## Mapping the Unknown

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### Valuation unknown
- Public commercial assets are defined as any assets able to generate income if professionally managed and include operational assets, transportation assets, and real estate.
- The IMF has estimated global public assets at twice the value of global GDP.
- At more than $90 trillion, the value of the world’s publicly listed companies is roughly equal to that of global GDP.
- Few governments record and value all their commercial assets; those that do apparently omit large swaths of holdings, so the true value is probably much higher than the IMF’s assessment, which relies on government data.

### Costly consequences
- An IMF study estimates the cost of inefficiency in public commercial asset management at about 1.5 percent of the total value of assets per year, equivalent to about 3 percent of global GDP.
- Inefficiencies include lower yield or absence of yield from public commercial assets due to poor accounting, mismanagement, waste, and corruption.
- IMF work (Yousefi 2019; Koshima and others 2021) shows governments with stronger net worth (assets minus liabilities) recover faster from recessions and have lower borrowing costs.
- Ignoring net worth mismeasures debt sustainability and creates a bias against investment (Ball and others 2021).

### Failures and dangers
- Government accounting standards often presume public assets differ from private-sector assets because their sole purpose is public policy or service delivery; market value is therefore treated as irrelevant.
- Governments often value public assets at historical cost, or sometimes assign them no value at all, causing divergence between recorded value and market value over time.
- Governments are the biggest landowners in every country but pay scant attention to the value or management of these holdings.
- Perverse incentives and political short-termism discourage departments from identifying hidden assets if that would create demands to spend, sell, or better manage them.

### Solutions at hand
- Move government accounting from cash to accrual basis in line with International Public Sector Accounting Standards and private sector norms, showing assets at fair market value and conducting at least annual assessments of public net worth.
- The IMF shifted its Government Finance Statistics Manual from cash to accrual nearly two decades ago; New Zealand introduced accrual-based accounting and a financial management framework more than three decades ago, moving from two decades of deficits and declining net worth to 30 years of value creation with very few deficit years.
- IFAC and CIPFA (2021) predict almost half the world’s governments will adopt accrual-based accounting in a few years, though far fewer are putting accrual information at the heart of financial management and budget systems.
- Example: the UK’s Whole of Government Accounts reports public sector real estate assets but lacks a mandate to assign fair market values and pays little attention to net worth creation.

### Driving development (public wealth funds)
- Transfer public commercial assets to public wealth funds to bring governance, management, accounting, and accountability to specific asset pools; benefits can be realized quickly, within a year or two.
- Singapore: Temasek (founded 1974) manages key government holdings across financial services, transport, telecom, and industrials; Capital Land, Temasek’s flagship real estate company, is one of Asia’s largest real estate companies.
- Hong Kong SAR: MTR built a subway system the size of New York City’s solely through internally generated resources by capturing value from developing properties adjacent to stations (Leong 2016).
- Sweden (1998–2001): managed public portfolio with private-sector discipline over a designated three-year period, turning around telecom, electricity, railway, and postal service monopolies within the three-year timetable and using real estate to support the turnaround without external capital.
- Finland (2008): launched a public wealth fund with solid returns since inception and a separate public wealth fund for national government real estate.
- Local examples: Hamburg and Copenhagen used urban wealth funds to modernize ports and build housing, workspaces, schools, parks, retail, and cultural facilities; Copenhagen funded part of a metro extension from operational surplus. London and Continental Railways (UK) and Jernhusen (Sweden) developed areas around train stations without using taxes.
- Public wealth funds can access debt and equity markets, engage specialist equity funds, and form corporate partnerships; strong governance and commercially driven decisions are essential to deliver value to voters and taxpayers.

### Domesday Book revisited?
- Property remains the largest single asset class with extensive government holdings; in most developed economies, land registries, transparent transaction information, and web-based survey techniques make constructing an asset map straightforward.
- Pittsburgh case study:
  - City officials initially thought the city had some 400 public properties valued in accounts at about $57 million.
  - A specialist firm conducted an asset mapping exercise taking two weeks and costing about $20,000.
  - The exercise found the actual number of city-owned properties was closer to 11,000, valued at $3.9 billion—70 times book value.
  - Professionally managed, these holdings could generate additional income well beyond current tax revenue or could be sold to finance new investment without increasing taxes or borrowing.

### Avoiding austerity
- The COVID-19 pandemic and climate change will strain public finances for at least a generation, making rethinking public asset valuation and management both a moral and economic goal.
- Identifying public commercial assets—especially real estate—and sustainably managing them through public wealth funds can deliver enormous windfalls to governments to meet current challenges and benefit current and future generations.

*Ian Ball, John Crompton, and Dag Detter — Finance & Development, March 2022*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/march/detter.pdf_