Public–Private Partnership: govt unveils first-ever Fiscal Risk Monitoring Framework

ISLAMABAD: The Ministry of Finance unveiled its first-ever Fiscal Risk Monitoring Framework (FRMF) for contingent liabilities of the projects being executed under Public–Private Partnership (PPP).

The ministry disclosed that the public sector’s total fiscal exposure from PPP-related contingent liabilities and financial guarantees currently stands at approximately Rs 472.3 billion.

The figure includes Rs. 368.3 billion in contingent liabilities and Rs 104.0 billion in funded financial guarantees, based on provisional estimates compiled up to December 2025.

The framework, which is prepared by the Debt Management Office (DMO) of the Ministry of Finance, is going to establish a consistent system for identifying, quantifying, and reporting contingent liabilities arising from PPP projects at the federal and provincial levels. PPP contracts can create fiscal exposures that do not immediately appear in budget or debt statements but may materialize later through guarantee calls, revenue support mechanisms, indexation adjustments, or termination-related payments.

The consolidated exposure figures, drawn from 36 qualified PPP projects across the federal government and all four provinces, will now be regularly disclosed in the Fiscal Risk Statement (FRS) and debt reports, strengthening medium-term fiscal planning and oversight.

This framework provides a uniform methodology to classify and quantify both direct and contingent liabilities and to consolidate these into a single national PPP fiscal exposure dataset managed by the Federal Risk Management Unit (RMU) of the Ministry of Finance. The data will be utilized to support medium-term fiscal planning and disclosed in the Fiscal Risk Statement (FRS) and/or in the periodic Debt reports of the Debt Management Office.

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The framework defines minimum reporting requirements only. It does not change risk allocation, project approvals, or contractual design. Provincial PPP units retain full decision-making authority and responsibility for project appraisal, structuring, and contract management. The Federal RMU’s role is limited to consolidation and reporting. Where required, this framework will be reviewed and updated to accommodate any refinements in the underlying quantifying methodology or incorporate sector-specific fiscal risk parameters.

The framework applies to PPP projects that create, or may create, fiscal exposure and, at a minimum, have achieved commercial close (signing of PPP Agreement) at the federal or provincial level. PPP projects are defined as qualified projects under the respective federal and provincial PPP Acts and Rules, typically involving long-term contractual arrangements where the private party assumes significant construction, financing, or operational risk and where payments are linked to performance or demand.

The respective PPP Risk Management Units of the provincial governments and PPP Authority (P3A) for Federal projects shall submit bi-annual reports as of June and December-end of each Fiscal Year to the RMU, as per the template. The reporting shall include: Direct Liabilities (e.g., viability gap funding (VGF) support, Annuity or Land acquisition costs) and Contingent liabilities, including minimum revenue guarantees, KIBOR/FX indexation, cost escalation, compensation events, and termination payments.

Coverage may be expanded in later phases to include other long-term public service contracts with comparable guarantee or payment commitments. The reporting framework distinguishes between Direct Liabilities, which are contractually fixed and certain, and Contingent Liabilities, which may arise only if specified events occur. Also, where a contract has provided specific formulas to calculate direct and contingent liabilities, which may differ from the explanation provided in this framework, the respective contract will take precedence.

The most far-reaching element of the framework is its treatment of contingent liabilities, which often remain invisible until triggered. These are divided into explicit contingent liabilities (ECLs) and implicit contingent liabilities (ICLs).

Explicit contingent liabilities arise directly from PPP contracts and include minimum revenue guarantees, interest rate adjustments linked to KIBOR, foreign exchange pass-through provisions, construction and input cost escalation, termination compensation, and change-in-law clauses. Agencies are required to report the maximum nominal exposure over the full contract term, regardless of whether the risk is likely to materialize.

For instance, a minimum revenue guarantee of Rs 1.2 billion per year under a 10-year toll road concession must be reported as a Rs 12 billion contingent liability, even if traffic volumes currently exceed guaranteed levels.

Implicit contingent liabilities, by contrast, are non-contractual but politically or economically driven exposures. These include tariff or user-charge freezes that create revenue gaps, or government bailouts of distressed projects to ensure service continuity. To avoid speculative reporting, such liabilities are recorded only where there is a clear precedent or a credible likelihood based on recent experience in the same sector.

Rather than relying on complex financial models, the framework introduces a qualitative probability rating system—Low, Medium, or High—for each contingent liability. Ratings are based on observable evidence such as past guarantee calls, demand volatility, tariff indexation history, or ongoing renegotiations.

Agencies must also provide a brief written justification for each rating, ensuring that assessments are transparent and auditable. The framework also brings funded guarantees squarely into the fiscal risk spotlight. These include standby letters of credit, payment guarantees, debt service guarantees, and other government-backed financial instruments issued in support of PPP projects.

All active funded guarantees must now be reported at their maximum nominal value, along with details of the issuing authority, risk events covered, and issuance dates. As of December 2025, funded guarantees linked to PPPs amount to Rs. 104.0 billion, a figure that will now be regularly disclosed in national fiscal reports.

Provisional data compiled under the framework covers 36 qualified PPP projects across the federation. Sindh accounts for the largest share of contingent liabilities and financial guarantees amounting to Rs335.6 billion, followed by the federal government with Rs 90.6 billion and Punjab with Rs 26.5 billion.

The framework is envisaged to reduce the likelihood of unexpected fiscal shocks. The Federal RMU plans to maintain a National PPP Liabilities Tool and Dashboard, offering project-wise, provincial, and sectoral snapshots of fiscal exposure.

Copyright Business Recorder, 2026