IMF Code). The Manual
(Box 18) suggests that a common core of
information to be disclosed annually for each guarantee or guarantee
program should include21/:
A brief description of the nature, intended purpose, beneficiaries,
and expected duration;
The governments gross financial exposure;
The possibility of a reimbursement, recovery, or financial claim by
the government on the
guarantee recipient should the contingency occur;
21
The Manual also suggests that it is generally inappropriate to quantify and report implicit liabilities, as such
disclosure could result in greater moral hazard if the private sector views this disclosure as a commitment or as an
indication that the government is likely to provide future financial assistance.
54
Where feasible, an estimate of the most likely fiscal cost or impact,

either as a point
estimate or a range;
Any change in each item or category since the previous reporting
period, including any
payments made, any financial claims established against defaulters as
a result of those
payments, and any waivers of such claims;
Any guarantee fees or revenue received.
In addition, budget documents should provide:
Details of payments made under individual guarantees or guarantee
programs for each of
the previous two years;
An indication of what allowance, if any, has been made in the budget
(e.g., in contingency
appropriation) for expected payments under guarantees;
A forecast and explanation of the total new guarantees issued in the
budget year.
Source: Based on International Public Sector Accounting Standards (IPSAS), Government Finance
Statistics Manual 2001, OECD Best Practices for Budget Transparency (2001) and IMF Manual on Fiscal
Transparency (2007).
Annex-4A: List of Public Guarantees of Bangladesh Beyond 30 June 2013 (Crore BTK)
Sl. No.
Purpose of Guarantees
In favor of
Date of
Crore Taka
Issue
55
Annex-4B: List of Public Guarantees of Bangladesh Beyond 30 June 2013 (Crore BTK)
Sl. No.
In favor of
Date of
Crore Taka
Issue
56
57
Annex-4C: List of Public Guarantees of Bangladesh Beyond 30 June 2013 (Crore BTK)
Sl. No.
In favor of
Date of Issue
Crore Taka
25
Loan from BB by Ansar VDP Bank
BB
15/05/2013
Total Miscellaneous
Total Guarantees
Source: Budget in Brief, as a part of Budget for 2013-14, Finance Division, MOF.
58
20
17155
59175
Annex-5
Questionnaire on Contingent Liabilities
Contingent Liabilities: How Serious is the Problem in Bangladesh?
Scope and Objectives of the Study
1. Contingent liabilities include government guarantees/ counter-guarantees, and financial

losses of institutions that are covered by some type of government guarantee, state
insurance, provident, pensions and savings programs under government fiduciary
obligations, and all government commitments to spend or intervene financially in the
future. Contingent liabilities can be broadly groups under two heads: explicit (defined by a
law or contract) or implicit (broadly predetermined by public expectations and pressures by
interest groups).
2. This study focuses on only explicit contingent liabilities, and particularly on the largest
components of contingent liabilities such as exposures under government guarantees and
counter guarantees on loans, BOT projects, guarantees on guarantee institutions, public
pension and provident funds, deposit insurance, un-funded liabilities of pension institutions
and the increasing debt of the public sector enterprises.
3. The purpose of the study is to examine the existing legal framework, policies, processes
and institutional arrangements for approval, issue, execution, monitoring and reporting of
explicit and implicit contingent liabilities of the Bangladesh government with special
emphasis on government guarantees and counter guarantees to Public Sector Financial
Institutions and State Owned Enterprises (SOEs). The study also identifies the key issues
and concerns, assesses the steps already taken by the authorities and recommends
measures and policies in the short-, medium- and long term for the improvement in the
management of contingent liabilities as per international sound practices.
4.
Following Polackova (1998) contingent liabilities can be best described in terms of a

Fiscal Risks Matrix cross classifying sources of potential risks in government finance by
two distinct characteristics: direct or contingent and explicit and implicit. Direct liabilities
will arise in any event; while contingent liabilities arise only if a particular event occurs. As
explained earlier, explicit liabilities are based on either a law or a contract or formal
acknowledgement of a potential claim. On the other hand, implicit liabilities are the moral
and political liabilities of the government arising out of public and pressure group
expectations.Table-1 presents a typical fiscal risk matrix for the Bangladesh government.
5. In the light of the scope, purpose and objectives of the study, please provide brief
replies to the detailed Questionnaire presented after this brief introduction. It is
assured that the information will be used for only the study under the World Bank
administered DMTBF Project being executed by the Finance Division and would
not be disclosed to any other authorities or public without prior approval of the
concerned authorities.
59
Table-1: Fiscal Risk Matrix for Bangladesh Government

