Perspectives 2020-2021 Public Sector

Citi Perspectives for the Public Sector 4 5 How Smart Public Assets Management Can Drive the Post-COVID-19 Recovery How Smart Public Assets Management Can Drive the Post-COVID-19 Recovery C ountries need cash to survive the fallout from COVID-19. By tapping hidden value in their balance sheets, they can exit the crisis faster and more sustainably. But success depends on strong political will. Laura Gibson Craig EMEA Public Sector Group, Citi Hanan Amin-Salem Global Head of Sovereign Rating Advisory, Citi Dag Detter Principal, Detter & Co. Ian Ball Professor of Public Financial Management, Victoria University of Wellington What does ’generating value from the balance sheet’ mean in practice for the public sector? Governments everywhere and at every level own a vast array of commercial assets. According to the IMF, the value of public assets globally is twice that of global stock markets, twice global GDP and much larger than public debt. 1 However, unlike listed equity assets, this public wealth is often unaudited, unsupervised, and unregulated. Even worse, in most countries it is almost entirely unaccounted for. As a consequence, when formulating their budgets, most governments largely ignore the assets they own and fail to recognize that they could generate substantial yields that open up much- needed fiscal space. Governments could use this headroom to kick-start growth or to buffer themselves from future shocks, without resorting to debt, exhausting existing savings, or being forced to revert to excessively painful austerity measures. However, incentives to encourage policymakers to take into account the full spectrum of public commercial assets — such that the whole public sector balance sheet can be marshalled to achieving economic recovery — are often missing. Basic tools such as accrual accounting, that are fundamental building blocks to bring about greater transparency and disclosure (of benefits as well as costs), can enable governments to pursue optimal decisions with respect to the management of public assets, benefiting society. Yet these tools are often overlooked. Is the COVID-19 crisis enough to induce governments to finally act? 1 https://www.imf.org/en/Publications/FM/Issues/2018/10/04/fiscal-monitor-october-2018 4 What does ’generating value from the balance sheet’ mean in practice for the public sector?