Mapping the Unknown
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- Authors: IAN BALL, JOHN CROMPTON, DAG DETTER
- Published: March 1, 2022
Valuation unknown: scale and measurement
- Public commercial assets are defined as any assets able to generate income if professionally managed, including operational assets (utilities), transportation assets (airports, ports, subway systems), and real estate.
- At more than $90 trillion, the value of the world’s publicly listed companies is roughly equal to that of global GDP.
- The IMF has estimated global public assets at twice the value of global GDP, though the IMF’s assessment relies on government data and likely understates true value.
- Government accounting often records public assets at historical cost or assigns them no value, producing divergence between book records and market reality over decades or centuries.
Costs of poor asset information and management
- An IMF study estimates an annual cost of about 1.5 percent of the total value of assets, equivalent to about 3 percent of global GDP, due to inefficiencies (poor accounting, mismanagement, waste, corruption).
- Consequences include:
- Weaker appearing government balance sheets.
- Misleading measures of debt sustainability and a bias against investment.
- Reduced ability to hold governments accountable for spending, borrowing, and intergenerational fairness.
Accounting and governance solutions
- Moving government accounting from cash to accrual basis and showing assets at fair market value (rather than historical or zero cost) enables:
- At least annual assessments of public net worth (assets minus liabilities).
- Better incentives to invest in productive assets and improved accountability.
- Precedents:
- The IMF shifted its Government Finance Statistics Manual from cash to accrual almost two decades ago.
- New Zealand introduced accrual-based accounting and a government financial management framework more than three decades ago and moved from two decades of government deficits and declining net worth to 30 years of value creation with very few deficit years.
- Industry bodies predict that in a few years, almost half the world’s governments will adopt accrual-based accounting (IFAC and CIPFA 2021), but far fewer put accrual information at the heart of financial management and budgets.
Public wealth funds as a practical mechanism
- Transferring public commercial assets to public wealth funds can rapidly bring private-sector governance, management, accounting, and accountability to public asset pools, often delivering benefits within a year or two versus the longer time to reform accounting systems.
- Examples:
- Temasek (Singapore), founded in 1974, manages key government holdings (financial services, transport, telecom, industrials); Capital Land became a major real estate company.
- Hong Kong SAR’s MTR financed a subway system largely through value capture from property development adjacent to stations.
- Sweden (1998 to 2001) managed its public portfolio as if owned by corporate shareholders over a designated three-year period, turning around telecom, electricity, railway, and postal monopolies within the three-year timetable; real estate supported the turnaround.
- Finland launched a public wealth fund in 2008 that has generated a solid return since inception and a separate public wealth fund for national government real estate.
- Local examples: Hamburg and Copenhagen used urban wealth funds to modernize ports and build housing, workspaces, schools, parks, retail and cultural facilities; Copenhagen used operational surpluses to fund part of a metro extension; London and Continental Railways and Jernhusen developed areas around train stations without using taxes.
- Public wealth funds enable access to debt and equity markets, engagement with specialist equity funds, and corporate partnerships, but must deliver value to voters and taxpayers through strong governance and commercially driven decisions.
Practical asset mapping cases
- Property remains the largest single asset class with extensive government holdings; constructing asset maps is often straightforward in developed economies using land registries, transaction information, and web-based surveys.
- Pittsburgh case study:
- City officials believed they owned about 400 public properties valued in the city’s accounts at about $57 million.
- A specialist firm completed an asset mapping exercise in two weeks for about $20,000.
- The exercise found about 11,000 city-owned properties, valued at $3.9 billion—70 times book value.
- Many holdings were not needed to deliver public services and, if professionally managed, could generate income beyond current tax revenue or be sold to finance new investment without increasing taxes or borrowing.
Political economy and implementation challenges
- Barriers to improved asset management include:
- Political leaders focusing on immediate known problems.
- Perverse incentives within government departments that may avoid identifying assets that would create pressure to spend, sell, or manage them better.
- The perceived scale and duration of the task deterring elected officials with shorter horizons.
- In less developed economies, information quality about property ownership varies widely, requiring steps that promote transparency and accountability; effective use of state assets can also drive economic and institutional development.
Policy implications and recommendations
- Governments facing fiscal strain should:
- Conduct asset maps to identify hidden public commercial assets, especially real estate.
- Move accounting to accrual basis and report assets at fair market value to measure public net worth at least annually.
- Consider transferring public commercial assets into public wealth funds with strong governance to realize commercial returns and development outcomes quickly.
- Rationale:
- Addressing COVID-19 and climate change will strain public finances for at least a generation; managing public assets sustainably can reduce the need for prolonged austerity.
- Focusing on net worth and professional asset management is both an economic and moral goal to benefit current and future generations.
Ian Ball, John Crompton, Dag Detter; F&D Magazine, March 2022.
Content in this bundle
- خارطة المجهول
- Mapping the Unknown
- Cartographier l’inconnu
- Картография неизвестного – Финансы и развитие – Переосмысление бюджетных основ – март 2022 года
- Cartografía de lo desconocido ● Finanzas y Desarrollo ● Marzo de 2022
- 测绘未知领域
- Unlocking Public Wealth: Governments and Public Assets - IMF F&D Magazine