Prof. Dr. Roger Dassen RA, Global Managing Director Clients, Services and Talent Deloitte Touche Tohmatsu Limited - IFAC Sovereign Debt Seminar Presentation
•
1 recomendación•976 vistas
Prof. Dr. Roger Dassen RA, Global Managing Director Clients, Services and Talent Deloitte Touche Tohmatsu Limited - The Government Balance Sheet Crisis
Recomendados
Recomendados
Más contenido relacionado
La actualidad más candente
La actualidad más candente (20)
Destacado
Destacado (20)
Similar a Prof. Dr. Roger Dassen RA, Global Managing Director Clients, Services and Talent Deloitte Touche Tohmatsu Limited - IFAC Sovereign Debt Seminar Presentation
Similar a Prof. Dr. Roger Dassen RA, Global Managing Director Clients, Services and Talent Deloitte Touche Tohmatsu Limited - IFAC Sovereign Debt Seminar Presentation (20)
Más de International Federation of Accountants
Más de International Federation of Accountants (20)
Último
Último (20)
Prof. Dr. Roger Dassen RA, Global Managing Director Clients, Services and Talent Deloitte Touche Tohmatsu Limited - IFAC Sovereign Debt Seminar Presentation
- 1. The sovereign balance sheet crisis Roger Dassen Global Managing Director – Clients, Services & Talent, Deloitte Touche Tohmatsu Limited IFAC Global Seminar presentation March 20, 2012 © 2012 Deloitte © 2012 Deloitte
- 2. There is more to a government’s financial position than sovereign debt • We’re experiencing a sovereign balance sheet crisis, a wider problem than a sovereign debt crisis • We need more-encompassing indicators of public finance • European Maastricht criteria are too narrow and outdated 2 ©© 2012Deloitte 2012 Deloitte
- 3. Comparing sovereign debt is misleading 3 ©© 2012Deloitte 2012 Deloitte
- 4. Greece
- 5. Greece: cross currency swap at fictional rate Investor loans in dollar amount received in euros is Greece higher than market value of loans in dollars loans in dollar loan in euro Counterparty in currency swap 5 ©© 2012Deloitte 2012 Deloitte
- 6. Greece: securitization of future revenues • Banks provide cash upfront in return for government payments in the future • Greece thus traded away: ‒ rights to future airport fees ‒ lottery proceeds in years to come ‒ grants expected from European Union structural funds 6 ©© 2012Deloitte 2012 Deloitte
- 7. Statistics versus financial statements Statistics Financial statements • Not subject to audit • Audited by supreme audit institution. Two types: • Used by European Commission to monitor member states • court of accounts (ESA95) • auditor-general Greece falsified unaudited statistics to hide its massive debt and budget deficit 7
- 9. Governments should prepare balance sheets, both in financial statements and budget • Balance sheets enable greater scrutiny of asset and liability management • Estimating balance sheets for future years highlights investment intentions over the medium term • Moving from cash accounting to full accrual accounting ensures better indicators • European Commission prepares report on the suitability of accrual accounting and IPSAS for the EU member states 9 ©© 2012Deloitte 2012 Deloitte
- 10. Long-term fiscal sustainability indicators Liabilities and Liabilities and Assets Assets reserves reserves Non-financial Non-financial Reserves Reserves assets assets Gross debt Net debt Investments Pension liability Investments Pension liability Loans made Borrowings Loans made Borrowings Advances Advances paid Advances received Advances paid received Cash and deposits Deposits held Cash and deposits Deposits held Liabilities and Liabilities and Assets Assets reserves reserves Non-financial Non-financial Net financial worth Reserves Reserves assets Net worth assets Investments Pension liability Investments Pension liability Loans made Borrowings Loans made Borrowings Advances Advances paid Advances paid Advances received received Cash and deposits Deposits held Cash and Deposits held deposits 10 ©© 2012Deloitte 2012 Deloitte
- 11. Most governments have negative net worth Government Assets minus liabilities Australia – federal government negative 53 billion AUD Canada – federal government negative 519 billion CAD UK – whole of government negative 1,211 billion GBP France – central government negative 1,956 billion EUR US – federal government negative 13,473 billion USD Netherlands – central government negative 14 billion EUR New Zealand – central government positive 95 billion NZD 11 ©© 2012Deloitte 2012 Deloitte
- 12. Governments’ balance sheets too weak to protect against financial downturn • Banks were blamed for being underfunded and ill-prepared for a financial downturn. However, banks at least prepared balance sheets and their assets exceeded liabilities • Many governments don’t even prepare balance sheets and the ones that do, show liabilities far exceeding assets • Governments were ill-prepared for a financial crisis and many of them did not know it, because they do not prepared balance sheets 12 ©© 2012Deloitte 2012 Deloitte
- 13. Financial crisis results in deteriorating balance sheets Contingent Liabilities Assets liabilities 13 ©© 2012Deloitte 2012 Deloitte
- 14. Deteriorating liabilities • Government employer pension liabilities: • Mostly unfunded and even larger than sovereign debt • Plan assets down, discount rate down, and life expectancy up • Social security pension scheme: • Not even recognized as a liability • Obligations rising because of ageing populations 14 ©© 2012Deloitte 2012 Deloitte
- 15. Deteriorating assets • Government business enterprises stop paying dividend or require grants • Governments accepted failing banks on their balance sheet • End to privatization of state-owned enterprises • Fire-sale of government assets (e.g. by Greece) raise little cash • Student loans: quality deteriorates 15 ©© 2012Deloitte 2012 Deloitte
- 16. Deteriorating contingent liabilities • Governments issued huge guarantees: Issuer Guarantee relating to Amount Eurozone countries European Financial Stability Facility €790 billion Netherlands Mortgage loans of households €108 billion Netherlands Social housing €75 billion UK Treasury Financial stability interventions £650 billion • Government should recognize expected payout amount as a liability on their balance sheet (for large population of guarantees) • Some liabilities are simply missing from governments’ balance sheets: EC’s net assets amounts to minus EUR 27 billion, but member states do not recognize this liability 16 ©© 2012Deloitte 2012 Deloitte
