Policy Contribution

Issue n21|2016

Are advanced economies at

risk of falling into debt traps?
Marek Dabrowski

Executive summary
Marek Dabrowski
(marek.dabrowski@bruegel.
org ) is a Bruegel Nonresident Fellow.

The author would like

to thank Guntram Wolff,
Maria Demertzis, Andr
Sapir, Grgory Claeys,
Zsolt Darvas, Francesco
Papadia and other Bruegel
colleagues for their valuable
comments on early drafts
of this paper, and Elena
Vaccarino for her support in
data collection.

The gross general government debt-to-GDP ratios in many advanced economies have
reached the highest levels in peacetime history and continue to grow, putting into question
sovereign solvency in these economies. In case of new adverse shocks, whether economic or
political, global or country-specific, which result in the deterioration of growth prospects or
higher real interest rates, or both, the situation could easily get out control.
Apart from the risk of sovereign default, excessive public debt might also have a negative impact on the stability of financial sector and on economic growth in the medium
and long term.
Our debt sustainability simulations for the group of highly-indebted advanced economies
those in which the general government gross public debt-to-GDP ratio exceeded 80 percent
in 2015 suggest that benefits of the current record-low interest rates and post-crisis growth
recovery should be used for fiscal consolidation. The aim of this should be not only to stop
further expansion of debt-to-GDP ratios, but also to gradually reduce them. Such corrective
measures are needed in six out of seven G7 members (Germany being the exception) and in
10 out of 19 euro-area members. The fiscal situation of Japan, where gross debt has reached
250 percent of GDP, is particularly precarious.
In addition, unless there are reforms of public pension, health and long-term care
systems, fiscal consolidation in advanced economies must also create room for the higher
spending levels in these areas that will result from aging populations.

1 Introduction

Surprisingly,
relatively little
attention has been
paid to the rapid
growth in public debt
in most advanced
economies.

One of the consequences of the global financial crisis has been rapid growth in public debt
in most advanced economies1. This is the result of overoptimistic estimates of the fiscal
situation before the crisis, declining government revenues and increasing social expenditure
during the crisis, combined with the costs of financial system restructuring, countercyclical
fiscal policies and slower growth since the crisis. In addition, negative demographic trends
(population aging) add to both explicit and implicit public debt in the medium and long runs.
In this context, in 2015, general government gross debt exceeded 100 percent of GDP in
Japan, Greece, Italy, Portugal, Cyprus, Belgium and the United States, in some cases by large
margins (Japans gross debt approaches 250 percent)2. In Spain, Singapore, France, Ireland
and Canada it was between 90 and 100 percent of GDP, and in the United Kingdom, Austria
and Slovenia it was between 80 and 90 percent. In many countries, these are record highs in
peacetime. For the group of advanced economies as a whole, it is the highest debt level since
the late 1940s (Gaspar and Escolano, 2016).
Only in four of the highly-indebted advanced economies Ireland, Germany, Iceland and
Israel has there been a decreasing debt-to-GDP trend recently. In other cases, the debt-toGDP ratio has either stabilised at a high level or continues to grow, bringing into question
sovereign solvency in the medium-to-long term.
Surprisingly, relatively little attention has been paid to this threat in debates over policy3
(except in countries that have already lost market access, such as Greece). Questions about
rising debt have been overshadowed by numerous calls to abandon austerity policies (see eg
Krugman, 2015, or Bloomberg, 2016), downplaying of the risks of high debt (Skidelsky, 2016),
or even arguments (contrary to statistical evidence) that debt has already started declining
(Roubini, 2016). Financial markets also seem to have turned a blind eye to the issue of the
fiscal sustainability of several sovereign borrowers. This is perhaps a result of dominant shorttermism in both policy debates and the business strategies of financial market players.
This sort of myopia underestimates the potential negative consequences of excessive
sovereign debt for financial stability and growth, globally and, in particular, in Japan and
Europe. A strong adverse shock could easily trigger a financial crisis of much greater
magnitude that the 2007-09 global financial crisis, or the European financial crisis of 2010-13.
In this Policy Contribution, we assess the size of public debt in advanced economies
and consider the potential consequences of sovereign insolvency. We make simple debt
sustainability projections for advanced economies to estimate the primary fiscal balances
required to stabilise or reduce the 2015 gross debt-to-GDP level on the basis of various
macroeconomic assumptions. We also analyse major implicit public commitments related to
public pensions, healthcare and long-term care systems and financial systems, and look at the
potential negative spillovers from excessive public debt onto the financial sector and growth.

1 The term advanced economies is borrowed from the International Monetary Funds World Economic Outlook (IMF
WEO) country grouping; see http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/weoselagr.aspx. To simplify
the analysis, we do not include Hong Kong, Macau, Puerto Rico or San Marino, which belong to the group of advanced
economies in the IMF WEO classification.
2 Figures from IMF World Economic Outlook Database, April 2016 edition.
3 Rogoff (2012), Feldstein (2016a; 2016b), Reinhart (2016) and Boskin (2016) are recent examples of warnings, although formulated in a rather soft manner.

Policy Contribution|Issue n21|2016

2 The dynamics of public debt

Table 1 provides an overview of general government gross debt in advanced economies from
1999-2015. A number of observations can be made based on this data:

In the aftermath of the

global financial crisis,
general government
gross debt increased
rapidly almost
everywhere.

1. In most of the countries shown, the debt level in 2015 was higher, sometimes much
higher, than in 1999. Belgium, Denmark, Malta, Sweden, Switzerland and, probably, Israel
(comparable 1999 data for this country is not available) are exceptions.
2. The same observation holds in aggregate for the European Union, the euro area and, most
likely, the group of advanced economies overall (there is a lack of comparable data for
1999). For the EU the increase is 23.3 percentage points of GDP and for the euro area, 22.8
percentage points of GDP.
3. Two sub-periods can be distinguished before and after the global financial crisis.
Between 1999 and 2007, because of high growth, several countries (Australia, Belgium,
Canada, Denmark, Estonia, Finland, Iceland, Ireland, Israel, Italy, Latvia, Lithuania,
Netherlands, New Zealand, Slovakia, Spain, Sweden and Switzerland) reduced their gross
debt-to-GDP levels. However, others failed to do so, either stabilising their earlier high
debt-to-GDP ratios, or further increasing them. This group included the largest economies
such as the US, Japan, Germany, the UK and France; oil-producing Norway, Asian tigers
(Korea, Taiwan and Singapore, although the first two from moderate levels), Austria and
the Czech Republic (the latter also from low to moderate level); and countries that later
were victims of the European financial crisis Greece, Portugal and Cyprus.
4. In the aftermath of the global financial crisis, general government gross debt increased
rapidly almost everywhere except the few countries mentioned in paragraph 1, above.
Declining growth (see Figure 1), especially in the 2009 recession, and financial sector
problems were the major drivers of this trend. More specifically: (i) government revenues
declined sharply, especially revenues from the financial sector, which had contributed
to a major part of total revenue before the crisis; (ii) in many countries, governments
had to support failing banks and other financial institutions to avoid/mitigate systemic
financial crisis (see section 5.3); (iii) social expenditures increased as result of higher
unemployment and lower personal incomes; (iv) many countries launched discretionary
fiscal stimulus both on the revenue and expenditure sides.

