The Treasury has agreed to be a founder contributor of the Asian Infrastructure Investment Bank (AIIB). As set out in the summer Budget 2015, HM Treasury will soon be making the initial instalment of US$122,180,000 (approximately £80 million). Subsequent payments of the same amount will be made over the next four years. The UK’s overall capital contribution will total approximately £2 billion (US$3,054,700,000), with these five payments together making the 20% “paid-in” capital contribution requiring a cash transfer. The other 80% is “callable capital”—the AIIB can call on it if needed. As the paid-in capital is an investment, in return for which we get an asset of a new bank, the Office for Budget Responsibility has forecast this payment as a financial transaction. Financial transactions do not add to public sector net borrowing.
As the cash for this payment will form part of HM Treasury’s supplementary estimate 2015-16, which is expected to achieve Royal Assent in the associated Supply and Appropriation Bill in mid to late March, HM Treasury will use the Contingencies Fund to make the payment.
This payment is in line with the authority provided by this House under the Asian Infrastructure Investment Bank (Initial Capital Contribution) Order 2015. Parliamentary approval for additional capital of £83 million for this new expenditure will be sought in a supplementary estimate for HM Treasury. Pending that approval, urgent expenditure of £83 million—to allow for exchange rate movements—will be met by repayable cash advances from the Contingencies Fund.
Further, the payment of the first instalment of the capital contribution incurs with it a contingent liability. In line with the articles of agreement, the contingent liability rises in line with the amount of callable capital paid. As such, the UK will incur a proportionate contingent liability of US$488,752,000. A departmental minute to this effect was laid before Parliament on 30 November 2015 to give at least 14 sitting days’ notice of the intent to incur a contingent liability. The notice period was completed on 5 January 2016.
Although the AIIB has the right to call for payment of this callable capital if there is a crisis affecting the bank’s assets or loans, no such instance has occurred in any major multilateral development bank (MDB) 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 is demonstrating 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.