Fuzzy debt. Why it’s impossible to specify what governments owe

Government debt figures play central roles in the global political economy. Both citizens and investors use them as yardsticks for fiscal sustainability, and governments themselves draw on them to analyze and chart their policies. Yet public debt data is not nearly as solid as is commonly assumed. Rarely acknowledged differences in calculation methods can generate widely divergent official figures for government debt, as we evidence through a careful analysis of OECD and IMF data. The body of the article outlines the root cause of these differences: the “fuzziness” of public debt itself as a concept. Debt data has to answer four questions: which entities are considered part of the government, what counts as a liability, how these liabilities should be valued and whether or not government assets should be taken into account. As we argue, none of these four questions have unambiguous answers. In consequence, alternative debt measures reflect arbitrary conventions, political compromises and pragmatic measurement choices rather than an objective standard for what public debt is and how it should be quantified. The fuzziness of debt figures in turn limits their ability to promote public accountability, sound policymaking and well-considered investment choices. Instead of using debt data as unproblematic input for both quantitative and qualitative analyses, researchers should not only be much more cautious in its use, but uncover the unobserved political baggage of the actual debt formulas governments use.