Figure 1: Annual change in real GDP in advanced economies, %, 1998-2015

6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
1998-2007

2008

2009

2010

Advanced economies
Source: IMF World Economic Outlook Database, April 2016.

Policy Contribution|Issue n21|2016

2011

US

2012

Euro area

2013

2014

Japan

2015

UK

Table 1: Advanced economies, general government gross debt, % of GDP, 19992015

Country/country group

1999

2003

2007

2010

2013

2015

Australia

22.6

13.2

9.7

20.5

30.8

36.8

Austria

66.4

65.5

64.8

82.3

80.8

86.2

Belgium

114.4

101.1

86.9

99.6

105.1

106.3

Canada

89.3

76.2

66.8

81.1

86.1

91.5

Cyprus

55.9

63.4

53.6

56.3

102.5

108.7

Czech Rep.

15.2

28.1

27.8

38.2

45.2

40.9

Denmark

56.8

46.2

27.3

42.9

44.6

45.6

Estonia

6.0

5.6

3.7

6.6

9.9

10.1

Finland

44.0

42.7

34.0

47.1

55.4

62.4

France

60.0

63.9

64.2

81.5

92.3

96.8

Germany

60.0

63.0

63.6

81.0

77.4

71.0

Greece

88.6

93.9

102.8

145.8

176.9

178.4

Iceland

39.1

38.5

27.3

88.3

84.8

67.6

Ireland

46.7

29.9

23.9

86.8

120.0

95.2

Israel

n/a

92.9

72.7

70.6

67.2

64.6

Italy

109.7

100.5

99.8

115.4

128.9

132.6

Japan

135.6

169.6

183.0

215.8

244.5

248.1

Korea

16.7

20.4

28.7

30.8

33.8

35.9

Latvia

11.8

13.9

7.2

40.3

35.9

34.8

Lithuania

28.1

21.0

16.7

36.3

38.8

42.5

Luxembourg

6.7

6.4

7.0

19.6

23.3

21.8

Malta

69.5

68.7

62.4

67.6

68.6

64.0

Netherlands

58.2

49.3

42.4

59.0

67.9

67.6

New Zealand

28.5

22.0

14.5

26.9

30.8

30.4

Norway

24.3

42.7

49.2

42.4

30.3

27.9

Portugal

49.0

54.7

68.4

96.2

129.0

128.8

Singapore

83.6

97.6

84.7

97.0

102.5

98.2

Slovakia

47.1

41.6

29.9

40.8

54.6

52.6

Slovenia

22.0

27.0

22.7

37.9

70.5

83.3

Spain

62.5

47.6

35.5

60.1

93.7

99.0

Sweden

61.4

49.1

38.1

37.6

39.8

44.1

Switzerland

55.8

59.4

49.5

46.1

46.4

45.6

Taiwan

23.7

32.0

32.1

36.7

39.1

38.3

UK

41.7

37.3

43.5

76.6

86.2

89.3

US

n/a

58.5

64.0

94.7

104.8

105.8

Advanced economies

n/a

73.4

71.4

97.6

104.8

104.8

Euro area

70.4

67.8

64.9

84.0

93.4

93.2

EU

64.1

60.7

58.3

78.5

87.0

87.4

Source: IMF WEO, April 2016. Note: cells in yellow indicate IMF staff estimates. Note: EU countries Bulgaria, Croatia, Hungary, Poland and
Romania are not included in the IMF advanced economies grouping.

Policy Contribution|Issue n21|2016

Eight years after the

collapse of Lehman
Brothers, public
debt expansion has
not stopped in most
advanced economies.

5. As of autumn 2016, eight years after the collapse of Lehman Brothers, public debt expansion
has not stopped in most advanced economies, especially in those with high and very high
debt levels. Only four Ireland, Germany, Iceland, and Israel have started reducing their
debt-to-GDP ratios. Among the countries with low or moderate gross debt-to-GDP levels, a
visible decreasing trend could be observed only for the Czech Republic, Latvia, Norway and
Switzerland. Aggregate ratios for advanced economies, the euro area and the EU stabilised
at very high levels (104.8, 93.2 and 87.4 percent of GDP, respectively).
6. In 2015, 14 out of 19 euro-area countries breached the upper general government gross
debt limit of 60 percent of GDP as determined by the Treaty on the Functioning of the EU.
Ten of them recorded debt levels higher than 80 percent of GDP, and five (Greece, Italy,
Portugal, Cyprus and Belgium) had debt higher than 100 percent of GDP. Interestingly,
the group that breached the 60 percent level includes not only countries affected by the
European financial crisis, such as Greece, Ireland, Portugal, Spain, Cyprus and Slovenia,
but also those which are generally considered part of the prudent core or North
(Germany, the Netherlands, Finland, Austria, Belgium and France).
7. Outside the euro area, the biggest sinners were Japan (248.1 percent of GDP), the US
(105.8 percent of GDP), Singapore (98.2 percent of GDP), Canada (91.5 percent of GDP)
and the UK (89.3 percent of GDP). Worse, none of these, except Singapore, was able to
reverse the debt expansion trend.
8. As Figures 1 and 2 show, economic growth in most advanced economies from 201115 remained considerably lower than in the pre-crisis decade of 1998-2007, making it
unlikely that they will outgrow their debts.
Overall, the picture looks rather gloomy and puts into question the debt sustainability of at
least some of the analysed countries.

