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Managing Government Balance Sheet: a Focus on Public Assets - Manal Fouad, IMF

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This presentation was made by Manal Fouad, IMF, at the 19th OECD Senior Financial Management and Reporting Officials Symposium held at the OECD Conference Centre, Paris, on 4-5 March 2019

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Managing Government Balance Sheet: a Focus on Public Assets - Manal Fouad, IMF

  1. 1. Managing Public Wealth IMF Fiscal Monitor October 2018 19th Annual Meeting of OECD Senior Financial Management and Reporting Officials Paris, March 2019
  2. 2. Managing Public Wealth Overview I. The Public Sector Balance Sheet II. Process of Compilation III. Why Does it Matter? IV. Policy Implications V. Conclusion
  3. 3. Managing Public Wealth: October 2018 Fiscal Monitor Key Messages • Move beyond debt and deficits, to provide the most comprehensive view of public finances • Shed light on public assets and liabilities by bringing together existing and newly estimated PSBS data into a single source • Identify the macro-economic relevance of balance sheets and their impact on sovereign yields, economic resilience and potential revenues • Develop and apply a conceptual framework for assessing balance sheets to improve fiscal policy and better manage fiscal risks 3
  4. 4. I. The Public Sector Balance Sheet Aggregate PSBS for 31 countries Natural Resources 38 % Infrastructure 72 % Financial Assets 99 % GG Debt 94 % Pension Liabilities 46 % Others 58 % Others 11 % Net Worth 21 % Aggregate Public Sector Balance Sheet (in percent of GDP) Assets Liabilities US$101 Trillion or 219 percent of GDP 198 percent of GDP
  5. 5. I. The Public Sector Balance Sheet Individual country PSBS for 31 countries
  6. 6. 0 100 200 300 400 Norway Portugal Finland Japan Germany Korea Kazakhstan Russia United States Colombia Brazil Canada France Austria Tunisia Turkey India South Africa United Kingdom New Zealand Georgia Peru Albania Indonesia Australia El Salvador Tanzania Kenya Gambia Guatemala Uganda 0 50 100 150 Japan South Africa Australia Norway Tunisia Portugal Korea Georgia Russia Austria New Zealand United States France Kazakhstan Finland Kenya Tanzania Turkey Albania United Kingdom Germany Colombia Uganda Peru Brazil Canada Indonesia Gambia India Guatemala El Salvador I. The Public Sector Balance Sheet New elements Financial Assets (Percent of GDP) Nonfinancial Assets (Percent of GDP)
  7. 7. 0 50 100 150 Portugal Finland United Kingdom Norway Brazil Austria United States France Korea South Africa Germany Tanzania Australia Japan Peru Turkey Kenya Uganda Tunisia El Salvador Canada Gambia Colombia India Guatemala New Zealand Georgia Russia Indonesia Albania Kazakhstan 0 50 100 150 200 250 300 Japan Portugal Germany Tunisia Russia South Africa Norway Brazil United States Korea Kazakhstan India France United Kingdom Turkey Finland New Zealand Indonesia Colombia Australia Georgia Gambia Albania Peru Austria Canada El Salvador Uganda Tanzania Kenya Guatemala I. The Public Sector Balance Sheet New elements Public Corporation Assets and Liabilities (Percent of GDP) Accrued Pension Liabilities (Percent of GDP)
  8. 8. I. The Public Sector Balance Sheet The US and Japan – Consolidation and Assets PSBS – US and Japan (2016, percent of GDP) 8 0 50 100 150 200 250 300 350 2000 2002 2004 2006 2008 2010 2012 2014 2016 Private Public 149 134 283 0 20 40 60 80 100 120 140 160 180 2001 2004 2007 2010 2013 2016 Public Private 54 110 164 Public Debt Holdings (percent of GDP) Japan United States Source: October 2018 Fiscal Monitor, Federal Reserve and Bank of Japan -350 -300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300 350 United States Japan Nonfinancial Assets Financial Assets Liabilities ex Pensions Pension Liabilities GG Debt GG Debt Net Worth
  9. 9. I. The Public Sector Balance Sheet Challenges and Limitations Balance sheets aren’t easy • Measurement Problems • Data availability issues • Many assets are illiquid or not marketable • Assets are more volatile than debt For these reasons: • Balance sheet approach complements existing debt approach • Consider alternative indicators: net financial worth & liquid assets • Strengthen statistical and accounting systems But • Fiscal Monitor shows it is feasible to compile and analyze estimates across all income levels
  10. 10. II. Compiling the Public Sector Balance Sheet Approach for compilation (Indonesia) 10 • Inventory of Data – Available Data • General Government Data • Central Bank Balance Sheet – Missing data for Full Public Sector • Data of Public Corporations • Central Bank Transactions • Determine the size the public corporations – 118 SOEs in Indonesia (end of 2016) – 13 SOEs represented 86 % of the assets • 5 are financial corporations
  11. 11. II. Compiling the Public Sector Balance Sheet Process of compilation 11 • Source Data – General Government : Data reported to the GFS database – Central Bank • Balance Sheet Data reported to the International Financial Statistics (IFS) • Financial Statements to compile the flows – Individual Financial Statements of SOEs • 13 biggest SOE • Estimation of the rest • Process of Compilation – Balance Sheet • Mapping individual balance sheet into the GFS template • Determining consolidation lines • Estimating the remaining of the public corporations • Intra-consolidation within the same sub-sector • Inter-consolidation among sub-sectors – Flows • In addition to the steps above, ensuring the integration of stocks and flows, thus residuals were calculated
