global approaches
DESCRIPTION
Global Approaches. System of National Accounts (SNA68). System of National Accounts (SNA53). Public Sector Debt Statistics (PSDS11). System of National Accounts (SNA93). Government Finance Statistics (GFS86). European System of Accounts (ESA95). Government Finance Statistics (GFS01). - PowerPoint PPT PresentationTRANSCRIPT
Global Approaches
System of National Accounts (SNA53)
Government Finance Statistics (GFS86)
Excessive Deficit Procedure (EDP 92)
System of National Accounts (SNA68)
System of National Accounts (SNA93)
European System of Accounts (ESA95)
Government Finance Statistics (GFS01)
System of National Accounts (SNA08)
European System of Accounts (ESA10)
Public Sector Debt Statistics (PSDS11)
Public Debt definition
Gross consolidated financial liabilities of all institutions of
General Government .
All approaches agreed on the following definition
Public Debt - outline
Scope of government liabilities
4
3
2
1
Public Debt Structure
Public Debt Arrears
Valuation method
They differed in tackling the following:
Scope of government liabilities
Institutional
Functional
−All government units that are controlled and mainly financed by central government, state government, local government and social security
funds
−Adopted by: EDP92, SNA93, ESA95, GFS01, SNA08 & PSDS11
−EDP & ESA add another criteria:whether more than 50 percent of the production costs are
covered by sales.
−All units carrying out a function of government .−Adopted by GFS 86
There are two basis for defining “General Government:”
Public Debt - outline
Scope of government liabilities
4
3
2
1
Public Debt Structure
Public Debt Arrears
Valuation method
They differed in tackling the following:
Public Debt Structure
SNA93, ESA95, SNA08
Basic Components
Financial derivatives
Loans
Securities other than
shares
Currency and
Deposits
Accounts payable
(unfunded pension liabilities )
GFS86, EDP92, GFS01, SNA08 & PSDS11
GFS86, SNA93, ESA95, GFS01, SNA08 &
PSDS11
Public Debt - outline
Scope of government liabilities
4
3
2
1
Public Debt Structure
Public Debt Arrears
Valuation method
They differed in tackling the following:
Debt Arrears
when arrears exist, either each relevant category of liabilities should be sub-classified to
indicate the amounts in arrears,
Sub classification
Accounts payable
The amounts in arrears should all be classified as accounts
payable.
EDP92, SNA93, ESA95, SNA08 & PSDS11
GFS01
GFS86 doesn’t record debt arrears
There are two ways for recording arrears :
Public Debt - outline
Scope of government liabilities
4
3
2
1
Public Debt Structure
Public Debt Arrears
Valuation method
They differed in tackling the following:
Valuation method
•Differences among approaches could be cited as follows:
Approach Market value Nominal value
ESA95 Securities Other debt components
PSDS11 Securities Other debt components
GFS01 Other debt components Loans
•As for GFS86, debt securities are valued at the amount the government is obligated to pay when the debt matures, which may differ from the nominal value
and the current market value.
•Almost all approaches calculate some of the debt items using the market valuation and the other items using the nominal valuation .
•EDP92 uses nominal valuation in calculating all debt items.
What’s the difference between Market value and Nominal value?
As the redemption date approaches the market value should converge
towards the nominal value.
It is the value reflecting the impact of inflation rates and exchange rate changes among debt
partners
Market value
It is the value that government will have to pay
on maturity
Nominal value
Valuation method
Debt sustainability
Debt sustainability analysis:
00 11 k
kktt
kk
ktkttt i
REiiDGED
As t Present value of public debt equals zero, Annual Primary surpluses are accumulated to pay the debt .
0
1lim
kkt
k iD
Debt sustainability criteria
Relationship between real growth and real interest rate
Polito and Wickens, (2005) expressed public debt sustainability in terms of the following formula:
t
t
t
t
t
t
yd
yb
yb
1
11
Where sustainability depends on the changes in the trend of t
t
yb
Which in turns is linked to the value of
Debt sustainability criteria
When is less than zero
When is greater than zero
t
t
yb
Is stable, where real GDP growth rate exceeds real interest rate and the debt is said to be sustainable
t
t
yb Is unstable, where real GDP growth rate is lower than real interest rate and the debt is said
to be unsustainable
Debt sustainability criteria
Public Debt/GDP ratio
Anyone country is said to be fiscally unsustainable if:
.1Debt/GDP ratio in anyone country exceeds other countries with relevant fiscal conditions
.2Debt/GDP ratio settles at high rates compared to historical trends.
.3Maintaining a stable Debt/GDP ratio requires structural changes in the fiscal policy.
Debt sustainability criteria
Fiscal rules
General definition: “Set of legal rules and regulations levied on Budget deficit, taxes, public expenditures and public debt .”
International experience reveals that governments adopt several fiscal rules including:
.1Golden rule.2Balanced Budget Rule
.3Flexible Budget Rules.4Stability and Growth Pact.5Investment Sustainability
Debt sustainability criteria
.1Golden rule
“over the economic cycle, the Government will borrow only to invest and not to fund current spending”
.2Balanced Budget Rule
“Constitutional rule requiring that the state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government.”
Debt sustainability criteria.3Flexible Budget Rules
.4Stability and Growth Pact
“The government is allowed to hit a temporary justified budget deficit given the disclosure of the time span needed for
attaining budget balance
Sets two criteria :
A deficit to GDP ratio not exceeding
3%
A debt to GDP ratio not exceeding 60%.