Figure 2: Average annual changes in real GDP in highly-indebted advanced

economies, in percent, 1998-2007, 2008-10, and 2011-15
8.0
1998-2007

2008-2010

2011-2015

6.0
4.0
2.0
0.0
-2.0
-4.0

Source: World Economic Outlook Database, April 2016.

Policy Contribution|Issue n21|2016

US

UK

Spain

Slovenia

Singapore

Portugal

Japan

Italy

Ireland

Greece

France

Cyprus

Canada

Belgium

Austria

-6.0

3 Debt sustainability analysis

To verify whether the public debt in the highly-indebted advanced economies remains on
a sustainable path we carried out two simple debt simulations (Box 1). First, Simulation 1
determines the primary fiscal balance-to-GDP ratios required to stabilise countries 2015
debt-to-GDP ratios assuming that in subsequent years, the rate of real GDP growth and
real interest rates will remain at the 2015 level. Both assumptions can be considered rather
optimistic, given relatively good growth in 2015 in most analysed countries compared to
the 2011-2015 average (Figure 2), and historically record-low nominal and real long-term
interest rates in 2015 (Figure 3).

Figure 3: Ten-year interest rate on government bonds and ination, 1970-2013, %

(simple average across France, Germany, UK and US)

Source: IMF (2014), Figure 3.1, p81.

Table 2 presents the results of Simulation 1. Eight out of fourteen analysed countries do
not need to conduct additional fiscal adjustment to stabilise their gross debt-to-GDP ratios
at the 2015 level. In fact, they can even relax their fiscal policies and stay within the assumed
debt limit. France and the US must undertake relatively modest fiscal tightening efforts (less
than 1 percent of GDP). Four remaining countries (Japan, the UK, Cyprus and Canada) are in
less comfortable positions.
Japans fiscal position looks particularly precarious from this simple and static simulation.
It must improve its primary general government balance by more than 3 percent of GDP
to prevent a further increase in its gross debt-to-GDP ratio. And one must remember that a
negative real interest rate of -1.62 percent in 2015 was very supportive of the Japanese budget
and will not necessarily be continued in the subsequent years.
As mentioned, the macroeconomic parameters in 2015 were relatively favourable in most
advanced economies economic growth was close to potential and there were historically
record-low nominal and real interest rates. Such conditions will not necessarily continue in
the medium to long term.
In particular, real interest rates might pick up at some point, for example as a result
of exit from extra-loose monetary policies. Real interest rates for government bonds are
determined by a range of sometimes contradictory factors related to the global supply of
savings and demand for those particular instruments (see IMF, 2014, chapter 3). While

Policy Contribution | Issue n21 | 2016

predicting how these factors will work in future goes beyond remit of this paper, we cannot
exclude real interest rate increases and should therefore test the impact of this variable in
our sustainability analysis to understand its potential consequences for the size of fiscal
adjustment required to avoid further debt-to-GDP increases. We thus run Simulation 2,
which assumes real interest rates of 2 percent for each country, this level being justified by the
average historical record of advanced economies prior to the global financial crisis (Figure 3).
Other assumptions remain the same as in Simulation 1.

Box 1: Debt sustainability simulations

Our simulations are based on the following equation (Escolano 2010)

(Eq.1)
where dt = general government gross debt-to-GDP ratio at the end of period t
dt-1 = general government gross debt-to-GDP ratio at the end of period t-1
rt = real interest rate in period t computed as rt = [(1+ it)/(1+ t)]1
it = nominal interest rate in period t
t = change in the GDP deflator between t 1 and t
gt = the rate of growth of real GDP between t-1 to t
pt = the ratio of primary fiscal balance (deficit or surplus) to GDP in period t
It follows from Eq.1 that an increase in the general government gross debt-to-GDP ratio
can be explained by:

General government primary deficit, ie when non-interest general government expenditure exceeds its revenue;
Real interest rate of general government borrowing which exceeds the real growth rate of GDP.

For this analysis, we define highly-indebted advanced economies as those whose general
government gross public debt-to-GDP ratio exceeded 80 percent in 2015 (see Table 1). We
exclude Greece from our sample because it was the subject of the subsequent rescue programmes, under which debt financing has been provided at below market interest rates. Furthermore, Greece is unlikely to return to the private debt market soon. Perhaps another debt
restructuring will be needed for Greece to regain market access (see IMF, 2016a).
We run two simulations to estimate the minimum primary fiscal balance required to
achieve the targeted level of general government gross public debt in relation to GDP under
various sets of assumptions. Consequently, we rewrite Eq.1 as follows:

Policy Contribution | Issue n21 | 2016

The results of Simulation 2 (Table 3) look more alarming than those of Simulation 1.
All countries except Ireland4 would have to undertake serious fiscal adjustment to prevent
further expansion of their debt-to-GDP ratios. For Japan, fiscal tightening of close to 9 percent
of GDP may look problematic politically5, even if Japans room to increase taxes6 seems to be
greater than that available to other advanced economies. An increase of real interest rates to
historically normal levels would make Japans public debt burden hardly controllable.

Table 2: Highly-indebted advanced economies: fiscal adjustment required to

stabilise 2015 debt-to-GDP ratio (Simulation 1, 2015 parameters)
Country
1

dt-1

dt

it

rt

gt,

pt (required)

pt (actual 2015)

Minimum
size of fiscal
adjustment (8-9)

10

Austria

86.20

86.20

0.74

1.5

-0.75

0.88

-1.75

0.31

-2.06

Belgium

106.30

106.30

0.85

0.9

-0.04

1.37

-1.31

-0.28

-1.03

Canada

91.50

91.50

1.53

-0.5

2.07

1.18

0.78

-0.71

1.49

Cyprus

108.70

108.70

3.88

-1.4

5.37

1.59

3.85

1.44

2.41

France

96.80

96.80

0.86

1.2

-0.32

1.14

-1.48

-1.72

0.24

Ireland

95.20

95.20

1.18

5.3

-3.92

7.81

-11.24

1.12

-12.36

Italy

132.60

132.60

1.70

0.8

0.94

0.76

0.36

1.39

-1.03

Japan

248.10

248.10

0.36

2.0

-1.62

0.47

-1.80

-4.93

3.13

Portugal

128.80

128.80

2.43

1.9

0.48

1.47

-0.65

-0.28

-0.37

Singapore

98.20

98.20

2.43

1.6

0.78

2.01

-1.24

-0.31

-0.93

Slovenia

83.30

83.30

1.67

0.4

1.23

2.88

-2.16

-0.57

-1.60

Spain

99.00

99.00

1.74

0.6

1.12

3.21

-2.05

-1.81

-0.24

UK

89.30

89.30

1.82

0.3

1.50

2.25

-1.00

-2.83

1.83

US

105.80

105.80

2.13

1.0

1.12

2.43

-1.15

-1.75

0.60

Sources: IMF World Economic Outlook database, April 2016 for dt-1, t, gt and actual pt, Bloomberg for it. Notes: (1) columns 2, 3, 8, 9 and
10 in percentage of GDP, columns 4-7 in percent; (2) dt-1 gross general government debt-to-GDP ratio in 2015, it annual average of
yields of 10-year Treasury bonds in 2015, t GDP deflator in 2015, gt annual change of GDP in 2015, dt exogenous assumption. See
also Box 1.

