Managing Public Wealth Jason Harris IMF Fiscal Monitor October 218 November 218
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 US$11 Trillion or 219 percent of GDP Financial Assets 99 % Infrastructure 72 % GG Debt 94 % Pension Liabilities 46 % 198 percent of GDP Natural Resources 38 % Others 11 % Others 58 % Net Worth 21 %
I. The Public Sector Balance Sheet Individual country PSBS for 31 countries
I. The Public Sector Balance Sheet Japan Aggregate Public Sector Balance Sheet (in percent of GDP) Assets Liabilities Financial Assets 146.6 % GG Debt 236 % 311.1 % 316.8 % Infrastructure 162.8 % Pension Liabilities 28.9% Others 52 %
I. The Public Sector Balance Sheet New elements Uganda Guatemala Gambia Kenya Tanzania El Salvador Australia Indonesia Albania Peru Georgia New Zealand United Kingdom South Africa India Turkey Tunisia Austria France Canada Brazil Colombia United States Russia Kazakhstan Korea Germany Japan Finland Portugal Norway Financial Assets (Percent of GDP) 1 2 3 4 El Salvador Guatemala India Gambia Indonesia Canada Brazil Peru Uganda Colombia Germany United Kingdom Albania Turkey Tanzania Kenya Finland Kazakhstan France United States New Zealand Austria Russia Georgia Korea Portugal Tunisia Norway Australia South Africa Japan Nonfinancial Assets (Percent of GDP) 5 1 15 Gambia El Salvador France Japan Korea Austria Germany New Zealand Portugal Uganda Finland Kenya United Kingdom Turkey United States Guatemala Georgia Albania India Tanzania Canada Colombia Tunisia Indonesia Brazil South Africa Australia Norway Peru Kazakhstan Russia Natural Resource Assets (Percent of GDP) 5 1 15 2 25 3 35
I. The Public Sector Balance Sheet New elements Public Corporation Assets and Liabilities (Percent of GDP) Guatemala Kenya Tanzania Uganda El Salvador Canada Austria Peru Albania Gambia Georgia Australia Colombia Indonesia New Zealand Finland Turkey United Kingdom France India Kazakhstan Korea United States Brazil Norway South Africa Russia Tunisia Germany Portugal Japan 5 1 15 2 25 3 Kazakhstan Albania Indonesia Russia Georgia New Zealand Guatemala India Colombia Gambia Canada El Salvador Tunisia Uganda Kenya Turkey Peru Japan Australia Tanzania Germany South Africa Korea France United States Austria Brazil Norway United Kingdom Finland Portugal Accrued Pension Liabilities (Percent of GDP) 5 1 15
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 (Percent Return on Assets) Potential Revenue Gains from Improved Asset Management (in percent of GDP) 4 35 Median =.6 percent 6 5 Current returns Potential Improvement 3 25 2 15 Percent of GDP 4 3 2 2 3 1 5 1 1 <-4-4 -3-2 -1 1 2 3 4 5 6 7 8 9 1 >1 Non-financial public corporations Government financial assets Total Insert Link to NZ case study Source: IMF Fiscal Monitor, Fall 218.
II. Why does this Matter? Stronger balance sheet lower interest
II. Why does this Matter? Stronger balance sheet Greater resilience 4 3 Real Government Expenditure per Capita Following Recessions (in percent) 12 9 Real GDP per Capita Following Recessions (in percent) Percentage change 2 1 Percentage change 6 3-1 -3-2 1 2 3 4 5 Year Strong Balance Sheets -6 1 2 3 4 5 Year Weak Balance Sheets Insert Link to Kazakhstan case study Source: IMF Fiscal Monitor, Fall 218. Note: Shaded area represents 9 percent confidence interval.
IV. Policy Implications Evolution since the crisis Public Sector Balance Sheet (Weighted average of 17 countries, percent of GDP) -2 Net (Financial) Worth 45 2 Assets and Liabilities -25-3 -35-4 -45-5 -55 Net Worth (right scale) -6 Net Financial Worth -65 (left scale) 2 22 24 26 28 21 212 214 216 4 35 3 25 2 15 1 5 $11 Trillion 19 18 17 16 15 Assets 14 13 12 Liabilities 11 1 2 22 24 26 28 21 212 214 216 Source: IMF Fiscal Monitor, Fall 218. Note: The data excludes natural resource assets and pension liabilities.
