Different institutions/nations use different measures to denote the sovereign debt of a nation. This generally leads to confusion when countries need to be compared. It is therefore important to be aware of all the classifications and the suitability of each for different purposes. So, what is the most relevant public debt measure for nations?
Possible classifications:
- Total debt vs. Public debt /Government debt /National debt
o Total debt refers to debt of the government sector as well as the private sector owed to local or foreign bodies.
"But Krugman's point, which is correct, is that many make the mistake of assuming that government debt is equivalent to external debt and they overestimate the burden that it imposes on a country." (AntonioFatas and Ilian Mihov on the Global Economy)
"But Krugman's point, which is correct, is that many make the mistake of assuming that government debt is equivalent to external debt and they overestimate the burden that it imposes on a country." (AntonioFatas and Ilian Mihov on the Global Economy)
- General government debt vs. Federal debt
o General government debt refers to debt owed by all levels of government – Federal, state and local – collectively.
- Gross debt vs. Net debt
o Net debt refers to gross debt minus all financial assets.
Who uses what?
o IMF World Economic Outlook (WEO) database as well as IMF Fiscal Monitor provides data for General Government Gross Debt level only.
o Australia Budget reports data only in ‘General Government Net Debt’ terms.
o UK uses the Public Sector Net Debt measure which is basically the general government net debt figure.
o The debt measure used by European Union is General Government Gross Debt (GGGD). This differs from the UK fiscal measure, PSND, in two important respects. The first is the sectoral boundary; being defined as General Government it excludes the net debt position of public corporations, which are included in the public sector. The second is that is measures gross liabilities and does not net off liquid assets.
o India: Unlike the USA where the centre and state debt data is difficult to find at a place RBI’s Macroeconomic and Monetary Developments Quarterly clearly lays out state, centre, and combined/consolidated public debts. The Status Report of the MoF, DEA, released in November 2010 lays out a debt reduction roadmap up to 2014-15 which again segregates clearly the central, state, and consolidated/general government debt.
o The broadly quoted measure for USA debt is Gross Federal Debt which is the sum of debt held by government accounts plus debt held by public. State and local government debt data is not easy to find. Congressional Budget Office (CBO) in its reports refers more to ‘debt held by public’ component of Federal Debt.
o “The difference between gross debt and net debt is very large for some countries. For example, for 2011 the OECD projects that Japan’s gross debt will be 204.6% but its net debt will be 121.5%, a significant difference, and close to the projected 106.7% net debt of Italy. Indeed, some analysts believe that net debt is a more appropriate measure of the debt situation of a particular country. However, since not all governments include the same type of financial assets in their calculations, the definition of net debt varies from country to country and makes country-to-country comparisons difficult. Therefore, gross debt as a percentage of GDP is the most commonly used government debt ratio and is the way that the OECD measures debt.” (Global Finance magazine)
“In principle, net debt is a more appropriate measure of government indebtedness. There are, however, some concerns with the concept of net debt. In addition to some measurement question (which assets to include, at which value), the government needs to refinance all its gross debt and not only the net part, so in terms of flows, it is the gross debt that matters. Also, while it makes sense to exclude government debt held by the government, some of this debt is part of a fund that covers future pension liabilities that are unaccounted for in the budget. And here is where the assessment of government solvency gets more difficult: what you really want to do is not just to look at government debt but also at future revenues and liabilities.” (Antonio Fatas And Ilian Mihov, INSEAD professors)
“In principle, net debt is a more appropriate measure of government indebtedness. There are, however, some concerns with the concept of net debt. In addition to some measurement question (which assets to include, at which value), the government needs to refinance all its gross debt and not only the net part, so in terms of flows, it is the gross debt that matters. Also, while it makes sense to exclude government debt held by the government, some of this debt is part of a fund that covers future pension liabilities that are unaccounted for in the budget. And here is where the assessment of government solvency gets more difficult: what you really want to do is not just to look at government debt but also at future revenues and liabilities.” (Antonio Fatas And Ilian Mihov, INSEAD professors)
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