Furthermore, the assumption of a real interest rate equal to 2 percent for everybody
disregards country-specific risk premia. In practice, if financial markets have doubts about
government creditworthiness, the real interest rate might increase rapidly (above 2 percent),
which will further worsen the prospects of sovereign solvency. This kind of vicious circle of
market expectations (or multiple equilibria) has been observed during many sovereign debt
crises, eg in Mexico in 1994, Russia in 1997-1998, Argentina in 2000-02, Greece in 2009-10,
Ireland in 2010, Portugal in 2010-11 and Cyprus in 2012-13. In the highly-indebted economies,
sudden changes in market sentiment can happen as a result of either external or countryspecific shocks (economic or political). Such a risk applies not only to the already crisis-affected

4 In 2015 Ireland recorded exceptionally high annual growth of 7.81 percent (effect of the post-crisis recovery) and
a negative interest rate of almost 4 percent (a result of high inflation). Even if one can be optimistic about Irelands
future growth prospects, its growth rates in the next few years will, most likely, be lower than in 2015.
5 We agree with Eichengreen and Panizza (2014) that running a high primary surplus for a longer period may be
politically difficult.
6 Especially VAT, which was 8 percent in 2015, while total general government revenues amounted to 34 percent of GDP.

Policy Contribution|Issue n21|2016

countries in the euro area but also to Japan, Italy, Belgium, France and the UK. In other words,
high public debt renders countries more vulnerable to changes in market sentiment.
Simulations 1 and 2 assume no improvement in the high debt-to-GDP ratios of 2015 (the
debt-to-GDP ratios of EU members are significantly above the Treatys limits). To avoid a debt
trap, a policy of at least slow debt reduction is needed.
Let us assume that each analysed country needs to reduce its debt-to-GDP ratio by 2
percentage points annually from its 2015 level. This is hardly a too-ambitious target for
countries with debt exceeding 100 percent of GDP (Italy, Portugal, Cyprus, Belgium, US) or
200 percent of GDP (Japan). For EU countries with debt exceeding 60 percent of GDP, the
Stability and Growth Pact (SGP) requires the debt level to be reduced at an annual rate of
1/20th of the difference between the actual and the reference level, ie 60 percent of GDP
(Vade Mecum, p72). Thus, each EU country with a debt-to-GDP level exceeding 100 percent is
obliged to downsize it by more than 2 percentage points of GDP annually.

Table 3: Highly-indebted advanced economies: fiscal adjustment required to stabilise

the debt-to-GDP ratio of 2015 (Simulation 2 2015 parameters, rt = 2 percent)
Country

dt-1

dt

rt

gt

pt
(required)

pt (actual 2015)

Minimum size of fiscal

adjustment

Austria

86.20

86.20

2.00

0.88

2.96

0.31

2.65

Belgium

106.30

106.30

2.00

1.37

2.67

-0.28

2.95

Canada

91.50

91.50

2.00

1.18

2.68

-0.71

3.39

Cyprus

108.70

108.70

2.00

1.59

2.50

1.44

1.06

France

96.80

96.80

2.00

1.14

2.79

-1.72

4.51

Ireland

95.20

95.20

2.00

7.81

-3.90

1.12

-5.02

Italy

132.60

132.60

2.00

0.76

3.40

1.39

2.01

Sources: IMF World Economic Outlook Database, April 2016. Notes: (1) columns 2-3, and 6-8 in percentage of GDP, columns 4-5 in percent;
(2) gt annual change of GDP in 2015; rt and dt exogenous assumptions. See also Box 1.

The fiscal prospects of

advanced economies
look potentially
alarming and call for
corrective measures.

According to our calculations (Eq. 2 in Box 1) a reduction in the debt-to-GDP ratio by 2

percentage points requires the primary fiscal balance to be improved, compared to the results
of Simulations 1 and 2, by an additional 2 percentage points of GDP. For several countries,
achieving such a goal would necessitate serious fiscal tightening. This would affect Japan,
Cyprus, the UK and Canada in Simulation 1, and all countries except Ireland in Simulation 2.
This suggests that there is a justification for starting fiscal adjustment now when real interest
rates are at a historically low level, rather than postponing further.
In summary, the fiscal prospects of advanced economies look potentially alarming and
call for corrective measures. This is the case for six out of seven G7 members, Germany being
the only exception. Among the 19 euro-area countries, 10 belong to the group of highly-indebted economies as defined in this Policy Contribution.
Japans fiscal situation is particularly worrying despite its substantially lower general government net debt-to-GDP ratio (see section 4). A similar conclusion has been reached by the
IMF (2016b, pp48-56). In this context, Joseph Stiglitz and Paul Krugmans calls for new massive
fiscal stimulus to increase the Japanese growth rate (Nikkei 2016; Sharp 2016) seem to disregard Japans worrying public debt levels and the ineffectiveness of similar policies in the past7.
The fiscal positions of other highly indebted advanced economies seem to be manageable,

7 Japan experienced a severe and prolonged financial crisis in the 1990s (see Kanaya and Woo, 2000) and has never
returned to the pre-crisis high growth rates despite more than two decades of ultra-loose monetary policy and subsequent fiscal stimulus packages. As result, its gross general government debt-to-GDP level increased from 67.0 percent
in 1990 to 210.2 percent in 2009 and further to 248.0 percent in 2015.

Policy Contribution|Issue n21|2016

to various degrees, assuming that real interest rates will not increase soon (Simulation 1) and
that the fiscal adjustment suggested by our simulations is not postponed. However, in case of
new adverse shocks, whether economic or political, global or country-specific, that result in
the deterioration of growth prospects or higher real interest rates, or both, the situation could
easily get out control.