Liabilities
Explicit:
Government
liability
created by
law or by a
contract
Implicit:
A moral and
political
obligation of
government
which
reflects
public and
interest
group
pressures
Direct: Obligation in
Any event
Sovereign debt and
associated debt services
(domestic and external)
Budgeted expenditures of
different departments
Expenditures nondiscretionary and legally
binding in the long term
(civil service salaries and
pensions)

public investment projects
Future public pensions (as
opposed to civil service
pensions), if not required by
any law
Social security schemes, if
not required by any law
Future health care
financing, if not required by
any law
investment projects under
public-private partnership
Contingent: Obligation if a
Particular event occurs
Direct government guarantees for
borrowings by local governments, public
sector enterprises and banks
Guarantees on currency risks of foreign
loans of public sector / EXIM banks
Guarantees on various types of risks
(including market, currency, regulatory,
political, service purchase contract) under
Public Private Partnership (PPP) projects
Umbrella guarantees for various types of
loans (mortgage loans, and loans for
education, agriculture, housing, microfinance, small business)
State Insurance for bank deposits, crop
failures, flood, droughts, war risk etc.
Guarantees on benefits of social security
system and public provident funds
Tax credits/ refund certificates
Obligations of public litigations
Trade and exchange rate guarantees
issued by State on private investments
Claims by public sector entities to assist
in covering their losses, arrears, deferred
maintenance, debt, guarantees
Claims by local governments to assist in
covering their own debt, guarantees,
arrears, letters of comfort etc.
Claims by financial institutions, such as
state-owned banks, social security funds,
and credit and guarantee funds)
Non-contractual claims arising from
private investment, for instance in
infrastructure projects under PPP
Other obligations, such as environment
commitments for still unknown damages
and nuclear and toxic waste
Failure of a non-guaranteed pension fund,
employment fund, or social security fund
Bailouts following a reversal in private
capital flows
Source: Tarun Das (2002) and Hana Brixi (2006) Government Contingent Liabilities and Fiscal Risk,
World Bank, May 2006.
60
A. Coverage and Scope

1.
What are the major explicit contingent liabilities assumed by the government?
2.
Fill in the table below the total amount outstanding under different heads at the most recent
date:
Contingent (obligation if a particular event occurs)
1. National guarantees/ counter guarantees to:
(a) sub-national governments
(b) government operated or controlled enterprises,
(c) public sector banks and financial institutions
(d) private sector entities
2. Umbrella state guarantees for various types of loans in
priority sectors (mortgage loans, education loans, and
loans to agriculture, housing, micro enterprises, and other
priority sectors)
3. Exchange rate guarantees issued by the state
4. State guarantees on various types of risks (including
market, currency, regulatory, political etc) for projects
under the public private partnerships
5. Government insurance schemes (deposit insurance,
health insurance, private pension funds, crop insurance,
flood insurance, war-risk insurance etc.)
6. Guarantees on benefits (unfunded liabilities) of the social
security system (public pension and provident funds)
7. Tax credit certificates
8. Major items under Public Accounts viz.
--National Savings Scheme, net
-- State Provident Fund, net
-- Reserve and Depreciation Fund, net
-- Remittances Fund, net
-- Others, net
9. Others, if any, please specify
B. Selected Risks
61
Amount in
BTk billion
Amount in
US$ million
1.
Guarantees and Counter Guarantees
(a) Specify top 25 major guarantees/ counter guarantees given by the government with their
face value, the issuer (government agency), beneficiaries, creditors, currency of
denomination, types of risk covered, risk sharing etc.
(b) Classify guarantees by sectors such as industry, transport, telecommunications, power,
banking and insurance, social sectors, urban development, real estate, housing and
construction etc.
2. State-guaranteed institutions:
(a) Do there exist any State Guarantee institutions in Bangladesh? If yes, list major stateguaranteed institutions and provide statement of their contingent liabilities at the latest date.
(b) What type of government support do these institutions receive (for example, privatization
revenues, cheap financing via the banks and financial institutes, state guarantee for
borrowings)?
3. State-owned enterprises and banks
(a) List large state-owned enterprises and large state-owned banks and provide statements of
their contingent liabilities at the latest date.
(b) What type of government support do these institutions receive (for example, additional
capital support, cheap financing from the Central Bank, national guarantee for borrowings)?
C. Recording and Reporting: Transparency
1. For each of the contingent liabilities indicated in the table, which institutions are
responsible for recording and reporting of information on contingent liabilities?
2.
Which institutions can instantaneously retrieve from their databases up-to-date

