Friday, 4 May 2012

Morgan Stanley: Total Irish Government Debt is 400% of GNP.

Posted by Cassandra Syndrome

An interesting recent report from Mogan Stanley illustrates the total global government debt demonstrated correctly on a country by country basis, i.e., including contingent liabilities, as well as various trans-national, public-sector backed guarantees (such as bank guarantees) and the Net Present Value of pensions and healthcare. This here chart shows the highest rank countries for 2010.

Morgan Stanley uses GDP as a benchmark. But as we know in Ireland GNP is far more accurate a measure of National Income in this country. Interpreting the above as a percent of GNP (2011 Current Prices), the breakdown for 2011

Government Gross Debt: 135% (€169 Billion)
Contingent Liabilities + EFSF Guarantee: 160% (Circa €200 Billion)
NPV Pensions: 65% (Circa €80 Billion)
NPV Healthcare: 12% (Circa €15 Billion)

Total: 372% (Circa €464 Billion)

The Gross Government Debt for 2012 is going to increase to €186 Billion in 2012 according to this report from the Department of Finance. (Page 2)

The contingent liabilities includes all the bank guarantees, NAMA bonds, promissory notes etc. are itemised in this report which are totaled by the authors in 2011 to €279 Billion (Table 10, Page 21)

Morgan Stanley appear to have netted this out to €200 Billion for 2010, so this figure which is much lower is the one I used for 2011 above.

Net present value of pension and health care is the liabilities of the government of pension and health care due for the next 40 years to its citizens mostly through the Social Insurance fund and the Pension reserves. Taking away the tiny surplus left for these schemes and expressing it in current Euro value, that amounts to approximately €95 Billion. Governments do not express these liabilities generally. However they are always shown in a company's balance sheet as long term liabilities, so it is prudent accounting to include this as government debt.

As we speak this amount is up over €470 Billion, almost 400% of 2012 GNP. It is damning evidence of how impossible the public finances are to circumvent with the government's current strategy with the Troika and the EU in general. The country cannot grow out of this and trying to inflate its way out will cause crippling falls in people's living standards. A structured and orderly default needs to be planned ASAP.

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