Capital Payment to an International Financial Institution: Contingent Liability

(Limited Text - Ministerial Extracts only)

Thursday 1st November 2018 Written Statements

[The Chancellor of the Exchequer (Mr Philip Hammond)]

I am today laying a departmental minute to advise that HM Treasury intends—subject to the standard procedure for notification to Parliament of the assumption of contingent liabilities as described below—to make the Government’s fourth and fifth annual capital contributions of $122,180,000 (approx. £95.3 million ¹) to the Asian Infrastructure Investment Bank at year end 2018 and year end 2019. This is in line with the authority provided by this House under the Asian Infrastructure Investment Bank (Initial Capital Contribution) Order 2015. Parliamentary approval for these payments will be sought in supplementary estimates for HM Treasury.

The UK’s overall capital contribution will total $3,054,700,000 (approx. £2.4 billion), of which five payments together will make up the 20% “paid-in” capital contribution requiring a cash transfer. The other 80%, $2,443,800,000 (approx. £1.9 billion), 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 liabilities.

The payment of the fourth and fifth instalments of the capital contribution will therefore incur additional contingent liabilities in line with the amount of callable capital paid. As such, the UK will increase its current contingent liability by $488,760,000 (approx. £381 million) to a cumulative total contingent liability of $1,955,040,000 (approx. £1.5 billion) after the fourth payment, and by a final $488,760,000 to reach the total of $2,443,800,000. This will complete the UK’s purchase of AIIB shares.

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.

As is usual, a departmental minute has been laid before Parliament to give at least 14 sitting days’ notice of the intent to incur a contingent liability.

¹ Exchange rate as of 29 October 2018

[HCWS1057]