Sovereigns in the Asia Pacific region, the Middle East and the Commonwealth of Independent States are the most exposed globally to the debt of their public sector enterprises, according to a report by Moody's Investors Service.
The report "Sovereign Contingent Liabilities; Public Enterprises Represent a Material Source of Fiscal Risk to Some Sovereigns," analyzes the exposure to sovereign contingent liabilities that arise from nonfinancial public sector companies across 87 developed and emerging market economies globally, over the 2010-2015 period.
"After financial sector crises and natural disasters, support given to state-owned enterprises was the third most common cause of contingent liabilities materializing on a sovereign's balance sheet," said Elena Duggar, an Associate Managing Director at Moody's. "For a number of countries, public enterprises represent a material source of financial risk for sovereigns."
The average size of non-financial public sector debt across the sample globally was 14% of GDP at the end of 2015. This compares to an average general government debt for the same countries of 55% of GDP.
Contingent liabilities for sovereigns in the Asia Pacific region were led by China, Japan and Korea.
In China, state enterprises liabilities amounted to 114% of GDP at end-2015, the highest among all countries globally. Moody's estimates that in China state enterprises liabilities worth 20% to 25% of GDP could potentially require restructuring over time -- a sizeable amount which would affect the sovereign's balance sheet.
The large and rising contingent liabilities were a key driver in Moody's decision to place China's Aa3 government bond rating on a negative outlook in March.
The Middle East and Africa region (ME&A) and the Commonwealth of Independent States (CIS) also had relatively high non-financial public enterprises liabilities averaging 17% in both regions. In these regions the public sector liabilities were highest in Dubai (74% of GDP), Qatar (41%), and Kazakhstan (30%).
The average levels for Western and Eastern Europe are at 12% and 9% of GDP respectively.
North America has the lowest public enterprises debt levels, with non-financial public sector debt at 0.1% of GDP in the US and 8% of GDP in Canada.