4 Gross versus net debt

The general government gross debt-to-GDP ratio is the most popular measure of countries
sovereign indebtedness. However, it does not take into account government assets which, at
least partly, can counterbalance government liabilities.
To address this problem, fiscal statistics use the indicator of general government net debt,
which is defined as gross debt minus financial assets corresponding to debt instruments.
These financial assets are: monetary gold and SDRs, currency and deposits, debt securities,
loans, insurance, pension, and standardized guarantee schemes, and other accounts receivable (GFSM, 2013, para. 7.245).
Gross and net debt can differ substantially when it comes to official creditors, commodity exporters (especially oil producers) who enjoy high resource rents and are able to form
sovereign wealth funds during times of commodity booms, and large funded public pension
schemes.
Among the highly-indebted advanced economies, the difference between general government gross and net debt is biggest in Japan (Figure 4). Japans general government net debt
amounts approximately to only half of its gross debt (a difference of more than 120 percentage points of GDP). This is another factor (apart from untapped tax potential see section 3)
which allows Japan to continue to enjoy a good credit rating and to avoid high risk premia,
despite record-high gross public debt.

Figure 4: Highly-indebted advanced economies: general government gross and net

debt-to-GDP ratios, in percent, 2014
250

Among the highlyindebted advanced

economies, the
difference between
general government
gross and net debt is
biggest in Japan.

Net debt

Gross debt

200

150

100

50

US

UK

Spain

Portugal

Japan

Italy

Ireland

Greece

France

Canada

Belgium

Austria

Source: IMF World Economic Outlook Database, April 2016.

An even bigger difference in relative but not in absolute terms is recorded in Canada. Canadian general government net debt amounts approximately to one third of its gross debt (a difference of almost 60 percentage points of GDP). The difference is also substantial (approximately
20 percentage points of GDP or more) in Austria, Belgium, Spain, the US, Italy and Ireland.

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Policy Contribution|Issue n21|2016

Using net debt instead of gross debt has both advantages and disadvantages. It seems
conceptually and methodologically correct to take into consideration both sides of the
governments balance sheet, but net public debt is not always easily measurable because of
incomplete statistics on public financial assets8. Nor does net public debt provide a complete
picture of current and future sovereign solvency because of the varying quality and liquidity
of public financial assets. In particular, government pension assets are illiquid by definition,
while loans to other countries are often granted based on political rather than economic criteria and are therefore hardly recoverable.
It is worth noting that the general government net debt-to-GDP measure does not include
government nonfinancial assets such as real estate, public sector enterprises, government
shares in commercial companies, natural resources and license rights. The market values of
these can be substantial if well managed9 and proceeds from their sale (privatisation) can
reduce both gross and net public debt.

5 Public liabilities not included in the

definition of public debt
5.1 General remarks
Despite the broadening of the definition of public debt in the IMF Government Finance Statistics Manual 2001 (GFS 2001) and European System of National and Regional Accounts (ESA
2010) accounting frameworks10, some government liabilities remain outside the statistics, for
example unfunded public pension, healthcare and long-term care liabilities, and contingent
liabilities related to the financial sector.
To close the gap between funded and unfunded liabilities, at least partly, GFS 2001 recommends the preparation by governments of separate statements on the explicit contingent liabilities not included in the current public debt statistics (such as one-off guarantees) and on
unfunded state pension liabilities (GFSM, 2013, chapter 7). The ESA 2010 statistical standards
approved by the European Parliament and Council of the EU in May 2013, which are being
gradually implemented, take a further step. Apart from a separate statement on the implicit
liabilities of the state pension system (ESA 2010, 2013: para. 17.121 and subsequent paragraphs; ESA 2010, 2016, Chapters I.3 and III.6) the standards oblige governments to reflect in
public debt statistics changes to pension systems that influence the levels of future implicit
public liabilities (see section 5.2).
Unfunded pension, healthcare and long-term care liabilities differ from standard debt
instruments in terms of their liquidity and the way they are financed. They do not need to be
rolled over on the market but must be paid down in future budget periods, including the costs
of their servicing (when they are subject to indexation). Therefore, they add to future expenditure streams. If these liabilities increase, future public pension, health and long-term care
expenditure will increase respectively (and vice versa).
Implicit liabilities related to the financial sector have a contingent character. That is, under
an optimistic assumption of perfect financial stability, they can be never called in. However,
once called in, they must be paid down immediately to avoid a systemic disruption of the
financial sector.

8 For the highly-indebted advanced economies analysed in this paper, the IMF World Economic Outlook Database
does not provide general government net debt statistics for Cyprus, Singapore and Slovenia.
9 See Detter and Foelster (2015) on the management of public assets.
10 See https://www.imf.org/external/pubs/ft/gfs/manual/ and http://ec.europa.eu/eurostat/web/esa-2010.

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Policy Contribution|Issue n21|2016

5.2 Unfunded pension liabilities

Implicit or unfunded pension liabilities originate from the specific design of public pension
systems based on an intergenerational contract: the pensions of current pensioners are funded by pension contributions or taxes paid by the currently employed (the pay-as-you-go, or
PAYG, system). Consequently, a substantial implicit pension debt from the unfunded pension
scheme is created (Kane and Palacios, 1996).

Figure 5: Implicit pension liabilities in EU member states, 2006 (in percent of GDP,
projected benefit obligations)
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
UK

Sweden

Spain

Slovakia

Portugal

Poland

Netherlands

Malta

Lithuania

Latvia

Italy

Hungary

Greece

Germany

France

Finland

Czech Rep.

Bulgaria

Austria

0.0

Source: Mueller, Raffelhueschen and Weddige (2009), Figure 50.

