The public sector balance sheet is on the rise

In October 2018 the International Monetary Fund (IMF) published the Fiscal Monitor, Managing Public Wealth focusing on the public sector balance sheet (PSBS).

As an accountant it was great to read about the public sector balance sheet and see the IMF bring this into wider discourse.

But what is it and importantly, why does it matter?

The public sector balance sheet highlights the need to look at both assets as well as liabilities. Currently the focus is on debt as a measure of GDP which is only half the picture. The level of debt is important but this needs to be assessed with government assets too. If government’s are borrowing to pay for infrastructure assets that will bring long term prosperity that has to be good as the country will benefit from the asset for years to come. But if they are they borrowing to pay for current spending this is not sustainable long term.

But the IMF Public Sector Balance Sheet is based on government financial statistics, prepared in accordance with the UN System of National Accounts (SNA) that are a statistical measure and not based on international accounting standards. Therefore, the information is not as complete as it could be. As the move to implementing accrual accounting accelerates , as seen in the recent IFAC CIPFA International Public Sector Accountability Index more countries will have balance sheets. This will help provide greater transparency and accountability on public finances and help enable better decision making (as countries have information on commitments not just cash spent).

This is based on an article originally published in Public Finance International available at https://www.publicfinanceinternational.org/opinion/2018/10/public-sector-balance-sheet-rise

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