Abstract
This paper introduces the first truly comprehensive database on gross government-debt-to-GDP ratios, covering nearly the entire IMF membership (178 countries) and spanning an exceptionally long time period (going back to 1880 for most advanced and some emerging economies). The paper then uses the database to document the evolution of public debt ratios in advanced, emerging, and low-income economies, and relate them to contemporaneous developments in growth, commodity prices, and debt relief, respectively. Finally, the paper identifies 129 large debt increases and decreases observed in 19 advanced economies over 1880–2007 and decomposes them into contributions from the primary balance, the interest-growth differential, and the stock-flow adjustment term (a composite of valuation effects and “below-the-line” fiscal operations). The analysis suggests a pattern of asymmetric contributions: the primary balance plays a key role in debt reductions, except during the post-WWII period (when the growth-interest differential was extremely favorable); while debt surges were often associated with large stock-flow adjustments, likely reflecting assumption of implicit liabilities and exchange rate changes and, for the cases of debt reduction, debt default.
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Notes
Data start prior to 1880 for the United States (1791), Sweden (1800), the Netherlands (1814), the United Kingdom (1830), Portugal (1852), New Zealand (1860), Italy (1861), Canada (1870), and Japan (1875).
See www.imf.org/external/ns/cs.aspx?id=262; Also see Supplementary Information accompanies the paper on IMF Economic Review website (http://www.palgrave.com/imfer).
This was the case in a number of advanced economies (for example, Canada and Japan), and emerging economies (for example, Indonesia, Mexico, Russia, South Africa, and Turkey).
The IMF Statistics Department and the World Bank launched an online Public Sector Debt Statistics Database based on the forthcoming Public Sector Debt Statistics Guide for Compilers and Users (see www.tffs.org/PSDStoc.htm). The database will facilitate timely, quarterly dissemination of contemporary debt data for the public sector, with countries participating voluntarily and encouraged to provide a detailed breakdown of debt information (for example, by term, currency of denomination, and residency).
Data on public debt are not available for a handful of countries, including Afghanistan, Iraq, Kiribati, Kosovo, Timor-Leste, and Somalia.
General government includes the central government plus any applicable local or state governments, and in some cases such items as public corporations and social security funds. See IMF (2001).
Given the difficulties in some countries of compiling data for other levels of government, it is only recently that general government data started to be collected systematically for an increasing number of countries (see IMF, 1986).
Other authors have also reported central government debt data when general government debt data were not available or were hard to ascertain. For example, most of the public debt data in R&R (2010) database are at the central government level.
The components of general government, for each country in the WEO database, can be found on the following website: www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx. In addition, the periodical publication “Government Finance Statistics” of the IMF provides an institutional appendix with complete definitions of the coverage of general government.
For the United States, GNP data were available from Mitchell (2003) from 1791 through 1900.
For example, Jaimovich and Panizza cover 89 countries over the period 1991–2005, and seven extra countries for the period 1993–2005, with incomplete coverage going back in some cases to 1970.
AC do not capture debt exchanged in markets and held by other participants than commercial banks and the central bank. However, given that the size of financial markets was at best small in most of low- and middle-income countries covered and that the AC database is mainly used up to 2000, before WEO coverage starts, this shortcoming is likely inconsequential.
JP report on page 21 that when they exhausted the data sources from international organizations, they resorted to other official websites (Central Banks, Ministries of Finance, and Debt Management Offices) and sources (Eurostat, publications and reports by investment banks, and documents from the IMF). However, no more information is provided on how these sources were integrated into the database construction and for which countries these sources were relied upon.
A total of 111 breaks were implemented in 68 countries, with a maximum of five breaks per country for only one country. The majority of breaks were applied to minimize step differences in the debt ratio series when transitioning from one data source to another.
Regions are grouped according to the five IMF regional departments: Western Hemisphere Department (WHD), European Department (EUR), African Department (AFR), Asia and Pacific Department (APD), and Middle-East and Central Asia Department (MCD). Please refer to the IMF website (www.imf.org) for details on country groupings by department.
There were 118 independent countries prior to 1970 in our data set. However, for some of these countries, large data gaps exist. For example, the start date of data for China is 1984. For Russia, aside from the pre-WW1 coverage (1885–1913), data were available from 1992 onward, after the end of the Soviet period. Other countries with notable gaps in the post-1970 period include Brazil, Hungary, Romania, and Saudi Arabia.