information for the items listed below? Which documents report such figures for general
public information? What is the time lag and frequency in reporting?
(a) Total face value of all government guarantees/ counter guarantees?
(b) Total sizes of state insurance schemes?
(c) Total sizes of reserve funds to meet guarantees and state insurance schemes?
(d) Guarantee portfolio (by guaranteed institutions, sectors and currencies)?
3. Which types of contingent liabilities, in your view, not reported to the following authorities
and why? Give reasons for not reporting. Reasons could be not available, against public
interest, official secrecy, national security etc.
(a) Ministry of Finance
(b) Cabinet
(c) Central Bank
(d) Parliament
(e) Foreign Investors
(f) General Public.
D. Institutional Arrangements: Accountability
62
1. For each type of contingent liabilities you identified in the Table under section A, specify
the institutions which act as the Head Office (i.e. the office responsible for final
approval), Front Office (responsible for appraisal of guarantee requests and making
recommendation to the Head Office), Middle Office (responsible for policy formulation,
conducting research for risk management, data coordination and report writing) and
Back Office (responsible for auditing, accounting, monitoring, recording data, making
payments in case of default) for the management of contingent liabilities.
2. Are there any legal requirements that the government estimate, account, and report the
guarantees and other contingent liabilities? If yes, specify the Act and Legislation.
3.
Which of the liabilities that you identified in the Table under section A are not regulated
by any law and depend fully on ad hoc government decisions?
4. Describe the following in details:
Government guarantees/ counter guarantees: the requirements for their design (the type
of risks that can be covered, the extent of required risk sharing), issuance (is only the
ministry of finance authorized?), government control mechanism (reports required by the
creditor and beneficiary, and audit and valuation requirements), and realization
mechanism if they fall due.
Local governments, public sector agencies and enterprises, and state-guaranteed
institutions: the financial management and reporting requirements and government
control mechanism.
Demands and pressures on the government to extend ad hoc, previously unforeseen
financial support: the legal requirements and practice for deliberation in government
decision making.
5. Is the government legally required to explain the amounts of public liabilities? If yes, specify
the Act and Legislation. Also specify the authorities to whom the contingent liabilities need to
be reported at regular interval:
-- to the Parliament ?
-- to the public?
-- others (please specify?
E. Policy: Practice
1. While considering alternative policy choices and forms of government support (such
as direct provision and financing versus guarantees/ counter guarantees), does the
Ministry of Finance
Quantify the future fiscal cost of alternative options in any medium-term macroeconomic and fiscal framework?
Describe the risks of alternative options?
2. In which areas and under what circumstances do the public or interest groups
expect the government to provide financial support beyond the budget?
3. List examples when the government withstood political pressure and did not provide
financial support beyond the budgeted figures (for example, when the government
refused bail out a loss-making enterprise or bank or other financial institution).
63
4. Are public enterprises and banks, state-guaranteed institutions, and creditors and
beneficiaries under government guarantees rewarded and punished for the
quality of their risk management? Provide examples.
5. Indicate the financial and non-financial benefits guaranteed by the government to the
private stakeholders for the projects under the public private partnership.
F. Risk Management: Capacities
1.
Describe the capacities of the Ministry of Finance, other government agencies,

