Abstract of an Article Published in MEFMI Forum Issue 9 June 2010

As the pressures of dealing with the international debt crisis on external debt begin to subside - thanks to the many concerted efforts of the international community and debtor countries – attention in debt management in the borrower countries needs to shift to a more prudent contraction and use of borrowed funds. Consistent with this shift should be a greater balance in their blending of domestic and foreign financing, to fund what in the first place should be sustainable levels of government budget deficits. In this regard, due regard should be accorded to the rate of growth, the costs as well as the risks that are associated with the debt creation process.

If not dealt with early enough, government contingent liabilities emanating from the activities of the lower tiers of government, including state-owned enterprises, and even the private sector, including through private-public partnerships, could well become the next source of future fiscal crises for developing country governments, the MEFMI region included.

The main challenge in addressing this issue is to comprehensively gather and validate all the relevant information on a public sector-wide scale, to form a strong statistical base for conducting a robust analysis of sovereign liabilities. Secondly, governments need to develop policies and institutional capacities required for monitoring, reporting, and effectively controlling the rate of accumulation of contingent liabilities, as an integral part of sound management of public finances and sovereign assets and liabilities. This will help countries to pre-empt the risks of future fiscal crises that excessive liabilities on governments’ balance sheets may engender.