[PPT] - Managing Public Wealth Jason Harris IMF Fiscal Monitor October 2018 PowerPoint Presentation

SLIDE 1

Managing Public Wealth

Jason Harris IMF Fiscal Monitor October 2018

November 2018

SLIDE 2

Managing Public Wealth Overview I. The Public Sector Balance Sheet

II. Why Does it Matter?
III. Policy Implications

– Risk – Public investment – Demographics

IV. Conclusion

SLIDE 3

I. The Public Sector Balance Sheet

Aggregate PSBS for 31 countries

Natural Resources 38 %

Infrastructure

72 %

Financial Assets

99 %

GG Debt

94 %

Pension Liabilities

46 % Others 58 %

Others 11 %

Net Worth 21 %

Aggregate Public Sector Balance Sheet (in percent of GDP)

Assets Liabilities

US$101 Trillion

r

219 percent of GDP 198 percent of GDP

SLIDE 4

I. The Public Sector Balance Sheet

Individual country PSBS for 31 countries

SLIDE 5

Aggregate Public Sector Balance Sheet (in percent of GDP)

Assets Liabilities

Others 47 %

Infrastructure 105.2 %

Financial Assets 62.2 % Debt 33 %

Net Worth 91.1%

171.6 % 80.5 %

I. The Public Sector Balance Sheet

New Zealand

SLIDE 6

100 200 300 400 Norway Portugal Finland Japan Germany Korea Kazakhstan Russia United States Colombia Brazil Canada France Austria Tunisia Turkey India South Africa United Kingdom New Zealand Georgia Peru Albania Indonesia Australia El Salvador Tanzania Kenya Gambia Guatemala Uganda 50 100 150 Japan South Africa Australia Norway Tunisia Portugal Korea Georgia Russia Austria New Zealand United States France Kazakhstan Finland Kenya Tanzania Turkey Albania United Kingdom Germany Colombia Uganda Peru Brazil Canada Indonesia Gambia India Guatemala El Salvador

I. The Public Sector Balance Sheet

New elements

Financial Assets (Percent of GDP) Nonfinancial Assets (Percent of GDP) Natural Resource Assets (Percent of GDP)

50 100 150 200 250 300 350 Russia Kazakhstan Peru Norway Australia South Africa Brazil Indonesia Tunisia Colombia Canada Tanzania India Albania Georgia Guatemala United States Turkey United Kingdom Kenya Finland Uganda Portugal New Zealand Germany Austria Korea Japan France El Salvador Gambia

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50 100 150 Portugal Finland United Kingdom Norway Brazil Austria United States France Korea South Africa Germany Tanzania Australia Japan Peru Turkey Kenya Uganda Tunisia El Salvador Canada Gambia Colombia India Guatemala New Zealand Georgia Russia Indonesia Albania Kazakhstan 50 100 150 200 250 300 Japan Portugal Germany Tunisia Russia South Africa Norway Brazil United States Korea Kazakhstan India France United Kingdom Turkey Finland New Zealand Indonesia Colombia Australia Georgia Gambia Albania Peru Austria Canada El Salvador Uganda Tanzania Kenya Guatemala

I. The Public Sector Balance Sheet

New elements

Public Corporation Assets and Liabilities (Percent of GDP) Accrued Pension Liabilities (Percent of GDP)

SLIDE 8

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

SLIDE 9

II. Why does this Matter?

Large Assets → Large Revenue Potential

Insert Link to NZ case study

Potential Revenue Gains from Im proved Asset Managem ent (in percent of GDP)

Source: IMF Fiscal Monitor, Fall 2018.

Distribution of Annual Returns from Public Corporations (Percent Return on Assets)

5 10 15 20 25 30 35 40

<-4

4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 >10

Median = 0 .6 percent

1 2 3 4 5 6 Non-financial public corporations Government financial assets Total Percent of GDP Current returns Potential Improvement

1 2 3

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II. Why does this Matter?

Stronger balance sheet → lower interest

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II. Why does this Matter?

Stronger balance sheet → Greater resilience

Insert Link to Kazakhstan case study

Real GDP per Capita Following Recessions (in percent)

Source: IMF Fiscal Monitor, Fall 2018. Note: Shaded area represents 90 percent confidence interval.

20
10

10 20 30 40 1 2 3 4 5 Percentage change Year

6
3

3 6 9 12 1 2 3 4 5 Percentage change Year

Real Governm ent Expenditure per Capita Following Recessions (in percent)

Strong Balance Sheets Weak Balance Sheets

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IV. Policy Implications

Evolution since the crisis

Public Sector Balance Sheet (Weighted average of 17 countries, percent of GDP)

$11 Trillion

Source: IMF Fiscal Monitor, Fall 2018. Note: The data excludes natural resource assets and pension liabilities.

