Disclaimer: The Fiscal Monitor is a survey by the IMF staff published twice a year, in the spring and fall. The report analyzes the latest public finance developments, updates medium-term fiscal projections, and assesses policies to put public finances on a sustainable footing. The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on September 20, 2018. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.
Recommended citation: International Monetary Fund (IMF). 2018. Fiscal Monitor: Managing Public Wealth. Washington, October.
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Using the Balance Sheet to Evaluate Fiscal Policies
Balance Sheet Analysis in Practice
Box 1.1. Potential Revenue Gains from Better Asset Management
Box 1.2. Balance Sheet Strength and the Macro Economy
Box 1.3. China—Revisiting the General Government’s Balance Sheet
Annex 1.1. Public Sector Balance Sheet Database Coverage
Annex 1.2. Public Sector Balance Sheet Methodology
Annex Box 1.2.1. The Statistical Treatment of Natural Resource Assets
Annex 1.3. Balance Sheet Strength and Sovereign Bond Yields
Annex 1.4. Balance Sheet Strength and the Macro Economy
Methodological and Statistical Appendix
Data and Conventions
Fiscal Policy Assumptions
Definition and Coverage of Fiscal Data
Table A. Economy Groupings
Table B. Advanced Economies: Definition and Coverage of Fiscal Monitor Data
Table C. Emerging Market and Middle-Income Economies: Definition and Coverage of Fiscal Monitor Data
Table D. Low-Income Developing Countries: Definition and Coverage of Fiscal Monitor Data
List of Tables
Advanced Economies (A1–A8)
Emerging Market and Middle-Income Economies (A9–A16)
Low-Income Developing Countries (A17–A22)
Structural Fiscal Indicators (A23–A25)
IMF Executive Board Discussion of the Outlook
Figure 1.1. Public Sector Balance Sheets
Figure 1.2. The Balance Sheet Framework
Figure 1.3. Additional Elements of the Public Sector Balance Sheet
Figure 1.4. State of General Government Balance Sheets, 2016
Figure 1.5. Public Sector Balance Sheets, 2000–16
Figure 1.6. Decomposition of Changes in Net Worth, 2007–16
Figure 1.7. The United Kingdom: Balance Sheet Developments, 2000–16
Figure 1.8. Finland: Changes in Net Worth, 2000–16
Figure 1.9. Finland: Intertemporal Balance Sheet
Figure 1.10. Finland: Net Worth
Figure 1.11. United States: Public Sector Balance Sheet
Figure 1.12. United States: State and Local Government Retirement Fund Assets and Liabilities
Figure 1.13. United States: State and Local Government Retirement Funds
Figure 1.14. United States: Effects of a Severe Stress Scenario on Static Net Worth, 2020
Figure 1.15. The Gambia: Gross Financing Needs
Figure 1.16. Kazakhstan: Evolution of Net Worth
Figure 1.17. Indonesia: Public Sector Balance Sheet, 2010–16
Figure 1.18. Indonesia: Intertemporal Net Worth
Figure 1.19. Norway and Finland: Intertemporal Net Worth
Figure 1.20. Australia: Net Financial Worth Projections
Figure 1.1.1. Nonfinancial Public Corporations Returns
Figure 1.2.1. Fiscal Policy and Recovery in the Aftermath of Economic Recessions
Figure 1.2.2. Impact of a 10 Percent of GDP Change on Yields
Figure 1.3.1. Weak Financial Performance of State-Owned Enterprises
Figure 1.3.2. Government Net Financial Worth
Figure 184.108.40.206. Kazakhstan: Net Operating Balance
Table 1.1. The Gambia: Public Sector Balance Sheet, 2016
Table 1.2. Kazakhstan: Public Sector Balance Sheet, 2016
Table 1.3. Norway: Public Sector Balance Sheet, 2016
Table 1.4. New Zealand: Intertemporal Balance Sheet
Annex Table 1.1.1. Public Sector, General Government, and Central Government Coverage
Annex Table 1.2.1. Composition of the Public Sector Balance Sheet
Annex Table 1.2.2. Risk Weights of Assets and Liabilities, by Instrument
Annex Table 1.2.3. Time Series Availability in the Public Sector Balance Sheet Database
Annex Table 1.3.1. Government Balance Sheet and Sovereign Bond Yields
Annex Table 1.4.1. Recovery and Fiscal Policy in the Aftermath of Economic Recessions
Editor’s Note (October 9, 2018)
The online edition of this report has been updated with a corrected version of Figure 1.11.
