1 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)

2 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

3 General Government Gross Debt, 2006 and 2009, Maastricht Debt Definition

4 U.S. Debt Held by the Public, $Trillion and Debt/GDP Ratio,

5 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

6 U.S. Net Interest Payments as a Percentage of Total Revenues, 1990 to 2020

7 U.S. Debt Held by the Public Under Two Fiscal Policy Simulations Baseline Extended 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. Alternative Historical High 109 percent in 1946

8 IMF Estimates of Debt Vulnerability Indicators, Percent of Gross Domestic Product

9 IMF Estimates of Gross Financing Needs in 2010, Percent of GDP, Selected Countries

10 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 (highly- interconnected large firms )

11 INTOSAI Initiatives Task Force on Global Financial Crisis – IDI Transregional Program on Public Debt Management Audit – Individual SAIs audit efforts – –

12 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