## fm1802 ## Source details **Canonical URL:** [fm1802](https://www.imf.org/-/media/files/publications/fiscal-monitor/2018/october/pdf/fm1802.pdf) ## Other formats - [Markdown version](/-/media/files/publications/fiscal-monitor/2018/october/pdf/fm1802.pdf.md) - [Structured JSON version](/-/media/files/publications/fiscal-monitor/2018/october/pdf/fm1802.pdf.json) --- ### Preface — projections, authorship, and key data highlights - Projections: “IMF staff projections” based on the same database used for the October 2018 World Economic Outlook and Global Financial Stability Report. - Fiscal coverage: projections refer to the general government unless otherwise indicated. - Short-term projections: based on officially announced budgets, adjusted for differences between national authorities and IMF staff on macroeconomic assumptions. - Medium-term projections: incorporate policy measures judged likely to be implemented; for countries supported by an IMF arrangement, medium-term projections are those under the arrangement. - Preparation and authorship: - Prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar, Director. - Project directed by Abdelhak Senhadji (Deputy Director), Catherine Pattillo (Assistant Director), and Carolina Renteria (Division Chief). - Main authors: Jason Harris and Alexander Tieman (team leaders), Miguel Alves, Sage de Clerck, Fabien Gonguet, Klaus Hellwig, John Ralyea, Majdeline El Rayess, Seyed Reza Yousefi. - Key sample statistics: - New PSBS database covers a sample of 31 countries, covering 61 percent of the global economy. - Total public sector assets in the sample: US$101 trillion or 219 percent of GDP. - Public corporation assets: 120 percent of GDP (sample). - Natural resources average: 110 percent of GDP among the large natural-resource-producing countries. - Standard measure of general government public debt in the sample: 94 percent of GDP. - Total public sector liabilities: 198 percent of GDP. - Accrued pension liabilities: 46 percent of GDP. - Net worth: positive on average across the sample, but about one-third of countries are in negative territory, including most of the G7. ### Executive summary — purpose, value, and key empirical findings - Purpose of PSBS: - Provide the most comprehensive view of public wealth by including assets (financial, infrastructure, natural resources) and liabilities (including pension obligations) across the public sector. - Broaden fiscal analysis beyond flows (revenues, expenditures, deficits) and gross debt. - Market and macro relevance: - Financial markets consider governments’ asset positions in addition to debt levels when determining borrowing costs; countries with stronger balance sheets pay lower interest on their debt. - Countries with stronger balance sheets experience shallower and shorter recessions compared with those with weaker balance sheets. - Aggregate and sample metrics (selected): - At general government level in sample of 31 countries: debt securities and loans worth 95 percent of GDP. - Pension obligations to public servants: 46 percent of GDP (sample). - Financial assets amount to 99 percent of GDP in the sample (noting valuation/encumbrance caveats). - Japan (2017): gross outstanding public sector debt securities and loans = 283 percent of GDP; 134 percent of GDP held by private creditors after consolidations. - United States: gross outstanding = 164 percent of GDP; portion held by private creditors = 110 percent of GDP. - Limitations and cautions: - Data quality issues for the broader public sector; valuation challenges for nonfinancial assets; heterogeneity of public entities; sensitivity to long-term assumptions. ### Balance sheet dynamics, legacy effects, and valuation channels - Crisis-era and postcrisis dynamics (17-country time series covering 54 percent of global GDP): - Public sector liabilities increased by about 39 percentage points of GDP between 2007 and 2016. - Public sector assets increased by 22 percentage points of GDP during 2007–09 and remained 14 percentage points of GDP above precrisis levels thereafter. - Net financial worth deteriorated by US$11 trillion or 28 percentage points of GDP during the postcrisis decade. - Net worth fell from 42 percent of GDP in 2007 to 17 percent of GDP in 2016 (weighted average of 17 countries). - Decomposition of 2007–16 changes (percent of GDP, weighted average of 17 countries): - Fiscal deficits contributed 38 percentage points. - Denominator effect contributed 9 percentage points. - General government/public investment raised net worth by 8 percentage points. - Valuation changes added 16 percentage points. - Valuation channel examples: - In a sample of European countries, gains in financial asset values since 2000 added 12 percentage points of GDP to net worth, offsetting almost a quarter of cumulative debt issuance over the same period. - Policy implication: rebuild balance sheets by reducing debt and investing in high-quality assets; valuation effects can materially alter public wealth. ### Tools, risk metrics, and fiscal stress testing - Tools introduced: - Integrated stock-flow decomposition following GFSM 2014 to separate fiscal deficits, investment, and valuation changes. - Intertemporal net worth combining static net worth with discounted future primary balances. - Risk-adjusted assets and liabilities (RAA and RAL) using instrument-level risk weights. - Natural hedge metric measuring covariance between asset and liability valuation changes. - Fiscal stress tests: - Structure: macro-fiscal shock + contingent liability realization + assessment on comprehensive balance sheet. - Summary outputs: change in net worth or net financial worth; government liquidity needs (gross financing needs); financing burden (interest expense vs revenue). - Stress testing is ideally performed on full public sector balance sheet including public corporations. ### Case studies — selected country scenarios and outcomes - United States (2016 baseline; Federal Reserve “severely adverse” style scenario): - Key metrics (percent of GDP): - Total assets (General Government / Public Corporations / Public Sector): 110.3 112.0 175.8 - Nonfinancial assets: 84.5 0.0 84.5 - Financial assets: 25.8 112.0 91.3 - Total liabilities: 127.1 112.0 192.5 - Debt securities: 98.6 34.0 107.9 - Net financial worth: –101.3 0.0 –101.3 - Net worth: –16.7 0.0 –16.7 - Stress scenario assumptions: - GDP growth: –6 percent. - Unemployment rate increases to almost 10 percent. - Real estate prices decline by one-third. - Equity prices decline by almost two-thirds. - No countercyclical fiscal policy measures assumed. - Stress test outcomes: - Decrease in public sector static net worth by 2020: 26 percent of GDP (estimated as –27.9 to –54.1 on figure scale). - Cumulative increase in debt: 9 percent of GDP within three years. - Net worth decline from balance sheet effects: about 17 percent of GDP. - Drop in value of government nonfinancial assets: 6 percent of GDP. - Additional federally held student loans not paid back: 7 percent of the student loan portfolio (0.3 percent of GDP). - Losses on mortgage loan portfolio held by GSEs: 0.6 percent of GDP. - Equity price falls lead to additional state and local pension underfunding: 7 percent of GDP. - Interpretation: balance sheet valuation and public corporation exposures imply losses far larger than debt impact alone; some losses require immediate debt issuance while others can remain on balance sheet. - Finland (baseline balance sheet and stress test): - Key metrics: - Net worth: 30.3 percent of GDP. - Intertemporal net worth: 113.6 percent of GDP. - Total assets (General Government / Public Corporations / Public Sector): 208.9 75.2 254.1 - Net financial worth: –49.9 –10.4 –60.3 - Net present value of primary balances: 83.3 - Stress scenario assumptions: - Real and potential GDP fall by a cumulative 10 percent over two years and remain permanently lower. - Equity prices fall by 40 percent. - Housing prices fall by 15 percent. - Outcomes: - Debt rises about 20 percentage points above baseline in the first two years. - Net worth falls by 45 percentage points of GDP by the second year. - Long-term: permanently higher fiscal deficits translate into an 85 percentage points of GDP decrease in intertemporal net worth. - Policy implication: ongoing consolidation and planned health and social service reforms provide buffers; if nonfinancial state assets cannot be mobilized, slightly higher buffers advisable. - The Gambia (2016 baseline and natural-disaster stress test): - Key metrics (percent of GDP): - Total assets (Central Government / Public Corporations / Public Sector): 47.3 61.9 61.0 - Nonfinancial assets: 13.4 22.4 35.8 - Financial assets: 33.9 39.4 25.2 - Total liabilities: 93.5 61.9 107.2 - Debt securities: 78.4 2.0 61.4 - Net financial worth: –59.5 –22.4 –82.0 - Net worth: –46.2 0.0 –46.2 - Stress scenario (drought + pandemic affecting agriculture and tourism): - Direct macroeconomic impact increases the deficit by 8 percent of GDP. - Realization of contingent liabilities from public corporations increases deficit by 10 percent of GDP. - Gross financing needs rise from 25 percent of GDP to 49 percent of GDP. - Transmission and policy implications: - Cross-holdings and intra–public corporation loans (about 20 percent of GDP) amplify cascading defaults. - Public corporation arrears amount to 4 percent of GDP and likely increase during crisis. - Limited absorptive capacity and few offsetting assets would likely force reliance on central bank financing absent donor support. - Kazakhstan (2016 balance sheet and oil price shock effects): - Natural resources estimated at 219 percent of GDP in 2016. - National Fund of the Republic of Kazakhstan (NFRK): 46 percent of GDP at end-2016; assets held ~80 percent foreign currency bonds and 20 percent equities. - 2014 shocks: 60 percent fall in oil prices plus external demand shocks from Russia and China. - Fiscal balance: surplus of 5 percent of GDP in 2013 to deficit of 6 percent of GDP in 2015. - Liabilities increased by a cumulative 31 percentage points of GDP between 2013 and 2016 from higher borrowing and drawdown on financial assets. - Positive exchange rate valuation effects on US-dollar-denominated assets dominated, increasing net worth. - Policy responses: - Fiscal stimulus over 2014–17: over 10 percent of GDP, largely financed by increased transfers from the NFRK. - Authorities provided financial sector support of about 4 percent of GDP in 2017 funded partly from the NFRK. - Indonesia (tax-financed infrastructure surge scenario): - 2016 PSBS metrics (percent of GDP): - Total assets: 124.0 65.9 164.7 - Nonfinancial assets: 95.8 20.9 116.6 - Financial assets: 28.1 45.0 48.1 - Total liabilities: 31.4 65.9 72.2 - Net financial worth: –3.3 –20.9 –24.1 - Net worth: 92.5 0.0 92.5 - Net present value of primary balances: –90.7 - Intertemporal net worth: 1.8 - Scenario assumptions: - Tax revenue increases by an incremental 1 percentage point of GDP per year for three years, reaching 3 percent of GDP above baseline by 2022. - Two-thirds of public investment surge converted to physical capital. - After three years, tax revenue and stock of public nonfinancial assets remain at higher levels; remaining revenue spent on priority current expenditures. - Monetary policy accommodation allowed (constant discount rate). - Results: - Static net worth increases by more than 4 percent of baseline GDP. - Permanent 1⅓ percent level increase of potential and real GDP. - Public sector intertemporal net worth improves by 6½ percent of baseline GDP. - Raising investment efficiency could increase benefits to as much as 10 percent of baseline GDP. - Note: Indonesia’s intertemporal net worth projected as –18 percent in 2023 vs +1.8 percent of GDP in 2016 (difference mainly due to further decline in natural resource wealth). ### Balance sheet management, asset performance, and potential fiscal gains - Asset management findings (nonfinancial public corporations and government financial assets): - Nonfinancial public corporations sample (14 countries): average return on assets during 2010–16 = 1.9 percent; median = 0.6 percent. - Comparable private sector return: 8 percent for US private nonfinancial corporations over the same period. - Improving returns from the 25th to 75th percentile would increase average yields to 4.3 percent and increase profits by an average of about 1 percent of GDP. - Government financial assets (European sample): improving performance from 25th to 75th percentile would generate a further 2 percent of GDP in returns. - Combined potential revenue gain from improved management of nonfinancial public corporations and government financial assets: 3 percent of GDP per year. - Country practices: - New Zealand Investment Statement assesses assets by purpose (social, financial, commercial) and sets performance benchmarks. - United Kingdom review objectives include improving returns, compensation for risk, and reducing liability costs; short- and long-term balance sheet management aims outlined. - Uruguay’s debt managers adopt PSBS approach across the public sector to minimize expected debt servicing costs and opportunity cost of holding liquid assets. - Australia and New Zealand project balance sheets forward (6–10 years); Australia produces 40-year demographic projections. - Empirical links to macro outcomes: - Regression evidence: a one percent of GDP increase in government net worth lowers yields by some 0.7 basis points in the whole sample; a one percent of GDP increase in net (financial) worth lowers yields by some 0.6 basis points. - Emerging markets: a 1 percent of GDP increase in net worth can lower yields by some 2.5 basis points. - Local projection results (17 advanced economies, 1970–2015, 53 recessions): strong balance sheets associated with shallower and shorter recessions; differences in government spending significant from year 2; GDP growth differences significant in years 4 and 5. ### Methodology, data sources, and valuation conventions - PSBS coverage: - Includes all resident institutional units controlled by government: government units, government-controlled corporations (financial and nonfinancial), and central banks (separately identified). - Subsector presentation: general government (central government data available), nonfinancial public corporations (natural resource corporations separately), financial public corporations (split to identify central bank, sovereign wealth funds, other financial public corporations). - Reclassification rule: GFSM 2014 criteria applied to reclassify market vs nonmarket producers where appropriate. - Asset and liability categories (Annex Table 1.2.1 categories preserved): - Assets: Nonfinancial assets (Fixed assets; Land; Mineral and energy resources; Other nonfinancial assets); Financial assets (Monetary gold and SDRs; Currency and deposits; Debt securities; Loans; Equity and investment fund shares; Insurance, pension, and standardized guarantee schemes; Financial derivatives and employee stock options; Other accounts receivable). - Liabilities: Currency and deposits; Debt securities; Loans; Equity and investment fund shares; Pension entitlements; Claims of pension funds on pension managers; Other insurance, pension, and standardized guarantee scheme liabilities; Financial derivatives and employee stock options; Other accounts payable. - Valuation and estimation rules: - Market value used where possible (debt securities, listed equity) per GFSM 2014. - Other financial assets/liabilities often at nominal value; nonfinancial assets at written down replacement cost. - Mineral and energy resources valued as net present value of expected pretax cash flows using Rystad production data, WEO price and exchange rate forecasts, production costs, 85-year horizon, and discount rates = average long-term (10-year) government bond yields in WEO plus a risk factor (1 percentage point for advanced economies; 3 percentage points for emerging economies; 6 percentage points for low-income developing countries). - Coal/metals/minerals use World Bank and USGS sources with conversion procedures described. - Pension entitlements: accrued-to-date entitlements of public sector employees preferred from authorities; otherwise IMF model with accrued benefit shares by age, UN 2017 population projections, discount rate = GDP growth + 1 percentage point. - Maturity and currency breakdowns: estimated where national data lacking using debt databases (World Bank Quarterly Public Sector Debt, Eurostat, Dealogic) and rules for liquid assets and short-term liabilities. - Intertemporal net worth: - Defined as A0 − L0 + ∑_{t=0}^{T} (Rt − Gt) / (1 + r)^t with descriptions of exclusions to avoid double counting (resource revenues and flows associated with accrued pension liabilities excluded). - Long-term projections: 50-year horizon, medium-term forecasts to 2022 from WEO, from 2023 onward follow IMF (2016a) methodology; primary revenues generally held constant as share of GDP; age-related pension and health expenditures grow with demographics; discount rates set according to implicit interest rate on government debt with adjustments for asset/flow riskiness. - Risk-adjusted assets/liabilities and natural hedge: - Risk weights derived from volatility of valuation changes; instrument-level weights listed in Annex Table 1.2.2 (e.g., Equity and investment fund shares asset weight = 0.564; Loans asset weight = 0.064; Debt securities asset weight = 0.049). - Natural hedge metric based on volatility identity and correlation between asset and liability valuation changes. - Data sources and compilation: - Central and general government data replicate IMF GFS database; gaps complemented by national statistical authorities, Eurostat, OECD, IMF capital stock database (IMF 2017a), and IMF staff estimates. - Public corporations: preferred aggregated statistical estimates by authorities; otherwise IMF staff converts financial statements for major SOEs and factors up to sector totals (sample covers largest public corporations representing ~80–90 percent of the sector). - Consolidation eliminates cross-holdings (government deposits at central bank, holdings of government securities by public entities, equity stakes, intra-public loans, related property income and transfers). ### Policy conclusions and recommendations - Main policy messages: - Balance sheet analysis broadens fiscal assessment beyond debt and deficits, increasing transparency and accountability by focusing on what governments own and owe. - Both sides of the balance sheet matter: governments should assess policy effects on assets and nondebt liabilities as well as on debt; valuation changes can have large wealth effects relevant to risk management. - Include public corporations in fiscal analysis to better assess and manage fiscal risk. - Publish balance sheet information to inform policy debate and mobilize reforms to use public wealth for economic and social goals. - Early identification of balance sheet risks allows targeted, proactive mitigation rather than reactive rescue. - Fiscal management actions: - Rebuild balance sheets by reducing debt and investing in high-quality assets. - Improve asset management to capture potential revenue gains—combined potential gains from nonfinancial public corporations and government financial assets estimated as 3 percent of GDP per year. - Conduct fiscal stress tests on comprehensive balance sheets and enact buffers sized to avoid procyclical policy. - Strengthen data compilation, valuation, and reporting (align with GFSM 2014) to enhance comparability and policy relevance. - Country examples illustrate policy use: - Norway: maintain fiscal rule to manage oil wealth and aging-related spending pressures. - Finland: modest sustained reforms to health and social services materially improve intertemporal net worth. - Indonesia: tax-financed, efficient infrastructure investment can raise intertemporal net worth materially. - Kazakhstan: sovereign wealth management (NFRK) provided liquidity and cushioning during oil price shock. - New Zealand, United Kingdom, Uruguay: practical institutional approaches to integrate balance sheet management into fiscal policy and risk management. *International Monetary Fund | October 2018* ### Preface ### Preface ### Projections, assumptions, and conventions - Projections in this issue are based on the same database used for the October 2018 World Economic Outlook and Global Financial Stability Report and are referred to as “IMF staff projections.” - Fiscal projections refer to the general government unless otherwise indicated (see the Methodological and Statistical Appendix). - Short-term projections are based on officially announced budgets, adjusted for differences between national authorities and IMF staff regarding macroeconomic assumptions. - Medium-term fiscal projections incorporate policy measures judged by IMF staff as likely to be implemented; for countries supported by an IMF arrangement, medium-term projections are those under the arrangement. - Where IMF staff lacks sufficient information to assess authorities’ budget intentions and prospects for policy implementation, an unchanged cyclically adjusted primary balance is assumed, unless indicated otherwise. ### Preparation, authorship, and review - Prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar, Director. - Project directed by Abdelhak Senhadji (Deputy Director), Catherine Pattillo (Assistant Director), and Carolina Renteria (Division Chief). - Main authors: Jason Harris and Alexander Tieman (team leaders), Miguel Alves, Sage de Clerck, Fabien Gonguet, Klaus Hellwig, John Ralyea, Majdeline El Rayess, and Seyed Reza Yousefi. - Contributions and data compilation/validation provided by a broad team across Fiscal Affairs and Statistics Departments, with methodological support from Yuan Xiang for the Methodological and Statistical Appendix. - External discussions and workshop inputs informed the project. ### Key findings summarized from the Executive Summary - The report presents a new database of comprehensive public sector assets and liabilities for a sample of 31 countries, covering 61 percent of the global economy. - Total public sector assets in the sample are estimated at US$101 trillion or 219 percent of GDP. - Public corporation assets account for 120 percent of GDP in the sample. - Natural resources average 110 percent of GDP among the large natural-resource-producing countries. - Standard measure of general government public debt in the sample is 94 percent of GDP. - Total public sector liabilities are 198 percent of GDP. - Already accrued pension liabilities amount to 46 percent of GDP. - Net worth is positive on average across the sample, but about one-third of the countries are in negative territory, including most of the G7. - Intertemporal balance sheet analysis is important because net worth does not account for the state’s ability to tax in the future. ### Balance sheet dynamics and legacy effects - Ten years after the global financial crisis, scars remain: across the 17 sampled countries with time series data, net financial worth remains US$11 trillion (28 percentage points of GDP) lower than before the crisis. - The balance sheet approach recognizes public investment as asset creation and accounts for valuation effects, which are particularly large on the asset side. - Policy implication: governments should rebuild balance sheets by reducing debt and investing in high-quality assets. ### Tools, risks, and policy potential - The report introduces tools to analyze resilience of public finances by examining both sides of the balance sheet and conducting fiscal stress tests against tail-risk shocks. - These stress tests are ideally performed on the full public sector balance sheet where data are available. - Identifying balance sheet risks early enables governments to manage or mitigate risks before consequences materialize. ### Potential fiscal gains from better asset management - Revenue gains from nonfinancial public corporations and government financial assets alone could be as high as 3 percent of GDP a year. - Additional gains could be realized from more effective management of government nonfinancial assets. - Practical country experience (Australia, New Zealand, the United Kingdom, and Uruguay) can guide reforms to increase asset-management effectiveness. ### Data, corrections, and publication notes - An Editor’s Note (October 9, 2018) indicates the online edition was updated with a corrected version of Figure 1.11. - The Fiscal Monitor’s digital editions and datasets are available via the IMF website and the IMF eLibrary; substantive changes are listed in the online tables of contents. *IMF Fiscal Monitor: Preface (October 2018).* ### EXECUTIVE SUMMARY ### fm1802 - EXECUTIVE SUMMARY ### Overview: purpose and value of Public Sector Balance Sheets (PSBSs) - PSBSs provide the most comprehensive view of public wealth but are little understood, poorly measured, and only partly managed. - Standard fiscal analysis focuses on flows—revenues, expenditures, and deficits—and largely limits stock assessment to gross debt, missing large swaths of government activity. - Broadening the focus to public wealth reveals assets governments control and nondebt liabilities that receive scant attention. - The systematic assessment of PSBSs increases transparency and accountability by examining what a state owns and owes, its evolution over time, how it is being managed, and where risks lie. - Empirical analysis finds that financial markets consider governments’ asset positions in addition to debt levels when determining borrowing costs; countries with stronger balance sheets pay lower interest on their debt and experience shallower and shorter recessions compared with those with weaker balance sheets. - The balance sheet approach is timely given the loss of public wealth since the global financial crisis and population aging. ### Key case-study findings (selected) - Applying the same stress test that the Federal Reserve applies to banks would reduce US public sector net worth by 26 percent of GDP, with balance sheet losses to pension funds and nonfinancial assets responsible for the bulk of the decline. - New estimates suggest that China’s general government net financial worth has deteriorated to about 8 percent of GDP, largely because of subnational borrowing and underperforming public corporations. Off-budget debt and weak performance of public corporations both entail risks for the future. - In Indonesia, an increase in public investment financed by a surge in revenue is estimated to boost public wealth. The combination of new infrastructure assets and future revenue from higher output could result in a 6½ percent of GDP increase in public wealth, and potentially even larger gains with strengthened infrastructure investment efficiency. - Although Norway’s fiscal position is very strong, long-term spending pressures significantly reduce its intertemporal net worth relative to its vast asset position. In contrast, Finland’s recent and planned reforms mean that future primary balances are positive despite an aging population, adding to intertemporal net worth. - The Gambia’s balance sheet reveals large cross holdings of fragile assets across the public sector that could cause cascading losses and result in unsustainable government financing needs in the event of a natural disaster. - Balance sheet effects cushioned the impact of the halving of oil prices in 2014 in resource-rich Kazakhstan. This was due in part to persistent positive exchange rate effects on its oil revenue savings held in liquid foreign currency assets. These savings also allowed the government to undertake a large stimulus package. ### Broad lessons distilled from case studies - Both sides of the balance sheet are important: governments should consider the effect of policies on assets and nondebt liabilities, in addition to debt. Valuation changes can have large wealth effects for risk management. - Considerable fiscal activity occurs outside the general government. Including public corporations in fiscal analysis is necessary to assess and manage fiscal risk more effectively. - Comparing current levels of public wealth with long-term fiscal projections reveals how well placed governments are to meet demographic pressures in rapidly aging societies. - Publishing balance sheet information can raise the tenor of policy debate and prompt consideration of how public wealth can be better used to meet economic and social goals, as illustrated by recent parliamentary debates in New Zealand and the UK government’s response to a fiscal risk report. ### Conceptual framework and analytical approach - The PSBS extends the scope of fiscal analysis to include all assets (financial, infrastructure, natural resources) and liabilities (including pension obligations) and extends coverage from general government to the entire public sector, bringing in public corporations and the central bank. - The static balance sheet is extended through time by: - Decomposing changes in net worth using the integrated stock-flow framework embodied in the Government Finance Statistics Manual 2014, separating fiscal deficits, investments, and valuation changes. - Determining long-term intertemporal net worth under current policies by combining discounted future flows of revenues and spending with the static balance sheet. - Including public corporations requires consolidation of cross holdings of assets and liabilities, which can be channels for spreading fiscal risk across the public sector. ### Composition and selected empirical statistics from PSBS analysis - At the general government level in the sample of 31 countries with full PSBSs, debt securities and loans are worth 95 percent of GDP. - Pension obligations to public servants amount to 46 percent of GDP in these countries. - Financial assets amount to 99 percent of GDP in the sample (noting some financial assets may be less reliably valued or encumbered to specific uses). - In Japan in 2017, gross outstanding public sector debt securities and loans were worth 283 percent of GDP, with 134 percent of GDP held by private creditors after consolidations. - In the United States, the equivalent figures are 164 and 110 percent of GDP for gross outstanding public sector debt securities and loans and the portion held by private creditors, respectively. ### Limitations and cautions - Data quality can be an issue, especially for the broader public sector. - Valuation is challenging, particularly for nonfinancial assets that are rarely traded, and accounting/statistical standards vary widely across countries. - The public sector consists of many entities with distinct constraints and risks, often requiring entity-specific analysis. - Conclusions depend on the robustness of assumptions, which gain prominence in long-term intertemporal projections; sensitivity analyses are important. - Recognizing assets on the balance sheet does not negate vulnerabilities associated with high public debt: many assets are illiquid, valuations can be volatile and procyclical, and gross debt, deficits, and short-term financing needs remain critical for fiscal policy. *International Monetary Fund* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Assessment of Balance Sheets over Time - The Public Sector Balance Sheet (PSBS) explains changes in public wealth, a stock variable, by accounting for: - Fiscal deficit additions to debt and decreases in net worth, partly offset by public investment. - Operations of public corporations and valuation changes on assets and liabilities that may reduce or add to public wealth. - Valuation channel importance: - Gains in financial asset values in a sample of European countries, since 2000, have added 12 percentage points of GDP to their net worth, offsetting almost a quarter of their cumulative issuance of debt over the same period. - Intertemporal net worth: - Combines static net worth with projections of future revenue and expenditure flows. - Projects rely on long-term assumptions; weaker institutions and less stable revenue streams face higher discount rates. - Negative intertemporal net worth indicates adjustment needs. ### Examination of Balance Sheet Strengths and Risks - Balance sheet analysis is a tool to support public policy objectives; the long-term aim is not simply to maximize net worth. - Complementary indicators beyond net (financial) worth: - Gross debt and measures of risk mismatches and degree of hedging. - Fiscal stress tests: - Assess resilience to large macroeconomic shocks. - Draw on external information (financial system assessments, sovereign‑bank feedback loops). - Reveal risks missed by standard debt and deficit frameworks (exposure to entities outside general government perimeter, valuation changes to government assets, contingent liabilities emanating from private sector). - Provide guidance on buffer sizes to avoid procyclical policy. ### Evolution of Public Wealth — Cross-country State of Balance Sheets (sample of 69 countries and territories) - Aggregate and distributional statistics (general/central government data; excludes natural resource assets and pension liabilities unless stated): - Assets average 102 percent of GDP, ranging from 398 percent of GDP in Norway to 21 percent of GDP in India. - Assets are roughly evenly split between financial and nonfinancial assets. - Average liabilities are 70 percent of GDP. - Static net worth varies from –111 percent of GDP in Greece to 348 percent of GDP in Norway, with an average positive net worth of 32 percent of GDP. - Net financial worth averages –22 percent of GDP. - Liquidity: - General government liquid assets average 16 percent of GDP, ranging from Moldova (5 percent of GDP) to Japan (62 percent of GDP). - Short-term liabilities average 14 percent of GDP. - Net liquid positions vary from –30 percent of GDP to 21 percent of GDP; largest mismatches observed in The Gambia, Italy, and Barbados. - Foreign exchange exposure: - Significant foreign exchange debt in countries like Barbados, The Gambia, Kenya, Tanzania, and Uganda with little compensating foreign exchange assets. - Central bank foreign exchange reserves are excluded from this analysis. - Risk-adjusted assets and liabilities: - Financial assets are more volatile than liabilities for almost all countries. - High exposure to volatile assets with relatively stable liabilities can result in rapid changes in net worth and liquidity (example: Norway’s sovereign wealth fund). - Natural hedge: - Comovement between asset and liability valuation changes often damps valuation effects on net financial worth; in some countries valuation changes reinforce each other. ### Evolution of Balance Sheets over Time (17-country PSBS time series, covering 54 percent of global GDP) - Crisis-era expansion and subsequent developments: - Public sector liabilities increased by about 39 percentage points of GDP between 2007 and 2016. - Public sector assets increased by 22 percentage points of GDP during 2007–09 and remained 14 percentage points of GDP above precrisis levels thereafter. - Both sides of the PSBS remain significantly larger than precrisis. - Net worth dynamics: - Public sector net financial worth deteriorated by US$11 trillion or 28 percentage points of GDP during the postcrisis decade. - Net worth declined by a similar, although slightly lower, 25 percentage points of GDP when accounting for public investment. - Wide dispersion: net worth declined by as much as 49 percentage points of GDP in the United Kingdom, while increasing by 167 percentage points of GDP in Norway (largely from valuation gains on equity holdings). - Decomposition of changes in net worth, 2007–16 (weighted average of 17 countries; percent of GDP): - Net worth fell from 42 percent of GDP in 2007 to 17 percent of GDP in 2016. - Fiscal deficits contributed 38 percentage points of GDP to the overall decline. - Denominator effect contributed 9 percentage points of GDP. - General government/public investment raised net worth by 8 percentage points of GDP. - Valuation changes rebounded postcrisis, adding 16 percentage points of GDP to net worth. - Net worth dips into negative territory when combining these effects (2007 bars expressed in percent of 2007 GDP; other bars in 2016 GDP). ### Country Illustrations - United Kingdom: - Balance sheet expanded massively during the crisis due to large-scale financial sector rescue operations. - Reclassification of rescued private banks into the public sector increased (non–central bank) public financial corporation liabilities from 0 in 2007 to 189 percent of GDP in 2008, with similar movements in financial assets. - Balance sheet effects drove much of the movement in net debt during the crisis; in early crisis years the contribution to net debt from balance sheet effects was comparable to that from the fiscal deficit. - Finland: - Crisis effects differed from the United Kingdom; valuation changes played a major role. - Static net worth increased from 20 percent of GDP in 2000 to 59 percent of GDP in 2007 due to debt reduction and large net positive valuation changes from equity asset holdings in partially funded pension schemes. - Increasing public pension liabilities partly offset these effects. *Italic: Source — IMF staff estimates and Chapter 1, "MANAgINg PubLIC WeALTh", Fiscal Monitor, October 2018.