100 110 120 130 140 150 160 170 180 190 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 Assets Liabilities 5 10 15 20 25 30 35 40 45

65
60
55
50
45
40
35
30
25
20

2000 2002 2004 2006 2008 2010 2012 2014 2016 Net Worth (right scale) Net Financial Worth (left scale)

Assets and Liabilities Net (Financial) Worth

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IV. Policy Implications - Risk

UK – Impact of the crisis

400
300
200
100

100 200 300 400 2000 02 04 06 08 10 12 14 16

Other assets Financial public corporations assets Financial public corporations liabilities Pension liabilities Other liabilities Net Worth Assets Liabilities

UK – Public Sector Balance Sheet (percent of GDP)

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IV. Policy Implications - Risk

Better Assessment of Exposures to Risk

80
60
40
20

20 40 60 80

GMB ITA BRB 1/ PRT GBR FRA HUN SWE BEL UKR ALB BRA IRL POL NLD DEU CHE MDA ESP SVK ISL HRV ROM JPN USA KGZ SLV NOR AUS MWI 1/ LTU IDN FIN LVA CYP SLB 1/ DNK EST GEO BGR AUT SVN RUS GRC SRB 1/ CZE PER KOR LUX COL

Liquid assets Short-term liabilities Net liquid liabilities Smaller Liquidity Mismatch

60
40
20

20 40 60 The Gambia Barbados Kenya Tanzania Uganda Turkey Germany France South Africa United Kingdom Finland Australia United States Japan Canada New Zealand Kazakhstan Norway Foreign assets Foreign liabilities Net foreign assets Norway: 241

Liquid Assets and Liabilities (percent of GDP) Forex Assets and Liabilities (percent of GDP)

250
150
50

50 150 250 350 450

NOR BTN------ JPN FIN------ FSM 1\ CZE------ SWE KOR------ ROM HUN------ LUX KAZ------ SVN AUT------ HRV AUS------ PRT SMR------ ISL NZL------ LVA ZAF------ MWI 1\ GEO------ EST FRA------ USA CAN------ CYP DNK------- BGR NLD------ ESP ALB------ MDA MHL 1\------ GRC DEU------- ITA HKG------ RUS LTU------ COL GBR------ URY CHE------ PER SVK----- KGZ PLW 1\------ BEL UKR------ POL IRL------ SRB 1\ BRB 1\------ BRA IDN------ GMB TUR------ SLV IND 1\-------

Total risk-adjusted assets Total risk-adjusted liabilities Total assets Liabilities

Risk Adjusted Assets and Liabilities (percent of GDP)

SLIDE 15

III. Policy Implications - Risk

US – Fiscal Stress Test

15 Other nonfinanacial assets Other finanacial assets Corporate equities Other loans Student loans Debt securities Pension entitlement GSE debt and MBS Other liabilities Net Worth Assets Liabilities Natural resources

250
200
150
100
50

50 100 150 200 250 2000 02 04 06 08 10 12 14 16

Public Sector Balance Sheet (percent of GDP)

27.9
54.1
60
50
40
30
20
10

Baseline Debt Nonfinancial assets GSE loan losses Pension funds Other Stress

Net worth Negative changes in net worth

Fiscal Stress Scenario - 20 20 (percent of baseline GDP)

SLIDE 16

General Government Public Corporations Public Sector Total assets

208.9 75.2 254.1

f which: Nonfinancial assets

80.2 10.4 90.6

Financial assets

128.7 64.8 163.5

Total liabilities

178.6 75.2 223.8

f which: Debt securities

54.1 13.7 57.2

Net Financial Worth

49.9
10.4
60.3

Net Worth

30.3 0.0 30.3

Net present value of primary balances

83.3

Intertemporal net worth

113.6

Source: IMF staff estimates. 30 35 40 45 50 55 60

4

4 8 12 16 20 2005 2015 2025 2035 2045 2055 2065

Primary palance (left scale) Primary expenditure (right scale) Revenue (right scale)

Finland Long-term Fiscal Projections (percent of GDP) Finland Intertem poral Balance Sheet, 20 16 (percent of GDP)

III. Policy Implications – Demographics

Finland – Current Policies Add to Future Public Wealth

Link to Intertemporal Balance Sheet

SLIDE 17

Intertem poral Net Worth (percent of GDP)

17 Source: October 2018 Fiscal Monitor

600
400
200

200 400 600 800 Norway Finland Norway Finland Intertemporal Component Natural resources Other assets Liabilities (Intertemporal) net worth

