Government Finance Statistics IMF Statistics Department The GFSM

Government Finance Statistics / IMF Statistics Department The GFSM 2001 System – An Overview 1

Contents § Why revise the GFSM 1986? § Objectives of the GFSM 2001 § The GFSM 2001 system • Coverage • Definitions • Accounting rules • Analytic framework • Statements • Balances • Implementation 2

Why a revision of the GFS Manual 1986? 1/4 § Conceptual framework is ± 20 years old § Cash-based recording, thus ignored inter alia: • arrears • interest on discounted bonds • in kind transactions • consumption of fixed capital § Emphasis was on a single deficit measure • revenue plus grants minus expenditure minus net lending = deficit/surplus 3

Why a revision of the GFS Manual 1986? 2/4 § Revenue and grants were defined as: • All nonrepayable receipts § Expenditure was defined as: • All nonrepayable payments § Lending minus repayments (“net lending”): • Transactions in financial claims acquired for purposes of public policy • Repayable transactions, included above the line with nonrepayable transactions 4

Why a revision of the GFS Manual 1986? 3/4 § Financing was defined as: • Government liabilities (“net borrowing”) and changes in cash & deposits (financial asset) § Focus of cash-based system was on govt’s financing constraint • Liquidity constraint viewed as most binding priority of govt. 5

Why a revision of the GFS Manual 1986? 4/4 § Recently new topics have assumed importance for fiscal analysis, e. g. , • arrears, transactions in kind, balance sheet items (stocks, net worth), sustainability of fiscal policy • world-wide shift toward resource-based accounting, because of dissatisfaction with cashbased accounting § Other related statistics Manuals have been revised, e. g. , SNA, BOP 6

Objectives of the GFS Manual 2001 1/2 § A system to address evolving changes: • in the way countries maintain their government accounts, and • analyze data in these accounts § A manual that: • serves specialized needs of compilers, analysts, and policy makers, and • subject to those needs, a manual that is harmonized as fully as possible with the 1993 SNA 7

Objectives of the GFS Manual 2001 2/2 § To achieve analytic objectives, the new GFS system should generate data that: • are directly linked to other macroeconomic statistical systems • enable analysts to do assessments of financial soundness of government in ways applied to other organizations in economy 8

Coverage of the GFSM 2001 System General government Public non-financial corporations Non-financial public sector Public financial corporations Non-monetary public sector Public sector – Nonmonetary – Monetary (incl. the central bank) 9

The GFSM 2001 System (1/3) § Balance sheet approach • stock of assets, liabilities, and net worth (assets minus liabilities) § Measures of revenue and expense • revenue – transactions that increase net worth • exclude sales of assets (which are exchanges of one asset for another) • expense – transactions that reduce net worth • exclude acquisition of assets 10

The GFSM 2001 System (2/3) § Transactions in nonfinancial assets • net acquisition of nonfinancial assets – acquisition – disposal • consumption of fixed capital § Financing (transactions in financial assets and liabilities) • identify financial assets and liabilities separately (by residency, instrument, sector) – net acquisition of financial assets – net incurrence of liabilities 11

The GFSM 2001 System (3/3) § Integrated system • Full integration of flows and stocks (operating statements and balance sheets) • Basic principle of GFSM 2001 system: opening balance sheet value + transactions + other economic flows = closing balance sheet value 12

FLOWS TRANSACTIONS Revenue minus OPENING BALANCE SHEET Nonfinancial Assets Expense = NET OPERATING BALANCE minus Nonfinancial Assets OTHER ECONOMIC FLOWS Holding Gains Other Changes in & Losses the Volume of Assets CLOSING BALANCE SHEET Nonfinancial Assets Financial Assets Liabilities = NET LENDING/ BORROWING Financial Assets • cash • other financial assets minus Liabilities Net Worth 13 Changes in Net Worth

Accounting Rules (1/3) § Accrual-based recording • when transaction takes place – – income is earned resources are used liabilities are incurred assets are acquired • it is a timing and data coverage question § Double-entry accounting 14

Accounting Rules (2/3) § Time of Recording • Flows are recorded when: – economic benefits associated with the events have flowed to or from the unit involved, or – it is probable that future benefits will flow to or from the unit, and – the monetary value of the events can be reliably measured § Valuation • All flows and stocks are valued at current market prices 15

Accounting Rules (3/3) § Netting • Generally, flows and stocks are recorded on a gross basis – For analytic presentations, the net acquisition of assets or net incurrence of liabilities may be used – Revenue categories are presented net of refunds – Expense categories are presented net of erroneous and/or unauthorized transactions § Consolidation • In GFS, data presented for a group of units are consolidated 16

GFSM 2001 Statements § Four statements: • Statement of Government Operations • Statement of Other Economic Flows • Balance Sheet • Statement of Sources and Uses of Cash 17