public sector institutions and enterprises, and state-guaranteed institutions to
identify, evaluate and control the explicit and implicit contingent liabilities.
2. Is there any Contingency Fund or Government Reserve Fund or Contingent Liability
Redemption Fund for assuming the contingent liabilities in the case of default?
3. Is there any system for provisioning for contingent liabilities under prudential norms
either by the guarantee agencies or by the government?
4. What steps do the Ministry of Finance and other agencies undertake to prevent
fiscal risks arising from the public and private sectors (for example, are any actions
taken if enterprise debt or central bank obligations appear too high)?
5. It is understood that the budget is formulated on the basis of cash accounting.
Does the Ministry of Finance desire to move towards accrual accounting in the
medium or long term as per requirements under the IMF Revised Government
Finance Statistics Manual 2001?
6. It is understood that there are not statutory limits on contingent liabilities assumed
by the government. Would the Ministry of Finance prefer to have such limits?
Would it be possible to enact such an Act in the Parliament? Or amend the existing
Acts dealing with Public Debt and Contingent Liabilities?
7. Is there Audit by independent auditors? Do the public sector enterprises and state
owned banks and financial institutions follow the Generally Accepted Accounting
Principles (GAAP) or the International Public Sector Accounting Principles?
8. It is understood that a Statement on Fiscal Risk (Off-Budget liabilities) is not
included in the Budget. A Medium Term Fiscal Policy Statement is also not
presented to the Parliament. Would the Ministry of Finance prefer to prepare and
place such statements to the Parliament?
9. It is understood that the pension and provident funds are not fully funded and pay
as you go approach is adopted in Bangladesh as in the case of the most
developing countries. Would the Ministry of Finance like to have a fully funded
/fully contributed system in the medium term?
10. It is understood that a full-fledged Middle Office for management of public debt and
contingent liabilities does not exist in the Finance Division. Would the MOF like to
establish such a Middle Office within the Treasury and Debt Management Wing
(TDMW) of the Finance Division as per international best practices?
64
Annex-6
Formats for Collecting Information on Guarantees and Implicit Contingent
Liabilities from SOEs, State Owned Banks and Other Entities
Part-A: Guarantees and Counter Guarantees

Entities could be broadly classified as
(a) Agricultural Credits
(b) Bangladesh Petroleum Corporation (BPC)
(c) Trade Credits
(d) Miscellaneous Sectors
For each category mentioned above, build data base on the following information relating to
guarantees and counter-guarantees as on 30th June, of the current fiscal year.
Sector (as classified above): ___________________________________
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
FD Reference No. for the issue of guarantees and counter guarantees

Guarantee or counter-guarantee (specify)
Purpose of guarantee/ counter-guarantees
Amount in USD (million)
Exchange rate (BTK per US$)
Amount in BTK (crore)
Date of original Issue
Date of extension
Expiry date
Beneficiary entity
Guarantee/ counter-guarantee in favor of
In case of counter-guarantee, name the original Guarantors
Outstanding guarantee/ counter-guarantee as on 1st July of the fiscal year (crore BTK)
Additions during the year (crore BTK)
Deletions other than invoked during the year (crore BTK)
Invoked and discharged during the year (crore BTK)
Invoked, but not discharged, during the year (crore BTK)
Outstanding at the end of the year (crore BTK)
Guarantee commission fee received (lakh BTK)
Guarantee commission fee receivable (lakh BTK)
Other material information, if any
65
Annex-6
Part-B:
Additional Information on Financial Performance for last three years
to be provided by the Beneficiary Entities and Public Sector Banks and EXIM Banks,
in favor of which Guarantees and Counter Guarantees have been issued.
General Information
1.
2.
3.
4.
Name of the Beneficiary

Total Number of Employees
Credit Rating for the current fiscal year and the Rating Agency
Major Activities
Table-1: Financial Analysis

Major Indicator
1. Assets and
liabilities
(Crore BTK)
2. Liquidity
3. Turnover
and Profits
(Crore BTK)
4. Profitability
5. Capital
investment
6. Leverage
7. Dividend
Sub Indicators
2010-11
Total Assets (TA)

