International Financial Institution: Contingent Liability

Thursday 1st December 2016 Written Statements

[The Secretary of State for International Development (Priti Patel)]

In 2015, the UK agreed to be a founder contributor of the Asian Infrastructure Investment Bank (AIIB). As set out in the summer Budget 2015, HM Treasury made an initial capital instalment of US$122,180,000, and committed to subsequent payments of the same amount by the UK Government over the four years from 2017 to 2020. The UK’s overall capital contribution will total US$3,054,500,000, of which these five payments together will make up 20% of “paid-in” capital contribution requiring a cash transfer. The other 80%, $2,443,600,000, is “callable capital”—the AIIB has the right to call for payment for these shares if there is a crisis affecting the bank’s assets or loans. As the paid-in capital is an investment, in return for which we get an asset of a share of the Bank, the Office for Budget Responsibility has forecast this payment as a financial transaction. Financial transactions do not add to public sector net borrowing.

Payment of the second annual contribution of $122,180,000 is in line with the authority provided by this House under the Asian Infrastructure Investment Bank (Initial Capital Contribution) Order 2015. Parliamentary approval for this will be sought in a supplementary estimate for the Department for International Development.

Further, the payment of the second instalment of the capital contribution incurs with it a contingent liability. In line with the AIIB articles of agreement, the contingent liability rises in line with the amount of callable capital paid. As such, the UK will increase its current contingent liability of $488,720,000, incurred when the initial capital instalment was paid by a further $488,720,000 to a cumulative total contingent liability of US$977,440,000. A Departmental minute to this effect was laid before Parliament on 1 December 2016 to give at least 14 sitting days’ notice of the intent to incur a contingent liability. The notice period will be completed on 9 January 2017.

Although the AIIB has the right to call for payment of this callable capital incurred when the initial capital instalment was paid, no such instance has occurred in any multilateral development bank in the past. If the liability were to be called, provision for any payment would be sought through the normal supply procedure.

In joining the AIIB the UK has demonstrated its support for China’s initiative to establish the AIIB to address the historic shortage of infrastructure investment in Asia. The AIIB will support economic growth in the region and drive up living standards. The UK’s membership will deepen economic ties with Asia and create opportunities for British businesses.

[HCWS305]