There is no single methodology to estimate implicit pension liabilities11. Mueller, Raffelhueschen and Weddige (2009), in a study commissioned by the European Central Bank that
offers the most comprehensive and cross-country comparable estimation to date for 19 EU
countries, focused on the accrued-to-date liabilities, ie the obligations that would have to be
paid if the systems were phased out immediately. As result, the authors used the projected
benefit obligation method of estimating implicit pension liabilities (Figure 5).
In all cases, these estimates exceeded the level of official general government gross debt
in the mid-2000s (Figure 5 and Table 1) by considerable margins and were often several times
the gross debt level. Since the estimates were made, the levels of implicit public debt have
likely changed because of updated demographic forecasts and pension reforms, such as
changes to statutory and actual retirement ages.
In its 2015 Aging Report, the European Commission (2015) does not offer an implicit
pension debt projection but estimates changes in future public pension expenditure, which
can be considered as the cost of redemption and servicing of unfunded pension liabilities. If
this expenditure item increases it will suggest increased implicit pension debt and vice versa.
A projected increase in public pension expenditure means that additional fiscal adjustment
will be necessary beyond the figures estimated in Simulations 1-2 (section 3), all other things
being equal. Alternatively, an expected reduction in public pension expenditure gives more
room for fiscal manoeuvre.
As Figure 6 shows, several EU countries are on the way to halting the rapid growth of
public pension expenditure (and, consequently, future pension liabilities) that was observed
in the 1990s and 2000s and was caused by population aging. This is a consequence of pension
reforms carried out in the 2000s and 2010s, which increased retirement ages, reduced pension privileges for certain sectors and professional groups, improved pension contribution
payment discipline, and cut the average pension to average wage ratio (ie the replacement

11 See Beltrametti and Della Valle (2011) for a conceptual and methodological discussion on the nature of pension
debt and its measurement.

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Policy Contribution|Issue n21|2016

ratio). Transitioning from defined benefits systems to defined contribution systems reduced
or at least stopped further increases in the replacement ratio and created an incentive for later
retirement and better payment discipline.
However, according to European Commission (2015), not all countries have managed
so far to curtail the expected increase in public pension expenditure. Others have stabilised
their pension spending at a relatively high level, and in some cases the positive effects of past
reforms will expire soon. Among the highly-indebted countries, Belgium, Ireland, Portugal,
Cyprus, Slovenia, the UK, Italy, France and Austria should undertake further reforms, as
should less-indebted Germany, Finland, Luxembourg, Netherlands, Malta and Lithuania.

Figure 6: Changes in gross public pension expenditure, 2013-30 (percent of GDP)

3.0
2020-2030

1.0
0.0
-1.0
-2.0

EU

Euro Area

UK

Spain

Sweden

Slovakia

Slovenia

Romania

Poland

Portugal

Malta

Netherlands

Lithuania

Luxembourg

Italy

Latvia

Ireland

Greece

Hungary

France

Germany

Estonia

Finland

Denmark

Cyprus

Czech Rep.

Croatia

Bulgaria

Austria

-3.0
Belgium

Several EU countries
are on the way to
halting the rapid
growth of public
pension expenditure
that was observed in
the 1990s and 2000s
and was caused by
population aging.

2013-2020

2.0

Source: European Commission (2015), Table II.1.14.

Apart from reforming public pension systems themselves (along the lines elaborated
above), raising labour market participation rates (especially for women) and encouraging
legal labour immigration will also help to reduce future liabilities. In all countries, politicians
should avoid the populist temptation to reverse or soften reforms adopted to date.
Mueller, Raffelhueschen and Weddige (2009) and European Commission (2015) do not
cover non-EU advanced economies such as the US, Japan and Canada. However, earlier
cross-country comparative analyses (eg Chand and Jaeger, 1996) suggest that their implicit
public pension debts are probably lower than in Europe because of the greater role of funded
pension schemes.
The absence of public pension liabilities in public debt statistics distorts the picture of
sovereign indebtedness and also creates negative incentives in terms of pension reform. For
example, when the fiscal situation in many countries sharply deteriorated in the aftermath of
the global financial crisis, some decided to reverse the earlier second-pillar pension reforms
(mandatory funded public pension schemes) and transfer pension fund assets and liabilities
back to the PAYG system. Such measures were taken, for example, by Argentina, Hungary and
Poland and, to a lesser extent, by other central and eastern European countries (Barbone,
2011; Jarrett, 2011). For these countries, official data on general government deficit and debt
in accordance with GFS 2001 and ESA95 (the predecessor of ESA 2010) shows improvement,
but implicit pension liabilities have increased. However, the new ESA 2010 reporting standards will make such practices of creative fiscal accounting more difficult because the effects
of institutional changes in public pension systems will have to be at least partially reflected in
fiscal statistics.

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Policy Contribution|Issue n21|2016

5.3 Public healthcare and long-term care liabilities

Implicit fiscal (intergenerational) liabilities also exist in the public healthcare and longterm care systems. The mechanism is similar to that of the public pension system, though
the amount of contingent liabilities is more difficult to determine for many policy and
technical reasons.
Present-day taxpayers pay mandatory contributions to public medical insurance funds
(or in the form of general taxes) and most will require health and long-term care services in
the last years of their lives. Negative demographic trends and population aging contribute to
increased hidden debts. Technological progress in medical services and the related increase in
costs also contribute to the growth of future public healthcare and long-term care liabilities.
Obviously, liabilities related to the public healthcare and long-term care systems are not
as precisely determined as public PAYG pension system liabilities. Governments have some
room for manoeuvre in the organisation of public healthcare and long-term care services and
factors such as their cost management, determining individual entitlements, co-payments
and contributions/tax rates (for example, elimination of various group privileges) (Clements
et al, 2011). Estimates of implicit liabilities will therefore depend on detailed assumptions and
the calculation method used.
One example covering a larger group of countries is Medearis and Hishov (2010) who calculated implicit public healthcare liabilities for EU countries and the US by extrapolating the
so-called health care fiscal sustainability gap, defined as the difference between real annual
growth in per-capita health spending (over the period 2000-08) and real annual growth in
per-capita GDP for the period of 25 years ahead.
Their results vary substantially: from 20 percent of GDP (Hungary) to over 500 percent
of GDP (Luxembourg). Interestingly, liabilities in the US public healthcare system (which
provides only limited coverage) exceeded 200 percent of GDP. In many EU countries, the situation looked even worse: in Denmark, France, the Netherlands and Spain, public healthcare
liabilities exceeded 200 percent of GDP; 300 percent of GDP in Poland and Sweden; and 400
percent of GDP in Finland, Ireland and Slovakia.

Figure 7: Changes in public health and long-term care expenditure, 2013-30

(percent of GDP), demographic scenario
2.5
Long-term care

Healthcare

2.0

1.5

1.0

0.5

EU

Euro Area

UK

Spain

Sweden

Slovakia

Slovenia

Romania

Poland

Portugal

Malta

Netherlands

Lithuania

Luxembourg

Italy

Latvia

Ireland

Greece

Hungary

France

Germany

Estonia

Finland

Denmark

Cyprus

Czech Rep.