  12. 12. II. Compiling the Public Sector Balance Sheet Process of compilation 12 • Advantage – Availability of detailed financial statements online- in English! • Challenges – Time consuming exercise • 7 years of time series requested the mapping of 91 financial statements • PDF statements into Spreadsheets – No simple copy- paste because financial statements are not standard (even for the same company) – Identifying the consolidation items (going through the notes of the financial statements) – No standard breakdown in the financial statements • Currencies – Rupiah vs. USD • Different scales – Compiling the flows • Identification of transactions and other economic flows – Integration of stocks and flows • Various exchange rates (end of year vs. average) – Consolidation • Rules of thumb
  13. 13. II. Compiling the Public Sector Balance Sheet Process of compilation 13 • However, the result is rewarding – 7 years times series of full public sector balance – Additional details related to SOEs (Allowing the in-depth analysis of the SOEs) – Production of the intertemporal balance sheet • Most importantly, – Authorities were motivated to reproduce the exercise • Production of the 2015-2016 balance sheet for the public sector • Work in progress to produce the flows
  14. 14. III. Why does this Matter? Large Assets → Large Revenue Potential Potential Revenue Gains from Improved Asset Management (in percent of GDP) Source: IMF Fiscal Monitor, Fall 2018. Distribution of Annual Returns from Public Corporations (Percent Return on Assets) 0 5 10 15 20 25 30 35 40 <-4 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 >10 Median = 0.6 percent 0 1 2 3 4 5 6 Non-financial public corporations Government financial assets Total PercentofGDP Current returns Potential Improvement 1 2 3
  15. 15. III. Why does this Matter? Stronger balance sheet → lower interest
  16. 16. III. Why does this Matter? Stronger balance sheet → Greater resilience Real GDP per Capita Following Recessions (in percent) Source: IMF Fiscal Monitor, Fall 2018. Note: Shaded area represents 90 percent confidence interval. -20 -10 0 10 20 30 40 0 1 2 3 4 5 Percentagechange Year -6 -3 0 3 6 9 12 0 1 2 3 4 5 Percentagechange Year Real Government Expenditure per Capita Following Recessions (in percent) Strong Balance Sheets Weak Balance Sheets
  17. 17. IV. Policy Implications Evolution since the crisis Public Sector Balance Sheet (Weighted average of 17 countries, percent of GDP) $11 Trillion Source: IMF Fiscal Monitor, Fall 2018. Note: The data excludes natural resource assets and pension liabilities. 100 110 120 130 140 150 160 170 180 190 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 Assets Liabilities 0 5 10 15 20 25 30 35 40 45 -65 -60 -55 -50 -45 -40 -35 -30 -25 -20 2000 2002 2004 2006 2008 2010 2012 2014 2016 Net Worth (right scale) Net Financial Worth (left scale) Assets and Liabilities Net (Financial) Worth
  18. 18. IV. Policy Implications - Risk Better Assessment of Exposures to Risk -80 -60 -40 -20 0 20 40 60 80 GMB ITA BRB 1/ PRT GBR FRA HUN SWE BEL UKR ALB BRA IRL POL NLD DEU CHE MDA ESP SVK ISL HRV ROM JPN USA KGZ SLV NOR AUS MWI 1/ LTU IDN FIN LVA CYP SLB 1/ DNK EST GEO BGR AUT SVN RUS GRC SRB 1/ CZE PER KOR LUX COL Liquid assets Short-term liabilities Net liquid liabilities SmallerLiquidityMismatch -60 -40 -20 0 20 40 60 The Gambia Barbados Kenya Tanzania Uganda Turkey Germany France South Africa United Kingdom Finland Australia United States Japan Canada New Zealand Kazakhstan Norway Foreign assets Foreign liabilities Net foreign assets Norway: 241 Liquid Assets and Liabilities (percent of GDP) Forex Assets and Liabilities (percent of GDP) -250 -150 -50 50 150 250 350 450 NOR BTN------ JPN FIN------ FSM 1 CZE------ SWE KOR------ ROM HUN------ LUX KAZ------ SVN AUT------ HRV AUS------ PRT SMR------ ISL NZL------ LVA ZAF------ MWI 1 GEO------ EST FRA------ USA CAN------ CYP DNK------- BGR NLD------ ESP ALB------ MDA MHL 1------ GRC DEU------- ITA HKG------ RUS LTU------ COL GBR------ URY CHE------ PER SVK----- KGZ PLW 1------ BEL UKR------ POL IRL------ SRB 1 BRB 1------ BRA IDN------ GMB TUR------ SLV IND 1------- Total risk-adjusted assets Total risk-adjusted liabilities Total assets Liabilities Risk Adjusted Assets and Liabilities (percent of GDP)
  19. 19. V. Looking Forward • IMF will continue to provide capacity development – IMF can assist countries with compiling a balance sheet. – Fiscal Transparency Evaluations also provide a calculation of the balance sheet and fiscal risks – Fiscal risks (SOEs, other) • Will release the PSBS database in early summer – Will include more than the 31 countries
  20. 20. • FM shows the benefits of PSBS analysis – Comprehensive view of public finances – Identify & manage risks – Evaluate policies • Balance Sheets are macro-relevant – Revenues from better management – Lower interest cost – Shorter and shallower recessions • Promotes transparency and accountability – Public assets at the service of economic and social goals – Accountability to citizens and creditors V. Conclusion 20
  21. 21. Thank You

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