Peter van de Ven Head of National Accounts, OECD Balance sheets data according to national accounts: present and future availability, use and abuse Strategic Forum Rome, September 22 – 23, 2014 Peter van de Ven Head of National Accounts, OECD

On Statistics … “There are three kinds of lies: lies, damned lies, and statistics” (Benjamin Disraeli)

On Statistics … “There are three kinds of lies: lies, damned lies, and statistics” (Benjamin Disraeli) “An unsophisticated forecaster uses statistics as a drunken man uses lamp-posts - for support rather than for illumination” (Andrew Lang)

Introduction General overview of availability of balance sheets data G20 Data Gaps Initiative Implementation issues Indicators: use and abuse Accounting for vulnerabilities and economic sustainability Going forward: what more do we need? Plea for implementing system of agreed balance sheets, and making full and “appropriate” use of the data

Present availability International standards for national accounts (SNA 2008 and ESA 2010) lay out a full and consistent framework for balance sheets, including transactions Lot of information is actually already available, first and foremost in relation to quarterly and annual information on financial transactions and positions Especially in EU, quite some progress has been made in developing quarterly data (nowadays available 90 – 120 days after the end of the quarter) Also in other OECD-countries

G20 Data Gaps Initiative Economic and financial crisis showed some gaps in the compilation and publication of statistical data, especially in relation to risks and vulnerabilities In 2009, a set of recommendations has been put forward to address the main data gaps, the so-called G20 Data Gaps Initiative (DGI): Better capture the build-up of risk in the financial sector Improve data on international financial network connections Monitor the vulnerability of domestic economies to shocks Improve the communication of official statistics 

G20 Data Gaps Initiative Core recommendation from macro-economic perspective: recommendation 15 on institutional sector accounts: “… to develop a strategy to promote the compilation and dissemination of the balance-sheet approach (BSA), flow-of-funds, and sectoral data more generally, starting with the G-20 economies. Data on nonbank financial institutions should be a particular priority. The experience of the ECB and Eurostat within Europe and the OECD should be drawn upon” Templates for collection of balance sheet data, driven by the example of EU and other OECD-countries, also part of SDDS Plus requirements of IMF

Sector details, quarterly Non-financial corporations (S11)   Of which: Public non­ financial corporations Financial corporations (S12) Monetary financial institutions (S121+S122 +S123) Central bank (S121) Other depository-taking corporations (S122) Money­ market funds (S123) Insurance corp. and pension funds (S128+ S129) Insurance corp. (S128) Pension funds (S129) Other financial corporations (S124+ S125+ S126+ S127) Of which: Non­money market investment funds (S124) Of which: Other financial intermediaries except insurance and pensions (S125) Of which: Financial Auxiliaries (S126) Of which: Captive financial institutions and money lenders (S127) Of which: Public financial corporations General government (S13) Of which: General Government Social Security (S1314) Households and NPISHs (S14+S15) Households (S14) NPISH (S15) Rest of the World (S2) Minimum Encouraged

Instrument details, quarterly (1/2) F1 Monetary gold and SDRs   F11 Monetary gold F12 SDRs F2 Currency and deposits Of which: Domestic currency F21 Currency F22 Transferable deposits F221 Interbank positions F229 Other transferable deposits F29 Other deposits F3 Debt securities F31 Short-term F32 Long-term With remaining maturity of one year and less With remaining maturity of more than a year F4 Loans F41 Short-term F42 Long-term Minimum Encouraged

Instrument details, quarterly (2/2) F5 Equity and investment fund shares   F51 Equity F511 Listed shares F512 Unlisted shares F519 Other equity F52 Investment fund shares/units F521 Money market fund shares/units F522 Non MMF investment fund shares/units F6 Insurance, pension and standardized guarantee schemes F61 Non-life insurance technical reserves F62 Life insurance and annuity entitlements F63+F64+F65 Retirement entitlements F63 Pension entitlements F64 Claim of pension fund on pension managers F65 Entitlements to non-pension benefits F66 Provisions for calls under standardized guarantees F7 Financial derivatives and employee stock options F71 Financial derivatives F711 Options F712 Forwards F72 Employee stock options F8 Other accounts receivable/payable Of which: Domestic currency F81 Trade credits and advances F89 Other accounts receivable/payable Minimum Encouraged

Non-financial assets, annually AN1 Produced non-financial assets   AN11 Fixed assets of which, AN111 Dwellings AN112 Other buildings and structures AN12 Inventories AN13 Valuables AN2 Non-produced non-financial assets AN21 Natural resources AN211 Land AN. 2111 Land underlying buildings and structures AN212 Mineral and energy reserves AN22 Contracts, leases and licenses AN23 Goodwill and marketing assets Minimum Encouraged