Croatia

Bulgaria

Austria

Belgium

0.0

Source: European Commission (2015), Tables III.1.102 and III.1.114.

Medearis and Hishov (2010) used a debatable method that focused on extrapolation
of past cost trends rather than on demographic factors. Nevertheless, their results suggest
that unfunded public healthcare liabilities are substantial. In some countries, they exceed
unfunded pension liabilities.

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Policy Contribution|Issue n21|2016

European Commission (2015) estimated only future changes in public healthcare and
long-term care expenditure, similarly to public pension expenditure. For the purpose of our
analysis we choose the so-called demographic scenario, which presents the consequences
of demographic changes only (Figure 7) and disregards other potential factors such as the
impact of technical progress on the costs of medical services. All EU countries will record
increases in public health and long-term care spending by 2030, which is not the case for
public pension systems. For the entire EU, the magnitude of this increase will be twice the
pension expenditure increase. The biggest challenges will be faced by Malta, Finland, Denmark, Croatia, Netherlands, Germany and Slovakia, and by highly-indebted Slovenia, Ireland,
Portugal, Spain, Austria and France.
Again, the expected increase in future public health and long-term care spending will
require additional fiscal adjustment beyond the estimates of Simulations 1-2, all other things
being equal.

5.4 Contingent liabilities related to financial stability

The adverse fiscal

consequences of
bank crises are
usually considerable,
which has been
confirmed by the
global and European
financial crises.

The functioning of the fractional-reserve banking system might result in banking crises from
time to time. To avoid a banking panic, the collapse of the financial system, the spread of
crises to other countries and adverse shocks to the real economy, governments often decide
to support insolvent banks, for example, by replenishing their capital or purchasing their
problematic assets. Occasionally, several years later, these expenditures can be at least partly
recovered through the privatisation of banks nationalised during the crisis or by cashing in
assets taken over during a crisis.
Differently from public pension, healthcare and long-term care systems, government liabilities related to the financial sector have undeclared (implicit)12 and potential (contingency)
character. Their realisation depends on the probability of a financial crisis and its potential
scale and consequences.
The potential magnitude of those liabilities depends on many factors, such as the ratio of
bank assets to GDP (the higher the ratio, the greater the potential liabilities), the structure of
the banking sector (a concentration of banks increases the risk of a systemic banking crisis),
its ownership structure (state ownership increases the risk of crisis; the same pertains to private ownership if the bank is involved in related lending), and the quality of banking legislation, regulation and supervision.
The adverse fiscal consequences of bank crises are usually considerable, which has been
confirmed by the global and European financial crises. One can distinguish between (1)
direct fiscal costs of government intervention (eg recapitalisation of banks, asset purchases
and asset guarantees) and (2) overall fiscal costs of banking crises as measured by changes in
the public debt-to-GDP ratio (Amaglobeli et al, 2015). For purpose of our analysis (estimation
of implicit fiscal liabilities) the first (narrower) concept seems to be more appropriate.
Laeven and Valencia (2012, Table A2) estimated gross and net direct fiscal costs of policy
responses to systemic banking crises for the period 2007-11, which covered the first phase
of the global financial crisis and the early part of the European financial crisis13. Gross direct
fiscal outlays involve government expenditure for bank recapitalisation and asset purchases.
Net fiscal outlays are equal to the difference between gross outlays and amounts recovered.
The highest gross fiscal outlays were recorded in Iceland (44.2 percent of GDP), Ireland
(40.7 percent of GDP), Greece (27.3 percent of GDP), the Netherlands (12.7 percent of GDP)
and the UK (8.8 percent of GDP). However in Iceland, the Netherlands and the UK, part of the
government support was recovered, so the net outlays in the analysed period amounted to
20.5, 5.6 and 6.6 percent of GDP, respectively.

12 There are also explicit contingent liabilities, especially those related to the deposit insurance system, which
although formally self-funded (from bank contributions), often needs fiscal backstopping.
13 The analysed time span left out the later stages of banking crises in Greece, Spain, Cyprus and Slovenia.

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Policy Contribution|Issue n21|2016

These amounts have been already included in the official general government debt-toGDP statistics of the respective countries. They do not necessarily indicate the size of future
government liabilities in respect of the financial sector. One can hope that the new set of
financial regulations and institutions introduced in response to the global and European
financial crises (including EU banking union and the bail-in principle in case of bank insolvency) make large-scale crises less likely and reduce taxpayers potential contribution to their
resolution. On the other hand, the current prolonged period of record-low (in some instances,
negative) nominal interest rates, slow economic growth and increasing public indebtedness
can create new risks.

6 Potential negative spillovers

Fast growth of sovereign debt in advanced economies can have negative economic, social and
political consequences. In this section, we concentrate on two of these: financial stability risks
and the negative impact on economic growth.

6.1 Financial stability risk

In section 5.3 we analysed the adverse fiscal consequences of systemic banking crises.
However, the sovereign-bank loop can also work in the opposite direction: problems with
sovereign solvency will negatively affect banking systems and the entire financial sector as a
substantial holder of government debt instruments. The banking crises in Greece (2010-13
and again in 2015-16) and in Cyprus (2012-13) in both cases the result of excessive exposure of banks to Greeces sovereign debt well illustrate this danger. Several banking crises in
emerging-market economies in the 1980s and 1990s (for example, Argentina, Mexico, Brazil,
Russia, Ukraine and Turkey) also had their roots, at least partly, in public debt crises.
Bruegels database developed by Merler and Pisani-Ferry (2012) shows that some euroarea countries have high exposure to marketable sovereign debt held by deposit banks. In
2011, this exposure amounted to 20.8 percent of GDP in Portugal, 16.9 percent of GDP in Italy,
16.1 percent of GDP in Greece, 15.9 percent of GDP in Spain, 15.7 percent of GDP in Germany and 9.6 percent of GDP in Ireland. Banks in other countries, in particular in the US, UK,
France and the Netherlands, were less exposed.
The updated database14 shows only the percentage of total marketable debt held by
domestic deposit banks and does not give explicit bank exposure to public debt measured in
percent of GDP at the end of 2015. However, the rapid expansion of debt-to-GDP ratios and
domestic banks shares of government bond markets mean that this exposure has increased
in most analysed countries since 2011. This is the case in, in particular, Ireland, Greece, Italy,
Spain and, most probably, Portugal15. Furthermore, because of the national fragmentation of
the euro-area financial market as a result of the European financial crisis, the home-country
bias has increased (Merler, 2014), meaning less cross-border sovereign exposure (and therefore risk sharing) and an even stronger reliance by domestic banks on fiscal consolidation in
highly-indebted countries.
The Bruegel database does not include Japan. However, according to the IMF (2016b,
Table 2), in 2015 net credit to the nonfinancial public sector in Japan accounted for approximately half of the net domestic assets of depository corporations and this ratio has remained
pretty stable over recent years. In relative terms, it amounted to 114.3 percent GDP in 2015.
At the same time, the Bank of Japans net credit to the non-financial public sector quadrupled

