October 10, 2018 / 9:33 AM / 2 months ago

Breakingviews - IMF rightly focuses on left side of public ledger

IMF Managing Director Christine Lagarde speaks about strengthening global tax policy at the 2016 IMF World Bank Spring Meeting in Washington April 17, 2016

LONDON (Reuters Breakingviews) - No serious investor would analyse a company by looking only at its liabilities. When it comes to countries, however, money managers tend to pay far more attention to government debt than national wealth. The International Monetary Fund is trying to restore some balance by shining a spotlight on the asset side of the public ledger.

An analysis of 31 countries, published in the IMF’s latest Fiscal Monitor on Wednesday, throws up some startling findings. The combined public assets of these countries are $101 trillion, or 219 percent of total gross domestic product. That’s more than twice the 94 percent of GDP that they owe.

Indebted Japan has gross borrowings equivalent to 283 percent of GDP. But more than half of this is held by the public sector, including the central bank. Throw in other assets, and the country’s net worth is close to zero, the IMF reckons. Fiscally responsible Germany, meanwhile, has a negative net worth.

This analysis is far from perfect. The underlying data is patchy. Meanwhile, a snapshot of assets and liabilities involves making some big assumptions about, say, the future cost of public pensions, or the value of natural resources that are still underground. Besides, state-owned companies or property cannot be easily sold.

Even so, a clearer accounting of national wealth would have several positive effects. For one, it helps distinguish between public investment – which should boost net worth – and debt-funded handouts. It also puts pressure on governments to manage their assets better. The IMF reckons the 31 countries in its study managed an average annual return on assets of just 1.9 percent between 2010 and 2016. Squeezing out the equivalent of another 3 percent of GDP would bring in as much revenue in a year as all developed economies currently collect in corporate tax.

Political reluctance to face such accountability helps explain why official data on public assets is so poor. Some countries are, however, showing the way. New Zealand says its net worth in the year to June rose to NZ$ 130 billion ($83 billion), or almost 45 percent of GDP, from 40 percent a year earlier. With a push from the IMF, other nations may soon also be offering investors a better picture of the left side of the balance sheet.

Breakingviews

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