Main conclusions: 

• Underlying causes of current sovereign debt crisis were present long before the onset of the global financial crisis of 2007-2008
• Aging populations and an interconnected ‘global’ economy will compound the deficit challenge over the medium to long-term
• KPMG proposes comprehensive fiscal sustainability framework to meet long-term financial challenges

 

The roots of the current sovereign debt crisis do not solely lie in the global financial crisis of 2007-2008, according to a new report, entitled Walking the fiscal tightrope: a fiscal sustainability framework for government, from KPMG International.

 

KPMG research of the fiscal policy settings of 19 of the G20 economies reveals that levels of government debt were already reaching their limits long before the global financial crisis hit, and the impact of aging populations and the interconnected global economy require long-term policies to prevent debt conditions from worsening.

 

KPMG report finds that those countries with high levels of gross debt prior to the start of the crisis - in excess of 60 percent of gross domestic product (GDP) - have been the most limited in their ability to adequately respond to the issue and are now facing a longer and more difficult path back to sound fiscal sustainability.

The report finds that the greatest government debt burden is being carried by the developed world, even though both developed and developing economies command roughly the same percentage of world GDP.  By 2015, the top seven developed countries included in this survey (Canada, France, Germany, Italy, Japan, UK and US) will make up 86.5 percent of the total general government sector (GGS) debt accumulated by the 19 countries, while the eight developing countries (Argentina, Brazil, China, India, Indonesia, Mexico, South Africa and Turkey) will hold only 11.6 percent.

 

About the report

KPMG examined the fiscal policy settings of 19 countries within the G20 group of countries across the budgetary, economic and intergenerational cycles. The report offers a country-comparative perspective in order to highlight some of the existing fiscal policy framework elements against the trend perspective offered by each country’s relevant government financial statistics. The report focuses specifically on the general government sector (GGS) to enable the application of an ‘entity’ lens rather than a macroeconomic one. The data tables and much of the commentary included in this paper is based on the extensive and ongoing work done by the IMF, World Bank and Organization for Economic Co-operation and Development (OECD).