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IMF says UK and Portugal have "weakest" public finances

IMF says UK and Portugal have

The International Monetary Fund (IMF) has released its twice-yearly fiscal monitor, revealing some startling figures

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By Ethan Cameron 17.10.2018

The International Monetary Fund (IMF) has released its twice-yearly fiscal monitor, revealing some startling figures about public finances in various countries, with the UK and Portugal rated as the worst.

The countries that topped the list with the most secure allocation of public finances have assumed this position primarily due to a successful sovereign wealth fund often led by a bounty of natural resources. The top position went to Norway, with Russia, Kazakhstan and Australia not far behind.

The 31 major countries assessed from around the world totaled 61% of the world’s GDP. The IMF took various public liabilities and assets into account when compiling the balancing sheets.

Its fiscal monitor looks to bring more clarity to the state of public finances. The IMF said that relying on indicators such as debts and deficits is not enough to give an accurate picture of how countries were operating underneath the surface.

Portugal found itself in major economic difficulties following the global financial crash in 2008 and had to subject its citizens to a series of austerity measures to try and bring its finances back under control.

Although Portugal is now in a more positive position, its past actions led to several changes of government. It now has a negative net worth at a startling -135% of its GDP. This is largely the result of Portugal’s hefty pension liabilities.

Meanwhile, the UK also found its economy buckling because of the pressure of the global financial crash. It had to bail out some of its major banks to keep its economy afloat. This led to a barrage of cuts in the public sector worth £1tn in value, leading to the UK’s low position on the IMF’s fiscal monitor.

Although the UK is ahead of many countries on the list in terms of GDP and other economic indicators, it ranks lower than nations such as Gambia, Kenya and Uganda simply because their net wealth is a better portion of their GDP compared to some richer nations. Due to this, they have much lower financial risks and liability issues and in some ways have a safer economy, according to the IMF.

China’s current public wealth has fallen strongly to just 8% of GDP, which is largely due to a deterioration in its pension funds and assets with no ties to financial institutions.

The IMF report did note that despite Norway coming in at the top of the list, its financial picture is by no means perfect. This is because “long-term spending pressures significantly reduce its intertemporal net worth relative to its vast asset position.” 

On the other hand, the IMF highlighted Norway’s Scandinavian neighbor Finland as having enabled reforms meaning “that future primary balances are positive despite an aging population, adding to intertemporal net worth.”

The lender added: “Recognizing these assets does not negate the vulnerabilities associated with the standard measure of general government debt, comprising 94% for these countries.” While this new balance sheet is unlikely to deter investors from their currency preferences, the additional indicators may be interesting for them to observe.

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