Fiscal balances during the Great Depression (1928–32) deteriorated by about 4 percentage points of GDP, on average, in the G7 advanced economies (PPPGDP-weighted), compared to a deterioration of about 6 ½ percentage points of GDP during the Great Recession (2007–10).
The G7 advanced economies are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
As such, the coefficient of variation for advanced economies was 0.36 as opposed to 0.55 for the rest.
The G20 emerging economies are Argentina, Brazil, People's Republic of China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, and Turkey.
These are illustrated in detail in the IMF Working Paper version of this paper, available at: www.imf.org/external/pubs/cat/longres.aspx?sk=24332.0.
The countries covered are: Australia, Austria, Belgium, Canada, Finland, France, Germany, Greece, Ireland, Italy, Japan, Kingdom of Netherlands—Netherlands, New Zealand, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
For the purposes of this exercise, it was necessary to extend the historical data collection to include series on interest payments and primary balances. The data sources, coverage, and definition as documented in the original sources, are provided in Table 3 of the Supplementary Appendix. Tables 4 and 5 of the same appendix document the data sources used, over different time horizons, for each country, for the overall balance, and interest payments, respectively.
Debt reductions which continued through the global financial crisis years (2008–09), such as in Finland, Sweden and Switzerland, were, however, included.
Specifically, an “interruption/reversal” was allowed to pass through as part of a single debt increasing or reduction episode as long as it was sized at one-tenth or less of the underlying cumulative change in the debt ratio and if the duration of the underlying episode was at least five years.
Footnote 1 to Table 1 lists the hard and soft defaults (sourced from Reinhart and Rogoff, 2009) as well as the debt reduction episodes which they overlapped with or immediately preceded. It is important to caveat the reported results on defaults for three reasons: First, some of the debt “conversions” described as default in Reinhart and Rogoff (2009) were not strictly “involuntary” and could, thus, plausibly be classified as debt management operations (for example, United Kingdom (1888–89, 1932)). Second, there were some partial defaults that were picked up in our debt data but could not be decomposed due to lack of data on fiscal flows, interest rates, and/or growth rates (for example Italy in the late 1920s). Third, some defaults are buried under debt “increase” episodes (for example the U.S.'s abrogation of gold clauses in the early 1930s, which “prevented” a 25 percent of GDP increase in debt that would otherwise have occurred), and are, by definition excluded from our analysis of default-induced debt reductions.
Interestingly, the role of the growth-interest differential varied across the two periods, mainly on account of the interest component, which was much higher in the post-1970 setting than the pre-1914 one.
A closer look at the counter-intuitive debt increases (that is, during debt decline episodes) reveals a median size 26 percent of the total debt decrease, roughly similar to the size of the unexplained debt reductions, 32 percent of the debt decrease. This further suggests that the anomalous cases of unexplained debt increases during episodes of debt reduction cannot be dismissed as isolated or insignificant.
Suggestions can be sent to the authors (E-mail: SAbbas@imf.org; E-mail: NBelhocine@imf.org; E-mail: AElGanainy@imf.org; E-mail: MHorton@imf.org).
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Additional information
Supplementary Information accompanies the paper on IMF Economic Review website (http://www.palgrave.com/imfer)
A current version of the dataset is available publically in electronic format on the Fiscal Monitor Webpage of IMF.ORG, http://www.imf.org/external/pubs/ft/wp/2010/data/wp10245.zip.
*The authors are all economists at the International Monetary Fund. The database was compiled with support from Sarah Buss, Raquel Gomez-Sierra, Nezha Khaneboubi, and especially, Oriel Fernandes and Malin Hu. Help was also provided by Joong Beom Shin and Seok Gil Park. The authors thank Professor Alessandro Missale (Università di Milano) for sharing his public debt data set on advanced economies and Ryland Thomas (Bank of England) for providing guidance to historical sources for public debt of the United Kingdom. The authors also thank Carlo Cottarelli who suggested the idea of the database and provided guidance, Abdel Senhadji who provided guidance and helpful comments on earlier versions of the paper, and Paolo Mauro who alerted the authors to debt data sources on selected emerging markets in the late 1800s.
Electronic supplementary material
41308_2011_BFimfer201124_MOESM1_ESM.pdf
Supplementary Appendix
A current version of the dataset utilised in this paper is available on the IMF's website, http://www.imf.org/external/pubs/ft/wp/2010/data/wp10245.zip