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# VI. EMPIRICAL ANALYSIS

42. In this section, we apply the above model to evaluate fiscal performance in three countries: Zambia, India and Argentina. These countries have different income levels and are located in three different continents. We compare the derived fiscal indicators with conventional fiscal indicators and show that the proposed indicators are both richer in a normative and positive sense to conventional indicators. The three countries are selected on the basis of formal fiscal analyses which were based on the above model of solvency and sustainability or equivalent and whose results have been presented in World Bank economic reportsl<sup>4</sup> . These countries also cover a range of different stages of economic development, as well as fiscal problems commonly seen in developing countries. In all cases the empirical results have been discussed with Government officials so that no policy surprises are expected. Before reviewing the empirical results, issues concerning data and interpretation are summarized below.

# **Data Problems and Issues**

43. **Problems in estimating public sector activities.** Ultimately, any model is as good as the data it applies to and this model is no exception. As discussed earlier, a correct measurement of fiscal activities is a necessary condition for good fiscal analysis. A country's fiscal problems can be easily hidden if a comprehensive measure of fiscal activities is not available. But comprehensive information on accounts of the non-financial public sector - other than that of the central government-such as local government, extra-budgetary funds, state-owned enterprises, and government guarantees are often hard to get and if available, are often not up-to-date. The losses of state-owned enterprises (SOEs) often created a huge implicit liability to the government. In order to finance its operating losses, SOEs usually rely on issuing short-term debt with credit on inventory and future sales of output. Ultimately, these losses will be borne by the public sector, either because the debt will be taken over by the Government or because public assets will be depleted at the time of privatization.

44. **Domestic Debt.** Of the variables that are required for the above framework, the hardest to find is stock of domestic debt. This perhaps reflects economists' tendency to focus more on flows than stocks. The definition of domestic debt has to be consistent with the fiscal deficit in use. For example, if the available fiscal accounts do not include social security operations, the domestic debt should net out transactions between the central government accounts and the social security system. For many countries, available data do not include any information on domestic debt. Because the ability to issue domestic debt instruments depends more on the development stage of the financial sector than on budget needs, it is not surprising that for many low income countries, the stock of domestic debt is not significant compared to the external debt of the public-sector. For those countries with a 14 See Zambia: Fiscal Management Report, World Bank Report 18552-ZA, November 1998; India Country Economic Memorandum, Report Number 15882-IN, August **8,** 1996, Chapter 3; Argentina: The Fiscal Dimension of the Convertibility Plan, Report No. 16996-AR, January 1998.