Managing Public Wealth Alexander Tieman IMF, Fiscal Affairs Department IMF Fiscal Monitor October 2018 AIReF Madrid, November 7, 2018
Managing Public Wealth Overview I. The Public Sector Balance Sheet II. Why Does it Matter? III. Examples IV. Conclusion 2
I. The Public Sector Balance Sheet Aggregate PSBS for 31 countries Aggregate Public Sector Balance Sheet (in percent of GDP) Assets Liabilities Financial GG Assets Debt 99 % 94 % US$101 Trillion 198 percent of GDP or Pension Liabilities Infrastructure 219 percent of GDP 46 % 72 % Others 58 % Natural Resources 38 % Net Worth 21 % Others 11 % Source: IMF staff estimates, based on IMF October 2018 Fiscal Monitor. 3
I. The Public Sector Balance Sheet Individual country PSBS for 31 countries 4
II. The Public Sector Balance Sheet New elements Financial Assets Nonfinancial Assets Natural Resource Assets (Percent of GDP) (Percent of GDP) (Percent of GDP) Uganda Gambia El Salvador Guatemala El Salvador Guatemala Gambia India France Kenya Japan Gambia Tanzania Korea Indonesia El Salvador Austria Canada Australia Germany Brazil Indonesia New Zealand Peru Albania Portugal Uganda Peru Uganda Colombia Georgia Finland Germany New Zealand Kenya United Kingdom United Kingdom United Kingdom Albania Turkey South Africa Turkey India United States Tanzania Turkey Guatemala Kenya Georgia Tunisia Finland Albania Austria Kazakhstan India France France Tanzania Canada United States Canada Brazil New Zealand Colombia Colombia Austria Tunisia United States Russia Indonesia Russia Georgia Brazil Kazakhstan Korea South Africa Korea Portugal Australia Germany Tunisia Norway Japan Norway Peru Finland Australia Kazakhstan Portugal South Africa Russia Norway Japan 0 50 100 150 200 250 300 350 0 100 200 300 400 5 0 50 100 150 Source: October 2018 Fiscal Monitor
I. The Public Sector Balance Sheet New elements Public Corporation Assets Accrued Pension Liabilities (Percent of GDP) (Percent of GDP) Guatemala Kazakhstan Kenya Albania Tanzania Indonesia Uganda Russia El Salvador Georgia Canada New Zealand Austria Guatemala Peru India Albania Colombia Gambia Gambia Georgia Canada Australia El Salvador Colombia Tunisia Indonesia Uganda New Zealand Kenya Finland Turkey Turkey Peru United Kingdom Japan France Australia India Tanzania Kazakhstan Germany Korea South Africa United States Korea Brazil France Norway United States South Africa Austria Russia Brazil Tunisia Norway Germany United Kingdom Portugal Finland Japan Portugal 6 0 50 100 150 200 250 300 0 50 100 150 Source: October 2018 Fiscal Monitor
I. The Public Sector Balance Sheet Challenges and Limitations Balance sheets aren’t easy • Measurement and data availability issues (Spain GG BS) • Many assets are illiquid or not marketable Bottom line: • Balance sheet approach complements existing debt approach • Consider alternative indicators: net financial worth & liquid assets • Strengthen statistical and accounting systems • Doable even in data-constrained environment (e.g., The Gambia) 7
II. Why does it Matter? Large Assets → Large Revenue Potential Distribution of Annual Returns from Public Corporations Potential Revenue Gains from I mproved Asset M anagement (Percent Return on Assets) (in percent of GDP) 40 6 M edian = 0.6 percent Current returns 35 Potential Improvement 5 30 4 Percent of GDP 25 3 2 20 3 15 2 10 1 5 1 0 0 <-4 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 >10 Non-financial public Government financial Total corporations assets Source: IMF October 2018 Fiscal Monitor. 8 New Zealand case study
II. Why does it Matter? Stronger balance sheet → lower interest Source: IMF October 2018 Fiscal Monitor. 9
II. Why does it Matter? Stronger balance sheet → Greater resilience Real GDP per Capita Following Recessions Real Government Expenditure per Capita Following (in percent) Recessions (in percent) 40 12 30 9 Percentage change Percentage change 20 6 10 3 0 0 -10 -3 -20 -6 0 1 2 3 4 5 0 1 2 3 4 5 Year Year Strong Balance Sheets Weak Balance Sheets Source: IMF October 2018 Fiscal Monitor. Note: Shaded area represents 90 percent confidence interval. Kazakhstan case study 10