IV. Policy Implications - Risk UK Impact of the crisis 4 3 2 1 UK Public Sector Balance Sheet (percent of GDP) Assets Financial public corporations assets Other assets Net Worth -1-2 -3 Liabilities Financial public corporations liabilities Pension liabilities -4 2 2 4 6 8 1 12 14 16 Other liabilities
IV. Policy Implications - Risk Better Assessment of Exposures to Risk COL LUX KOR PER CZE SRB 1/ GRC RUS SVN AUT BGR GEO EST DNK SLB 1/ CYP LVA FIN IDN LTU MWI 1/ AUS NOR SLV KGZ USA JPN ROM HRV ISL SVK ESP MDA CHE DEU NLD POL IRL BRA ALB UKR BEL SWE HUN FRA GBR PRT BRB 1/ ITA GMB Liquid Assets and Liabilities (percent of GDP) Smaller Liquidity Mismatch Liquid assets Short-term liabilities Net liquid liabilities -8-6 -4-2 2 4 6 8 Norway Kazakhstan New Zealand Canada Japan United States Australia Finland United Kingdom South Africa France Germany Turkey Uganda Tanzania Kenya Barbados The Gambia Forex Assets and Liabilities (percent of GDP) Foreign assets Foreign liabilities Net foreign assets Norway: 241-6 -4-2 2 4 6 Risk Adjusted Assets and Liabilities (percent of GDP) IND 1\------- SLV TUR------ GMB IDN------ BRA BRB 1\------ SRB 1\ IRL------ Total risk-adjusted assets POL UKR------ BEL PLW 1\------ KGZ Total risk-adjusted liabilities SVK----- PER CHE------ URY GBR------ Total assets COL LTU------ RUS HKG------ Liabilities ITA DEU------- GRC MHL 1\------ MDA ALB------ ESP NLD------ BGR DNK------- CYP CAN------ USA FRA------ EST GEO------ MWI 1\ ZAF------ LVA NZL------ ISL SMR------ PRT AUS------ HRV AUT------ SVN KAZ------ LUX HUN------ ROM KOR------ SWE CZE------ FSM 1\ FIN------ JPN BTN------ NOR -25-15 -5 5 15 25 35 45
III. Policy Implications - Risk US Fiscal Stress Test Public Sector Balance Sheet (percent of GDP) Fiscal Stress Scenario - 22 (percent of baseline GDP) 25 Assets Student loans 2 Other loans -1 Net worth Negative changes in net worth 15 Corporate equities 1 Other finanacial assets -2 5 Natural resources -5-1 Liabilities Other nonfinanacial assets-3 Net Worth -4 Debt securities -27.9-15 -2-25 2 2 4 6 8 1 12 14 16 Pension entitlement GSE debt and MBS Other liabilities -5-6 Baseline Debt Nonfinancial assets GSE loan losses Pension funds Other -54.1 Stress 15
III. Examples The US and Japan Consolidation and Assets Japan Public Debt Holdings (percent of GDP) United States 35 PSBS US and Japan (216, percent of GDP) 35 3 25 2 15 1 5 Public Private 2 22 24 26 28 21 212 214 216 283 149 134 18 16 14 12 1 8 6 4 2 Public Private 21 24 27 21 213 216 164 54 11 3 25 2 15 1 5-5 -1-15 GG Debt Nonfinancial Assets Financial Assets Net Worth Liabilities ex Pensions -2-25 -3 Pension Liabilities GG Debt -35 United States Japan Sources: IMF October 218 Fiscal Monitor, US Federal Reserve, and Bank of Japan 16
III. Policy Implications Demographics Intertemporal Balance Sheet Aggregate Public Sector Balance Sheet (in percent of GDP) Assets Liabilities Financial Assets GG Debt Infrastructure Pension Liabilities Natural Resources Others Others Net Worth Future discounted Primary Balances
III. Policy Implications Demographics Finland Current Policies Add to Future Public Wealth 2 16 12 8 4 Finland Long-term Fiscal Projections (percent of GDP) Primary expenditure (right scale) Revenue (right scale) Primary palance (left scale) -4 25 215 225 235 245 255 265 6 55 5 45 4 35 3 Finland Intertemporal Balance Sheet, 216 (percent of GDP) General Government Public Corporations Public Sector Total assets 28.9 75.2 254.1 of which: Nonfinancial assets 8.2 1.4 9.6 Financial assets 128.7 64.8 163.5 Total liabilities 178.6 75.2 223.8 of which: Debt securities 54.1 13.7 57.2 Net Financial Worth -49.9-1.4-6.3 Net Worth 3.3. 3.3 Net present value of primary balances 83.3 Intertemporal net worth 113.6 Source: IMF staff estimates. Link to Intertemporal Balance Sheet
III. Examples Demographics Finland and Norway Intertemporal Balance Sheet Intertemporal Net Worth (percent of GDP) 8 6 Static Intertemporal Intertemporal Component 4 2 41 ppt 11 ppt Natural resources Other assets -2 Liabilities -4 (Intertemporal) net worth Construction of intertemporal balance sheet -6 Norway Finland Norway Finland Source: October 218 Fiscal Monitor 19
V. Conclusion 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 2
Thank You Managing Public Wealth IMF October 218 Fiscal Monitor