Measuring public debt

Comprehensive data on public debt can be found in the wealth accounts.

What are asset accounts?

In national accounting, the concept of wealth is defined as the state of assets held and liabilities incurred at a given time by the “national economy”, i.e. by the “economic agents” residing on national territory (see box).

Wealth thus represents a country’s stock of “wealth”, the term “wealth” being understood in a restrictive sense, since wealth here includes only assets that have been (or are likely to be) the subject of market transactions. ¹ .

Every year, national accountants draw up wealth accounts, which give an account of the assets and liabilities of the national economy.

• Assets refer to what a country’s institutional units “own” (see box). They can be non-financial (buildings, land, intellectual property rights, etc.) or financial (different types of debt, shares and units in investment funds, derivatives, etc.). ²
• Liabilities refer to commitments made by institutional units. They are exclusively financial (various types of debt, shares and units in investment funds, derivatives, etc.).

Wealth accounts are drawn up not only for the national economy as a whole, but also for each of the major institutional sectors and sub-sectors (see box), as well as for the “rest of the world”.

More information on the Insee website

To compile asset accounts, national accountants follow a number of concepts, definitions, nomenclatures and rules approved internationally in the United Nations System of National Accounts (SNA 2008). ⁴ . The aim is to achieve international harmonization of the various national accounting systems, and thus a degree of comparability over time and between countries.

This general framework cannot, however, cover the particular cases and specificities of each country. It is therefore adapted by national accountants. For example, the European Union has adapted the 2008 SNA in its reference accounting document, the European System of Accounts(ESA 2010). Further adaptations are then made by the accountants of each EU country.

Defining the scope of general government is not neutral

As we saw in the previous section, the liabilities side of the balance sheet accounts for :

• all the commitments made by all the economic agents of a national economy (to the “rest of the world” and to each other);
• as well as the commitments made for each of the institutional sectors (and sub-sectors).

This is how we obtain detailed data on the liabilities of the general government sector.

The system of national accounts defines a perimeter for classifying the organizations that fall within the general government sector (see box below). The boundary, however, is not always easy to establish, and is the subject of much debate.

For example, the public investment bank (BPIfrance) is classified as an APU, whereas financial companies do not normally belong to this sector. Created in 1997, Réseau ferré de France (RFF), which manages rail infrastructure, was not initially included in the APU, but will be as of 2018.

Clearly, classifying a given entity as a UDA is not just a technical issue, but also a political one. Given the importance of public debt in the public debate, whether or not to include an organization in the UFA sector is not neutral, since it can increase or decrease the debt.

Economist Olivier Passet explains that in Germany, hospitals and educational establishments are not included in the scope of the State, but in that of associations (NPOs) and non-financial companies, which makes it possible to reduce (by displaying) public spending, the number and cost of civil servants, and any public debts and deficits linked to these sectors.

Video – Germany’s budget balancing trick (2023)

On the other hand, the authorities in some countries may develop and use in the debate on public finances debt indicators that include organizations that are not part of the general government sector as defined in the national accounts. This is the case, for example, in the United Kingdom, where, in addition to general government, public financial and non-financial corporations are included (see section 3).

Asset accounts and debt

All the data needed to calculate debt is found in the balance sheet. However, it is important to understand that they can be used to calculate different types of debt measurement.

On the one hand, there are two main categories of public debt measurement:

• Measures of gross debt for which only data on the liabilities of general government are used. We discuss these in section 2;
• Net debt measures take a gross debt measure and subtract certain financial assets. We discuss this in section 3.

On the other hand, once you fall into one of these two categories, the measurement of debt depends on the definitions adopted by countries or international organizations, the use made of them to shed light on the debate on public finances, and the differences that remain between national accounting systems. ⁶ (despite the harmonization brought about by use of the 2008 SNA).

As the OECD notes when describing the gross debt indicator used in its publications, debt is indeed a “concept”, and not a measure obeying rules that are intangible at all times and in all places.

The concept of debt is widespread, and is defined as a specific subset of liabilities identified according to the types of financial instruments included or excluded. Generally speaking, debt includes all liabilities requiring payment(s) of interest or principal by the debtor to the creditor at one or more dates in the future. Consequently, all debt securities are liabilities, but certain liabilities such as shares, participating interests and financial derivatives are not debts. [System of National Accounts, 2008, § 22.104] (…) This definition differs from the definition of debt applied by the Maastricht Treaty for European countries.

OECD ⁷

Different measures of gross debt of general government

In this section, we’ll look in detail at three measures of gross debt, explain how we move from one to the other, and show how difficult international comparisons are.

Gross public debt can be measured in three main ways

Is it consolidated or unconsolidated debt?

Debt is said to be unconsolidated when it includes what the public administrations owe each other.

To calculate consolidated debt, subtract the following from total liabilities ⁸ from the total liabilities of the general government.

Is the debt expressed in nominal or market value?

A large proportion of the liabilities of general government are made up of financial securities negotiable on a market: these are debt securities issued by general government, the most common of which are Treasury bills or bonds.

