3 Guarantees

A guarantee makes the state liable if a third party — a public corporation, a state-owned enterprise, a private borrower supported for policy reasons — fails to pay. Its legal character is important: on the face of it, no liability arises until default. But a guarantee is contingent public debt, and one that is given without limit, recorded without disclosure and called without appropriation transfers a decision from the legislature to the executive. ControlWhat it secures Statutory authorityThe power to guarantee must be conferred, not assumed CeilingA defined total limit, so guarantees cannot grow silently Approval procedureProjects above a threshold require parliamentary or cabinet approval Recording and reportingGuarantees appear in the financial statements as contingent liabilities RecoveryCounter-guarantee and security from the borrower CallingPayment on default requires the same authorisation as any expenditure