Full Disclosure of Government Debt, and How it Can Go Wrong

Posted by Yang-Hyun Jin 

The more the issue of fiscal adjustment comes to the attention of the public, the more important is the full disclosure of the government or public debt. Just in follow up to the previous post, government or public debt should not be confused with public sector debt which includes the debt of publicly-owned corporations. Government or public debt to GDP ratios are often used as targets of government fiscal policy or even part of fiscal rules that are  enshrined in law, Constitution or International Treaty. The Maastricht Treaty of course famously limits in principle government debt to GDP of eurozone members to a maximum of 60 percent. 

To have sufficient information on the exact amount of government or public debt is not only a starting point for fiscal adjustment but also a criterion for measuring the success of consolidation efforts. In some countries, the authorities adhere to the accepted standards of disclosure as fully as possible. In other countries, however, the authorities’ attitude toward full disclosure of public debt information is more evasive. This is especially the case when full disclosure has political or market consequences.

This blog argues that it is important to respect the criteria and definitions of government/public debt, and not evade full disclosure, but that evasion can and does take place. It examines the definition of public debt and how that information should be reported.