Transparency in Government Reporting -
Kuala Lumpur, 14 September 2015Christian de Guzman, Vice President Senior Analyst, Sovereign Risk Group
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» Factor 1: Economic StrengthSize, wealth, and diversification give a country resiliency. The capacity of the sovereign to generate revenue andservice debt over the medium term relies, in part, on fostering economic growth and prosperity.
» Factor 2: Institutional StrengthWeak institutions can have a profound impact on sovereign creditworthiness
transparency and degree of consensus on main policy goals) supportive of quantitative credit fundamentals?
» Factor 3: Fiscal StrengthCaptures the overall health of government financescurrent and expected liabilities.
» Factor 4: Susceptibility to Event RiskDenotes the risk that sudden, extreme, events may severely strain public finances, thus sharply increasing the
We look at political risk, banking sector risk, government liquidity risk, and external vulnerability risk.
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How Does Government Data Quality Affect SovereignRatings?» Factor 1: Economic Strength
We look at GDP, economic growth, per capita GDP, competitiveness
Data Issues: Informal Economy, Data Revisions (sometimes very large!)
» Factor 2: Institutional StrengthData transparency and availability improve policy outcomes and accountability
Data Issues: Independence of Statistical Bodies from the Political Process, Transparency of Information
Factor 3: Fiscal StrengthReporting should reproduce as closely as possible the true financial position of the sovereign
Data Issues: Different Levels of Government, Off-Balance Sheet Items, Future Liabilities (such as from an agingpopulation), Contingent Liabilities from the Broader Public Sector, Sophistication of Debt Management (Derivatives)
» Factor 4: Susceptibility to Event RiskWhile partly qualitative, quantitative assessment of tail risk is key
Data Issues: Quality/Availability of Banking Sector and Balance of Payments Statistics
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International Organizations Play an Important Role inImproving Statistical Quality
» IMF GDDS, SDDS, SDDS+ Standards and the ROSC process
» Technical assistance from World Bank and OECD (among others)
General DataDissemination
System (GDDS)
Aimed at all membercountriesProvides good practicerecommendationsEmphasis on progresstoward higher qualitystatistics, includingsocio-demographicdataLess prescriptive
Special DataDisseminationSystem (SDDS)
Intended for membercountries seekingaccess to internationalcapital marketsFocus on datadissemination incountries that alreadymeet high data qualitystandardsReal, fiscal, financialand external sector
Special DataDissemination System
Plus (SDDS+)
Guide membercountries on theprovision of data insupport of domesticand internationalfinancial stabilityEmphasis on countriesthat havesystematicallyimportant financialsectors
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National Summary Data Page A Crucial Starting Point
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Asia-Pacific: Dissemination Standards vs. Ratings
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International Organizations Play an Important Role inImproving Statistical
»
GFSM 1986
Cash basisOutstandinggovernment debtvalued at amount owedat maturity (face value)Only stock positions ofcertain debt liabilitiesavailable
GFSM 2001
Accrual basisFlows and stocksvalued at currentmarket pricesComplete balancesheetsFull integration flows &stocks andreconciliation ofdifferences betweenopening and closingbalance sheets
GFSM 2014
Builds on GFSM 2001by harmonizing withother internationallyaccepted statisticalstandards:-System of NationalAccounts 2008(SNA2008)-Balance of Paymentsand InternationalInvestment Manual 6(BPM6)-Public Sector DebtStatistics (PSDSGuide)
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Government Accounting Quality Still Lags BehindPrivate Sector International Standards
» A stylized comparison of net liabilities coverage by National Accounts vs. IFRS standard
» UK adoption of IFRS-based Whole of Government Accounts in 2011 illustrate the difference
Assets/Inflows
Liabilities/Outflows
PAST FUTURE
Physical Assets
Illiquid Assets
Liquid Financial Assets
All LiabilitiesAccumulated to Date
Future Assets
Future Revenues
Future Liabilities That MayBe Incurred in the Future
Future Liabilities From PastActivities
Contingent Liabilities
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Comparison of GFS and Private Sector Accounting
» Objective: evaluation of economic impact vs. evaluation of financialperformance
»
defined by control
» Valuation: current market prices vs. fair value, historic cost, and other bases
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Sovereign Ratings are a Global Ordinal Ranking of CreditRisk, So We Need to Compare Countries to Each Other
» The FSB/IMF G20 Data Gap Initiative: the global financial crisis highlighted theneed for improved data on cross-border financial linkages and vulnerability
» Comparability of government reporting and data across our global sovereignuniverse is a key challenge
» Most data still come from national statistical systems: further statisticalcapacity building needed in developing economies willing to access globalcapital markets
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Important Caveats on the Role of Data from a SovereignRating Perspective
» Quantitative measures are only a part of the input into sovereign ratingdecisions
» Data are necessarily backward looking, while sovereign analysis requiresforward-looking evaluations of the risk of default, including forecasts
» Both qualitative assessment of sovereign creditworthiness and medium-termprojections/scenarios generated internally play a key role
» A note on Argentina, Greece, and Malaysia
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Christian de GuzmanVice President Senior AnalystSovereign Risk Group+65.6398.8327 (tel)[email protected]