* ### 1. Public Sector Balance Sheet2. Changes in Public Sector Net Debt ### 1. Public Sector Balance Sheet — 2. Changes in Public Sector Net Debt ### Using the Balance Sheet to Identify Fiscal Risks - Balance sheets show large and long-lasting implications when fiscal risks materialize. - Case studies focus on three PSBS components outside traditional fiscal analysis: - Valuation changes in the general government in Finland. - Financial public corporations in the United States. - Nonfinancial public corporations in The Gambia. ### Stress Testing Finland’s Balance Sheet - Key balance sheet metrics: - Net worth: 30 percent of GDP. - Intertemporal net worth: 113.6 percent of GDP. - Total assets (General Government / Public Corporations / Public Sector): 208.9 75.2 254.1 - of which: Nonfinancial assets: 80.2 10.4 90.6 - Financial assets: 128.7 64.8 163.5 - Total liabilities: 178.6 75.2 223.8 - of which: Debt securities: 54.1 13.7 57.2 - Net financial worth: –49.9 –10.4 –60.3 - Net worth: 30.3 0 30.3 - Net present value of primary balances: 83.3 - Intertemporal net worth: 113.6 - Stress test scenario: - Real and potential GDP fall by a cumulative 10 percent over two years and remain permanently lower. - Equity prices fall by 40 percent. - Housing prices fall by 15 percent. - Stress test outcomes: - Debt rises about 20 percentage points above the baseline in the first two years after the shock. - Net worth falls by 45 percentage points of GDP by the second year, because of asset price declines and increased pension liabilities (driven mainly by interest rate effects). - Long-term impact: permanently higher fiscal deficits translate into an 85 percentage points of GDP decrease in intertemporal net worth. - Policy implications: - Finland’s ongoing fiscal consolidation and planned health and social service reforms provide buffers to avoid procyclical consolidation after a shock. - If nonfinancial state assets cannot be mobilized to fund future primary balances, focusing on net intertemporal financial worth suggests slightly higher buffers would be advisable. ### A Fiscal Stress Test for the United States - Key balance sheet metrics (2016): - Total assets (General Government / Public Corporations / Public Sector): 110.3 112.0 175.8 - of which: Nonfinancial assets: 84.5 0.0 84.5 - Financial assets: 25.8 112.0 91.3 - Total liabilities: 127.1 112.0 192.5 - of which: Debt securities: 98.6 34.0 107.9 - Net financial worth: –101.3 0.0 –101.3 - Net worth: –16.7 0.0 –16.7 - Financial assets: 112 percent of GDP (financial public corporations) - Preexisting vulnerabilities: - Public sector net worth has been falling since the early 1980s; net worth deteriorated to –17 percent of GDP in 2016, with net financial worth at –101 percent of GDP. - Loans to the private sector include mortgages equal to 44 percent of GDP (mostly held by GSEs) and federal holdings of student loans equal to 6 percent of GDP. - State and local government pension funds total shortfall: 8 percent of GDP. - Federal defined benefit pension fund shortfall: almost 10 percent of GDP. - Heterogeneity across states: funding status ranges from a surplus of 4.3 percent of state GDP in Wisconsin to a gap of 27 percent of GDP in Illinois. - Stress scenario (based on the Federal Reserve’s severely adverse supervisory scenario): - GDP growth: –6 percent. - Unemployment rate increases to almost 10 percent. - Real estate prices decline by one-third. - Equity prices decline by almost two-thirds. - Scenario assumes no countercyclical fiscal policy measures are taken. - Stress test outcomes: - Estimated decrease in public sector static net worth by 2020: 26 percent of GDP (estimated as –27.9 to –54.1 on figure scale). - Fiscal deficits increase sharply; cumulative increase in debt of 9 percent of GDP within three years. - Decline in net worth from balance sheet effects: about 17 percent of GDP. - Drop in the value of government nonfinancial assets: 6 percent of GDP. - Additional federally held student loans not paid back: 7 percent of the student loan portfolio (0.3 percent of GDP). - Losses on mortgage loan portfolio held by GSEs: 0.6 percent of GDP. - Equity price falls lead to state and local pension liabilities being underfunded by an additional 7 percent of GDP. - Interpretation: - The loss of public wealth from balance sheet valuation and public corporation exposures is far larger than the debt impact alone. - Some balance sheet losses require immediate additional debt issuance, while others can remain on the balance sheet for extended periods. ### Assessing Fiscal Risk in The Gambia - Key balance sheet metrics (2016): - Total assets (Central Government / Public Corporations / Public Sector): 47.3 61.9 61.0 - of which: Nonfinancial assets: 13.4 22.4 35.8 - Financial assets: 33.9 39.4 25.2 - Total liabilities: 93.5 61.9 107.2 - of which: Debt securities: 78.4 2.0 61.4 - Net financial worth: –59.5 –22.4 –82.0 - Net worth: –46.2 0.0 –46.2 - Balance sheet characteristics and vulnerabilities: - Liabilities exceed assets by a large margin; net (financial) worth estimated at –46 (–82) percent of GDP. - Most financial assets are nonmarketable and not readily available to meet obligations. - High exposure to refinancing, interest rate, and exchange rate risks due to large short-dated domestic debt (27 percent of debt falls due within one year) and large concessional foreign exchange loans. - Relatively little exposure to valuation risk because the public sector holds few tradable securities. - Stress scenario (natural disaster: combined drought and pandemic affecting agriculture and tourism): - Direct macroeconomic impact increases the deficit by 8 percent of GDP. - Realizations of contingent liabilities from public corporations increase the deficit by an additional 10 percent of GDP. - Gross financing needs rise from 25 percent of GDP to 49 percent of GDP. - Transmission and policy implications: - Public sector cross holdings are a key shock transmission channel: about 20 percent of GDP in loans consolidated in public sector accounts, many intra–public corporation loans. - Public corporation arrears amount to 4 percent of GDP and likely increase during a crisis, amplifying cascading defaults. - With limited absorptive capacity, low offsetting assets, and limited additional foreign financing, the government would likely have to rely on central bank financing to meet needs if the stress materializes. - Early identification of transmission channels enables targeted interventions by the government and donors to prevent cascading defaults and protect the budget. *Source: IMF staff estimates and chapter content from the IMF Fiscal Monitor: Managing Public Wealth (October 2018).* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Using the Balance Sheet to Evaluate Fiscal Policies — Overview - The PSBS framework emphasizes natural resources, the public capital stock, and future revenue as the largest public assets. - Converting natural resources into financial assets can mitigate shocks (example: Kazakhstan). - A tax-financed infrastructure push can raise public capital and net worth (example: Indonesia). - Intertemporal balance sheet analysis captures long-term fiscal implications of policy reforms and continuations (examples: Finland and Norway). ### Balance Sheet Effects of an Oil Price Shock in Kazakhstan - Natural resources are the largest asset on Kazakhstan’s balance sheet; in 2016 these were estimated to be worth 219 percent of GDP. - Kazakhstan converted part of its oil assets into the National Fund of the Republic of Kazakhstan (NFRK), worth 46 percent of GDP at the end of 2016, held primarily as foreign currency bonds (about 80 percent) and equities (20 percent). - The NFRK improved risk-return and liquidity by diversifying away from a single volatile resource asset. - The 2014 external shock included a 60 percent fall in oil prices plus external demand shocks from Russia and China; resulting macro effects: - Fiscal balance: surplus of 5 percent of GDP in 2013 to deficit of 6 percent of GDP in 2015. - Public debt increased (due to both large deficit and depreciation). - Higher fiscal deficits increased liabilities by a cumulative 31 percentage points of GDP between 2013 and 2016 through higher borrowing and increased drawdown on existing financial assets. - Decline in oil prices lowered valuation of remaining natural resource assets; exploitation depleted oil reserves, lowering remaining resource asset values. - Exchange rate depreciation increased the local-currency valuation of US-dollar-denominated financial and natural resource assets; positive currency valuation effects dominated, resulting in an increase in net worth (Figure 1.16). - Policy responses and fiscal support: - Between 2014 and 2017, the government undertook fiscal stimulus of over 10 percent of GDP, largely financed by increased transfers from the NFRK. - Authorities provided support of about 4 percent of GDP to the financial sector in 2017, a contingent liability that materialized and was funded partly from the NFRK. - Kazakhstan: Public Sector Balance Sheet, 2016 (Percent of GDP) - General Government / Public Corporations / Public Sector - Total assets: 348.6 99.9 399.0 - of which: Nonfinancial assets: 263.4 27.3 290.7 - Financial assets: 85.2 72.6 108.3 - Total liabilities: 16.9 99.9 67.2 - of which: Debt securities: 11.5 8.9 10.5 - Net financial worth: 68.3 –27.3 41.0 - Net worth: 331.7 0.0 331.7 - (Source: IMF staff estimates.) ### Assessing the Long-Term Impact of a Public Investment Surge in Indonesia - Indonesia’s PSBS and context: - Public sector assets exceeded 160 percent of GDP in 2016, with natural resources accounting for half of nonfinancial assets. - Static net worth stood at 93 percent of GDP in 2016, despite a steady decline since 2010 or earlier due to falling natural resource wealth. - Tax revenues fell to about 11 percent of GDP in 2017. - Public corporations are responsible for about 40 percent of net public investment in Indonesia. - Policy scenario: tax-financed infrastructure surge (aligned with a Medium-Term Revenue Strategy) - Scenario assumptions: - Tax revenue increases by an incremental 1 percentage point of GDP per year for three years, reaching 3 percent of GDP above baseline by 2022. - Two-thirds of the public investment surge is converted to physical capital. - After three years, tax revenue and the stock of public nonfinancial assets remain at their higher levels; remaining tax revenue is spent on priority current expenditures (health, pension, education). - Monetary policy accommodation is allowed (constant discount rate). - Results and impacts: - Static net worth increases by more than 4 percent of baseline GDP due to creation of infrastructure assets. - Permanent 1⅓ percent level increase of both potential and real GDP, raising revenues and the primary balance. - Public sector intertemporal net worth improves by 6½ percent of baseline GDP (Figure 1.18). - Raising investment efficiency could increase benefits further, potentially improving intertemporal net worth by as much as 10 percent of baseline GDP. - Note: Indonesia’s intertemporal net worth is –18 percent in 2023 compared with +1.8 percent of GDP in 2016; the difference is due mainly to a further decline in natural resource wealth. - Indonesia: Public Sector Balance Sheet, 2016 (Percent of GDP) - General Government / Public Corporations / Public Sector - Total assets: 124.0 65.9 164.7 - of which: Nonfinancial assets: 95.8 20.9 116.6 - Financial assets: 28.1 45.0 48.1 - Total liabilities: 31.4 65.9 72.2 - of which: Debt securities: 23.0 4.7 22.3 - Net financial worth: –3.3 –20.9 –24.1 - Net worth: 92.5 0.0 92.5 - Net present value of primary balances: –90.7 - Intertemporal net worth: 1.8 - (Source: IMF staff estimates.) ### Assessment of Long-Term Fiscal Outcomes in Finland and Norway - Commonalities and differences: - Both are wealthy advanced economies with aging populations and manageable levels of debt: Finland at 57 percent of GDP and Norway at 31 percent of GDP. - Both have relatively high pension liabilities. - Major difference: Norway’s natural resource wealth (sovereign wealth fund plus remaining subsoil resources) together are worth more than 400 percent of GDP. - Norway: - Current policies imply large primary deficits into the future; cumulated over the next 50 years these result in an intertemporal net worth of 195 percent of GDP (Figure 1.19). - If Norway maintains current policies, oil wealth would be at least partly consumed by future aging-related expenditures, which would conflict with the fiscal rule. - Continued adherence to the fiscal rule would bring about sufficient policy change to prevent depletion of the sovereign wealth fund; adjustments can be pursued gradually due to Norway’s vast wealth. - Norway: Public Sector Balance Sheet, 2016 (Percent of GDP) - General Government / Public Corporations / Public Sector - Total assets: 563.5 119.6 644.9 - of which: Nonfinancial assets: 230.6 35.6 266.2 - Financial assets: 332.9 83.9 378.7 - Total liabilities: 142.7 119.6 224.1 - of which: Debt securities: 20.7 10.0 30.7 - Net financial worth: 190.1 –35.6 154.6 - Net worth: 420.7 0.0 420.7 - Net present value of primary balances: –225.9 - Intertemporal net worth: 194.8 - (Source: IMF staff estimates.) - Finland: - Finland’s intertemporal net worth exceeds its static net worth due to reforms including postcrisis fiscal consolidation and pension reform. - Planned further reforms to health and social services sectors permanently reduce demographic-related expenditures, improving intertemporal net worth to 114 percent of GDP—demonstrating the impact of modest but sustained reform. - Comparative insight: - Norway’s static net worth is very large, but future flows reduce its intertemporal net worth; Finland shows future flows adding to intertemporal net worth (Figure 1.19). ### Balance Sheet Analysis in Practice: Australia, New Zealand, and the United Kingdom - Practical uses of PSBS: - Inform high-level policy and day-to-day fiscal management. - Set overall fiscal policy objectives that explicitly include improving net (financial) worth. - Improve asset management to maximize efficiency of use and returns on public assets. - Identify, analyze, and manage fiscal risks from within the balance sheet and from external shocks. - Country practices: - Australia and New Zealand project balance sheets forward to demonstrate policy consistency with fiscal objectives; projections typically extend between 6 and 10 years and cover assets, liabilities, and net (financial) worth. - Australia produces 40-year projections estimating demographic effects on health and pension expenditure. - New Zealand estimates intertemporal net worth and has found that despite static net worth of 41 percent of GDP, projected deficits over 40 years result in intertemporal net worth of –57 percent of GDP, indicating the need for adjustment. - These projections have been used to demonstrate impacts of pension reforms, tax changes, and public investment surges. - Note: In Australia, balance sheets are projected by each level of government independently. *Source: IMF staff estimates; CHAPTER 1 MANAgINg PubLIC WeALTh, Fiscal Monitor, October 2018.* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Improving Balance Sheet Management - New Zealand, the United Kingdom, and Uruguay have strengthened or introduced balance sheet approaches to public asset and liability management to improve use of public assets and raise financial rates of return. - New Zealand Investment Statement (New Zealand Treasury 2018) assesses use of all public assets by purpose, distinguishing social, financial, and commercial assets to set performance benchmarks by use: - Questions used to assess assets: Are social assets being used effectively and efficiently for high-priority purposes? Are financial assets securing a high enough return relative to risk? Are commercial assets generating sufficient shareholder returns? - Findings: social assets are aging; unlisted commercial companies are underperforming; listed companies and financial investments have performed well due to rising equity markets. - United Kingdom balance sheet review objectives: - Improving returns on assets (for example, pooling investment fees on various government financial assets). - Improving compensation to government for bearing risk (assess whether government is adequately compensated when acting as insurer of last resort and renegotiate contracts where it is not). - Reducing the costs of liabilities (for example, reducing building lease costs by better using assets the government already owns). - Short-term: evaluate stocks of assets and liabilities and assess balance sheet indicators (interest rate, credit, foreign exchange, liquidity risks). - Long-term: embed balance sheet management into ongoing decision making. - Uruguay: debt managers adopt a public sector balance sheet approach across the public sector (including public corporations and central bank) to minimize expected debt servicing costs and the opportunity cost of holding liquid assets, subject to acceptable risk. This uncovered interest rate, currency, maturity mismatches, and flow mismatches; response includes developing domestic debt markets and risk management products. ### Fiscal Risk Management - Australia publishes qualitative assessment of balance sheet risks (Commonwealth of Australia 2018). - New Zealand and the United Kingdom have performed detailed balance sheet risk assessments, including fiscal stress tests, and taken steps to address identified risks. - New Zealand investment statement stress tests: - Analyze aggregate fiscal risks through fiscal stress tests across scenarios, including an earthquake scenario. - Examine direct fiscal costs on spending, valuation effects, discretionary support, and the costs of replacing asset losses. - Evaluate impact on discounted value of future revenues. - Findings: stress tests show the fiscal position is robust but point to opportunities to mitigate risk and inform target level of government debt with sufficient buffers. - Financial risks assessed with measures including value-at-risk analysis; find that losses of 2–4 percent of GDP could occur, but balance sheet is generally robust. - United Kingdom 2017 Fiscal Risk Report (Office for Budget Responsibility 2017a): - Comprehensive scan of macroeconomic, spending, revenue, and balance sheet risks. - Fiscal stress test identifies interest rate and inflation risk as key exposures: - Increasing share of inflation-linked debt has increased inflation exposure. - Quantitative easing has reduced average maturity of public sector debt, increasing interest rate risk in the Bank of England’s balance sheet and the public sector. - Government actions: changed debt issuance policy away from inflation-linked bonds (Her Majesty’s Treasury 2018a); revised financial relationship between the Treasury and the Bank of England to allow capital transfers to the Bank in event of large valuation losses (Her Majesty’s Treasury 2018b). ### Empirical Findings on Asset Management and Macro Outcomes - Potential revenue gains from better asset management (Box 1.1): - Nonfinancial public corporations sample (14 countries): average return on assets during 2010–16 was 1.9 percent (median 0.6 percent). - Comparable private sector return: 8 percent for United States private nonfinancial corporations over the same period. - Raising return from 25th to 75th percentile would bring average yields to 4.3 percent and increase profits by an average of about 1 percent of GDP. - Returns on general government financial assets (European country sample): decomposed into risk compensation (βy) and performance (αy) using capital asset pricing model; improving performance from 25th to 75th percentile would generate a further 2 percent of GDP in returns. - Combined potential revenue gain from improved management of nonfinancial public corporations and government financial assets: 3 percent of GDP per year. - Note: estimating gains from nonfinancial assets (for example, real estate) is beyond scope of this report. - Balance sheet strength and macro economy (Box 1.2): - Sample: 17 advanced economies; methodology: local projection method (Jordà 2005; Jordà, Schularick, and Taylor 2016). - Countries entering a recession with a strong balance sheet (net financial worth above sample median) increased real per capita expenditure more than those with weak balance sheets. - Differences in government spending are statistically significant starting in the second year after recession; differences in economic growth are significant in years 4 and 5. - Financial markets recognize public sector assets: regressions of sovereign bond yields on (1) debt, (2) debt and assets, and (3) net worth show that debt, assets, and net worth all matter for yields. The coefficient on assets is significant, indicating balance sheet strength adds information beyond debt alone. ### China: Compiling the General Government Balance Sheet - Challenges: complex perimeter due to numerous public entities, layers of government, significant government holdings of SOEs and financial institutions, and widespread subnational off-budget borrowing. - Updated estimates (2010–17, central and local governments separately): - Financial assets: 75 percent of GDP in 2017, consisting of government deposits in banks, equity holdings of the national social security fund, and public corporations. - Official government equity holdings of nonfinancial SOEs at nominal values: about 56 percent of GDP in 2017 (subject to uncertainty because many SOEs are unlisted and profitability has fallen since 2010). - Conservative valuation using net present value of SOEs’ expected future net profits places valuation at about three-quarters of the headline value. - Government share of equity in financial institutions estimated at 11 percent of GDP in 2017. - Deposits include fiscal budget deposits (5 percent of GDP) and deposits held by government organizations (another 15 percent of GDP net of estimated accounts payable). - Financial liabilities: 67 percent of GDP in 2017, including official government debt at 37 percent of GDP. - Analysis uses broader “augmented” concept to include off-budget borrowings, which raise debt in the balance sheet by an additional 30 percent of GDP (IMF 2018b). - General government net financial worth: positive at 8 percent of GDP in 2017, but has deteriorated in recent years—declines driven notably at subnational levels by rising local government debt and underperforming SOEs. - Caveats and considerations: - Subnational governments own land resources and invest in infrastructure that could provide buffers and revenue, but firm-level data on local government financing vehicles suggest liabilities of loss-making ones have risen and returns on new infrastructure have fallen in some cases below interest costs. - Government holdings of SOE equity could be higher than the conservative estimates. - Policy and data actions: - Chinese authorities undertaking accounting reforms and pilot programs for seven provinces and two central ministries to compile consolidated accrual-based balance sheet by 2020. - Authorities have reiterated ban on off-budget borrowings and committed to raise SOE efficiency. - Recommendation: align data compilation with the Government Finance Statistics Manual to assess fiscal policy impact and increase international comparability. ### Conclusion and Policy Implications - Analyzing public wealth broadens fiscal analysis beyond debt and deficits, improving transparency and accountability by focusing on what governments own as well as owe. - Benefits of balance sheet analysis: - Governments with stronger balance sheets face lower financing costs and better withstand recessions. - Even low-capacity countries can compile basic balance sheet estimates using third-party sources and assumptions; subsequent accounting and statistical improvements can enhance reliability and consistency. - Comprehensive balance sheets enable better-informed assessments of fiscal policies and risks, including valuation changes on assets that materially affect public wealth. - Governments should consider policy effects on assets and nondebt liabilities as well as on debt, and compare current public wealth with long-term fiscal pressures such as demographic trends. - Early identification of balance sheet risks allows proactive mitigation rather than reactive responses. - Many governments can improve returns on public sector assets even while recognizing operational objectives; a small increase in yield could significantly raise fiscal revenues. Governments should at minimum expect reasonable rates of return from large commercial and financial assets they control and benchmark performance across countries. *International Monetary Fund | October 2018* ### Box 1.3. China—Revisiting the General Government’s Balance Sheet ### Box 1.3. China—Revisiting the General Government’s Balance Sheet ### Key empirical visuals and indicators - Figure 1.3.1. Weak Financial Performance of State-Owned Enterprises - Data series shown for years: 2010 11 12 13 14 15 16 17 estimate - Left scale: Share of state-owned enterprises incurring losses (percent of total number) — axis ticks shown: 38 46 39 40 41 42 43 44 45 - Right scale (two series): Interest coverage ratio (right scale) and Returns on equity for loss-incurring state-owned enterprises (percent, right scale) — axis ticks shown: –6 –4 –2 0 2 4 - Figure 1.3.2. Government Net Financial Worth (Percent of GDP) - Data series shown for years: 2010 11 12 13 14 15 16 17 - Axis ticks shown: –5 0 5 10 15 20 - Series distinguished in figure: Central government, Local government, Net financial worth (percent of GDP) ### Data sources - Sources: China Public Finance Statistics Yearbooks; and IMF staff estimates. ### PSBS coverage and institutional definitions (as applied in the report) - Public sector composition - Includes all resident institutional units controlled by the government: government units (departments, agencies, nonprofit institutions controlled by government) and corporations controlled by a government unit or another public corporation. - Public corporations comprise government-controlled market producers in both financial and nonfinancial sectors. - Central banks are included within the public sector and are separately identified. - Subsector presentation in the database - Consolidated public sector and subsectors: - General government (central government data also available) - Nonfinancial public corporations (natural resource corporations presented separately) - Financial public corporations (split to identify the central bank, sovereign wealth funds where they operate as financial corporations, and other financial public corporations) - Reclassification rule - Following GFSM 2014 criteria to delineate market producers from nonmarket producers, some legally incorporated units were reclassified to the general government when appropriate. ### Coverage of stocks in the PSBS database - Included assets and liabilities - All assets (financial and nonfinancial) owned and liabilities owed by the public sector or relevant subsector at the end of each reporting period. - Economic ownership used as reference. - Net worth defined as Assets − Liabilities (balancing item). - Extended coverage via IMF staff estimates where source data are incomplete - Notably estimated where possible: nonfinancial assets—particularly land and mineral and energy resources; public sector employment-related pension liabilities (pension entitlements of civil servants and public corporation employees under specific employment-related schemes). - When estimates could not be made, aggregates marked “not available.” - Memorandum alternative aggregates for cross-country comparability - Nonfinancial assets, excluding land and mineral and energy resources - Total assets, excluding land and mineral and energy resources - Liabilities, excluding pension-related liabilities (pension entitlements and claims of pension funds on pension managers) - Net financial worth, excluding pension liabilities - Net worth, excluding land, mineral and energy resources, and pension liabilities ### Composition of the public sector balance sheet (Annex Table 1.2.1 categories) - Assets (selected categories) - Nonfinancial assets: Fixed assets; Land; Mineral and energy resources; Other nonfinancial assets - Financial assets: Monetary gold and special drawing rights; Currency and deposits; Debt securities; Loans; Equity and investment fund shares; Insurance, pension, and standardized guarantee schemes; Financial derivatives and employee stock options; Other accounts receivable - Liabilities (selected categories) - Currency and deposits; Debt securities; Loans; Equity and investment fund shares; Pension entitlements; Claims of pension funds on pension managers; Other insurance, pension, and standardized guarantee scheme liabilities; Financial derivatives and employee stock options; Other accounts payable - Net Worth - Net Worth (= Assets − Liabilities) - Notes from table - 1: Category includes both “mineral and energy resources” or “permits to use natural resources,” as relevant. - 2: Currency and deposits includes bank notes and coins issued; normally reflected in central bank balance sheet but sometimes in central government depending on country arrangements. - 3: For public corporations fully owned by government or where market value of shares cannot be observed, value of equity and investment fund shares calculated as a residual (assets minus liabilities other than equity) so statistical net worth of such a corporation is zero. ### Indicators and accounting identities used in analysis - Balance sheet strength indicators computed where data permit: - Net worth, Net financial worth, Net liquid assets, Net foreign exchange assets, Risk-weighted assets and liabilities, Degree of natural hedging - Flow aggregates and their treatment - Transactions separated from Other Economic Flows (OEFs: revaluations and other changes in volume) - Main transaction aggregates disclosed in abbreviated statement of operations: - Revenue and expense (transactions that increase or decrease net worth, respectively) - Net acquisition (acquisitions less disposals) of nonfinancial and financial assets - Net incurrence (incurrence less repayment) of liabilities - Balancing items - Net operating balance (NOB) = Revenue − Expense - Net lending or borrowing (NLB) = Revenue − (Expense + Inv), where Inv corresponds to net investment in nonfinancial assets - Integration of stocks and flows (accounting identity for net worth) - NW1 = NW0 + Transactions affecting NW + Changes in NW due to OEFs - Equivalent expression used in the report: - NW1 = NW0 + NOB1 + OEF1 - Rearranged identity linking net worth change to fiscal balance, investment, and valuation effects: - NW1 − NW0 = NLB1 + INV1 + OEF1 *Sources: China Public Finance Statistics Yearbooks; and IMF staff estimates.* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Data Sources - Central and general government data generally replicate data reported by country authorities in the IMF’s Government Finance Statistics (GFS) database. - Missing categories are complemented by statistical authorities at the national level or other international organizations, such as Eurostat or the OECD. - Fixed assets lacking country data are sourced from the IMF’s capital stock database (IMF 2017a). - Remaining data gaps are addressed through IMF staff estimates (see “Methodology”). - Central bank stock data replicate IMF Monetary and Financial Statistics standardized report forms; transactions and flow data are compiled via conversion of central bank financial statements to the PSBS database template where standardized forms are not submitted. - Other public corporations: preferred sources are statistical estimates by country authorities for the aggregate subsector; where unavailable, IMF staff estimates convert aggregate financial statements or individual financial statements for major state-owned enterprises to the PSBS database template. - Sampling for conversion considers materiality: a sample of the largest public corporations representing about 80–90 percent of the total sector is used and factored up to account for nonsample units. - Public sector aggregates are calculated by aggregating estimates for general government, nonfinancial public corporations, and financial public corporations and by identifying and consolidating (or eliminating) significant cross-holdings and intrapublic sector transactions. - Nonexhaustive list of items consolidated/eliminated: - General government units’ deposits at the central bank or other public banks; - Central bank and other public corporations’ holdings of securities issued by government units; - General government units’ equity stakes in public corporations; - Loans from general government to public corporations; - Loans from public banks to government units or other public corporations; - Property income (interest and dividends) related to the above items; - Subsidies and other capital transfers from government units to public corporations. ### Methodology — Valuation of Assets and Liabilities - In accordance with GFSM 2014 guidelines, assets and liabilities are valued at market value where possible (debt securities and equity of listed corporations). - Other financial assets/liabilities are often reported at nominal value (value at creation plus subsequent flows or other economic flows such as exchange rate and valuation changes other than market price changes). - Nominal value is considered a good proxy for market value when instruments are not traded. - Produced nonfinancial assets (fixed assets, inventories, valuables) are usually reported on a written down (depreciated) replacement cost basis: current acquisition price of an equivalent new asset minus accumulated depreciation (consumption of fixed capital), amortization, or depletion. - Public corporations’ assets and liabilities generally reported at fair value per accounting standards (International Financial Reporting Standards). - Equity of public corporations often reported at book value; in the PSBS database equity is set equal to net asset value, including reserves and adjusted for provisions and deferred tax assets (no adjustment for differences between book and market values of listed shares). - Nonfinancial assets exclude stewardship land and certain heritage assets where valuation is difficult; the PSBS database does not attempt to value these assets in absence of alternative data. ### Fixed Assets (detailed methodology) - Use existing government estimates where available, relying on authorities’ application of the perpetual inventory method on detailed asset-level information. - Where gaps exist, estimates for fixed assets (infrastructure, buildings) are provided based on the IMF’s capital stock and investment database (IMF 2017a), compiled through the perpetual inventory method for overall investment rather than detailed asset-level investment. - Note: data are often missing or