Current Assets (CA)
Total Equity (TE)
Current Liabilities (CL)
Current ratio (CA/ CL)
Quick ratio (CA-1/ CL)
Total turnover
Total expenditure
Taxes paid
Gross Profits
Return on assets
Return on equity
Return on turnover
Capital Exp/ Total Expenditure
Capital Exp/ Total Assets
Debt to Assets Ratio
Debt to Equity Ratio
Dividend to Equity ratio
(before taxation)
Dividend to Equity ratio
(after taxation)
Dividend Payments/Net Income
(before taxation)
Dividend payments/net income
(after taxation)
66
2011-12
2012-13
Table-2.1 Borrowings: Loans Contracted During Last Three Years (Crore BTK)
Lender
Loan Amount
(Crore BTK)
Date Contracted
Purpose
Terms
1
2
3
4
5
6
Table 2.2: Outstanding Debts (Crore BTK)

2010-11
Debtor
2011-12
2012-13
1
2
3
4
5
6
TOTAL
Table 2.3: Total Debt Services (Crore BTK)

Debt Services
1
2
3
4
5
6
2010-11
Amortization (Repayment of
Principal)
Interest Payments
Total Debt Services
Total Debt Services to Turnover
Ratio (%)
Total Debt Services to Total
Expenditure Ratio (%)
Total Debt Services to Gross Profits
Ratio (%)
67
2011-12
2012-13
Table-3.1: Lending- Loans Issued During Last Three Years (Crore BTK)
Borrower
Loan Amount
(Crore BTK)
Date issued
Purpose
Terms
1
2
3
4
5
Total
Table 3.2: Outstanding Loans (Crore BTK)

2010-11
Borrower
2011-12
2012-13
1
2
3
4
5
6
TOTAL
Table 3.3: Interest Receipts (Crore BTK)
2010-11
1
2
3
Interest Receipts on loans

Interest Receipts on Investments
Interest Receipts on Deposits
68
2011-12
2012-13
Annex-6: Part-C
Additional Information to be Provided by the Public Sector Banks and Financial Institutions in
favor of which Guarantees and Counter- guarantees have been provided by the government
General Information
1. Name of the Beneficiary
2. Total Number of Employees
Sl.
Indicators
No.
1
Total Assets
2
Total equity
3
Credits provided during the year
Agriculture credits
Credits to industry
Education loans
Housing and construction
Real estate and stock market
Trade credits
Others
4
Outstanding Credits at the end of year
Agriculture credits
Credits to industry
Education loans
Housing and construction
Real estate and stock market
Trade credits
Others
5
Guarantees provided during the year
To public sector
To private sector
6
Outstanding Guarantees at year end
To public sector
To private sector
7
Total deposits
8
Deposits by non-residents
9
Gross profits
10 Net profits
11
Return on equity
12 Return on assets
13 Non-performing assets
Agriculture sector
Industry sector
Trade credits
Others
14
NPA ratio
Unit
Crore TK
Crore TK
Crore TK
Crore TK
Crore TK
Crore TK
Crore TK
Crore TK
Crore TK
Crore TK
Percentage
Percentage
69
2010-11
2011-12
2012-13
15
Capital adequacy ratio