Implementation issues Measurement of non-financial assets, especially non-produced, non-financial assets (land, natural resources, etc.) Not all types of risks and vulnerabilities can be captured with agreed templates, e.g. interconnectedness => “from-whom-to-whom” tables or “flow of funds” Only available in developed countries, not always on a quarterly basis However, economic and financial crisis has created a momentum for further development Other (conceptual) issues => later

Indicators: use and abuse From the framework, various indicators can be derived: Debt to income ratios Debt to assets ratios Etc. Which indicators are the most appropriate? Example: General Government Gross Debt

A Simple Comparison A reasonably sophisticated user has taken a look at various sources: Eurostat, Tables on Government Finance IMF, Government Finance Statistics (market value and face value) IMF, World Economic Outlook OECD, National Accounts at a Glance OECD, Economic Outlook

Government Debt 2010 Differences between highest and lowest result, in %-points of GDP Main conclusions: Generally quite large differences. Again, situation for European countries generally better than for other OECD-countries (exception: Korea). For non-EU countries (except Chile, Korea and Switzerland), differences range from 11.4 %-points for Turkey to 35.5%-points for Iceland. Also significant differences for major economies like Japan and USA (between 20 and 25 %-points).

Coverage of instruments General definition of gross debt: a specific subset of liabilities … that require payment or payments of interest or principal by the debtor to the creditor at a date or dates in the future (22.104). All liabilities except shares, equity and financial derivatives Monetary gold and SDRs Currency and deposits Debt securities Loans Insurance, pension and standardized guarantee schemes Other accounts payable

Coverage of instruments However, several other definitions are being used Maastricht debt: Currency and deposits Debt securities Loans Sometimes only loans and debt securities are covered Most substantial impact: pension liabilities

Valuation and consolidation Different valuation concepts: Market prices (according to SNA) Nominal value (e.g. Maastricht definition) Face value Consolidated versus non-consolidated data Other differences: differences in sources, lack of alignment to international standards, sometimes even differences due to reporting agency

Impact of Excessive Deficit Procedure Improvement of data according to agreed definition Inclination to prefer being “exactly wrong” instead of “approximately right” Focus on single indicators drives poor policy: Gross Debt and Investments Pension reforms Creative accounting: impact on numbers more important than economic rationale (PPPs, sale and lease back constructions, taking over pension liabilities of public corporations) Single indicators are, almost by definition, a simplification of economic reality

Going beyond Need to account for pension liabilities and contingent liabilities Need for additional indicators on Net Government Debt => various definitions proposed: Including liquid assets only Including similar instruments as the ones on the liabilities side Including all financial assets (including shares and other equity) Including financial assets as well as non-financial assets => net worth => also raises the question of which expenditures to be considered as investments Finally, need for more “story-telling” on the interpretation of government debt data (e.g. the impact of differences in pension arrangements across countries)

Accounting for vulnerabilities and economic sustainability Various forms of vulnerabilities or risks: Liquidity risk: gross debt to income (after adjusting for liquid assets) Solvency risk: gross debt to assets Risk exposures to certain sectors/countries: need for “from-whom-to-whom” tables Maturity risk, currency risk, etc.: need for more detailed breakdowns Generally, quite detailed data needed, and some risks may be covered (or actually hidden) In addition, macro-data may hide risks for certain groups Question: where to go?

Accounting for vulnerabilities and economic sustainability The importance of looking at wealth distribution Analysing wealth distribution is essential for analysis of vulnerabilities in the household sector Debt to income ratio of indebted households Sources: EFF 2002 (Spain), SCF 2001 (US), SHIW 2002 (Italy), BHPS 2000 (UK)

Accounting for vulnerabilities and economic sustainability Balance sheets are a snapshot of the wealth at a certain moment in time As such, they may not reflect economic sustainability to the full extent: Weak versus strong sustainability Does not say anything about future income generating potential (e.g. debate on ageing society and pension liabilities) On the other hand, changes in balance sheet positions do provide a sense of sustainability or direction where things are going

Going forward: what more do we need? Better accounting for non-financial assets Eurostat/OECD Task Force on Measuring Other Non-financial Assets => Guidance on Land Natural resources (subsoil assets) Residential and commercial property price indices Implementation! Knowledge capital? Already included: (i) mineral exploration; (ii) software and databases; (iii) entertainment, literary and artistic originals; and (iv) R&D Human capital?

Going forward: what more do we need? Full accounting for pension entitlements Supplementary table (2017 in EU) Accounting for contingent liabilities Need for much more distributional information Can we capture risks and vulnerabilities to the full extent? More generally: which data needs are most prominent?

Thank you for your attention!