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INTOSAI Public Debt Working Group Mexico Meeting 2010 Impact of Financial Crises on Public Debt and INTOSAI Initiatives Jose Oyola, Ph.D., CPA Government Accountability Office (GAO) ([email protected], [email protected] ) 1 Impact of Crisis on Public Debt • Public debt levels increased to 50-year highs in major advanced countries • Weak economic growth prospects have increased the risk of continuing budget deficits and higher public debt levels in the future 2 General Government Gross Debt, 2006 and 2009, Maastricht Debt Definition Italy 106.5 Greece Belgium 88.1 Hungary 64.7 76.8 67.6 73.2 63.7 69.1 Germany Malta United Kingdom 68.1 43.5 62.2 66.5 64.0 Austria Ireland 24.9 Netherlands 2009 60.9 47.4 Spain 53.2 39.6 56.2 Cyprus 64.6 2006 47.751.0 Poland 39.7 44.0 42.345.7 Finland Sweden Denmark 41.6 32.1 Latvia 36.1 10.7 Slovenia 26.7 35.9 30.5 35.7 29.4 35.4 Slovakia Czech Republic Lithuania 29.3 18.0 Romania Bulgaria 12.4 14.8 Luxembourg 14.5 0.0 77.6 63.7 Portugal 115.1 78.3 65.6 France 97.8 96.7 115.8 6.5 23.7 22.7 30.0 60.0 90.0 3 120.0 U.S. Debt Held by the Public, $Trillion and Debt/GDP Ratio, 2004 - 2015 $16 80% 69% $14 Debt held by the public (US$ trillion) 71% 72% 72% 73% 70% 64% $12 60% Debt held by the public / GDP 53% $10 50% 40% $8 37% 37% 37% 40% 36% $6 $10.5 $11.5 $12.3 $13.1 $14.0 30% $9.3 $4 $2 20% $7.5 $4.3 $4.6 $4.8 $5.0 $5.8 10% $0 0% ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 est ‘11 est ‘12 est ‘13 est ‘14 est ‘15 est 4 New Challenges for Policymakers, Debt Managers and Auditors • Risk of higher interest payments • Unsustainable public debt levels can happen sooner • Debt managers face higher scrutiny from capital markets • Reporting and auditing on fiscal risks and public debt matters have become more challenging 5 U.S. Net Interest Payments as a Percentage of Total Revenues, 1990 to 2020 Pe rce nt 25% Ac tua l Projec tions 20% 15% 10% 5% So urce: GAO Analys is o f CBO d ata Fiscal Ye ar 20 20 18 20 16 20 14 20 12 20 10 20 08 20 06 20 04 20 02 20 00 20 98 19 96 19 94 19 92 19 19 90 0% 6 U.S. Debt Held by the Public Under Two Fiscal Policy Simulations Alternative Baseline Extended Historical High 109 percent in 1946 Source: GAO. Note: Data are from GAO’s January 2010 analysis based on the Trustees’ assumptions for Social Security and Medicare. Some of the increase in debt has been used to purchase financial assets as part of programs to stabilize financial markets and stimulate the economy. The value of these financial assets has not been subtracted from the total debt held by public in our simulations. 7 IMF Estimates of Debt Vulnerability Indicators, Percent of Gross Domestic Product Country Gross General Governm ent Debt, FY’10(p) Net General Government Debt, FY’10 (p) General Government Securities with less than One Year Remaining Maturity General Government Debt Held Abroad Australia 19.8 5.4 3.9 4.3 Austria 70.7 60.5 6.1 58.5 Belgium 100.1 91.1 22.6 65.0 Canada 82.3 31.8 14.1 14.1 France 84.2 74.5 17.2 48.7 Germany 76.7 68.6 15.8 40.3 Greece 124.1 104.3 15.9 99.0 Italy 118.6 116.0 24.5 56.4 Japan 227.3 121.7 48.7 13.7 Korea 33.3 n.a. 3.2 3.0 Norway 53.6 -153.6 12.1 27.5 Portugal 85.9 81.6 13.0 60.2 Spain 66.9 57.5 12.4 26.9 Sweden 43.1 -16.2 4.2 19.3 United Kingdom 78.2 71.6 6.6 17.9 United States 92.6 66.2 17.9 24.7 8 IMF Estimates of Gross Financing Needs in 2010, Percent of GDP, Selected Countries 9 Challenges of reporting and auditing fiscal risks and public debt • Obtaining the Legal Mandate • Central banks and special-purpose vehicles are used to provide support to financial entities (legal authority to audit these entities may be questioned) • Valuation, reporting and managing challenges: – Governments acquired majority stakes in major financial entities (e.g. Northern Rock, GSEs, AIG) – Government purchased risky financial assets in distressed markets (e.g. Mortgage-backed securities) – Governments expanded the amount and scope of guarantees to investors and bank depositors (e.g. deposit insurance, money market funds) – Governments face unlimited exposure to systemic risks (highlyinterconnected large firms) 10 INTOSAI Initiatives • Task Force on Global Financial Crisis – www.intosaijournal.org • IDI Transregional Program on Public Debt Management Audit – www.idi.no • Individual SAIs audit efforts – www.gao.gov – www.nao.org.uk 11 Potential Audit Areas • Public debt management • Financial audit of public debt • Long-term fiscal commitments and debt sustainability • Enhancing accountability and transparency of financial support to distressed entities • Strategies for managing and divesting assets • Reviews of funds provided for economic recovery and stabilization 12