CONCEPTUAL FRAMEWORK OF CONTINGENT LIABILITIES AND GUIDELINES FOR MANAGING LOAN GUARANTEES AND ON-LENDING IN THE MEFMI REGION

The guidelines establish a comprehensive approach to managing fiscal risks arising from contingent liabilities in the MEFMI region. It distinguishes between explicit liabilities (such as loan guarantees and PPP commitments) and implicit liabilities (such as non-guaranteed SOE debt and natural disaster relief). The document details the legal and institutional frameworks required for oversight, the application and issuance processes for guarantees and on-lending, and a risk management framework centered on credit scoring and expected loss calculations. It further outlines requirements for data recording, monitoring cash flows, and adhering to international statistical and accounting standards for reporting.

• Contingent liabilities are categorized into explicit liabilities, which are "legal commitments of a government to make certain payments if a particular event occurs", and implicit liabilities, which are "political or moral obligations of a government to intervene".
• On-lending is explicitly distinguished from contingent liabilities; it is a "direct liability of the government" where the state contracts a loan and then lends it to a borrower via a subsidiary agreement.
• The guidelines recommend that the Ministry of Finance act as the "single authority" for issuing loan guarantees to ensure a centralized and effective database of exposures.
• For Public-Private Partnerships (PPPs), the document identifies several explicit contingent liabilities, including "financial guarantees", "revenue guarantees", "exchange rate guarantees", "termination payments", and "debt assumption commitments".
• Implicit contingent liabilities include the non-guaranteed debt of state-owned enterprises (SOEs) and subnational governments, as well as "uninsured damages from natural disasters" and financial sector bail-outs.
• A recommended risk management framework for loan guarantees and on-lending consists of four sequential steps: "Risk Identification and Quantification", "Credit Risk Assessment", "Credit Risk Measurement", and "Design and Implementation of Risk Management Tools".
• The document proposes a credit scoring methodology using a scorecard to weigh qualitative indicators (such as "corporate governance" and "market position") and quantitative indicators (such as "debt service cover ratio" and "quick ratio").
• Expected Loss (EL) is recommended as a primary credit risk measurement, calculated using the formula: "EL = PD x EAD x LGD", where PD is probability of default, EAD is exposure at default, and LGD is loss given default.
• To mitigate fiscal risks, the guidelines suggest several policy tools, including "limits on the total amount of guarantee and on-lending", "risk pricing" through fees, and the establishment of a "contingency reserve account".
• Reporting and disclosure should align with international standards, specifically the "SNA (System of National Accounts, 2008)", "GFS (Government Finance Statistics, 2014)", and "IPSAS (International Public Sector Accounting Standards)".

APA

FSD Africa (n.d.). CONCEPTUAL FRAMEWORK OF CONTINGENT LIABILITIES AND GUIDELINES FOR MANAGING LOAN GUARANTEES AND ON-LENDING IN THE MEFMI REGION. https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Guidelines-on-Managing-Guarantees-2b-Final.pdf

Chicago

FSD Africa. CONCEPTUAL FRAMEWORK OF CONTINGENT LIABILITIES AND GUIDELINES FOR MANAGING LOAN GUARANTEES AND ON-LENDING IN THE MEFMI REGION. n.d. https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Guidelines-on-Managing-Guarantees-2b-Final.pdf.

Wikipedia

{{cite report |author=FSD Africa |title=CONCEPTUAL FRAMEWORK OF CONTINGENT LIABILITIES AND GUIDELINES FOR MANAGING LOAN GUARANTEES AND ON-LENDING IN THE MEFMI REGION |url=https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Guidelines-on-Managing-Guarantees-2b-Final.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{fsdafricandconceptual, author = {{FSD Africa}}, title = {{CONCEPTUAL FRAMEWORK OF CONTINGENT LIABILITIES AND GUIDELINES FOR MANAGING LOAN GUARANTEES AND ON-LENDING IN THE MEFMI REGION}}, institution = {FSD Africa}, url = {https://fsdafrica.org/wp-content/uploads/2025/05/MEFMI-Guidelines-on-Managing-Guarantees-2b-Final.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }