## fmexs

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**Canonical URL:** [fmexs](https://www.imf.org/-/media/files/publications/fiscal-monitor/2018/october/pdf/fmexs.pdf)

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### Executive summary
- Public sector balance sheets provide the most comprehensive picture of public wealth, bringing together all accumulated assets and liabilities the government controls, including public corporations, natural resources, and pension liabilities.
- Most governments do not provide such transparency; better balance sheet management enables countries to increase revenues, reduce risks, and improve fiscal policymaking.
- A new database presents comprehensive estimates of public sector assets and liabilities for a broad sample of 31 countries, covering 61 percent of the global economy, and provides tools to analyze and manage public wealth.

### Estimates and key statistics
- Total assets in the sample: US$101 trillion or 219 percent of GDP.
- Public corporation assets: 120 percent of GDP.
- Natural resources: average 110 percent of GDP among the large natural-resource-producing countries.
- General government public debt (standard measure): 94 percent of GDP for these countries.
- Total public sector liabilities: 198 percent of GDP.
- Accrued pension liabilities included in total liabilities: 46 percent of GDP.
- Net worth is positive on average, although about one-third of the countries in the sample are in negative territory, including most of the G7.

### Net worth, intertemporal analysis, and fiscal policy context
- Net worth (assets minus liabilities) does not account for the state’s ability to tax in the future; intertemporal balance sheet analysis combines current wealth with future revenue and expenditure and is therefore important.
- Balance sheet strength is a tool to support public policy objectives rather than an end in itself.
- Improving public sector accounting standards is important because balance sheet estimates involve data quality issues and valuation challenges.

### Legacy of the global financial crisis and resilience
- The scars from the global financial crisis remain evident a decade later. 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 creates assets and accounts for valuation effects, which are particularly large on the asset side.
- Governments are urged to rebuild balance sheets by reducing debt and investing in high-quality assets.
- Tools introduced include examining both sides of the balance sheet to identify imbalances or mismatches and using fiscal stress tests to gauge resilience against tail-risk shocks; tests should ideally be applied to the full public sector balance sheet where data are available.

### Potential gains from asset management and examples
- Revenue gains from nonfinancial public corporations and government financial assets alone could be as high as 3 percent of GDP a year, equivalent to annual corporate tax collections across advanced economies.
- Considerable gains could also be realized from government nonfinancial assets.
- Practical experience from Australia, New Zealand, the United Kingdom, and Uruguay can guide countries on increasing effectiveness and returns on assets while reducing risk.

### Feasibility across country contexts
- Basic balance sheet analysis is within reach of many countries, not just advanced economies. Balance sheet estimates can be developed even in data-constrained environments like The Gambia or complex emerging economies like Indonesia.
- Estimates should be treated with caution because accounting and statistical standards vary widely. Once produced, analyzing, assessing, and projecting the balance sheet forward is relatively simple using easy-to-use frameworks.

### Selected case-study findings
- 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.
- 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 public corporation performance entail future risks.
- 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, with potentially larger gains from strengthened infrastructure investment efficiency.
- Norway’s fiscal position is very strong, but long-term spending pressures significantly reduce its intertemporal net worth relative to its vast asset position.
- Finland’s recent and planned reforms mean 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.
- In Kazakhstan, balance sheet effects cushioned the impact of the halving of oil prices in 2014, partly due to persistent positive exchange rate effects on oil revenue savings held in liquid foreign currency assets; these savings also allowed the government to undertake a large stimulus package.

### Policy implications and lessons
- Both sides of the balance sheet matter: governments should consider policy effects on assets and nondebt liabilities in addition to debt.
- Valuation changes can have large wealth effects and should be included in risk management.
- Much fiscal activity occurs outside the general government; including public corporations in fiscal analysis is necessary to assess and manage fiscal risk effectively.
- Comparing current public wealth with long-term fiscal projections reveals preparedness to meet demographic pressures, especially in rapidly aging societies.
- Publishing balance sheet information can elevate public policy debate and focus attention on 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 the fiscal risk report.

*Source: International Monetary Fund | October 2018.*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2018/october/pdf/fmexs.pdf_