Govt has recently asked all departments to undertake a review of government guarantees given by resp...........

Economic Affairs Public Sector Enterprises

Govt. has recently asked all departments to undertake a review of government guarantees given by respective ministries to their Central Public Sector Enterprises (CPSEs) or entities. Consider the following statements regarding the government guarantees given to CPSEs.

1. It improves the viability of projects under taken by PSUs.

2. It enable public sector companies to raise resources at lower interest charges.

3. FRBM Rules has defined government’s limit for Govt. guarantee to CPSEs.

Which of the above statements is/are correct?

Choose the correct answer using the codes above:

1 and 2 only

2 and 3 only

1, 2 and 3

1 and 3 only

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Explanation:

Guarantees are contingent liabilities having the potential to impact the financial performance of the government.

FRBM Rules stipulates that government cannot guarantee more than 0.5 per cent of the GDP of the respective financial year to CPSE/entities.

The sovereign guarantee is normally extended for the purpose of achieving the following objectives:-

To improve viability of projects or activities undertaken by government entities with significant social and economic benefits;
To enable public sector companies to raise resources at lower interest charges or on more favourable terms;
To fulfil the requirement in cases where sovereign guarantee is a precondition for concessional loans from bilateral/multilateral agencies to sub-sovereign borrowers.