Topic: Government Budgeting.
7) What do you understand by Government Guarantees? Why is there a need to review government Guarantees? Discuss its significance. (250 words)
Why this question:
Recently the Ministry of Finance has asked all the departments to undertake a review of government guarantees given by respective ministries to their Central Public Sector Enterprises (CPSEs) or entities.
Key demands of the question:
The answer must discuss what are Government Guarantees, why is there a need to review them and their significance.
Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.
Structure of the answer:
Introduce by defining what are Government Guarantees.
The body of the answer should address the following dimensions:
- Guarantees are contingent liabilities which have the potential to impact the financial performance of the government.
- Discuss why their review is necessary?
- Significance – The review will look into aspects like whether the discharge of repayment obligations or interest obligations as per terms of the loan agreement and covenants and conditions met.
Conclude with significance of such steps.