- 17. Moving beyond sovereign balance sheets
- 18. Sustainability reporting: time horizons and frequency 18 ©© 2012Deloitte 2012 Deloitte
- 19. Sustainability reporting: U.S. example Source: GAO 2009 19 ©© 2012Deloitte 2012 Deloitte
- 20. Sustainability reporting: U.S. example Source: GAO 2009 20 ©© 2012Deloitte 2012 Deloitte
- 21. Sustainability reporting: U.S. example (Affordable Care Act) Source: GAO 2010 21 ©© 2012Deloitte 2012 Deloitte
- 22. Indicators for long-term fiscal sustainability Solvency Stable taxes Fairness 22 ©© 2012Deloitte 2012 Deloitte
- 23. Recommendations
- 24. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte's approximately 182,000 professionals are committed to becoming the standard of excellence. This publication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the “Deloitte Network”). None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. © 2011 Deloitte Global Services Limited
Notas del editor
- The crisis is not just a sovereign debt crisis, but it is a sovereign balance sheet crisisMany assets, liabilities on governments’ balance sheets and guarantees are affected by the financial crisis
- We need more-encompassing indicators of public financeEuropean Maastricht criteria focus on sovereign debt (<60% of GDP) and deficit (<3% of GDP) but these criteria are too narrowEuropean Maastricht criteria agreed upon nearly 20 years ago, when government’s information systems were unable to produce any better information
- Government debt + government employer pension scheme is a better indicator of financial positionFocusing on debt discourages governments to fund pensionsSource: GFSSummaryTables_website_April2011 - met international comparison en ratings - debt vs debt plus pensions - some countries only
- The transaction with Goldman involved a currency swap of about $10 billion of debt issued by Greece in dollars and yen with the Greek government declaring an unrealistically low rate of interest on the forward swap, which meant Goldman paying (lending) $1 billion to Greece in an off-the-books deal. In reality the transaction was neutral to Goldman and increased Greek debt.Sources:Balzli - How Goldman Sachs Helped Greece to Mask its True DebtHarrington - Creative accounting and government debt – another fine mess
- Sources:Alloway - Details on those other Greek debt dealsColomer - Greek Tragedy Cools Europe's Restart, March 2010
- Many governments don’t prepare balance sheets. Those that do show liabilities far exceeding assets.Governments were ill-prepared for a financial crisis and many of them did not know it, because they do not prepared balance sheetsThe balance sheet (statement of financial position) of governments that have achieved full accrual accounting show that liabilities far exceed assetsBanks were blamed for being underfunded and ill-prepared for a financial downturn. However, banks at least prepared balance sheets and their assets exceeded liabilities.
- Source: respective financial statements
- IAS 37 Provisions, contingent liabilities, contingent assets:39 Where the provision being measured involves a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities. The name for this statistical method of estimation is ‘expected value’40 Where a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability. However, even in such a case, the entity considers other possible outcomes. Where other possible outcomes are either mostly higher or mostly lower than the most likely outcome, the best estimate will be a higher or lower amount. For example, if an entity has to rectify a serious fault in a major plant that it has constructed for a customer, the individual most likely outcome may be for the repair to succeed at the first attempt at a cost of 1,000, but a provision for a larger amount is made if there is a significant chance that further attempts will be necessary.Source: EFSF: WikipediaFinancieel Jaarverslag van het Rijk (2010)UK: whole of government accounts
- Some governments have started stress tests on themselvesHow do public finances react to shockwaves in the economy?Governments increasingly report on long-term fiscal sustainability of public finances. IPSASB has issued draft standard.Deloitte, acknowledging the importance of sustainability, issued a study report entitled, Red ink rising - the road to fiscal sustainability
- The ability of government to meet its service delivery and financial commitments in the futureIncreasing feature of government reporting over last 10-15 yearsDomain of economists, statisticians, and policy makersAccountants generally peripheral in preparing these reportsAuditors may add value by providing assuranceSource: Sheppard - OECD seminar on fiscal sustainability 45132117
- Source: US Federal Government’s Financial Health. Citizen's Guide 2009
- Source: US Federal Government’s Financial Health. Citizen's Guide 2009
- Chart 8 also shows the 2009 Financial Report projection of debt held by the public as a percent of GDP. The 2010 projection is lower than the 2009 projection in every year of the projection period almost entirely as a result of the Affordable Care Act (ACA), which is projected to significantly lower Medicare spending and raise receipts. As discussed in the Financial Report, there is uncertainty about whether the projected cost reductions in health care cost growth will be fully achieved.Source: US Federal Government’s Financial Health. Citizen's Guide 2010
- Solvency – can government finance existing and probably future obligations?Stable taxes – Can government finance future obligations without increasing taxes?Fairness – Can government provide net benefits to future generations equal to net benefits to current generation?Source: IPSASB Consultation paper, 2009
- Governments should move from traditional cash accounting to full accruals thus show a sovereign balance sheet, audited by a supreme audit institution or other auditor. An urgent need for EU member states because of interdependenciesOne world, one accounting – Sovereign balance sheets should be prepared in compliance with a world-class standard: IPSASMoving beyond traditional financial reporting, governments should prepare stress tests and long-term fiscal sustainability reporting of public finances