What are contingent government liabilities?

Low Zhen Ting | Published 31 March 2023

A contingent liability is a potential financial obligation to make payments that will occur if certain events or conditions happen. In other words, it is a liability that is dependent (or, contingent) on uncertain future events.

For a government, these events might be explicitly stated in government policies or legal obligations (such as a government guarantee), or implicitly committed due to expectations from the public or to address market failures (such as reliefs for unforeseen natural disasters and bailouts).

What is a contingent liability?

Explicit Contingent Liabilities

In Malaysia, explicit contingent liabilities consist mostly of government loan guarantees to federal statutory bodies (FSBs) or government-linked companies (GLCs). This happens when the government guarantees a loan for another entity, that is, promises to pay for the debt if the entity fails to do so. The government incurs a contingent liability when it enters into such an obligation, as the obligation only occurs if a specific condition (the entity is unable to pay back the loan) happens. As of 2021, the major recipients of the government loan guarantees were:


Where can I find this data?

The full list of government guarantee recipients can be found in the Statement of Memorandum Account of Statutory Guarantees in the annual Federal Government Financial Statements. The statement lists out the details of all statutory guarantees by different recipients.

Estimated figures and major recipients of loan guarantees can also be found in the Fiscal Outlook and Federal Government Revenue Estimates published each year prior to federal budget announcements.

Implicit Contingent Liabilities

On the other hand, implicit contingent liabilities are not legally obliged or committed, but a moral obligation, or an expectation or even pressure from the public on the role of the government. It is usually when there are unforeseen natural disasters, or when a company that is “too big to fail” is failing, that the government is expected to provide financial assistance or injection.

For example, the government often gives out financial assistance when there is a heavy flood. In December 2021, the government allocated RM1.4 billion under the Malaysian Family Flood Aid to provide cash assistance to affected families (see here). Such unexpected cashflows were also reflected in the 2021 Federal Government Financial Statements with a 600% increase in operating expenses occurring in the National Disaster Relief Fund (Tabung Bantuan Bencana Negara).

In 2019, the government allocated RM24 billion to FELDA (RM6.3 billion) and Lembaga Tabung Haji (RM17.8 billion) as bailouts – to put in perspective, this amounts to 9% of the 2019 federal budget. These two are among the biggest bailouts in Malaysia to date. Bailouts don’t necessarily mean a direct transfer of cash to the companies; they can be channelled via government guarantees, special purpose vehicles (SPVs), etc.

Where can I find this data?

The operating expenses occurred in each ministry and fund can be found in the Federal Government Financial Statements. The example below is taken from the 2021 Federal Government Financial Statements.

Read more about contingent liabilities:

  1. Ministry of Finance. (2018). Section 5: Fiscal Risk and Liability. Fiscal Outlook and Federal Government Revenue Estimates 2019.
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  2. Polackova, H. (March, 1999). Contingent Government Liabilities: A Hidden Fiscal Risk. Finance & Development, 36(1).
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  3. International Budget Partnership. (2011). A Guide to Transparency in Public Finances: Looking Beyond the Budget.
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  4. Bachmair, F., & Bogoev, J. (2018). Assessment of Contingent Liabilities and Their Impact on Debt Dynamics in South Africa. World Bank.
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  1. International Monetary Fund. (2005). Government Guarantees and Fiscal Risk.
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  2. The World Bank. (August 2019). Assessing and Managing Credit Risk from Contingent Liabilities: A Focus on Government Guarantees.
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  3. Yeap, C. (November 17, 2016). The State of the Nation: Are Malaysia’s contingent liabilities a ‘time bomb”. The Edge Markets.
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  4. Yeap, C. (January 18, 2018). Cover Story: The debt spiral– what’s on the books, contingent liabilities and off-balance sheet items. The Edge Markets.
    Read More

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