410 ppt 101 ppt

Static Intertemporal

Construction of intertemporal balance sheet

III. Examples – Demographics

Finland and Norway – Intertemporal Balance Sheet

SLIDE 18

New Zealand: Public Sector Balance Sheet (percent of GDP)

III. Policy Implications – Demographics

New Zealand

Assets Liabilities Net Worth Social

57.5 7.1 50.5

Financial

33.2 50.5

17.3

Commercial

20.1 12.0 8.1

Static balance sheet

110.8 69.5 41.3

Fiscal

1,381.9 1,480.0

98.1

Intertemporal balance sheet

1,492.7 1,549.5

56.8

Source: New Zealand 2017 Investment Statement.

SLIDE 19

III. Policy Implications – Public Investment

Indonesia - Boosts Public Wealth

19

100
50

50 100 150 200 250 2010 11 12 13 14 15 16

Natural resources Other nonfinancial assets Fixed assets Financial assets Other liabilities Debt securities and loans Currency/deposits Net worth

Assets Liabilities

Public Sector Balance Sheet (percent of GDP) Change in Intertem poral Net Worth from Higher Investm ent (percent of 2023 baseline GDP)

20
18
16
14
12
10
8
6
4
2

Baseline net worth Change in net assets Change in future primary balances Scenario net worth

Net worth Postive changes in net worth

SLIDE 20

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

V. Conclusion

20

SLIDE 21

Thank You

Managing Public Wealth

IMF October 2018 Fiscal Monitor

SLIDE 22

Backpocket

SLIDE 23

III. Examples

The US and Japan – Consolidation and Assets

PSBS – US and Japan (2016, percent of GDP)

23

50 100 150 200 250 300 350 2000 2002 2004 2006 2008 2010 2012 2014 2016

Private Public

149 134 283

20 40 60 80 100 120 140 160 180 2001 2004 2007 2010 2013 2016

Public Private

54 110 164

Public Debt Holdings (percent of GDP) Japan United States

Sources: IMF October 2018 Fiscal Monitor, US Federal Reserve, and Bank of Japan

350
300
250
200
150
100
50

50 100 150 200 250 300 350

United States Japan

Nonfinancial Assets Financial Assets Liabilities ex Pensions Pension Liabilities GG Debt GG Debt Net Worth

SLIDE 24

III. Policy Implications

Quantitative Easing

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8

Central Government Debt Public Sector Debt

£ Trillion

Over 10 years Up to 10 years Up to 5 years < 1 year

Sources: Office for Budget Responsibility, Bank of England, UK Debt Management Office

United Kingdom : Maturity Structure of Outstanding Debt, 20 16

SLIDE 25

The Gam bia: Public Sector Balance Sheet (percent of GDP) Gross Financing Needs under Stress (percent of GDP)

III. Policy Implications – Risk

The Gambia – Fiscal Stress Test

2016 Central Government Public Corporations Public Sector Total assets

47.3 61.9 61.0

f which: Nonfinancial assets

13.4 22.4 35.8

Financial assets

33.9 39.4 25.2

Total liabilities

93.5 61.9 107.2

f which: Debt securities

78.4 2.0 61.4

Net financial worth

59.5
22.4
82.0

Net worth

46.2

0.0

46.2

Source: IMF staff estimates

10 20 30 40 50 60 2006 08 10 12 14 16 18 20

Baseline Stress

Source: IMF staff estimates.

SLIDE 26

Kazakhstan: Public Sector Balance Sheet (percent of GDP)

III. Policy Implications – Risk

Kazakhstan

General Government Public Corporations Public Sector Total assets

348.6 99.9 399.0

f which: Nonfinancial assets

263.4 27.3 290.7

Financial assets

85.2 72.6 108.3

Total liabilities

16.9 99.9 67.2

f which: Debt securities

11.5 8.9 10.5

Net financial worth

68.3

27.3

41.0

Net worth

331.7 0.0 331.7

Source: IMF staff estimates

50 100 150 200 250 300 350 2013 Net worth Deficit Oil price Depletion Currency 2016 Net worth

Net worth Negative changes to net worth Positive changes to net worth

Kazakhstan: Evolution of Net Worth (percent of 2016 GDP)

SLIDE 27

Intertemporal Balance Sheet Accounts for future cost of current policies

Natural Resources

Infrastructure

Financial Assets GG Debt

Pension Liabilities

Others

Net Worth Aggregate Public Sector Balance Sheet (in percent of GDP)

Assets Liabilities Future discounted Primary Balances