14 The Bruegel database of sovereign bond holdings developed by Merler and Pisani-Ferry (2012); update of May
2016, see http://bruegel.org/wp-content/uploads/2015/06/201605_Bruegel_sovereign_bond_holding_dataset-1.xlsx.
15 The data series for this country ends in 2013.

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Policy Contribution|Issue n21|2016

between 2011 and 2015 (reaching 57.8 percent of GDP in 2015), which suggests an increasing
pace of de-facto public debt monetisation by the Japanese monetary authority (formally this is
the result of the policy of quantitative easing conducted by the Japanese central bank).
In addition to increasing commercial banks sovereign exposures, sovereign debt instruments (at least the ones issued by the governments in leading advanced economies) have
other important functions that are based on the assumption of their risk-free character. There
is, for example, their role as collateral in central bank lending to commercial banks, central
bank international reserve assets, reserve assets of sovereign wealth funds, life insurance
companies, pension funds and other investment funds, and as liquidity instruments in daily
financial market operations. Greeces recent sovereign debt crisis demonstrated its far-reaching disruptive consequences not only for the domestic and euro-area financial sectors, but
also for the European Central Banks monetary policy operations. It is hard to predict the scale
of potential negative effects in case of public debt sustainability problems in larger countries
such as Japan, Italy, France or the UK.

6.2 Potential negative impact on economic growth

Several empirical analyses (eg Checherita and Rother, 2010; Reinhart and Rogoff, 2010; Kumar
and Woo, 2010; Cecchetti, Mohanty and Zampolli, 2011) confirm that the negative impact of
public debt on economic growth follows a non-linear pattern. That is, when the debt-to-GDP
level is low or moderate, it is difficult to detect such a negative impact. However, the impact
becomes visible once the debt-to-GDP ratio exceeds a certain high threshold, for example, 80
or 90 percent.
According to Checherita and Rother (2010), there are four channels through which this
negative impact can materialise: (i) private saving, (ii) public investment, (iii) total factor productivity (TFP), and (iv) sovereign long-term nominal and real interest rates. In a similar vein,
Ostry, Gosh and Espinoza (2015, p.5) argue that inherited public debt represents a deadweight burden on the economy, reducing both investment potential and growth prospects []
via the present value of the distortionary costs of the taxation needed to service the debt.
Ardagna, Caselli and Lane (2007), Kinoshita (2006) and several other studies (see IMF,
2013 for an overview) also confirm that high public debt has a non-linear impact on longterm real interest rates. This means not only the risk of a fiscal vicious circle leading, in
extreme cases, to sovereign insolvency, but also higher financing costs for business and,
therefore, slower growth.
Thus high public debt adds to the already existing supply-side barriers in advanced economies, such as shrinking working-age populations, stagnating investment (Dabrowski, 2013)
and lower TFP growth (Gordon, 2016).
On the demand side, rapidly expanding public debt can create various kinds of uncertainties, such as fear of higher future taxation or risk of sovereign default and associated financial
crisis and can, therefore, harm consumers and investment spending. Thus one can expect
more Ricardian than Keynesian effects of fiscal expansion when public debt is high.

7 Policy conclusions and recommendations

It is time to reassess the approach to the fiscal policy stance and continuous expansion of
public debt in advanced economies. As this analysis demonstrates, without improving primary fiscal balances the sustainability of public debt, at least in some of advanced economies,
can be put into question, especially if current GDP growth rates decline or real interest rates
go up (which could happen as a result of any new economic or political shock). In this context, calls for further fiscal stimulus need to be balanced against the negative consequences of
explosive debt dynamics.

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Policy Contribution|Issue n21|2016

Waiting for better times for fiscal adjustment is a risky strategy because the interest
rate-growth differential might deteriorate in comparison with the rather favourable situation
in 2015. Real interest rates, which are now at a historically low level as result of extremely
accommodative monetary policy, at least in the euro area and Japan, might increase at some
point. Growth rates are also unlikely to pick up soon and, in some countries, they could further deteriorate as a result of the looming demographic crisis.
Interestingly, the IMF, which backed countercyclical fiscal policies in advanced economies
in the wake of the global financial crisis and then warned against premature fiscal tightening, seems to be changing its attitude. While Ostry, Ghosh and Espinoza (2015) still argued
against deliberate paying down of debt by countries with ample fiscal space (because the
distorting costs of reducing debt would exceed expected crisis-insurance benefits) and opted
for organic reduction of debt-to-GDP ratios via growth and through the use of less distortionary sources of revenue (as compared to raising taxes) when available, Escolano and
Gaspar (2016) went a step further and advocated a policy of gradual smooth reduction in the
debt-to-GDP ratio.
Indeed this might be an optimal strategy to tackle the excessive debt burden, although what
gradual means requires clarification. Some countries must adjust faster or at least more significantly. These include Japan, Italy, Cyprus and Portugal. In all cases fiscal consolidation should
be supported by comprehensive structural and institutional reforms that aim to both improve
future growth potential and reduce future fiscal liabilities (explicit and implicit). Other highly
indebted countries have a bit more room for manoeuvre and can move more gradually.
All countries should reduce their debt levels when one-off fiscal opportunities arise, such
as windfall gains or disposal of government assets (privatisation proceeds, auctioning of telecommunication spectrum or selling natural resource licenses), especially when privatisations
are expected to lead to efficiency gains that increase the value of the assets.
Methodological effort to consolidate and broaden public debt statistics should be continued, especially through the inclusion of long-term unfunded public pension, healthcare and
long-term care liabilities.

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