• Conceptual Issues Related to the Definition of Government Debt

    João Cadete de Matos1, Sérgio Branco2, Filipe Morais3

    1. Statistics Department, Banco de Portugal, Lisbon, Portugal – jcmatos@bportugal.pt
    2. Statistics Department, Banco de Portugal, Lisbon, Portugal – jscbranco@bportugal.pt
    3. Statistics Department, Banco de Portugal, Lisbon, Portugal – fmmorais@bportugal.pt

    This paper discusses several concepts with regard to the definition of public debt, in particular possible changes related to the delimitation of the public sector and to the range of financial instruments included and its valuation.
    Firstly, it describes the different definitions of government debt that can be found in macroeconomic statistics. It considers the advantages and disadvantages of the various concepts, namely by taking into account the different coverage of entities and instruments and the different ways to value them.
    This analysis is supplemented by looking at net debt measures, which are especially relevant in times of financial crisis, when governments tend to hold more financial assets. From here, the paper examines the arguments that support possible changes in the government debt definition, in particular on some conceptual issues raised recently regarding the definition of the so-called Maastricht debt, which is the concept commonly used in Europe to measure the indebtedness level of a country’s general government. In this respect, recent discussion focused on the possible inclusion of trade credits in the definition of the Maastricht debt and the possible valuation of debt at nominal value rather than face value.
    Possible advantages of taking into account, for fiscal policy purposes, the debt of the whole public sector rather than just the debt of the general government sector are also analysed. In a nutshell, we can say that the latter indicator may be seen as showing a more comprehensive and accurate portrait of the financial position of governments. Finally, the challenge that contingent liabilities may pose to the definition of public debt is addressed.

    Keywords: public debt, national accounts, financial accounts, government finance statistics.

    Pages: 751 – 759 | Full PDF Paper