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

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The GFSM 2001 SystemThe GFSM 2001 System

– – An OverviewAn Overview

Government Finance StatisticsGovernment Finance Statistics / IMF Statistics Department / IMF Statistics Department

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ContentsContents

Why revise the GFSM 1986?

Objectives of the GFSM 2001

The GFSM 2001 system• Coverage

• Definitions

• Accounting rules

• Analytic framework

• Statements

• Balances

• Implementation

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Why a revision of the GFS Manual 1986?Why a revision of the GFS Manual 1986?1/41/4

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

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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

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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.

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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 cash-based accounting

Other related statistics Manuals have been revised, e.g., SNA, BOP

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Objectives of the GFS Manual 2001Objectives of the GFS Manual 20011/21/2

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

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Objectives of the GFS Manual 2001 Objectives of the GFS Manual 2001 2/22/2

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

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Coverage of the GFSM 2001 SystemCoverage of the GFSM 2001 System

General government

Public non-financial corporations

Public financial corporations

– Nonmonetary– Monetary

(incl. the central bank)

Non-financialpublic sector

Non-monetarypublic sector Public

sector

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The GFSM 2001 SystemThe GFSM 2001 System(1/3)(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

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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

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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

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OPENINGBALANCE

SHEET

Nonfinancial Assets

Financial Assets

Liabilities

Net WorthChanges in Net

Worth

F L O W S

CLOSINGBALANCE

SHEET

Net Worth

Nonfinancial Assets

Financial Assets

Liabilities

TRANSACTIONS

Revenue

Expense

= NET OPERATING BALANCE

minus

Nonfinancial Assets

= NET LENDING/ BORROWING

minus

Liabilities

FinancialAssets

• cash• other financial assets

minus

OTHER ECONOMIC FLOWS

Holding Gains & Losses

Other Changes inthe Volume of Assets

Nonfinancial Assets

Financial Assets

Liabilities

Nonfinancial Assets

Financial Assets

Liabilities

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Accounting RulesAccounting Rules(1/3)(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

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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

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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

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GFSM 2001 StatementsGFSM 2001 Statements

Four statements:

• Statement of Government Operations

• Statement of Other Economic Flows

• Balance Sheet

• Statement of Sources and Uses of Cash

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The Statement of Government Operations The Statement of Government Operations 1/61/6

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)

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Revenue

- Expense

= Net operating balance (gross operating balance)

- Transactions in nonfinancial assets

= Net lending/borrowing

- Transactions in financial assets

+ Transactions in Liabilities


Financing

= zero (because of double-entry recording)

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Revenue

• Taxes

• Social Contributions

• Grants

• Other revenue


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Expense• Compensation of employees

• Use of goods and services

• Consumption of fixed capital

• Interest

• Subsidies

• Grants

• Social benefits

• Other expense


Transfers

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Transactions in nonfinancial assets

• Fixed assets *

• Inventories (net change)

• Valuables

• Nonproduced assets *

* Minus consumption of fixed capital


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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.)


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Statement of Other Economic FlowsStatement of Other Economic Flows1/21/2

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)

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Changes in nonfinancial assetsHolding gainsOther volume changes

+ Changes in financial assetsHolding gainsOther volume changes

+ Changes in liabilitiesHolding gainsOther volume changes

= Changes in net worth from other economic flows

Statement of Other Economic FlowsStatement of Other Economic Flows2/22/2

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Balance SheetBalance Sheet1/21/2

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

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Balance SheetBalance Sheet2/22/2

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)}

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Statement of Sources and Uses of CashStatement of Sources and Uses of Cash1/21/2

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

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Statement of Sources and Uses of Cash Statement of Sources and Uses of Cash (Shortened Version) (Shortened Version) 2/22/2

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

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Statement of Government Operations

Revenue

Expense

= NET OPERATING BALANCE

minus

Nonfinancial Assets

= NET LENDING/ BORROWING

minus

Liabilities

FinancialAssets

• cash• other financial assets

minus

STATEMENT OF GOVT. OPERATIONS VS. CASH FLOW STATEMENTSTATEMENT OF GOVT. OPERATIONS VS. CASH FLOW STATEMENT

Statement of Sources & Uses of Cash

Cash inflows and outflows from transactions:

• Operating activities

• Purchases & sales of nonfin. assets

• Financing activities

= Net change in the stock of cash

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Core Balances of the GFSM 2001 SystemCore 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

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Other Analytic MeasuresOther 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

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Implementation of GFSM 2001Implementation of GFSM 2001(1/2)(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

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Implementation of GFSM 2001Implementation of GFSM 2001(2/2)(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

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Hot TopicsHot Topics

Coverage

Bond Indexation

Debt

Public-Private Partnerships and Leasing Arrangements

Headline Fiscal Policy Indicators

Documents

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