David M. Walker,
Comeback America Initiative: Sovereign Fiscal Responsibility Index (SFRI)
Ranks US 28th Out of 34 Countires
March 24, 2011
Sovereign Fiscal Responsibility Index (SFRI) is a new fiscal indicator
that incorporates a wide range of fiscal, economic and political factors
into ranking a country's fiscal responsibility and sustainability.
According to the indicator, out of the 34 sovereign countries studied,
Australia ranks number one while America sits near the bottom at number
Click here for Sovereign Fiscal Responsibility
Index (SFRI) report PDF
"Our fiscal index provides unique and useful insight into the fiscal
sustainability of countries across the globe by incorporating a wide
range of important factors," said David M. Walker, the Founder and CEO
of the Comeback America Initiative. "It is clear that there is great
potential for a fiscal crisis in many countries, including the United
States, if they don't start addressing the structural deficit challenges
that lie ahead. The index reinforces the fact that the U.S. needs to
engage in comprehensive and timely reforms to restore fiscal
responsibility and sustainability and to avoid a debt crisis that would
be felt around the world."
Walker continued, "The index also shows that countries that engage in
dramatic and comprehensive reforms can dramatically improve their fiscal
prospects. New Zealand ranks number two after engaging in such reforms
in the early 1990s when it faced a currency crisis. And the U.S. ranking
would improve to number eight if the Congress and the President worked
together to enact fiscal reforms that had the same 'bottom line' impact
as those made by the National Fiscal Responsibility and Reform
The SFRI is the result of a Master's Thesis project completed by a team
of Stanford University graduate students under the guidance of the Hon.
David M. Walker, the former Comptroller General of the United States.
The SFRI incorporates both quantitative and qualitative metrics, based
on several authoritative sources, including the International Monetary
Fund (IMF), to define 'fiscal responsibility' and carry out
cross-country comparisons. Specifically, this index was intended to
illustrate where the United States is, where it is headed, and how it
compares to other nations in the area of fiscal responsibility and
Alex Maasry, Stanford team member said, "For many years, people have
argued that U.S. government debt is the safest investment out there.
Similar arguments were used until 2008 for AAA companies and home
prices. We need to understand as a country that while one cannot predict
a fiscal crisis, it could be just a few years away if we do not act
soon. I was stunned as our team conducted our analysis to find that in
only two to three years, the U.S. overall fiscal score will be the same
as Ireland or Portugal today."
"On the other hand, to see the progress of Australia, New Zealand and
emerging markets like Brazil and Mexico was great. Through disciplined
spending and legal reforms, these countries have put themselves on solid
ground. It shows that countries can change their future through
political will. I hope that the United States acts before we hit a
painful crisis, rather than after."
The SFRI found that the most fiscally responsible countries are not the
ones one would generally expect, including Australia and New Zealand as
the front runners. Four of the top 10 in this index are emerging
markets. Not surprisingly, Portugal, Italy, Ireland, Greece, Spain and
Japan are ranked near the bottom of the list.
The United States is ranked number 28 out of the 34 countries analyzed.
Assuming no reforms are made, the study found that the United States
will hit its debt ceiling in 2027 - 16 years from now. However, the U.S.
is set to enter the fiscal danger zone in two to three years and a debt
crisis could come suddenly thereafter. Importantly, the students and
Walker agreed to re-analyze the United States, inserting the proposals
from President Obama's National Fiscal Responsibility and Reform
Commission, and the U.S. moved up 20 spots to number eight.
definition of fiscal responsibility in this study involves three
factors: a government's current level of debt (Fiscal Space), the
sustainability of government debt levels over time (Fiscal Path), and
the degree to which governments act transparently and are accountable
for their fiscal decisions (Fiscal Governance). These three factors were
taken into account when assigning countries' SFRI rankings.
Fiscal Space refers to the additional amount of debt that a country
could theoretically issue before it is virtually certain to have a
fiscal crisis. The calculations for a country's Fiscal Path are based on
IMF data about future government spending patterns - these numbers are
used to project future levels of debt until the year 2050. Lastly,
Fiscal Governance weighs equally fiscal rules, fiscal transparency and
the enforceability of said rules to determine how effective the current
methods of maintaining fiscal responsibility are.
According to Walker, "All Americans, especially federal elected
officials, should be embarrassed by how low the United States ranks in
the new CAI and Stanford developed Sovereign Fiscal Responsibility
Index. Importantly, the nation's SFRI ranking would improve dramatically
if policymakers adopted reforms that have the same fiscal impact as the
National Fiscal Responsibility and Reform Commission's recommendations.
It's time for the President and the Congress to seriously consider the
Commission's work and come together to resolve short-term spending
levels, and much more importantly, agree on appropriate terms for
increasing the debt ceiling limit."