These instruments are characterized in particular by two values:

• their face value (or nominal value), i.e. the amount to be reimbursed by the administration concerned;
• their market value, i.e. the value at which these securities are traded on the secondary market. The greater the demand for debt securities, the higher their market value (and therefore the higher their par value), and vice versa.

Depending on the statistical organization, one or other of these values will be used. It should be noted that, from the point of view of public accounts, it seems more coherent to take into account the face value, since this is the value that public authorities are obliged to reimburse. ⁹ .

Are all liabilities taken into account?

There are various categories of liabilities (see box), not all of which are taken into account by the organizations that publish statistics on public debt.

Firstly, liabilities include not only debts but also other types of commitments. For example, “shares and units in investment funds” are not debts, but liabilities that reflect the fact that economic agents hold a share in the capital of public companies or investment funds included in the scope of general government. ¹⁰ . These are not current liabilities. If a player owns shares in a public fund or company, he may sell them, but he cannot demand repayment.

Secondly, some measures of debt do not include “other accounts payable”, as this is a very short-term debt, and in their assets, public authorities generally have “other accounts receivable” (mainly consisting of taxes and social security contributions yet to be collected) for an equivalent value.

Finally, some categories of liabilities are not even calculated by national accountants. For example, in the United States, Australia, Colombia and Sweden, civil servant pension liabilities are included in public debt. This is not the case in the European Union or Japan.

The three measures of gross public debt

• National accounts debt includes all liabilities, is unconsolidated and expressed at market value. This is the most extensive definition of debt.
  
• Every two years, the OECD publishes the Panorama of Public Administrations, which includes debt statistics expressed as a percentage of GDP. This is the gross debt of the national accounts. It is consolidated, expressed at market value, and includes all liability categories except “shares and units in investment funds” and “financial derivatives”.
  
• In the European Union, the most widely used measure is debt in the Maastricht sense. ¹³ . It is a consolidated debt, expressed in face value. It takes into account only the categories of cash and deposits, debt securities and loans.

Here’s what it looks like for France:

Switching from national accounts debt to OECD debt shows the effect of :

• consolidation of the liabilities of the public sector (around 322 billion);
• withdrawal of financial income (around 11 billion) ¹⁴ .

Switching from OECD debt to Maastricht debt shows the effect:

• the valuation of debt at nominal rather than market value (around 345 billion euros);
• the withdrawal of “other accounts payable” (283 billion euros).

The difficulty of international comparisons

The first difficulty relates to the size of the economies concerned.

It seems quite logical that US general government debt is higher than that of France, and French general government debt higher than that of Greece.

To deal with this difficulty (as well as the fact that debt is expressed in different currencies), statistical organizations use the debt/GDP indicator, which compares the stock of debt to GDP. In concrete terms, this indicator tells us what percentage of a country’s annual production revenues would be needed to repay the debt in a single payment. While this indicator enables international comparisons, it is clearly not sufficient to determine the sustainability of public debt (i.e., the ability of public authorities to generate sufficient resources to meet their obligations to creditors: repay principal and pay interest).

> For more details on this point, see the module on public debt and deficit.

A second difficulty stems from the different ways of measuring debt

Comparing France’s public debt, which is most often expressed in the Maastricht sense, with the debt of Japan or the United States as calculated by the OECD can be a source of misinterpretation.

However, even when the same method of calculation is used, there may still be biases due to differences between national accounting systems.

We can see that in the United States, civil servant pension commitments account for a significant proportion of debt, whereas in France and Japan they are not recorded by national accountants.

In France, other accounts payable are higher than in the other two countries, mainly due to the scale of social security benefits. As we saw earlier, they are largely covered on the assets side by “Other liabilities receivable”.

Different measures of general government net debt

To assess the financial situation of the public sector, it is also possible to look at net debt. This is obtained by subtracting certain assets held by the public sector from their gross debt. These assets represent a potential source of income that the government can use to meet its commitments. For example, by selling debt securities they hold on other economic agents, governments can obtain resources to meet their financial commitments.

Eurostat and the OECD calculate “net financial value” by starting with gross debt in the national accounts sense and subtracting all the financial assets of the general government. The net financial value of France’s general government is therefore €1903 billion in 2019.

INSEE calculates the net debt of general government from its gross debt in the Maastricht sense, from which it deducts deposits (general government cash holdings), loans and debt securities (valued at their nominal value) held by general government with other economic players. For France, this gives a net debt of 2,166 billion euros in 2019. ¹⁵ .

In the UK, an indicator of net debt is regularly used by the government in public debate. This is Public Sector net debt. This indicator differs essentially from the previous ones in the scope of the entities included: it takes into account not only general government but also public financial and non-financial companies (including the Bank of England). ¹⁶ .

This brief overview of the various measures of debt shows that, like all economic aggregates, it is a constructed number, and that care must be taken when manipulating these figures and making international comparisons over time.