Selected References
Aliona, Cebotari (2008) Contingent Liabilities: Issues and Practice, IMF Working Paper
(WP/08/245), International Monetary Fund, Washington, D.C., October 2008.
Amin, Mohd. Rashedul and Kazi Nahid Rasul (2012) Government Contingent Liabilities:
Concept, Issues and Bangladesh Perspective, pp.1-70, Treasury Finance Division, Ministry of
Finance, May 2012.
Bangladesh, Government of the Peoples Republic of (2013a) Budget in Brief, as a part of
2013-14 Budget, Finance Division, Ministry of Finance, June 2013.
____________ (2013b) Flow of External Resources into Bangladesh, Economic Relations
Division, Min of Finance, 22 Jan 2013.
___________ (2012) Allocation of Business Among the Different Ministries and Divisions
(Schedule I of the Rules of Business, 1996) (Revised up to July 2012), pp.1-86, Cabinet
Division, July 2012.
___________ (2009a) Rules of Business 1996 (Revised up to January 2009), pp.1-29, Cabinet
Division, Cabinet Division, Government of the Peoples Republic of Bangladesh, January 2009.
___________ (2009b) The Public Moneys and Budget Management Act, 2009 (ACT NO.40 of
2009), pp.1-9, 9 July 2009.
___________ (1972) Constitution of the Peoples Republic of Bangladesh 1972, pp.1-57, 4th
November 1972.
___________ The Contract Act 1872, pp.1-73.
Brixi, Hana (2006) Government Contingent Liabilities and Fiscal Risk, World Bank, May 2006.
Cooper, Russell and Thomas W. Ross (1994) Market Fragility and Guarantee Funds:
Fundamental and Strategic Uncertainty,0049, Boston University Industry Studies Programme.
Das, Tarun and Dr. Ziaul Abedin and Mahmuda Begum (2013) Concept Paper on Making
TDMW an Effective Middle Office for Debt Management, pp.1-39, DMTBF Project, FD, MOF.
Das, Tarun (2006a) Management of External Debt-International Experiences and Best
Practices, pp.1-46, Best Practices Series No.9, UNITAR, Geneva, 2006.
__________ (2006b) Governance of Public Debt- International Experiences and Best Practices,
pp.1-44, Best Practices Series No.10, UNITAR, Geneva, 2006.
__________ Tarun (2003a) Management of Public Debt in India, pp.85-110, in Guidelines for
Public Debt Management: Accompanying Document and Selected Case Studies, 2003, IMF and
the World Bank, Washington D.C. www.scribd.com/tarundas/
70
_________ (2003b) Off budget risks and their management, Part-2, Chapter-3, Public
Expenditure and Financial Management Review, Report No. 24256-PH, Joint Document of The
Govt of the Philippines, ADB, World Bank Philippines Country Office, April 30, 2003.
__________ (2002) Management of Contingent Liabilities in Philippines- Policies, Processes,
Legal Framework & Institutions, pp.1-60, World Bank, Washington, 2002.
Das, Tarun and Raj Kumar, Anil Bisen and M. R. Nair (2002) Contingent Liability
Management- A Study on India, pp.1-84, Commonwealth Secretariat, London.
Government of India (2010) Government Guarantee Policy, Budget Division, Department of
Economic Affairs, Ministry of Finance, New Delhi, India, September 2010.
__________ (2008) Report of the Internal Working Group of Debt Management, pp.1-130,
Department of Economic Affairs, Ministry of Finance, New Delhi, 31 October 2008.
Greetje, Everaert; Fouad Manal, Martin Edouard and Velloso Ricardo (2009) Disclosing
Fiscal Risks in the Post-Crisis World, SPN/09/18, International Monetary Fund, Washington,
D.C., July 16, 2009.
International Monetary Fund (2011)22 Public Sector Debt Statistics- Guide for Compilers and
Users, Washington D.C., 2011.
_________ (2007) Manual on Fiscal Transparency, Washington D.C., 2007.
_________ (2003)23 External Debt Statistics- Guide for Compilers and Users, Washington D.C.
_________(2002) Government Finance Statistics Manual 2001, Washington D.C., 9 Dec 2003.
International Monetary Fund and World Bank (2003) Guidelines for Public Debt
Management, Washington D.C., 9 December 2003.
Lienert, Ian (2010) Role of the Legislature in Budget Processes, pp.1-25, Fiscal Affairs
Department, International Monetary Fund, Washington, D.C., April 2010.
_________, and M. K. Jung (2004) The Legal Framework for Budget Systems: An International
Comparison, OECD Journal on Budgeting, Vol. 4, No. 3, special issue (Paris: OECD).
Lienert, Ian and Israel Fainboim (2010) Reforming Budget System Laws, pp.1-22, Fiscal
Affairs Department, International Monetary Fund, Washington, D.C., January 2010.
22
Prepared jointly by nine organizations viz. International Monetary Fund (IMF), Bureau of International
Settlements (BIS), Paris Club, OECD, Commonwealth Secretary, European Central Bank, UNCTAD,
EUROSTAT and the through the mechanism of the Inter-Agency Task Force on Finance Statistics
(TFFS).
23
Prepared jointly by eight organizers viz. Bank for International Settlements (BIS), Commonwealth
Secretariat, Eurostat, International Monetary Fund (IMF), Organization for Economic Co-operation and
Development (OECD), Paris Club Secretariat, United Nations Conference on Trade and Development
(UNCTAD) and the World Bank.
71
Lewis, Christopher and Ashoka Mody (1998) "Risk Management Systems for Contingent
Infrastructure Liabilities: Applications to Improve Contract Design and Monitoring" in Public
Policy for the Private Sector, Note 149, The World Bank. Washington DC.
Miguel, Almeyda and Sergio, Hinojosa (2001) Revision of State of the Art Contingent Liability
Management: Bibliography, Washington DC, May 2001.
Mody, Ashoka (2000) Contingent Liabilities in Infrastructure: Lessons of the East Asian Crisis,
World Bank, Washington, 2000.
Mody, Ashoka and Christopher Lewis (1997) The Management of Contingent Liabilities: a
Risk Management Framework for National Governments in Irwin, Timothy, and others, eds.
1997. Dealing with Public Risk in Private Infrastructure. World Bank Latin American and
Caribbean Studies, Washington, D.C.
Mody, Ashoka and Brixi Hana (2000) Priorities for the Management of Contingent Liabilities,
The World Bank. Washington DC., May 15, 2000.
Polackova, Hana (1998) Government Contingent Liabilities: a Hidden Risk to Fiscal Stability.
The World Bank. Washington DC.
Polackova, Hana (1999) Fiscal Adjustment and Contingent Government Liabilities: Case
Studies of the Czech Republic and Macedonia, Policy Research Working Paper 2177, World
Bank, Washington, D.C., October 1999.
72