III. Examples The US and Japan – Consolidation and Assets PSBS – US and Japan Public Debt H oldings (percent of GDP) (2016, percent of GDP) Japan United States 350 350 300 180 164 283 160 250 300 Nonfinancial Assets 149 140 200 Public 250 54 120 150 Public 200 100 110 100 150 80 Financial Assets 134 50 60 100 Private 0 40 Private Net Worth 50 -50 20 0 GG Debt 0 -100 Liabilities ex Pensions 2000 2002 2004 2006 2008 2010 2012 2014 2016 2001 2004 2007 2010 2013 2016 -150 -200 GG Debt -250 Pension Liabilities -300 -350 United States Japan 11 Sources: IMF October 2018 Fiscal Monitor, US Federal Reserve, and Bank of Japan
III. Examples UK – Impact of the crisis UK – Public Sector Balance Sheet (percent of GDP) 400 Assets 300 Financial public 200 corporations assets Other assets 100 0 Net Worth Liabilities -100 Financial public -200 corporations liabilities -300 Pension liabilities -400 Evolution since Other liabilities 2000 02 04 06 08 10 12 14 16 the crisis Source: October 2018 Fiscal Monitor 12
III. Examples China – Transparency and Buffers EM : Levels of Public and Private Debt EM : General Government Balance Sheets (percent of GDP) (percent of GDP) 250 250 Global Financial Asian Financial 200 Financial assets Nonfinancial assets Liabilities Net worth Net financial worth Crisis Crisis 200 150 150 Private Debt 100 100 Public Debt 50 50 0 0 -50 -50 -100 -100 -150 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 -150 Barbados* Gambia, The Brazil El Salvador India* Poland Ukraine Palau* Guatemala Albania Kyrgyz Republic Serbia Turkey Uganda Colombia Indonesia Kenya Uruguay Tanzania Croatia Marshall Islands Hungary Peru Moldova South Africa Malawi Bulgaria Georgia Russia Romania Kazakhstan Micronesia* China 13 Source: Global Debt Database and October 2018 Fiscal Monitor
III. Examples – Risk Identification US – Fiscal Stress Test US public sector balance sheet Fiscal stress scenario - 2020 (percent of GDP) (percent of baseline GDP) 250 0 200 150 -10 100 50 -20 0 -50 -30 -28 -100 -150 -40 -200 2000 2002 2004 2006 2008 2010 2012 2014 2016 -50 -54 -60 Baseline Debt Nonfinancial GSEs: loan Pension Other Stress assets losses funds 14
III. Examples - Policy Evaluation Indonesia – Public Investment boosts Public Wealth Change in I ntertemporal Net W orth from H igher I nvestment Public Sector Balance Sheet (percent of GDP) (percent of 2023 baseline GDP) 250 0 Assets Net worth -2 Financial assets 200 Postive changes in net worth -4 Fixed assets 150 -6 Other nonfinancial assets -8 100 Natural resources -10 50 Net worth -12 Liabilities 0 -14 Other liabilities -16 -50 -18 Debt securities and loans -100 -20 2010 11 12 13 14 15 16 Currency/deposits Baseline net worth Change in net assets Change in future Scenario net worth primary balances 15 Source: October 2018 Fiscal Monitor
III. Examples – Demographics Finland and Norway – Intertemporal Balance Sheet I ntertemporal Net W orth (percent of GDP) 800 Static Intertemporal Intertemporal 600 Component 400 Natural resources 410 ppt 101 ppt 200 Other assets 0 Liabilities -200 (Intertemporal) net -400 worth -600 Construction of Norway Finland Norway Finland intertemporal 16 balance sheet Source: October 2018 Fiscal Monitor
V. Conclusion • Our report shows the benefits of PSBS analysis – Comprehensive view of public finances – Identify & manage risks – Evaluate policies – Macroeconomic relevance • Promotes transparency and accountability – Public assets at the service of economic and social goals – Accountability to citizens and creditors • Next steps – Start compiling balance sheets – Perform basic balance sheet analysis – Over time, improve statistical and accounting practices 17
Thank You Managing Public Wealth IMF October 2018 Fiscal Monitor www.imf.org/fiscalmonitor Blog: The Wealth of Nations: Governments Can Better Manage What They Own and Owe Full Report: Managing Public Wealth
Backpocket 19
Additional Detail on Natural Resources W ealth Aggregate Public Sector Balance Sheet (in percent of GDP) Assets Liabilities Natural resources (in percent of GDP) Russian Federation 340.2 Financial Kazakhstan 219.4 GG Peru 169.4 Assets Australia 163.6 Debt Norway 155.6 99 % 94 % South Africa 101.4 Brazil 72.7 Indonesia 60.2 Tunisia 51.3 Colombia 48.6 198 % Canada 42.1 Accrued Tanzania 40.6 219 % India 40.5 Pension Albania 40.3 Liabilities Infrastructure Georgia 19.6 Guatemala 16 46 % 72 % United States 10.6 Turkey 9 United Kingdom 7.4 Kenya 5.4 Others Finland 5.1 58 % Uganda 4.7 Natural Portugal 4.3 New Zealand 2.6 Resources Germany 1.4 38 % Austria 0.8 Net Worth Korea, Republic of 0.2 21 % Japan 0.1 Others - 11 % 20 Source: IMF Fiscal Monitor, Fall 2018.
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