CITI: If governments stopped focusing on debt and 'unlock the value' of assets, it will solve the global debt problem

For too long the debate about government finances has focussed on the debt side of the ledger with little attention paid to the vast wealth tied up in public assets. That has to change if the global sovereign debt problem is to be solved according to new research from Citibank economists Dag Detter and Stefan Fölster.

They say that in most countries, public assets are larger than public debt and that “governments around the world have an estimated $75 trillion of dollars of public assets, ranging from corporations to forests, which are often badly managed and frequently not even accounted for on their balance sheets,” and argue that it is time to unlock the value of these assets.

Just managing it (public assets) better could help to solve the debt problem while also providing the material for future economic growth. A higher return of just 1% on global public assets would add some $750 billion to public revenues.

That $750 billion is just an extra 1% per annum in returns on public assets. That is a continual and recurrent uptick in income on public assets accruing to governments around the world every year.

That will go a long way to alleviating the global sovereign debt burden. But the authors see an additional 1% as ‘conservative’, Rather they believe “professional management of public commercial wealth among central governments could easily raise returns by as much as 3.5%, to generate an extra $2.7 trillion worldwide.”

That’s where the real benefit to global well-being and economic growth can be felt the $2.7 trillion in income generated ” more than the total current global spending on national infrastructure — for transport, power, water, and communications combined.”

But while the numbers are big enough for even the most recalcitrant public asset manager to take notice Detter and Fölster believe that the only way to achieve these goals is to “consolidate public assets under a single institution, removed from direct government influence. This requires setting up an independent ring-fenced body at arm’s length from daily political influence and enabling transparent, commercial governance.”

What many would refer to as a sovereign wealth fund and the authors call a national wealth fund (NWF). Free of political interference the NWF structure “maximizes economic value consistent with the principles of corporate governance,” Detter and Fölster say.

It’s an ambitious plan, but one that even if partially realised can change the shape of the global economy and change the conversation around sovereign debt and deficits to one much more positive.

That has to be good for the global economy.

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