Do sovereign ratings capture public pension liabilities in the assessment of public debt? A France–UK comparison

Government financial debt is the main indicator used to assess sovereign solvency, including by credit rating agencies (CRAs), but it does not capture all long-term public commitments. This article uses France and the UK to examine whether state employees' pension commitments are included in public debt analysis by rating agencies. CRAs' debt analyses rely on national accounts, which provide a comparable measure of financial debt across countries. These differ from accrual-based public financial reports, which disclose states' broader liabilities but are more difficult to compare. The difference concerns state employees' pension commitments, which France reports off balance sheet, whereas the UK recognizes them as liabilities. The article argues that pension commitments should not be added to financial liabilities, because they can be renegotiated without implying a default on debt; the article contributes to the literature by proposing their annual cost relative to government revenues as a key indicator of state solvency, which can be compared across countries.