1. 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

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

3. 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)

4. 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

5. Present availability
International standards for national accounts (SNA 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 – days after the end of the quarter)
Also in other OECD-countries

6. 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 

7. 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

8. 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

9. Instrument details, quarterly (1/2)F1
Monetary gold and SDRs
F Monetary gold
F SDRs F2
Currency and deposits
Of which: Domestic currency
F Currency
F Transferable deposits
F Interbank positions
F Other transferable deposits
F Other deposits F3
Debt securities
F Short-term
F Long-term
With remaining maturity of one year and less
With remaining maturity of more than a year F4
Loans
F Short-term
F Long-term
Minimum
Encouraged

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

11. Non-financial assets, annually
AN1 Produced non-financial assets
AN Fixed assets
of which,
AN Dwellings
AN Other buildings and structures
AN Inventories
AN Valuables
AN2 Non-produced non-financial assets
AN Natural resources
AN Land
AN Land underlying buildings and structures
AN Mineral and energy reserves
AN Contracts, leases and licenses
AN Goodwill and marketing assets
Minimum
Encouraged

12. 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

13. 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

14. 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

15. 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).

16. 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

17. 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

18. 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

19. 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

20. 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)

21. 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?

22. 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)

23. 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

24. 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?

25. 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?

26. Thank you for your attention!