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DMOs wise up to a new mission

Quasi-independent debt management offices are bringing new sophistication to government debt management. But de-risking government balance sheets that have so far failed to account properly for contingent liabilities may be beyond them. Peter Lee reports.

AT THE END of 2005, Michel Pébereau, chairman of BNP Paribas, delivered a damning report on the state of French public finances, pointing out that having successive administrations operate in deficit for each of the past 25 years, borrowing money to meet current spending and to defer the cost of health and social benefits to future generations, had left the national debt in “an extremely disturbing state”. Worse, he pointed out that while already alarming official statistics showed that the debt-to-GDP ratio had risen inexorably from 33% in 1990 to 66% by the start of 2006, this failed to convey the true seriousness of the situation.

His report concluded: “The government also has other commitments in addition to this financial debt. These commitments are not currently included in national debt but must be taken into consideration.”

Debt ratio

Private sector economists calculate that the application of private company accounting standards to civil service pensions alone would add between €380 billion and €490 billion to France’s stated financial debt of €1.1 trillion. Looked at this way, the true debt-to-GDP ratio might be between 90% and 96% of GDP. At current trends, the public debt would reach 130% of GDP by 2020 and become unsustainable.

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