Assumptions and Conventions
The following symbols have been used throughout this publication:
… to indicate that data are not available
—to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist
– between years or months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months
/between years (for example, 2008/09) to indicate a fiscal or financial year
“Billion” means a thousand million; “trillion” means a thousand billion.
“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).
“n.a.” means “not applicable.”
Minor discrepancies between sums of constituent figures and totals are due to rounding.
As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.
Corrections and Revisions
The data and analysis appearing in the Fiscal Monitor are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online tables of contents.
The projections included in this issue of the Fiscal Monitor are based on the same database used for the October 2018 World Economic Outlook and Global Financial Stability Report (and are referred to as “IMF staff projections”). In the Methodological and Statistical Appendix, fiscal projections refer to the general government unless otherwise indicated. Short-term projections are based on officially announced budgets, adjusted for differences between the national authorities and the IMF staff regarding macroeconomic assumptions. The medium-term fiscal projections incorporate policy measures that are judged by the IMF staff as likely to be implemented. For countries supported by an IMF arrangement, the medium-term projections are those under the arrangement. In cases in which the IMF staff has insufficient information to assess the authorities’ budget intentions and prospects for policy implementation, an unchanged cyclically adjusted primary balance is assumed, unless indicated otherwise. Details on the composition of the groups, as well as country-specific assumptions, can be found in the Methodological and Statistical Appendix.
The Fiscal Monitor is prepared by the IMF Fiscal Affairs Department under the general guidance of Vitor Gaspar, Director of the Department. The project was directed by Abdelhak Senhadji, Deputy Director; Catherine Pattillo, Assistant Director; and Carolina Renteria, Division Chief. The main authors of this report are Jason Harris and Alexander Tieman (team leaders), Miguel Alves, Sage de Clerck, Fabien Gonguet, Klaus Hellwig, John Ralyea, Majdeline El Rayess, and Seyed Reza Yousefi. Contributions were received from Maren Brede, Salvatore Dell’Erba, Avril Halstead, Christian Henn, Thordur Jonassen, Yugo Koshima, Raphael Lam, Marialuz Moreno Badia, Ashni Singh, Alberto Soler, Philip Stokoe, and Aleksandra Zdzienicka. Under the guidance of Miguel Alves, these and other staff across the Fiscal Affairs and Statistics Departments, including Laura Doherty, David Gentry, Guohua Huang, Ayoub Mharzi, Jimmy McHugh, Gary Jones, Mariana Sabates Cuadrado, Sandeep Saxena, and Ercument Tulun, collected, compiled, and validated the data. This effort was facilitated by Gabriel Quiros and Rainer Koehler. Discussions at a workshop in March 2018 and bilateral meetings with Sebastian Boitreaud, Willem Buiter, Alberto Carrasquilla, Ian Carruthers, Mehmet Coskun Congoz, Fergus McCormick, Dag Detter, Svetlana Klimenko, Delphine Moretti, Kenneth Rogoff, John Stanford, Robert Townsend, Peter van de Ven, and staff from the New Zealand and United Kingdom Treasury departments further informed the project. Excellent research support was provided by Juliana Gamboa Arbelaez, Young Kim, Rohini Ray, Yuan Xiang, and Nisreen Zaqout. The Methodological and Statistical Appendix was prepared by Yuan Xiang. Lauren Bateman, Meron Haile, and Nadia Malikyar provided excellent coordination and editorial support. Rumit Pancholi from the Communications Department led the editorial team and managed the report’s production, with editorial assistance from Linda Griffin Kean, Susan Graham, Linda Long, and Vector.
Inputs, comments, and suggestions were received from other departments in the IMF, including area departments—namely, the African Department, Asia and Pacific Department, European Department, Middle East and Central Asia Department, and Western Hemisphere Department—as well as the Institute for Capacity Development, Monetary and Capital Markets Department, Research Department, Statistics Department, and Strategy, Policy, and Review Department. Both projections and policy considerations are those of the IMF staff and should not be attributed to Executive Directors or to their national authorities.
Public sector balance sheets provide the most comprehensive picture of public wealth. They bring together all the accumulated assets and liabilities that the government controls, including public corporations, natural resources, and pension liabilities. They thus account for the entirety of what the state owns and owes, offering a broader fiscal picture beyond debt and deficits. Most governments do not provide such transparency, thereby avoiding the additional scrutiny it brings. Better balance sheet management enables countries to increase revenues, reduce risks, and improve fiscal policymaking. There is some empirical evidence that financial markets are increasingly paying attention to the entire government balance sheet and that strong balance sheets enhance economic resilience. This issue of the Fiscal Monitor presents a new database that shows 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 of public wealth reveal the full scale of public assets and liabilities. Assets are worth US$101 trillion or 219 percent of GDP in the sample. This includes 120 percent of GDP in public corporation assets. Also included are natural resources that average 110 percent of GDP among the large natural-resource-producing countries. Recognizing these assets does not negate the vulnerabilities associated with the standard measure of general government public debt, comprising 94 percent of GDP for these countries. This is only half of total public sector liabilities of 198 percent of GDP, which also includes 46 percent of GDP in already accrued pension liabilities.