poorly reported, with serious valuation issues (Bova and others 2013). ### Mineral and Energy Resources - PSBS database follows GFSM 2014 valuation guidelines: stock values correspond to the net present value of expected pretax cash flows from commercial exploitation. - Valuation of oil and gas stocks uses: - (1.1) production over the lifetime of the asset from the Rystad database (Rystad Energy 2018); - (1.2) prices (in US dollars) from WEO forecasts available at the end of the reference year; - (1.3) costs of production (in US dollars) from the Rystad database; - (1.4) exchange rates from WEO forecasts available at the end of the reference year. - Calculation approach for oil and gas: - Use sources 1.1, 1.2, 1.3 to calculate future US dollar cash flows over an 85-year horizon. - Convert US dollar cash flows to domestic currency using WEO exchange rate forecasts (source 1.4). - Discount domestic currency cash flows using a discount rate equal to the average (2000–22) long-term (10-year) government bond yields in WEO plus a risk factor: - 1 percentage point for advanced economies; - 3 percentage points for emerging economies; - 6 percentage points for low-income developing countries. - When WEO government bonds are not available, use the central bank policy rate plus 5 percentage points. - Valuation of coal, metals, and other minerals uses: - (2.1) estimates (in constant 2014 US$ prices) from the World Bank’s The Changing Wealth of Nations 2018 (Lange, Wodon, and Carey 2018); - (2.2) United States Geological Survey data on 2016 reserves and 2014–16 production by commodity and by country (Wilburn, Bleiwas, and Karl 2016), where available; - (2.3) prices (in US$) from WEO commodity prices for 2000–16; - (2.4) exchange rates from the current vintage of WEO exchange rates. - For 2015 and 2016, estimates are based on changes in reserves in those years where reserve data are available (source 2.2); where reserve data are not available, assumed value of stocks is unchanged from 2014 onward. - Constant 2014 US$ estimates converted to current US$ using WEO commodity price indices (source 2.3), then converted to domestic currency using WEO exchange rates (source 2.4). - Where subsoil assets can be owned by units other than government, calculated estimates are prorated using country-specific ownership indicators; such adjustments are documented in the database. - Treatment of natural resource receipts under GFS: - Government receipts from natural resources are generally treated as revenue and thus as an improvement in net worth, despite extraction reducing the nonrenewable asset stock. - This treatment differs from sales of other nonfinancial assets, whose receipts are not recorded as revenue. - Treating natural resource receipts as revenue overstates government revenues and implies a better net operating balance than if those proceeds were treated as the sale of a nonfinancial asset. - Few governments record natural resource values on their balance sheets and therefore do not record depletion-related other economic flows. - Alternative statistical treatment (Traa and Carare 2007): - Exclude natural resource proceeds from revenues and record them like sales of other nonfinancial assets (government buildings, public lands). - This does not affect the fiscal deficit but reduces revenue and worsens the net operating balance, clarifying the extent to which governments are running down public assets. - Example: applying this treatment to Kazakhstan would reduce the net operating balance by an average of 10 percent of GDP from 2010–16. - Environmental accounting advocates argue current treatment overstates government revenues and economic activity; they propose treating the economic rent portion as sale of a nonproduced asset rather than value added. ### Pension Liabilities - Definition: public sector pension entitlements are contractual payments that current and past public sector employees hold against their employers—accrued-to-date entitlements of existing beneficiaries. - These exclude implicit obligations to households under general social security arrangements. - Preferred data sources: estimates produced by country authorities disclosed in government financial statements, sectoral accounts balance sheets, or supplementary pension tables. - Where authorities’ estimates are unavailable, IMF staff use a model to calculate accrued-to-date pension entitlements for civil servants and other public sector employees, using actuarial projections of pension expenditure. - Accrued benefit share assumed to decline with age: in 2015, from 100 percent for those ages 55 and older to 0 for those ages 25 and younger. - Population covered by the pension system assumed to match the structure of the overall population (projections use the 2017 UN World Population Prospects—United Nations 2017). - Discount rate assumed to be 1 percentage point above the rate of GDP growth. - If estimates are available for only a single year because of data limitations, entitlements as percentage of GDP are assumed constant over time. ### Maturity and Currency Breakdowns - Where national sources lack breakdowns by maturity and currency, IMF staff estimate as follows: - Liquid assets include “currency and deposits” and “other accounts receivable.” - Short-term liabilities are the sum of “currency and deposits,” “other accounts payable,” and “current debt” (debt securities and loans issued with less than one-year maturity, and long-term debt securities and loans with remaining maturity of less than one year). - Current/noncurrent breakdown of debt securities and loans obtained from: World Bank’s Quarterly Public Sector Debt database, Eurostat, and the Dealogic database on debt securities. - Repayments of outstanding IMF loans in the year after the reference period are subtracted from short-term loans. - Foreign/domestic currency breakdowns of debt securities extracted from the Dealogic database; general government gross debt in foreign currency from the WEO database used as a proxy for total liabilities in foreign currency. - These data are cross-checked against outstanding IMF loans (denominated in special drawing rights, SDRs). ### Intertemporal Balance Sheet - Intertemporal net worth defined as: A0 − L0 + ∑_{t=0}^{T} (Rt − Gt) / (1 + r)^t, where A0 and L0 are current assets and liabilities; Rt and Gt are future primary government revenues and expenditures at time t; r is the discount rate. - Intertemporal budget constraint: intertemporal net worth should be at least equal to 0 (in a world where real interest rates are above real growth rates); in the very long term it should equal 0 exactly. - To avoid double counting, flows associated with current assets and liabilities are excluded from future primary balances: - Where there are resource assets, future resource revenues are excluded; - Flows associated with accrued pension liabilities are excluded from primary spending. - Approach draws on earlier intertemporal balance sheet work (Buiter 1983; Blanchard 1990; IMF 2016a; Traa and Carare 2007). *International Monetary Fund | October 2018* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Intertemporal Balance Sheet and Long-Term Projections - The intertemporal balance sheet combines the static balance sheet with discounted future revenue and primary expenditure flows for the next 50 years, on a no-policy change basis. - Estimates of future flows are based on: - medium-term fiscal forecasts out to the year 2022, as presented in the IMF WEO; and - from 2023 onward, long-term economic and fiscal projections following the methodology presented in IMF (2016a). - Long-term projections are unconstrained (they do not require the intertemporal budget constraint to be met) and extend current policy beyond 2022 with the following assumptions: - Nominal GDP projections assume inflation, productivity increases and the participation rate follow long-term averages, with changes in working-age population—under the United Nations’ medium-fertility scenario—driving any changes. For some countries, long-term average age cohort participation rates are used. - Fiscal projections: primary revenues are generally assumed to remain constant as a share of GDP. Primary expenditures are split between age-related pension and health expenditures (which grow in line with demographic trends) and other primary expenditures (held constant as a share of GDP). Interest expenditures are forecast assuming a normalization of interest rates over the medium term. - Discount rates: the discount rate for long-term fiscal projections is set according to the implicit interest rate on government debt. Riskier natural resource assets use a higher discount rate (10-year bond yields plus a risk factor), whereas more certain pension flows use a lower discount rate (nominal GDP growth plus 1 percentage point). - The 50-year horizon implies sensitivity of results to discount rate assumptions. Variations in fiscal projections because of policy changes or shocks are compared with the baseline using the baseline nominal GDP denominator and discount rates. - In some cases, adjustments are made to align projections with authorities’ existing estimates. ### Balance Sheet Strength: Definitions and Measures - Balance sheet strength measures are grouped into three categories: - measures derived solely from the assets side; - measures derived solely from the liabilities side; and - measures derived from both sides of the balance sheet. - Size of balance sheet: - Defined as the average of the size of assets and liabilities, in percent of GDP. - Larger assets or liabilities imply exposure to large valuation changes, which may expose the economy to macroeconomic risks (for example, valuation changes in equity markets and pension liabilities may amplify crisis impacts on public finances). - Solvency measures: - Net worth = total assets minus total liabilities, expressed in percent of GDP. - Net financial worth = total financial assets less liabilities, expressed in percent of GDP. - A measure for net worth excluding pension-related liabilities is also introduced to address comparability issues. - Liquidity and currency mismatch: - Net liquid assets = current assets less current liabilities (maturing within one year), expressed in percent of GDP. - Net foreign exchange assets = foreign exchange denominated assets less foreign exchange denominated liabilities, expressed in percent of GDP. ### Risk-Adjusted Assets and Liabilities (RAA and RAL) - Risk-adjusted assets and liabilities correct for riskiness/volatility of each asset (liability) class. - Construction steps: - Construct valuation changes for each asset and liability item by deducting transactions from total changes in value. - Define relative volatility of valuation changes for each item as the item's risk weight (RW): - RW_i = σ_i^2 / ∑_i σ_i^2, where i indexes a specific item of assets or liabilities. - Risk weights are calculated on a sample of European countries with detailed data (listed in source). - Using risk weights (RW_i) and the size of individual balance sheet items (A_i, L_i), compute: - RAA = ∑_i A_i − ∑_i RW_i A_i - RAL = ∑_i L_i − ∑_i RW_i L_i - Note: For comparability, totals exclude land and natural resources on the asset side and pension liabilities on the liability side in some analyses. ### Natural Hedge (Relative Volatility of Net Financial Worth) - Net financial worth (NFW) valuation changes from other economic flows: - OEF_NFW = OEF_FA − OEF_L - Volatility identity: - σ_NFW^2 = σ_FA^2 + σ_L^2 − 2Cov_FA,L (equation (1)) - Natural hedge measure (unit-less, normalized by standard deviations of FA and L): - σ_n = σ_NFW^2 / (σ_FA σ_L) (equation (2)) - Alternate expression: - σ_n = x + 1/x − 2 Cor_FA,L, where x = σ_FA / σ_L and Cor_FA,L is the correlation between financial assets and liabilities. - Interpretation: - x and 1/x capture contribution of size mismatch between financial assets and liabilities. - Cor_FA,L captures how valuation changes in financial assets and liabilities move together. - The natural hedge measures how covariance between assets and liabilities dampens volatility in net financial worth. ### Fiscal Stress Tests: Structure and Outputs - A fiscal stress test applies a large but plausible macroeconomic shock to fiscal accounts, combining direct impacts on growth and revenue with effects on asset prices and contingent liabilities. - Three key elements: - A macro-fiscal shock: identify an extreme macro scenario (including asset price changes) and apply it using a fiscal forecasting model to account for nonlinearities and budget rigidities. - A contingent liability shock: assess contingent liabilities that might be realized in a macro crisis and their cost. - An assessment of the impact of the macro-fiscal shock and contingent liability realization on the government’s comprehensive balance sheet, incorporating the value of future revenues and expenditures. - Three summary outputs a fiscal stress test can provide: - Public wealth: change in government’s net worth or net financial worth, incorporating future fiscal flows. - Government liquidity needs: assessed against gross financing needs. - Financing burden: interest expense against revenue collections. ### Annex Table 1.2.2 — Risk Weights of Assets and Liabilities, by Instrument - Financial assets, by instrument (Weight): - Monetary gold and SDRs 0.000 - Currency and deposits 0.000 - Debt securities 0.049 - Loans 0.064 - Equity and investment fund shares 0.564 - Insurance, pension, and standardized guarantee schemes 0.000 - Financial derivatives and employee stock options 0.049 - Other accounts receivable 0.049 - Liabilities, by instrument (Weight): - SDRs 0.000 - Currency and deposits 0.000 - Debt securities 0.000 - Loans 0.122 - Equity and investment fund shares 0.000 - Insurance, pension, and standardized guarantee schemes 0.000 - Financial derivatives and employee stock options 0.014 - Other accounts payable 0.090 - Sum of weights 1.000 - Note: Risk weight of each instrument is the standard deviation of valuation changes in that instrument relative to the sum of standard deviations of all asset and liability components. SDRs = special drawing rights. ### Annex: Balance Sheet Strength and Sovereign Bond Yields (Estimation) - Estimation framework: - Fixed effects panel specification: y_it = β x_it + γ z_it + c_i + λ_t + ε_it - y_it is the long-term government bond yield of country i in year t (from Thomson Reuters Datastream Economics). - x_it is a balance sheet variable (main variable of interest): indicators include general government gross debt, total assets, financial assets, net worth, net financial worth (all lagged to limit reverse causality). - z_it controls for possible channels affecting yields. - Balance sheet indicators are based on general government data from the PSBS database, except gross debt from the World Economic Outlook database. - All variables are expressed in percent of GDP. - Sample composition: - Advanced economies in the sample include Australia, Belgium, Canada, Czech Republic, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and the United States. - Emerging markets included: Croatia, Hungary, India, Indonesia, Kazakhstan, Kyrgyz Republic, Moldova, Poland, and South Africa. - Long-term bond yields: - Yields used are as defined by Thomson Reuters Datastream: generally 10-year bonds, with exceptions (Belgium and Cyprus 6 years; Kazakhstan up to 5 years; Kyrgyz Republic and Moldova 2 years; Slovenia 11 years; United Kingdom and United States 20 years). - Note on comparability: - Assets exclude land and other natural resources and liabilities exclude pension liabilities for cross-country comparability. *Source: IMF staff estimates and Fiscal Monitor: Managing Public Wealth (Chapter 1).* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Balance Sheet Indicators and Sovereign Bond Yields - Estimation framework: - Fixed effects estimations investigating the impact of balance sheet indicators on long-term government bond yields. - Control variables include real per capita GDP growth, the US 10-year bond yield, average inflation rate, short-term interest rate, general government primary balance, and country and time fixed effects. - Total assets exclude land and natural resources, and liabilities exclude pension liabilities; net worth and net financial worth exclude those items for cross-country comparability. - Sample period is 2001–16. - Key findings: - Financial markets seem to account for government assets and net worth when pricing sovereign bonds; balance sheet indicators beyond gross debt matter for sovereign yields. - Total or financial assets are highly significant variables, both standalone and with gross debt. - Net (financial) worth are highly significant standalone explanatory variables for the pricing of sovereign bonds. - Results are clearest in the full sample and advanced economies sample; significance is generally lower in the emerging markets sample. - Results are robust to using a different time period and excluding the crisis years. - Magnitude of effects: - In the whole sample, a one percent of GDP increase in government net (financial) worth lowers yields by some 0.7 (0.6) bps, compared with a 1 bps increase in yield when gross debt increases by the same amount. - In emerging markets, a 1 percent of GDP increase in net worth can lower yields by some 2.5 bps. - The effect of fiscal variables of interest (gross/net debt, assets) on bond yields/spreads is larger for emerging market economies than advanced economies. - Emerging market regressions should be interpreted with caution given the small sample size. - Annex Table 1.3.1 (selected coefficients and sample stats as reported) - Full Sample - Lagged net worth –0.007*** - Lagged net financial worth –0.006** - Lagged gross debt 0.014*** 0.013*** 0.010*** - Lagged total asset –0.009*** –0.009*** - Lagged financial assets –0.007*** –0.010*** - Observations 409 415 445 447 685 448 454 - Number of countries 31 31 33 33 33 33 33 - Advanced Economies - Lagged net worth –0.005*** - Lagged net financial worth –0.006*** - Lagged gross debt 0.015*** 0.014*** 0.012*** - Lagged total asset –0.003** –0.003** - Lagged financial assets –0.004*** –0.007*** - Observations 328 334 348 350 579 351 357 - Number of countries 24 24 25 25 24 25 25 - Emerging Markets - Lagged net worth –0.025*** - Lagged net financial worth –0.013 - Lagged gross debt 0.041** 0.008 0.006 - Lagged total asset –0.031*** –0.024*** - Lagged financial assets –0.046* –0.041** - Observations 81 81 97 97 106 97 97 - Number of countries 7 7 8 8 9 8 8 - Note on significance markers: *, **, and *** represent statistical significance at 10, 5, and 1 percent, respectively. ### Balance Sheet Strength and the Macro Economy (Annex 1.4) - Objective and method: - Study the impact of balance sheet strength on the macro economy using local projection method (Jordà 2005; Jordà, Schularick, and Taylor 2016). - Sample of 17 advanced economies with annual data covering 1970–2015; 53 recessions observed. - Baseline regression models cumulative growth (log difference) in real GDP or real government spending per capita h years after the business cycle peak. - Strong (weak) balance sheets defined as net financial worth above (below) the sample median in the peak year. - Additional variables: average annual change in private debt in the five years before the peak (x_Pr) and public debt as percent of GDP at the peak (x_Pu). Controls include two lags of real per capita GDP growth rates, government expenditures, public debt, and private debt. - Standard errors computed using Driscoll and Kraay (1998) to correct for heteroskedasticity, cross-sectional dependence, and serial correlation. - Data sources: - Net financial worth from the World Inequality Database (long time series for the 17 advanced economies). - Public debt and private credit from the database compiled in the October 2016 Fiscal Monitor. - Real per capita GDP from the World Economic Outlook and Penn World Table. - Government spending from Mauro and others (2015). - Main results: - Countries with a strong balance sheet face shorter and shallower recessions. - Expenditure regressions show a statistically significant difference between coefficients for strong and weak balance sheets, with p-values below 5 percent starting from the second year. - GDP regressions are also significant; p-values for the test of difference between strong and weak balance sheet coefficients are below 5 percent in years 4 and 5. - Findings are robust to inclusion/exclusion of x_Pr and x_Pu and their interactions, and to using net worth instead of net financial worth. - Annex Table 1.4.1 (coefficients and summary statistics reported) - Real Government Expenditure per Capita (θs and θw listed by year) - θs: Year 1 3.90*** (1.05); Year 2 8.77*** (1.24); Year 3 14.69*** (3.04); Year 4 24.39*** (4.02); Year 5 33.46*** (3.80) - θw: Year 1 1.31 (2.21); Year 2 0.30 (1.91); Year 3 1.92 (2.24); Year 4 –11.31** (4.41); Year 5 –2.81* (1.99) - Real GDP per Capita (θs and θw listed by year) - θs: Year 1 –1.60*** (0.32); Year 2 –0.77* (0.62); Year 3 1.23* (0.60); Year 4 4.29*** (0.73); Year 5 9.30*** (0.95) - θw: Year 1 –2.78*** (0.96); Year 2 –2.84** (1.13); Year 3 –0.70 (1.28); Year 4 –0.06 (1.31); Year 5 2.67* (1.56) - Goodness of fit and tests - R2 for expenditure regressions: 0.80, 0.84, 0.85, 0.85, 0.91 (Years 1–5 respectively) - R2 for GDP regressions: 0.83, 0.74, 0.76, 0.84, 0.91 (Years 1–5 respectively) - θs = θw (p-value): Year 1 0.42; Year 2 0.01; Year 3 0.01; Year 4 0.000; Year 5 0.000; GDP Years 1–5 p-values 0.34, 0.12, 0.26, 0.03, 0.01 - Peaks: Expenditure regressions Peaks 53 53 52 52 42; GDP regressions Peaks 53 52 52 42 - Note on significance markers in table: *, **, and *** denote p-values less than 0.32 (1 standard deviation), 0.05 (2 standard deviations), and 0.01 (3 standard deviations), respectively. - Source: IMF staff estimates. ### Policy and Analytical Implications - Balance sheet analysis matters for sovereign risk assessment: - Policymakers and market participants should consider government assets and net worth, not only gross debt, when assessing sovereign risk and debt sustainability. - Recessions and fiscal buffers: - Strong public balance sheets are associated with less severe and shorter recessions and more favorable fiscal expenditure dynamics in the aftermath of peaks. - Data and measurement priorities: - Cross-country comparable measures exclude land, natural resources, and pension liabilities from total assets and liabilities respectively; net worth measures reflect those exclusions. - Long time-series data (e.g., World Inequality Database) enable longer-horizon local projections and robustness checks. *International Monetary Fund | October 2018* ### CHAPTER 1 MANAgINg PubLIC WeALTh ### CHAPTER 1 MANAgINg PubLIC WeALTh ### Country abbreviations - Full list of country codes and names as presented (examples): - AFG Afghanistan - AGO Angola - ALB Albania - ARE United Arab Emirates - ARG Argentina - ARM Armenia - ATG Antigua and Barbuda - AUS Australia - AUT Austria - AZE Azerbaijan - BDI Burundi - BEL Belgium - BEN Benin - BFA Burkina Faso - BGD Bangladesh - BGR Bulgaria - BHR Bahrain - BHS Bahamas, The - BIH Bosnia and Herzegovina - BLR Belarus - BLZ Belize - BOL Bolivia - BRA Brazil - BRB Barbados - BRN Brunei Darussalam - BTN Bhutan - BWA Botswana - CAF Central African Republic - CAN Canada - CHE Switzerland - CHL Chile - CHN China - CIV Côte d’Ivoire - CMR Cameroon - COD Congo, Democratic Republic of the - COG Congo, Republic of - COL Colombia - COM Comoros - CPV Cabo Verde - CRI Costa Rica - CYP Cyprus - CZE Czech Republic - DEU Germany - DJI Djibouti - DMA Dominica - DNK Denmark - DOM Dominican Republic - DZA Algeria - ECU Ecuador - EGY Egypt - ERI Eritrea - ESP Spain - EST Estonia - ETH Ethiopia - FIN Finland - FJI Fiji - FRA France - FSM Micronesia, Federated States of - GAB Gabon - GBR United Kingdom - GEO Georgia - GHA Ghana - GIN Guinea - GMB Gambia, The - GNB Guinea-Bissau - GNQ Equatorial Guinea - GRC Greece - GRD Grenada - GTM Guatemala - GUY Guyana - HKG Hong Kong SAR - HND Honduras - HRV Croatia - HTI Haiti - HUN Hungary - IDN Indonesia - IND India - IRL Ireland - IRN Iran - IRQ Iraq - ISL Iceland - ISR Israel - ITA Italy - JAM Jamaica - JOR Jordan - JPN Japan - KAZ Kazakhstan - KEN Kenya - KGZ Kyrgyz Republic - KHM Cambodia - KIR Kiribati - KNA St. Kitts and Nevis - KOR Korea - KWT Kuwait - LAO Lao P. D. R. - LBN Lebanon - LBR Liberia - LBY Libya - LCA St. Lucia - LKA Sri Lanka - LSO Lesotho - LTU Lithuania - LUX Luxembourg - LVA Latvia - MAR Morocco - MDA Moldova - MDG Madagascar - MDV Maldives - MEX Mexico - MHL Marshall Islands - MKD Macedonia, former Yugoslav Republic of - MLI Mali - MLT Malta - MMR Myanmar - MNE Montenegro - MNG Mongolia - MOZ Mozambique - MRT Mauritania - MUS Mauritius - MWI Malawi - MYS Malaysia - NAM Namibia - NER Niger - NGA Nigeria - NIC Nicaragua - NLD Netherlands - NOR Norway - NPL Nepal - NZL New Zealand - OMN Oman - PAK Pakistan - PAN Panama - PER Peru - PHL Philippines - PLW Palau - PNG Papua New Guinea - POL Poland - PRT Portugal - PRY Paraguay - QAT Qatar - ROU Romania - RUS Russia - RWA Rwanda - SAU Saudi Arabia - SDN Sudan - SEN Senegal - SGP Singapore - SLB Solomon Islands - SLE Sierra Leone - SLV El Salvador - SMR San Marino - SOM Somalia - SRB Serbia - STP São Tomé and Príncipe - SUR Suriname - SVK Slovak Republic - SVN Slovenia - SWE Sweden - SWZ Swaziland - SYC Seychelles - SYR Syria - TCD Chad - TGO Togo - THA Thailand - TJK Tajikistan - TKM Turkmenistan - TLS Timor-Leste - TON Tonga - TTO Trinidad and Tobago - TUN Tunisia - TUR Turkey - TUV Tuvalu - TWN Taiwan Province of China - TZA Tanzania - UGA Uganda - UKR Ukraine - URY Uruguay - USA United States - UZB Uzbekistan - VCT St. Vincent and the Grenadines - VEN Venezuela - VNM Vietnam - VUT Vanuatu - WSM Samoa - YEM Yemen - ZAF South Africa - ZMB Zambia - ZWE Zimbabwe ### Glossary — key fiscal terms and definitions - Automatic stabilizers: Revenue and some expenditure items that adjust automatically to cyclical changes in the economy. - Balance sheet: Statement of the values of the stock positions of assets owned and liabilities owed by a unit, or group of units, drawn up in respect of a particular point in time. - Contingent liabilities: Obligations that are not explicitly recorded on government balance sheets and that arise only in the event of a particular discrete situation, such as a crisis. - Countercyclical fiscal policy: Active changes in expenditure and tax policies to smooth the economic cycle (by contrast with the operation of automatic stabilizers). - Coverage of public benefits: Share of individuals or households of a particular socioeconomic group who receive a public benefit. - Cyclically adjusted balance (CAB): Difference between the overall balance and the automatic stabilizers; equivalently, an estimate of the fiscal balance that would apply under current policies if output were equal to potential. - Cyclically adjusted primary balance (CAPB): Cyclically adjusted balance excluding net interest payments (interest expenditure minus interest revenue). - Fiscal buffer: Fiscal space created by saving budgetary resources and reducing public debt in good times. - Fiscal multiplier: Measures the short-term impact of discretionary fiscal policy on output. - Fiscal stabilization: Contribution of fiscal policy to output stability through its impact on aggregate demand. - General government: All government units and all nonmarket, nonprofit institutions that are controlled and mainly financed by government units; includes social security funds and does not include public corporations or quasicorporations. - Gross debt: All liabilities that require future payment of interest and/or principal by the debtor to the creditor. - Liquid assets: Assets that can be readily converted to cash. - Net debt: Gross debt minus financial assets corresponding to debt instruments. - Net (financial) worth: Net worth is a measure of fiscal solvency; assets minus liabilities. Net financial worth is financial assets minus liabilities. - Nonfinancial public sector: General government plus nonfinancial public corporations. - Output gap: Deviation of actual from potential GDP, in percent of potential GDP. - Overall fiscal balance (also “headline” fiscal balance): Net lending and borrowing, defined as the difference between revenue and total expenditure, using the IMF’s 2001 Government Finance Statistics Manual (GFSM 2001). - Potential output: Estimate of the level of GDP that can be reached if the economy’s resources are fully employed. - Primary balance: Overall balance excluding net interest payments (interest expenditure minus interest revenue). - Procyclical fiscal policy: Fiscal policy that amplifies the economic cycle. - Progressive (or regressive) taxes: Taxes with average rates that rise (or fall) with income. - Public debt: See gross debt. - Public sector: All resident institutional units deemed to be controlled by the government, including general government and resident public corporations. - Structural fiscal balance: Extension of the cyclically adjusted balance that also corrects for other nonrecurrent effects that go beyond the cycle. ### Methodological and Statistical Appendix — Data and Conventions - Appendix comprises four sections: “Data and Conventions”; “Fiscal Policy Assumptions”; “Definition and Coverage of Fiscal Data”; statistical tables on key fiscal variables. - Data in tables compiled based on information available through September 20, 2018. - Country-specific data and projections for key fiscal variables are based on the October 2018 World Economic Outlook database, unless indicated otherwise, and compiled by IMF staff. - Historical data and projections are based on IMF country desk officers’ information; structural breaks may be adjusted through splicing and other techniques. - IMF staff estimates serve as proxies when complete information is unavailable; Fiscal Monitor data can differ from official data and from IMF’s International Financial Statistics. - Sources for fiscal data and projections not covered by the World Economic Outlook database are listed in the respective tables and figures. - Country classification: - 35 advanced economies - 40 emerging market and middle-income economies - 40 low-income developing countries - The seven largest advanced economies by GDP (Canada, France, Germany, Italy, Japan, United Kingdom, United States) constitute the Group of Seven (G7). - Euro area members are distinguished as a subgroup; composite data for the euro area cover current members for all years. - Low-income developing countries threshold: $2,700 in 2016 as measured by the World Bank’s Atlas method (and structural features described). - Emerging market and middle-income economies include those not classified as advanced or low-income developing countries. - Composite data for country groups are weighted averages of individual-country data, weighted by annual nominal GDP converted to US dollars at average market exchange rates as a share of the group GDP. - For the Fiscal Monitor, the Group of 20 (G20) member aggregate refers to the 19 country members and does not include the European Union. - Most fiscal data follow IMF’s 2001 Government Finance Statistics Manual (GFSM 2001). Overall fiscal balance refers to net lending (+) and borrowing (–) of the general government. In some cases, it refers to total revenue and grants minus total expenditure and net lending. ### Debt and fiscal data reporting notes and country examples - Fiscal gross and net debt data are drawn from official sources and IMF staff estimates; efforts are made to align with IMF manuals but data can deviate due to limitations and country circumstances. - The term “country” may cover territorial entities whose statistics are maintained independently. - Country-specific reporting conventions and notable adjustments (selected excerpts): - Argentina: Total expenditure and the overall balance account for cash interest only; primary balance excludes profit transfers from the central bank of Argentina; interest expenditure is net of interest income from the social security administration. - Australia: For cross-country comparability, gross and net debt levels reported by national statistical agencies for economies that have adopted the 2008 SNA (Canada, Hong Kong Special Administrative Region, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans. - Bangladesh: Data are on a fiscal year basis. - Brazil: - General government data refer to the nonfinancial public sector (federal, state, local governments, and public enterprises excluding Petrobras and Eletrobras) and are consolidated with the sovereign wealth fund. - Revenue and expenditures of federal public enterprises are added in full to the respective aggregates. - Transfers and withdrawals from the sovereign wealth fund do not affect the primary balance. - Disaggregated data on gross interest payments and interest receipts are available from 2003 only. - Before 2003, total revenue of the general government excludes interest receipts; total expenditure includes net interest payments. - Gross public debt includes Treasury bills on the central bank’s balance sheet, including those not used under repurchase agreements. - Net public debt consolidates general government and central bank debt. - National definition of nonfinancial public sector gross debt excludes government securities held by the central bank, except the stock of Treasury securities used for monetary policy purposes by the central bank. - According to this national definition, gross debt amounted to 74.0 percent of GDP at the end of 2017. - Canada: For cross-country comparability, gross and net debt levels reported by national statistical agencies for economies that have adopted the 2008 SNA (Australia, Hong Kong Special Administrative Region, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans. - Chile: The cyclically adjusted balance refers to the structural balance which includes adjustments for output and commodity price developments. - China: - Public debt data include central government debt as reported by the Ministry of Finance, explicit local government debt, and shares—less than 19 percent, according to the National Audit Office estimate—of contingent liabilities the government may incur. - IMF staff estimates exclude central government debt issued for the China Railway Corporation. - Relative to the authorities’ definition, consolidated general government net borrowing includes (1) transfers to and from stabilization funds, (2) state-administered state-owned enterprise funds and social security contributions and expenses, and (3) off-budget spending by local governments. - Deficit numbers do not include some expenditure items, mostly infrastructure investment financed off budget through land sales and local government financing vehicles. - Fiscal balances are not consistent with reported debt because no time series of data in line with the National Audit Office debt definition is published officially. - Colombia: Gross public debt refers to the combined public sector, including Ecopetrol and excluding Banco de la República’s outstanding external debt. - Egypt: Data are on a fiscal year basis. - Greece: General government gross debt includes short-term debt and loans of state-owned enterprises. - Haiti: Data are on a fiscal year basis. - Hong Kong Special Administrative Region: - Data are on a fiscal year basis. - Cyclically adjusted balances include adjustments for land revenue and investment income. - For cross-country comparability, gross and net debt levels reported by national statistical agencies for countries that have adopted the 2008 SNA (Australia, Canada, United States) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans. - India: Data are on a fiscal year basis. - Ireland: - General government balances between 2009 and 2012 reflect the impact of banking-sector support. - Fiscal balance estimates excluding these measures are –11.4 percent of GDP for 2009, –10.9 percent of GDP for 2010, –8.6 percent of GDP for 2011, and –7.9 percent of GDP for 2012. - In 2015, if the conversion of government’s remaining preference shares to ordinary