Managing Public Wealth Jason Harris IMF Fiscal Monitor October 2018 November 2018
Managing Public Wealth Overview I. The Public Sector Balance Sheet II. Why Does it Matter? III. Policy Implications – Risk – Public investment – Demographics IV. Conclusion
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 219 percent of GDP Infrastructure 46 % 72 % Others 58 % Natural Resources 38 % Net Worth 21 % Others 11 %
I. The Public Sector Balance Sheet Individual country PSBS for 31 countries
I. The Public Sector Balance Sheet New Zealand Aggregate Public Sector Balance Sheet (in percent of GDP) Assets Liabilities Debt 33 % 80.5 % Infrastructure Others 171.6 % 105.2 % 47 % Net Worth Financial 91.1% Assets 62.2 %
I. 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 Guatemala El Salvador Gambia France India 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 South Africa Turkey Turkey India United States Tanzania Turkey Guatemala Kenya Georgia Tunisia Finland Albania Austria Kazakhstan France India 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 0 50 100 150
I. The Public Sector Balance Sheet New elements Public Corporation Assets and Liabilities 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 0 50 100 150 200 250 300 0 50 100 150
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
II. Why does this Matter? Large Assets → Large Revenue Potential Distribution of Annual Returns from Public Corporations Potential Revenue Gains from Im proved Asset Managem ent (Percent Return on Assets) (in percent of GDP) 40 6 Median = 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 Insert Link to NZ case study Source: IMF Fiscal Monitor, Fall 2018.
II. Why does this Matter? Stronger balance sheet → lower interest
II. Why does this Matter? Stronger balance sheet → Greater resilience Real GDP per Capita Following Recessions Real Governm ent 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 Insert Link to Kazakhstan case study Source: IMF Fiscal Monitor, Fall 2018. Note: Shaded area represents 90 percent confidence interval.
IV. Policy Implications Evolution since the crisis Public Sector Balance Sheet (Weighted average of 17 countries, percent of GDP) Net (Financial) Worth Assets and Liabilities 200 -20 45 190 -25 40 180 -30 35 Net Worth 170 -35 30 (right scale) 160 Assets 25 -40 $11 150 Trillion -45 20 140 -50 15 130 -55 10 Liabilities 120 -60 Net Financial Worth 5 110 (left scale) -65 0 100 2000 2002 2004 2006 2008 2010 2012 2014 2016 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: IMF Fiscal Monitor, Fall 2018. Note: The data excludes natural resource assets and pension liabilities.
IV. Policy Implications - Risk 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 Other liabilities 2000 02 04 06 08 10 12 14 16
IV. Policy Implications - Risk Better Assessment of Exposures to Risk Liquid Assets and Liabilities Forex Assets and Liabilities Risk Adjusted Assets and Liabilities (percent of GDP) (percent of GDP) (percent of GDP) COL LUX IND 1\------- KOR Norway SLV PER TUR------ Norway: 241 GMB CZE IDN------ Kazakhstan SRB 1/ BRA GRC BRB 1\------ SRB 1\ RUS Total risk-adjusted assets New Zealand IRL------ SVN Foreign assets POL AUT UKR------ BEL BGR Canada PLW 1\------ Total risk-adjusted liabilities GEO Foreign liabilities KGZ Liquid assets EST SVK----- Japan PER DNK CHE------ SLB 1/ Short-term URY Net foreign assets Total assets CYP GBR------ United States liabilities COL LVA LTU------ Net liquid FIN Smaller Liquidity Mismatch RUS IDN Liabilities Australia HKG------ liabilities ITA LTU DEU------- MWI 1/ GRC Finland AUS MHL 1\------ MDA NOR ALB------ SLV United Kingdom ESP KGZ NLD------ BGR USA DNK------- JPN South Africa CYP ROM CAN------ USA HRV FRA------ France ISL EST SVK GEO------ MWI 1\ ESP Germany ZAF------ MDA LVA CHE NZL------ ISL DEU Turkey SMR------ NLD PRT POL AUS------ Uganda HRV IRL AUT------ BRA SVN ALB KAZ------ Tanzania UKR LUX HUN------ BEL ROM SWE Kenya KOR------ SWE HUN CZE------ FRA FSM 1\ Barbados GBR FIN------ PRT JPN BTN------ BRB 1/ The Gambia NOR ITA -250 -150 -50 50 150 250 350 450 GMB -60 -40 -20 0 20 40 60 -80 -60 -40 -20 0 20 40 60 80
III. Policy Implications - Risk US – Fiscal Stress Test Fiscal Stress Scenario - 20 20 Public Sector Balance Sheet (percent of baseline GDP) (percent of GDP) Assets 0 250 Student loans 200 Other loans Net worth Negative changes in net worth -10 150 Corporate equities 100 Other finanacial assets -20 Natural resources 50 Other nonfinanacial assets -30 0 -27.9 Net Worth -50 Liabilities -40 Debt securities -100 Pension entitlement -150 -50 GSE debt and MBS -200 -54.1 -250 -60 Other liabilities 2000 02 04 06 08 10 12 14 16 Baseline Debt Nonfinancial GSE loan Pension Other Stress assets losses funds 15
III. Policy Implications – Demographics Finland – Current Policies Add to Future Public Wealth Finland Long-term Fiscal Projections Finland Intertem poral Balance Sheet, 20 16 (percent of GDP) (percent of GDP) 20 60 General Public Public Primary expenditure (right scale) Government Corporations Sector 16 55 208.9 75.2 254.1 Total assets 12 50 of which: Nonfinancial assets 80.2 10.4 90.6 Revenue (right scale) Financial assets 128.7 64.8 163.5 8 45 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 4 40 Primary palance (left scale) 30.3 0.0 30.3 Net Worth Net present value of primary balances 83.3 0 35 Intertemporal net worth 113.6 -4 30 Source: IMF staff estimates. 2005 2015 2025 2035 2045 2055 2065 Link to Intertemporal Balance Sheet
III. Examples – Demographics Finland and Norway – Intertemporal Balance Sheet Intertem poral Net Worth (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 17 balance sheet Source: October 2018 Fiscal Monitor
III. Policy Implications – Demographics New Zealand New Zealand: Public Sector Balance Sheet (percent of GDP) Assets Liabilities Net Worth 57.5 7.1 50.5 Social 33.2 50.5 -17.3 Financial 20.1 12.0 8.1 Commercial 110.8 69.5 41.3 Static balance sheet 1,381.9 1,480.0 -98.1 Fiscal 1,492.7 1,549.5 -56.8 Intertemporal balance sheet Source: New Zealand 2017 Investment Statement.
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