Net worth—the difference between assets and liabilities—is positive on average, although about one-third of the countries in the sample are in negative territory, including most of the G7. But net worth does not account for the state’s ability to tax in the future, which is why intertemporal balance sheet analysis—which combines current wealth with future revenue and expenditure—is important. Still, balance sheet strength is not an end in itself, but rather a tool to support the objectives of public policy. Because balance sheet estimates can involve various data quality issues, with challenges in measuring and valuing many assets and liabilities, improving public sector accounting standards is important.
The scars from the global financial crisis are still evident on public wealth a decade later. Even though deficits have shrunk, at least in the advanced economies most affected by the crisis, net financial worth across the 17 sampled countries with time series data remains US$11 trillion (28 percentage points of GDP) lower than it was before the crisis. The balance sheet approach reveals a more nuanced picture than what deficits and debt alone show. It recognizes that public investment creates assets, and accounts for valuation effects, which are particularly large on the asset side. The scars from the crisis reemphasize the importance of governments rebuilding their balance sheets, by reducing debt and investing in high-quality assets.
This report introduces tools that can be used to comprehensively analyze the resilience of public finances. These tools allow governments to examine both sides of the balance sheet to identify imbalances or mismatches and use fiscal stress tests to gauge the resilience of public finances against tail-risk shocks such as the global financial crisis. These tests should ideally be done on the full public sector balance sheet, where data are available. By identifying risks in the balance sheet, governments can act to manage or mitigate those risks early, rather than dealing with the consequences after problems occur.
Once governments understand the size and nature of public assets, they can start managing them more effectively. Potential gains from better asset management are considerable. 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. In addition, considerable gains could be realized from government nonfinancial assets. Practical experience from Australia, New Zealand, the United Kingdom, and Uruguay can guide countries on how to increase the effectiveness and returns on assets, while reducing risk across both sides of the balance sheet.
While there are considerable challenges in compiling reliable balance sheets, the benefits of basic balance sheet analysis are within reach of many countries, not just advanced economies with high-quality data. Only a handful of countries currently undertake a public sector balance sheet approach. Yet, balance sheet estimates can be developed even in data-constrained environments like The Gambia or complex emerging economies like Indonesia. The estimates should be treated with some caution, as the application of accounting and statistical standards varies widely. Once governments produce these estimates, analyzing, assessing, and projecting the balance sheet forward is relatively simple, relying on easy-to-use frameworks.
This report analyzes balance sheets through a range of case studies, in a first step of an ongoing research agenda. The following are some of the 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.
New estimates suggest that 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 the weak performance of public corporations both entail risks for the future.
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, and potentially even larger gains with strengthened infrastructure investment efficiency.
Although Norway’s fiscal position is very strong, long-term spending pressures significantly reduce its intertemporal net worth relative to its vast asset position. In contrast, Finland’s recent and planned reforms mean that 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.
Balance sheet effects cushioned the impact of the halving of oil prices in 2014 in resource-rich Kazakhstan. This was due in part to persistent positive exchange rate effects on its oil revenue savings that are held in liquid foreign currency assets. These savings also allowed the government to undertake a large stimulus package.
These case studies distill some lessons that apply more broadly. First, both sides of the balance sheet are important. Governments should consider the effect of policies on assets and nondebt liabilities, in addition to debt. This also applies to risk management, where valuation changes can have large wealth effects. Second, considerable fiscal activity occurs outside the general government. Including public corporations in fiscal analysis is necessary to assess and manage fiscal risk more effectively. Third, comparing current levels of public wealth with long-term fiscal projections reveals how well placed governments are to meet building demographic pressures, in the face of rapidly aging societies.
Over and above these insights, balance sheet analysis enriches the policy debate by focusing on the full extent of public wealth. Public assets are a significant resource, and how governments use and report on them matters, not just for financial reasons, but also in terms of improving service delivery and preventing the misuse of resources that often results from a lack of transparency. Recent parliamentary debates in New Zealand, as well as the UK government’s response to the fiscal risk report, illustrate this point. They show that publishing balance sheet information can raise the tenor of policy debate, asking how public wealth can be better used to meet society’s economic and social goals.