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Draft for Discussion and Comments

A Concept Paper on Contingent Liabilities of the Government of

Mr. Md. Mahiuddin Khan

Average Time of Maturity

Internal Resources Division

Background, Objectives, Scope and Methodology of the Study

Contingent Liabilities- Basic Concepts and Measurement

3.2 Legal System for Management of Sovereign Guarantees in Bangladesh

4.4 Risk Management Systems and Capacities

Annex-5: Questionnaire on Contingent Liabilities

Coverage and Scope

Background, Objectives, Scope and Methodology of the Study

Contingent Liabilities- Basic Concepts and Measurement3

2.1 Definitions and Basic Concepts of Contingent liabilities

(d) Provisions of Contingencies

Table-2.1: Fiscal Risk Matrix for Bangladesh Government

Future recurrent costs of

Table 2.2 Fiscal Hedge Matrix

Asset recovery (workout

Central Bank risk adjusted

Government revenues from

In Bangladesh, Government issues Contingent Liabilities in the form of Guarantees and

To improve financial viability of projects or activities undertaken by government entities,

To enable public sector companies to raise resources at lower interest charges or on

To fulfill the requirements where sovereign guarantee is a precondition for grant of

To support a particular enterprise, such as the National Airline, Power Development

(b) Benefits of the issue of Sovereign Guarantee

the borrowing of money or the giving of any guarantee by the Government, or

relinquishment, remission or assignment of revenue, actual or potential, or

expenditure for which no provision exists in the budget;

levy of taxes, duties, cesses or fees;

re-appropriation between major heads within budget grants;

alteration in the method of compilation of accounts or of the budget

receipt or expenditure of foreign exchange unless already allocated;

change in the terms and conditions of service of Government servants, and

interpretation of rules made by Finance Division.

(d) Allocation of Business (Schedule 1 of the Rules of Business 1996)11

An Assessment of the System of Management of Contingent Liabilities in

(b) Authority for Approval and

(c) Centralized Unit for

Guarantees and counterguarantees issued by the

MOF/ DOF/ Treasury

Finance Division, Ministry of

(d) Are there automatic or adhoc guarantees?

India: Small savings,

For Savings Certificates,

(e) Contingent liabilities not

(f) Does there exist up-to-date

(g) Are all monitored liabilities

by the Finance Division of

Constitution of the Peoples

(b) Contingent liabilities

(c) Limits on individual

-Hungary: Public Finance

parliament for issuance of

Guarantees and counterguarantees issued by the

No legal limits on individual

(e) Limits on total stock of

(f) Sunset clause or time

- India New issue of CL

No legal limits on total flows

Yes in all countries