also that debt-specific SFA may have been used to make the ensuing deficit-debt
discrepancy less visible.
Attention to the quality of statistics has increased in recent years, also in the context of
the reform of the Stability and Growth Pact (SGP). Based on case studies and
econometric evidence, the chapter welcomes this development and argues that that
detailed analysis of SFA components is crucial to the full exploitation of the monitoring
synergies arising from the presence of two fiscal indicators.
The remainder of the chapter is organised as follows. Section 6.2 briefly reviews the
reconciliation account between EMU’s deficit and debt indicators. It discusses how the
headline deficit can be kept low through increases in some SFA components and how
other SFA components can partly offset the ensuing negative effects on debt dynamics.
Section 6.3 analyzes large deficit revisions in Greece, Italy and Portugal. Section 6.4
discusses a simple model of fiscal gimmickry and provides econometric evidence
suggesting that, indeed, different SFA components have been selectively used to reduce
both reported net borrowing and the visibility of deficit-specific fiscal gimmickry.
Section 6.5 concludes the chapter.
6.2 The Reconciliation Account (SFA)
For the purpose of EMU fiscal rules, deficit is defined as the general government net
borrowing computed on an accrual basis in accordance with ESA95, and debt is defined
as general government gross financial liabilities at face value.109 A simplified
reconciliation account between the change in Maastricht debt (Δb) and the Maastricht
deficit (dm) can therefore be written as:
Δb ≡ dm + CA + FAa- FA s— VE (6.1)
where:
a) CA is the difference between cash and accrual valuations (the latter is used to
compute the Maastricht deficit dm, the former determines the actual financing needs and
therefore is reflected in changes in liabilities as measured by Δb);
b) FAa and FAs are, respectively, acquisitions and sales of financial assets (which
must be added to net borrowing - dm - to obtain a measure of gross borrowing, consistent
with the change in gross liabilities - Δb);
c) VE (i.e. valuation effects) is a summary measure of SFA arising from changes
in the face value of outstanding liabilities110 and from differences between the face value
of a bond and its issue price.111
109
110
111
This is not the debt definition provided by ESA95, but the relevant financial instruments and the
reference sectors are those specified within that framework.
For example, those due to debt restructuring operations or to fluctuations in the exchange rate
affecting the value in domestic currency of foreign currency denominated debt.
The face value of a bond is used to compute Δb while its issue price measures the financing actually
received by the government and therefore reflects the financing needs measured by the cash gross
borrowing requirement, i.e. by dm+ CA + FAa - FAs.
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