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%.