Ministry identifies financing risks

CONTINGENT liabilities, performance of State-owned enterprises and natural disasters and climate change have been identified as financing risks by the Finance Ministry.

In its Medium-Term Fiscal Strategy financial year 2024-2025 to the financial year 2026-2027 tabled in Parliament, the ministry said the government’s total contingent liabilities, as of October last year, stood at 13.0 per cent of the GDP.

“This poses risks to public finances as around 61.2 per cent of contingent liabilities are government guarantees of public corporation debt,” the ministry said.

“Some of these public corporations, such as FSC, have already been assessed as high risk.

“The materialisation of these contingent liabilities poses a substantial fiscal risk and cost to the Government.”

The ministry said the financial performance of State-owned enterprises was strongly linked to the risk exposure to the Government in terms of realisation of contingent liabilities.

“Poor performing SOEs can be costly for public finances and reduce the Government’s net worth.

“Fiscal risks can arise from multiple sources, including the Government subsidising operations of SOEs using taxpayer funds for repayment of SOE loans, continuously increasing guarantees, equity injections to cover previous losses and converting past loans into equities.

“These can easily derail the Government’s fiscal consolidation plans and put additional pressure on public finances.

“Public finances are also exposed to frequent extreme events such as tropical cyclones, drought and flooding that can have large fiscal costs.

“In the last seven years, the Government has spent over $600million in recovery and rehabilitation efforts.”