Business cycles, crises and public
finances – will governments be able to honour their debts?
Governor Svein Gjedrem
24 September 2010
Sovereign debt to GDP in the G7
Per cent. 1950 - 2010
0 20 40 60 80 100 120 140
0 20 40 60 80 100 120 140
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: IMF Global Financial Stability Report
Government bond yields
Spread against German bonds. Percentage points. 10-year maturity 1 July 2008 – 21 September 2010
0 2 4 6 8 10
0 2 4 6 8 10
Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
Portugal Spain Italy Ireland Greece
3 Source: Bloomberg
Credit risk on sovereign debt
5-year CDS. Basis points. 1 January 2009 – 21 September 2010
0 100 200 300 400 500
0 100 200 300 400 500
Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10
Spain Mexico Brazil Italy
Source: Bloomberg
Bond yields
Per cent. 1 January 2010 – 21 September 2010
3 3.5 4 4.5 5
3 3.5 4 4.5 5
Jan-10 Apr-10 Jul-10
Corporate bonds, Europe (BBB, 10-year) Corporate bonds, Europe (single A, 10-year) Government bonds, Spain (10-year)
5 Source: Thomson Reuters
Sovereign debt default
1500 - 1900
Country Number1) Last year of default:
Spain 14 1882
France 9 1812
German states 6 1850
UK 1 1594
Source: Reinhart og Rogoff (2009): ”This time is different”.
1) Includes only external defaults
Inflation
Per cent. Moving 3-year average.1900 - 2009
-10 -5 0 5 10 15 20 25 30
-10 -5 0 5 10 15 20 25 30
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Sources: Statistics Norway and Norges Bank
Debt at the time of default
Percentage of GDP
1)0 20 40 60 80 100
0 20 40 60 80 100
Mexico (1982)
Ukraine (1998)
Indonesia (1999)
Argentina (2002)
Russia (1998)
Uruguay (2003)
Ecuador (1999) Debt in advanced economies1) today
Source: IMF 1) Average of 2 years prior to default. Average debt in 2009-10 is used for advanced economies
2) Median of France, Greece, Ireland, Italy, Japan, Netherlands, Portugal, Spain, UK, US
9
-15 -10 -5 0 5 10 15
2000 2004 2008 2012
US UK Greece Euro area
0 25 50 75 100 125 150
2000 2004 2008 2012
US UK Greece Euro area
Euro area threshold
Fiscal deficit
Percentage of GDP. 2000 – 2015
Public debt
Percentage of GDP. 2000 – 2015
Sources: OECD Economic Outlook 87, IMF Fiscal Monitor May 2010 and Norges Bank
Euro area threshold
Sweden and Finland in the 1990s
Public debt
Percentage of GDP
Fiscal deficit
Percentage of GDP
0 20 40 60 80 100
1992 1994 1996 1998 2000
Sweden Finland
-12 -8 -4 0 4 8
1992 1994 1996 1998 2000
Finland Sweden
Source: OECD
Government Pension Fund Global
The Fund’s market value at the beginning of the year. In billions of NOK 2001 - 2010
0 500 1000 1500 2000 2500 3000
0 500 1000 1500 2000 2500 3000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
11 Source: Ministry of Finance (RNB 2010)
Pension obligations and the Government Pension Fund
1)In billions of NOK
0 1000 2000 3000 4000 5000 6000 7000
0 1000 2000 3000 4000 5000 6000 7000
2008 2009 2010
Government's retirement, disability and dependents' pension obligations Government Pension Fund Global
Source: Ministry of Finance (RNB 2010)
1) Present value of already accrued retirement pension entitlements to future payments from the National Insurance Scheme. In addition is the government’s disability and dependents’
pension obligations, estimated at NOK 1100bn.
Pension costs and expected fund returns
Percentage of mainland GDP. 2005 - 2060
0 3 6 9 12 15 18
0 3 6 9 12 15 18
2005 2015 2025 2035 2045 2055
Expected real return on Government Pension Fund Global Retirement and diability pensions
Retirement pensions
13 Source: Ministry of Finance (RNB 2010)
Generational account
Estimated need for fiscal tightening as a percentage of GDP. 2002 - 2010
0 2 4 6 8 10 12
0 2 4 6 8 10 12
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Statistics Norway, Statistical Analyses (SA 114)
