Operational Self-Sufficiency is the most basic measurement of sustainability, indicating whether revenues from operations are sufficient to cover all operating expenses. Again, this position is because we ignore the fact that a country with a high tax compliance rate can afford more debt than those with low compliance rates. This report provides an overview of the short, medium, and long-term fiscal sustainability challenges facing EU Member States. MFI managers should seek to achieve an FSS ratio greater than 100 percent. doi:10.2765/33470 (online). Government has to pay its debt from tax receipts and other government income, not from the income of the economy as a whole! I repeat, the cost of servicing the debt. OSS measures ability to survive, while FSS is a better indicator of ability to grow. European Economy Institutional Papers are important reports analysing the economic situation and economic developments prepared by the European Commission's Directorate-General for Economic and Financial Affairs, which serve to underpin economic policy-making by the European Commission, the Council of the European Union and the European Parliament. Return on Total Assets (ROTA) indicates how well an MFI is managing its assets to optimize its profitability. Brussels. Measures how well an MFI can cover its costs to operating revenues and expenses. So, what then is important as regards to the quantum of sovereign debt that a country can sustain? So, back home to our Nigeria, just look at our debt service as a percentage of government revenue table below (note that the 2017 figure is an estimate) to appreciate why some analysts have palpitations over our current debt profile and our hunger to borrow even more. Return on capital can be temporarily depressed due to unplanned events (such as natural disasters) or planned undertakings (such as expansion). The UK and the US net interest payments did not exceed five per cent. Net worth is equal to the assets less the POs obligation to creditors. Those who work in the microfinance sector, they will get various information about the activities. How do we factor in the potential Fed rate hike in December 2017 (70 per cent probability) and 2018 (60 per cent probability)? While the oil and gas sector contributes just 10 per cent to our GDP, it accounts for 27 per cent of our tax revenue, 40 per cent of our government’s total revenue and over 95 per cent of our total export earnings. ISBN 978-92-79-98867-7 (online) Net worth is equal to the assets less the POs obligation to creditors. Anytime governments want to justify why they can and should borrow more, they go to the country’s Debt to GDP Ratio. Author(s) European Commission. This is especially so for the Government of Nigeria. asset renewal funding ratio; asset sustainability ratio; debt service cover ratio; operating surplus ratio; and; own source revenue coverage ratio. Tab. A quick ratio lower than 1:1 may indicate that the company relies too much on inventory or other assets to pay its short-term liabilities. Ideally, the quick ratio should be 1:1. This is for those who still run to the debt to GDP ratios of the Eurozone countries, the US, and Japan – At the end of the first quarter of 2017, the government debt to GDP ratio in the Euro Area stood at 89.5 per cent. Rate of Return on Capital Ratio : Calculates surplus generated from operations of a MFI to its average capital fund/net worth for the period. Do you now see the fallacy of this ratio when applied to Nigeria’s situation? The cost of debt service. Net worth or capital fund includes capital contribution made by the donors through donations and accumulated surplus. This paper explores the potential benefits of an innovative form of public debt instruments. The Debt Sustainability Monitor 2019 provides an overview of fiscal sustainability challenges faced by EU Member States over the short, medium and long term. Monthly measurements of Return on capital can be misleading because many MFI costs may not be recorded until the end of the fiscal year. The Debt Sustainability Framework (DSF) is the main tool for multilateral institutions and other creditors to assess risks to debt sustainability in Lower-Income Countries (LICs). In the US for instance, the US Federal tax revenue in 2012 was US$2.45tn, 11 times higher than the US$220bn in net interest payments on the debt and about seven times higher than the US$360bn in total interest payments. Calculates surplus generated from operations of a MFI to its average capital fund/net worth for the period. Profitability or sustainability ratios. Learn Microfinance is a web site from where everyone in Microfinance sector will benefit. First off, my position has always been that regardless of the size of a government’s debt portfolio, the key issue is whether they can generate sufficient revenue to service and repay that debt. If an institution’s ROTA is fairly constant, this ratio can be used to forecast earnings in future periods. As several of the ratios are to be reported for the first time in the 2012/13 financial year, local governments are expected to make reasonable efforts to calculate the ratios for the two prior years. This paper explores the intergenerational dimension of fiscal sustainability in EU Member States using generational accounting techniques. Because Gross Domestic Product is the aggregate value of all goods produced in a country in a year and comparing it against the country’s debt is in essence to say, because the country earns XYZ from all the goods it produced in a year (since GDP can also be thought of as national income), it can repay XYZ debt on the strength of these earnings.
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