shares in one bank were excluded, the fiscal balance would be –1.1 percent of GDP. - Cyclically adjusted balances reported in Tables A3 and A4 exclude financial sector support measures. - Ireland’s 2015 national accounts were revised as a result of restructuring and relocation of multinational companies, resulting in a level shift of nominal and real GDP. - Japan: Gross debt is on an unconsolidated basis. - Lao People’s Democratic Republic: Data are on a fiscal year basis. - Latvia: The fiscal deficit includes bank restructuring costs and thus is higher than the deficit in official statistics. - Mexico: General government refers to the central government, social security, public enterprises, development banks, the national insurance corporation, and the National Infrastructure Fund, but excludes subnational governments. - Norway: Cyclically adjusted balances correspond to the cyclically adjusted non-oil overall or primary balance (variables in percent of non-oil potential GDP). - Pakistan: Data are on a fiscal year basis. - Peru: Cyclically adjusted balances include adjustments for commodity price developments. - Singapore: Data are on a fiscal year basis; historical fiscal data revised to reflect migration to GFSM 2001. - Spain: Overall and primary balances include financial sector support measures estimated to be –0.1 percent of GDP for 2010, 0.3 percent of GDP for 2011, 3.7 percent of GDP for 2012, 0.3 percent of GDP for 2013. *Italic: International Monetary Fund | October 2018 — CHAPTER 1 MANAgINg PubLIC WeALTh* ### 0.1 percent of GDP for 2014, 0.1 percent of GDP for ### fm1802 - 0.1 percent of GDP for 2014, 0.1 percent of GDP for ### Series of values - 0.1 percent of GDP for 2014, 0.1 percent of GDP for 2015, 0.2 percent of GDP for 2016, 0.0 percent of GDP for 2017, and 0.0 percent of GDP for 2018. ### Country notes - Sweden: Cyclically adjusted balances take into account output and employment gaps. - Switzerland: Data submissions at the cantonal and commune levels are received with a long and variable lag and are subject to sizable revisions. Cyclically adjusted balances include adjustments for extraordinary operations related to the banking sector. - Thailand: Data are on a fiscal year basis. - Turkey: Information on the general government balance, primary balance, and cyclically adjusted primary balance differs from that in the authorities’ official statistics or country reports, which include net lending and privatization receipts. - United States: Cyclically adjusted balances exclude financial sector support estimated at 2.4 percent of potential GDP for 2009, 0.3 percent of potential GDP for 2010, 0.2 percent of potential GDP for 2011, 0.1 percent of potential GDP for 2012, and *https://www.imf.org/-/media/files/publications/fiscal-monitor/2018/october/pdf/fm1802.pdf* ### 0.0 percent of potential GDP for 2013. For cross- ### fm1802 - 0.0 percent of potential GDP for 2013. For cross- ### Adjustments for cross-country comparability - Expenditure and fiscal balances of the United States are adjusted to exclude: - the imputed interest on unfunded pension liabilities, and - the imputed compensation of employees, which are counted as expenditure under the 2008 SNA adopted by the United States but not by countries that have not yet adopted the 2008 SNA. - Data for the United States may thus differ from data published by the US Bureau of Economic Analysis (BEA). - Gross and net debt levels reported by the BEA and national statistical agencies for other economies that have adopted the 2008 SNA (Australia, Canada, Hong Kong Special Administrative Region) are adjusted to exclude unfunded pension liabilities of government employees’ defined-benefit pension plans. - Uruguay: Data are for the consolidated public sector, which includes the nonfinancial public sector, local governments, Banco Central del Uruguay, and Banco de Seguros del Estado; public debt includes the debt of the central bank, increasing recorded public sector gross debt. - Venezuela: Fiscal accounts for 2010–23 correspond to the budgetary central government and Petróleos de Venezuela S.A. (PDVSA); fiscal accounts before 2010 correspond to the budgetary central government, public enterprises (including PDVSA), Instituto Venezolano de los Seguros Sociales (IVSS), and Fondo de Garantía de Depósitos y Protección Bancaria (FOGADE). ### Fiscal policy assumptions and projection approach - Historical data and projections of key fiscal aggregates align with the October 2018 World Economic Outlook unless noted otherwise. - Short-term fiscal policy assumptions: - Based on officially announced budgets, adjusted for differences between national authorities and IMF staff on macroeconomic assumptions and projected fiscal outturns. - Medium-term fiscal projections: - Incorporate policy measures judged likely to be implemented. - When insufficient information on authorities’ intentions, an unchanged structural primary balance is assumed, unless indicated otherwise. - Projections are adjusted where IMF staff judges necessary to reflect staff macroeconomic assumptions, accounting treatments (including SNA 2008 and GFSM 2014 translations), and the treatment of financial sector support and defined-benefit pension plans. ### Country-specific projection notes (selected examples as provided) - Argentina: Projections based on available information regarding federal and provincial budget outturns and budget plans, announced fiscal measures, and IMF staff macroeconomic projections. - Australia: Final Budget Outcomes for the Commonwealth, states and territories for 2016, with additional data from FY2018/19 budgets. - Brazil: Projections for end-2018 account for budget performance through May 2018 and the deficit target approved in the budget law. - Canada: Projections use baseline forecasts in the 2018 federal budget and latest provincial budgets, with IMF staff adjustments and incorporation of Statistics Canada releases through 2018:Q1. - China: Projections assume gradual pace of fiscal consolidation reflecting reforms to strengthen social safety nets and social security system announced as part of the Third Plenum reform agenda. - Germany: Projections based on the 2018 Stability Program, revised 2018 federal budget, and national statistical agency updates; gross debt estimate includes portfolios of impaired assets and noncore business transferred to winding-up institutions and other financial sector and EU support operations. - Greece: Primary balance estimates for 2017 based on preliminary EDP data on an accrual basis (ESA 2010) provided by ELSTAT as of April 23, 2018; historical data since 2010 and projections reflect adjustments under enhanced surveillance procedure for Greece. - India: Historical data based on budgetary execution; projections based on available authorities’ fiscal plans with IMF staff adjustments; subnational data incorporated with a lag of up to one year. - Japan: Projections include fiscal measures already announced, including the consumption tax hike in October 2019. - Saudi Arabia: Revenue projections reflect announced policies in the 2018 Budget; oil revenues based on WEO baseline oil prices and assumption Saudi Arabia meets OPEC+ commitments; expenditures include allowances and other measures announced in the Royal Decree for one year in January 2018. - Turkey: 2018 fiscal projections based on the authorities’ Medium-Term Plan (MTP) 2018–20 with adjustments; medium-term projections assume more gradual fiscal consolidation than envisaged in the MTP. - United Kingdom: Fiscal projections based on the UK’s November 2017 Budget and March 2018 update; IMF staff excludes public sector banks and effect of transferring assets from the Royal Mail Pension Plan to the public sector in April 2012. - United States: Fiscal projections based on the April 2018 Congressional Budget Office baseline adjusted for IMF staff policy and macroeconomic assumptions; projections incorporate the effects of Tax Cuts and Jobs Act and the Bipartisan Budget Act of 2018; data compiled using SNA 2008 and when translated into GFS this is in accordance with GFSM 2014; most series begin with 2001 because of data limitations. - Venezuela (projection caveats): Projections complicated by lack of discussions with authorities, long intervals in receiving data, incomplete provision of information, and difficulties interpreting reported indicators; fiscal accounts include budgetary central government and PDVSA; fiscal accounts data for 2016–22 are IMF staff estimates; revenue includes IMF staff’s estimated foreign exchange profits transferred from the central bank to the government and excludes IMF staff’s estimated revenue from PDVSA’s sale of Petrocaribe assets to the central bank. - Vietnam: Fiscal data for 2015–17 are the authorities’ estimate; from 2018 onward fiscal data are based on IMF staff projections. - Yemen: Hydrocarbon revenue projections based on WEO oil and gas price assumptions (the authorities use $55 a barrel) and authorities’ production projections; nonhydrocarbon revenues largely reflect authorities’ projections; fuel subsidies projected based on WEO price consistent with revenues. ### Definition and coverage of fiscal data; groupings and tables - Economy groupings used in the Fiscal Monitor include: - Advanced Economies, Emerging Market and Middle-Income Economies, Low-Income Developing Countries, G7, G20, Advanced G20, Emerging G20, and regional groupings (Euro Area, Emerging Market and Middle-Income Asia, Europe, Latin America, Middle East and North Africa and Pakistan, Africa, Low-Income Developing Asia, Low-Income Developing Latin America, Low-Income Developing Sub-Saharan Africa, Low-Income Developing Others, Low-Income Oil Producers, Oil Producers). - Table B (Advanced Economies) and Table C (Emerging Market and Middle-Income Economies) specify for each economy: - Coverage for Overall Fiscal Balance, Cyclically Adjusted Balance, and Gross Debt (aggregate and subsectors). - Accounting practice (A = accrual; C = cash; Mixed = combination). - Valuation of debt (Nominal, Face, Current market). - Notes on coverage terminology: - CG = central government; GG = general government; LG = local governments; NFPC = nonfinancial public corporations; PS = public sector; SG = state governments; SS = social security funds; TG = territorial governments; MPC = monetary public corporations; NMPC = nonmonetary financial public corporations; BCG = budgetary central government. - Notes on valuation definitions: - Nominal = debt securities valued at nominal values. - Face = undiscounted amount of principal to be repaid at (or before) maturity. - Current market = debt securities valued at market prices; insurance, pension, and standardized guarantee schemes valued according to market-equivalent principles; all other debt instruments valued at nominal prices as proxies for market prices. *International Monetary Fund. Fiscal Monitor: Managing Public Wealth. Methodological and Statistical Appendix. October 2018.* ### 2001. The concept of overall fiscal balance refers to net lending (+) and borrowing (–) of the general government. In so ### fm1802 - 2001. The concept of overall fiscal balance refers to net lending (+) and borrowing (–) of the general government. In so ### Definitions and measurement notes - Overall fiscal balance: refers to net lending (+) and borrowing (–) of the general government. In some cases, however, the overall balance refers to total revenue and grants minus total expenditure and net lending. - Valuation of debt (note 2): - Nominal = debt securities are valued at their nominal values; that is, the nominal value of a debt instrument at any moment in time is the amount that the debtor owes to the creditor. - Face = undiscounted amount of principal to be repaid at (or before) maturity. The use of face value as a proxy for nominal value in measuring the gross debt position can result in an inconsistent approach across all instruments and is not recommended, unless nominal and market values are not available. - Current market = debt securities are valued at market prices; insurance, pension, and standardized guarantee schemes are valued according to principles that are equivalent to market valuation; and all other debt instruments are valued at nominal prices, which are considered to be the best generally available proxies of their market prices. - Gross debt: - Note 3: Gross debt refers to general government public debt, including publicly guaranteed debt. - Note 4: Gross debt refers to the nonfinancial public sector, excluding Eletrobras and Petrobras, and includes sovereign debt held on the balance sheet of the central bank. - Accounting recording convention (note 5): Revenue is recorded on a cash basis and expenditure on an accrual basis. - Country-specific coverage notes: - Note 6: Coverage for South Africa is a proxy for general government. It includes the national and provincial governments and certain public entities, while local governments are only partly covered, through the transfers to them. - Note 7: Data for Thailand do not include the debt of specialized financial institutions (SFIs/NMPC) without government guarantee. - Note 8: Gross debt covers banking system claims only. - Note 9: The fiscal accounts for 2010–22 correspond to the budgetary central government and Petróleos de Venezuela S.A. (PDVSA), whereas the fiscal accounts for years before 2010 correspond to the budgetary central government, public enterprises (including PDVSA), Instituto Venezolano de los Seguros Sociales (IVSS—social security), and Fondo de Garantía de Depósitos y Protección Bancaria (FOGADE—deposit insurance). ### Table D — Low-Income Developing Countries: reporting structure and selected entries - Table D presents coverage and accounting-practice information for three aggregates: Overall Fiscal Balance, Cyclically Adjusted Balance, and Gross Debt. Columns shown for each aggregate: Coverage; Subsector(s) covered; Accounting practice; Valuation of debt (for Gross Debt). - Notation used in table (as listed in the Note): - Coverage abbreviations: BCG = budgetary central government; CG = central government; CPS = combined public sector; EA = extrabudgetary units; FC = financial public corporations; GG = general government; LG = local governments; MPC = monetary public corporations, including central bank; NC = non-cash; NFPC = nonfinancial public corporations; NFPS = nonfinancial public sector; NMPC = nonmonetary financial public corporations; PS = public sector; SG = state governments; SS = social security funds. - Accounting standard abbreviations: A = accrual; C = cash; CB = commitments basis accounting; Mixed = combination of accrual and cash accounting. - Selected country reporting entries (preserving exact abbreviations and valuation labels as shown): - Bangladesh - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Benin - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Burkina Faso - Overall Fiscal Balance: Coverage = GG; Subsector = CG; Accounting Practice = CB - Gross Debt: Coverage = GG; Subsector = CG; Valuation of Debt = Face - Cambodia - Overall Fiscal Balance: Coverage = CG; Subsector = CG,LG; Accounting Practice = A - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG,LG; Accounting Practice = A - Gross Debt: Coverage = CG; Subsector = CG,LG; Valuation of Debt = Face - Cameroon - Overall Fiscal Balance: Coverage = NFPS; Subsector = CG,NFPC; Accounting Practice = C - Gross Debt: Coverage = NFPS; Subsector = CG,NFPC; Valuation of Debt = Current market - Chad - Overall Fiscal Balance: Coverage = NFPS; Subsector = CG,NFPC; Accounting Practice = C - Gross Debt: Coverage = NFPS; Subsector = CG,NFPC; Valuation of Debt = Face - Democratic Republic of the Congo - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG; Accounting Practice = A - Gross Debt: Coverage = GG; Subsector = CG,LG; Valuation of Debt = Nominal - Republic of Congo - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = A - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Côte d'Ivoire - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = A - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Ethiopia - Overall Fiscal Balance: Coverage = CG; Subsector = CG,SG,LG,NFPC; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG,SG,LG,NFPC; Valuation of Debt = Nominal - Ghana - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Face - Guinea - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Haiti - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Honduras - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG,SS; Accounting Practice = Mixed - Cyclically Adjusted Balance: Coverage = GG; Subsector = CG,LG,SS; Accounting Practice = Mixed - Gross Debt: Coverage = GG; Subsector = CG,LG,SS; Valuation of Debt = Nominal - Kenya - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = A - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Current market - Kyrgyz Republic - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG,SS; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,LG,SS; Valuation of Debt = Face - Lao P.D.R. - Overall Fiscal Balance: Coverage note 3 applies; Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation = ... - Madagascar - Overall Fiscal Balance: Coverage = CG; Subsector = CG,LG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG,LG; Valuation of Debt = Nominal - Mali - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = Mixed - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Moldova - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG,SS; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,LG,SS; Valuation of Debt = Nominal - Mozambique - Overall Fiscal Balance: Coverage = CG; Subsector = CG,SG; Accounting Practice = Mixed - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG,SG; Accounting Practice = Mixed - Gross Debt: Coverage = CG; Subsector = CG,SG; Valuation of Debt = Nominal - Myanmar - Overall Fiscal Balance: Coverage = NFPS; Subsector = CG,NFPC; Accounting Practice = C - Gross Debt: Coverage = NFPS; Subsector = CG,NFPC; Valuation of Debt = Face - Nepal - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Face - Nicaragua - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG,SS; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,LG,SS; Valuation of Debt = Nominal - Niger - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = A - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Nigeria - Overall Fiscal Balance: Coverage = GG; Subsector = CG,SG,LG; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,SG,LG; Valuation of Debt = Current market - Papua New Guinea - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Face - Rwanda - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG; Accounting Practice = Mixed - Gross Debt: Coverage = GG; Subsector = CG,LG; Valuation of Debt = Nominal - Senegal - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Somalia - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Cyclically Adjusted Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = ... - Sudan - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = Mixed - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Tajikistan - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG,SS; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,LG,SS; Valuation of Debt = Nominal - Tanzania - Overall Fiscal Balance: Coverage = CG; Subsector = CG,LG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG,LG; Valuation of Debt = Nominal - Timor-Leste - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = ... - Uganda - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Nominal - Uzbekistan - Overall Fiscal Balance: Coverage = GG; Subsector = CG,SG,LG,SS; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,SG,LG,SS; Valuation of Debt = Nominal - Vietnam - Overall Fiscal Balance: Coverage = GG; Subsector = CG,SG,LG; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,SG,LG; Valuation of Debt = Nominal - Yemen - Overall Fiscal Balance: Coverage = GG; Subsector = CG,LG; Accounting Practice = C - Gross Debt: Coverage = GG; Subsector = CG,LG; Valuation of Debt = Nominal - Zambia - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Current market - Zimbabwe - Overall Fiscal Balance: Coverage = CG; Subsector = CG; Accounting Practice = C - Gross Debt: Coverage = CG; Subsector = CG; Valuation of Debt = Current market ### Key implications for data users - The table documents heterogeneity in: - Which subsectors are covered for fiscal aggregates (CG, GG, NFPS, etc.). - Accounting practice used (A, C, CB, Mixed). - Valuation approaches for gross debt (Nominal, Face, Current market). - Cross-country comparability requires attention to: - Whether overall fiscal balance refers to general government net lending/borrowing or to total revenue and grants minus total expenditure and net lending. - Differences in subsector coverage (for example, inclusion/exclusion of local governments, public corporations, social security). - Valuation method applied to gross debt (Nominal, Face, Current market), and instances where face value is used only as a proxy. - Country-specific notes (6–9) identify important exceptions and coverage differences that affect interpretation of fiscal aggregates and time-series comparability. *International Monetary Fund | October 2018 — FISCAL MONITOR: MANAGING PUBLIC WEALTH (Table D excerpt and notes)* ### 2001. The concept of overall fiscal balance refers to net lending (+) and borrowing (–) of the general government. In so ### fm1802 - 2001. The concept of overall fiscal balance refers to net lending (+) and borrowing (–) of the general government. In so ### Definitions, conventions, and data notes - Overall fiscal balance: net lending (+) and borrowing (–) of the general government; in some cases refers to total revenue and grants minus total expenditure and net lending. - Valuation conventions: - Nominal = debt securities are valued at their nominal values. - Face = undiscounted amount of principal to be repaid at (or before) maturity. - Current market = debt securities are valued at market prices; insurance, pension, and standardized guarantee schemes are valued according to principles equivalent to market valuation; other debt instruments valued at nominal prices as proxies of market prices. - Country-specific notes: - Lao P.D.R.'s fiscal spending includes capital spending by local governments financed by loans provided by the central bank. - Overall and primary balances in 2012 are based on the monetary statistics and differ from balances calculated from expenditure and revenue data. - Uzbekistan's listing includes the Fund for Reconstruction and Development. - Data provenance: "IMF staff estimates and projections. Projections are based on staff assessment of current policies (see “Fiscal Policy Assumptions” in text)." ### Advanced economies — fiscal positions and projections (selected highlights) - General government overall balance (percent of GDP), selected cross-section: - United States: –12.7 (2009), –10.6 (2010), –9.3 (2011), …, –4.9 (2018), –4.9 (2019), –4.5 (2023). - Japan: –10.2 (2009), –9.5 (2010), –9.4 (2011), …, –2.0 (2022), –2.0 (2023). - Euro Area average: –6.3 (2009), –6.2 (2010), –4.2 (2011), …, –0.8 (2022), –0.9 (2023). - Average (advanced economies): –8.6 (2009), –7.6 (2010), –6.2 (2011), …, –2.4 (2021), –2.3 (2023). - Primary balance (percent of GDP), selected: - United States: –11.4 (2009), –9.1 (2010), –7.5 (2011), …, –2.7 (2021), –2.2 (2023). - Japan: –9.3 (2009), –8.6 (2010), –8.3 (2011), …, –1.9 (2022), –1.8 (2023). - Average (advanced economies): –7.1 (2009), –6.1 (2010), –4.5 (2011), …, –1.0 (2021), –0.8 (2023). - Cyclically adjusted balance (percent of potential GDP), selected: - United States: –7.3 (2009), –9.3 (2010), –7.9 (2011), …, –5.5 (2021), –4.8 (2023). - Japan: –6.7 (2009), –7.9 (2010), –7.8 (2011), …, –2.0 (2022), –2.0 (2023). - Average (advanced economies): –5.7 (2009), –6.6 (2010), –5.5 (2011), …, –2.8 (2021), –2.6 (2023). - Revenue and expenditure (percent of GDP), selected economy figures for 2018: - United States revenue: 31.1 (2013) … 31.7 (2018) and projected 32.3 (2023). - United States expenditure: 41.1 (2009) … 36.6 (2018) and projected 36.8 (2023). - Norway revenue: 55.7 (2009) … 53.6 (2018) and projected 53.3 (2023). - Gross debt (percent of GDP), selected: - Japan: 201.0 (2009), 207.9 (2010), 222.1 (2011), …, 235.6 (2018), 235.6 (2019), 235.6 (2023). - United States: 86.9 (2009), 95.5 (2010), 99.9 (2011), …, 106.8 (2016), 117.0 (2023). - Average (advanced economies) gross debt: 91.7 (2009), 98.3 (2010), 102.4 (2011), …, 103.3 (2021), 103.4 (2023). - Net debt (percent of GDP), selected (definitions and revisions noted in table footnotes): - Norway net debt series revised; example values: –43.8 (2009), –47.4 (2010), …, –102.7 (2023). - United States net debt: 62.7 (2009), 70.0 (2010), 76.5 (2011), …, 82.1 (2021), 83.7 (2023). ### Emerging market and middle-income economies — fiscal trends (selected highlights) - Overall balance (percent of GDP), selected country-level trajectories: - China: –1.7 (2009), –0.4 (2010), –0.1 (2011), …, –4.2 (2021), –4.0 (2023). - Brazil: –3.2 (2009), –2.7 (2010), –2.5 (2011), …, –7.8 (2019), –6.7 (2023). - India: –9.5 (2009), –8.6 (2010), –8.3 (2011), …, –6.3 (2021), –5.9 (2023). - G20 Emerging average overall balance: –3.8 (2009), –2.3 (2010), –1.1 (2011), …, –4.2 (2021), –4.0 (2023). - Primary balance (percent of GDP), selected: - China: –1.3 (2009), 0.1 (2010), 0.4 (2011), …, –3.2 (2021), –2.7 (2023). - Brazil: 1.9 (2009), 2.3 (2010), 2.9 (2011), …, –7.8 (2019), 0.5 (2023) [note: table shows long run deterioration]. - Revenue and expenditure (percent of GDP), selected: - China revenue: 23.8 (2009), 24.6 (2010), 26.9 (2011), …, 28.4 (2018), 28.1 (2023). - India revenue: 18.5 (2009), 18.8 (2010), 19.3 (2011), …, 21.0 (2023). - Gross debt (percent of GDP), selected: - China gross debt: 34.3 (2009), 33.7 (2010), 33.6 (2011), …, 62.7 (2023). - Brazil gross debt: 65.0 (2009), 63.1 (2010), 61.2 (2011), …, 98.3 (2023). - Average (Emerging market and middle-income) gross debt: 39.1 (2009), 38.3 (2010), 37.4 (2011), …, 57.4 (2023). - Structural fiscal indicators (selected EM-Middle Income): - Average projected pension spending change, 2015–30: 1.7 (percent of GDP). - Average projected net present value of pension spending change, 2015–50: 61.4 (percent of GDP). - Average projected health care spending change, 2015–30: 0.7 (percent of GDP). - Average projected gross financing need, 2018: 11.1 (percent of GDP). - Average projected interest rate–growth differential, 2018–23: –3.9 (percent). ### Low-income developing countries — fiscal patterns (selected highlights) - Overall balance (percent of GDP), sample average and regional aggregates: - Average overall balance: –4.1 (2009), –2.9 (2010), –1.2 (2011), …, –4.0 (2018), –3.7 (2023). - Asia average: –4.5 (2009), –2.8 (2010), –2.3 (2011), …, –4.4 (2023). - Sub-Saharan Africa average: –4.0 (2009), –3.6 (2010), –1.0 (2011), …, –3.4 (2023). - Primary balance (percent of GDP), sample average: –3.1 (2009), –2.0 (2010), –0.1 (2011), …, –2.2 (2021), –1.9 (2023). - Revenue and expenditure (percent of GDP), sample averages: - Revenue average: 15.9 (2009), 17.2 (2010), 19.0 (2011), …, 15.5 (2023). - Expenditure average: 20.0 (2009), 20.2 (2010), 20.2 (2011), …, 19.3 (2023). - Gross debt (percent of GDP), sample average: 32.1 (2009), 30.3 (2010), 30.3 (2011), …, 42.6 (2023). - Structural indicators (selected averages for low-income sample): - Average projected pension spending change, 2015–30: 0.6 (percent of GDP). - Average projected net present value of pension spending change, 2015–50: 22.6 (percent of GDP). - Average projected health care spending change, 2015–30: 0.3 (percent of GDP). - Average projected interest rate–growth differential, 2018–23: –6.7 (percent). - Selected country examples: Bangladesh projected overall balance around –4.3 (2023), revenue 10.6 (2023), expenditure 14.9 (2023), gross debt 35.1 (2023). ### Structural fiscal indicators — advanced economies (selected) - Average, advanced economies: - Pension Spending Change, 2015–30: 0.9 (percent of GDP). - Net Present Value of Pension Spending Change, 2015–50: 21.6 (percent of GDP). - Health Care Spending Change, 2015–30: 2.4 (percent of GDP). - Net Present Value of Health Care Spending Change, 2015–50: 84.7 (percent of GDP). - Gross Financing Need, 2018: 18.2 (percent of GDP). - Average Term to Maturity, 2018: 6.9 (years). - Debt-to-Average Maturity, 2018: 16.1 (percent). - Projected Interest Rate–Growth Differential, 2018–23: –1.2 (percent). - Precrisis Overall Balance, 2000–07: –2.1 (percent of GDP). - Projected Overall Balance, 2018–23: –2.4 (percent of GDP). - Nonresident Holding of General Government Debt, 2017: 36.5 (percent of total). - Selected country examples: - Japan: Pension Spending Change, 2015–30 = –1.2; Net Present Value of Pension Spending Change, 2015–50 = –31.7; Gross Financing Need, 2018 = 40.8. - United States: Pension Spending Change, 2015–30 = 1.5; Net Present Value of Pension Spending Change, 2015–50 = 31.4; Gross Financing Need, 2018 = 23.3. *Italic: Source — IMF staff estimates and projections as presented in the METHODOLOGICAL AND STATISTICAL APPENDIX (Fiscal Monitor: Managing Public Wealth, October 2018).* ### Conclusion and Risk Assessment April 2012, Chapter 7 ### Conclusion and Risk Assessment April 2012, Chapter 7 ### Global outlook and near-term risks - Global expansion "while remaining strong, has lost some momentum" and "growth may have plateaued in some major economies." - Prospects increasingly diverge among countries due to differences in policy stances and the combined impact of: - tighter financial conditions, - rising trade barriers, - higher oil prices, - increased geopolitical tensions. - Beyond 2019, growth in most advanced economies is expected to be held back by slow labor force growth and weak labor productivity. - Emerging market and developing economies: growth is "projected to remain relatively robust," but income convergence toward advanced economy levels would likely be less favorable for countries undertaking substantial fiscal adjustment, economic transformation, or experiencing conflicts. - Near-term risks to the global outlook have "recently shifted to the downside and some have partially materialized," notably: - rising trade barriers with adverse consequences for investment and growth, - tightened financial conditions in most emerging market and developing countries since mid-April, - declines in capital flows to some countries reflecting weak fundamentals, higher political risks, and/or U.S. monetary policy normalization. - Advanced-economy financial conditions remain broadly accommodative, but an inflation surprise could lead to an abrupt tightening of monetary policy and wider market pressures. - Key additional risks identified: further escalation of trade tensions, a rise in political and policy uncertainties, and growing inequality. - High debt levels are noted to limit the room for maneuver in many countries. ### Policy recommendations and priorities - Urgency of policy measures to sustain the expansion, strengthen resilience, and raise medium-term growth prospects, given a narrowing window of opportunity. - Fiscal policy: - Encourage countries to rebuild fiscal buffers where needed. - Implement growth-friendly measures calibrated to avoid procyclicality and the risk of sharp drags on activity. - Monetary policy: - Where inflation is below target, "continued monetary accommodation remains appropriate." - Where inflation is close to or above target, "monetary support should be withdrawn in a gradual, data-dependent, and well-communicated manner." - Structural reforms: - Emphasized as critical to boost potential output, ensure gains are widely shared, and improve safety nets to protect those vulnerable to structural change. - Strengthening resilience in emerging market and developing economies: - Prepare for tighter financial conditions and higher volatility as monetary policy normalizes in advanced economies. - Tackle vulnerabilities and enhance resilience with an appropriate mix of fiscal, monetary, exchange rate, and prudential policies. - Capital flow management measures may be appropriate in certain circumstances but "not as a substitute for macroeconomic adjustment." - Maintain credible policy and institutional frameworks, strengthen governance, and improve human and physical capital. - Low-income developing countries: - Priorities include building resilience, lifting potential growth, improving inclusiveness, and making progress toward the "2030 Sustainable Development Goals." - Commodity exporters should prioritize economic diversification. - Create room for development expenditure by broadening the tax base, improving revenue administration, prioritizing spending on health, education, and infrastructure, and cutting wasteful subsidies. - Urgent action needed to contain rising debt vulnerabilities; both debtors and creditors share responsibility for sustainable financing practices and enhancing debt transparency. ### Financial stability and regulatory stance - Most Directors saw that near-term risks to financial stability have increased while medium-term risks remain elevated. - Noted buildup of financial vulnerabilities over years of accommodative conditions, including: - high and rising public and corporate debt, - stretched asset valuations in some major markets. - Priorities for some countries: cleaning up bank balance sheets, improving corporate governance, addressing risks from the sovereign-bank nexus. - A number of Directors considered that regulatory issues pertaining to sovereign exposures would best be left to the remit of the Basel Committee on Banking Supervision. - Emphasis on completing and fully implementing the regulatory reform agenda and avoiding rollbacks of reforms that enhanced system resilience since the global financial crisis. - Financial regulators and supervisors should remain vigilant, paying special attention to liquidity conditions and new risks including cybersecurity, financial technology, and activities outside prudential regulation. - Recommendation to further develop and proactively deploy policy tools, including macroprudential policies, and enhance cross-border coordination. ### Market differentiation and Fund role - Markets have been differentiating among emerging market and developing economies based on fundamentals and idiosyncratic factors. - Importance of the Fund offering granular, tailored policy advice and standing ready to provide financial support to members as needed. ### Public sector balance sheet analysis - Directors agreed that public sector balance sheet analysis is a useful tool to analyze public finances by revealing the full scale of public assets along with debt and nondebt liabilities. - Benefits highlighted: - helps governments identify risks, - manage assets and liabilities, - potentially reduce borrowing costs and raise returns on assets, - long-term intertemporal analysis particularly relevant in aging societies, - added transparency enriches the policy debate. - Limitations acknowledged: - data quality issues and differences in accounting practices hinder cross-country comparisons, - balance sheet approach should be used with caveats to complement traditional fiscal analysis. ### Governance and multilateral cooperation on trade - Most Directors considered escalation of trade tensions a substantial risk to global growth and welfare. - Urged cooperative approaches to: - promote growth in goods and services trade, - reduce trade costs, - resolve disagreements without raising tariff and nontariff barriers, - modernize the rules-based multilateral trading system. - Noted the possibility that trade issues could be resolved positively. - Persistent large external imbalances continue to call for sustained efforts—mindful of cyclical positions—to increase domestic growth potential in surplus countries and to raise supply or rein in demand in deficit countries. *Remarks by the Chair at the conclusion of the Executive Board’s discussion of the Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook on September 20, 2018.* --- _Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2018/october/pdf/fm1802.pdf_