The Statement of Government Operations 1/6 § Summarizes government’s transactions in a given accounting period § Transactions are classified according to whether they: • increase net worth (revenue) • decrease net worth (expense) • change the stock of a nonfinancial asset (capital asset) • change the stock of a financial asset or liability (financing) 18

The Statement of Government Operations 2/6 Revenue - Expense = Net operating balance (gross operating balance) - Transactions in nonfinancial assets = Net lending/borrowing - Transactions in financial assets Financing + Transactions in Liabilities = zero (because of double-entry recording) 19

The Statement of Government Operations 3/6 § Revenue • Taxes • Social Contributions • Grants • Other revenue 20

The Statement of Government Operations 4/6 § Expense • Compensation of employees • Use of goods and services • Consumption of fixed capital • Interest • Subsidies • Grants • Social benefits Transfers • Other expense 21

The Statement of Government Operations 5/6 § Transactions in nonfinancial assets • Fixed assets * • Inventories (net change) • Valuables • Nonproduced assets * * Minus consumption of fixed capital 22

The Statement of Government Operations 6/6 § Financing • Transactions in (all) financial assets and liabilities • Multiple ways to classify: – by residency of counter party (domestic, foreign) – by type of financial instrument (securities other than shares, loans, shares and other equity, etc. ) – by “sector” of counter party (general government, central bank, depository corporations, etc. ) 23

Statement of Other Economic Flows 1/2 § Shows influences on govt’s financial position in accounting period from flows other than transactions, i. e. • Holding gains in assets & liabilities (revaluations) – Changes in the price of the asset or liability • Other volume changes in assets and liabilities – exceptional or unexpected events (e. g. , floods, earthquakes, wars, etc. ) – normal events (e. g. , discovery of subsoil asset, registration of patent) – reclassifications (e. g. , unit from central to local govt) 24

Statement of Other Economic Flows 2/2 Changes in nonfinancial assets Holding gains Other volume changes + Changes in liabilities Holding gains Other volume changes = Changes in net worth from other economic flows 25

Balance Sheet 1/2 § Shows the stocks of assets, liabilities and net worth at beginning and end of accounting period • Economic assets are recorded in GFS, i. e. , owners of assets can: – enforce ownership rights – derive economic benefits • Valued at current market value • Assets by type of asset • Liabilities by type of instrument 26

Balance Sheet 2/2 § Nonfinancial assets § Financial assets § Liabilities § Net worth(t) {= Net worth(t-1) + changes in net worth due to transactions [net operating balance](t) + changes in net worth due to other economic flows(t)} 27

Statement of Sources and Uses of Cash 1/2 § Shows the total amount of cash generated or absorbed by government through • current operations • transactions in nonfinancial assets • transactions in financial assets and liabilities (other than cash itself) § Net change in government’s overall cash position is sum of the net cash received from all the above 28

Statement of Sources and Uses of Cash (Shortened Version) 2/2 Cash receipts from government operating activities − Cash payments for government operating activities = Net cash inflow from operating activities − Net cash outflow from investments in NFAs = Cash surplus/deficit + Net cash inflow from financial operations other than cash: Net acquisition of financial assets other than cash Net incurrence of liabilities = Net change in stock of cash 29

STATEMENT OF GOVT. OPERATIONS VS. CASH FLOW STATEMENT Statement of Government Operations Revenue minus Statement of Sources & Uses of Cash inflows and outflows from transactions: • Operating activities Expense = NET OPERATING BALANCE minus Nonfinancial Assets • Purchases & sales of nonfin. assets = NET LENDING/ BORROWING Financial Assets • cash • other financial assets minus Liabilities • Financing activities = Net change in the stock of cash 30

Core Balances of the GFSM 2001 System § Multiple balancing items for transactions: • Net operating balance – Balance of transactions affecting net worth – Closely related to 1993 SNA government saving • Net lending/borrowing – Net operating balance minus transactions in NFAs • Cash surplus/deficit – Net cash inflow from operating activities minus net cash outflow from investments in NFAs 31

Other Analytic Measures § Some other analytic measures for fiscal policy (see Box 4. 1 in GFSM 2001) • Overall fiscal balance – Net lending/borrowing minus acquisition of financial assets for policy purposes • Overall primary balance – Overall fiscal balance plus net interest expense • Net worth – Total stock of assets minus liabilities • Net financial worth – Total stock of financial assets minus liabilities 32

Implementation of GFSM 2001 (1/2) § It is recognized that full implementation of the new GFS system is a long-term activity § Priorities can only be established by each country taking into account their situation, including available resources 33

Implementation of GFSM 2001 (2/2) § Nonetheless, countries are encouraged to develop a migration path towards the new system. § It is likely that this will include, over time: • improving existing cash-based data systems • adopting the new classification structure • making adjustments to existing data for serious deficiencies • developing balance sheet information 34

Hot Topics § Coverage § Bond Indexation § Debt § Public-Private Partnerships and Leasing Arrangements § Headline Fiscal Policy Indicators 35