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Government Finance Statistics IMF Statistics Department. The GFSM 2001 System – An Overview Rif Basanti Deputy Chief of Government Finance Division Statistics Department, IMF. Contents. Why revise the GFSM 1986? Objectives of the GFSM 2001 The GFSM 2001 system Coverage Definitions
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Government Finance StatisticsIMF Statistics Department The GFSM 2001 System – An Overview Rif Basanti Deputy Chief of Government Finance Division Statistics Department, IMF
Contents • Why revise the GFSM 1986? • Objectives of the GFSM 2001 • The GFSM 2001 system • Coverage • Definitions • Accounting rules • Analytic framework • Statements • Balances • Implementation
Why a revision of the GFS Manual 1986?1/3 • 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
Why a revision of the GFS Manual 1986?2/3 • 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.
Why a revision of the GFS Manual 1986?3/3 • 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
Objectives of the GFS Manual 2001 1/3 • To achieve analytic objectives, the new GFS system should generate data that: • are directly linked to other macroeconomic statistical systems; harmonized as fully as possible with the 1993 SNA • enable analysts to do assessments of financial soundness of government in ways applied to other organizations in economy
Government Finance Statistics systems 2/3 GFSM 1986: GFSM 2001: Transactions Transactions Revenue Revenue Expend- iture Expense Other economic flows Opening balance Closing balance Non- financial assets NFA NFA NFA FA Financial assets FA FA FA Opening liabilities Closing liabilities Liab Liab Liab Liabilities Liab Liab Liab
GFSM 2001 analytical framework3/3 Statement of Government Operations Revenue - Opening Balance Sheet Expense Statement of Other Economic Flows Closing Balance Sheet = Net worth Change in net worth Tr Change in net worth OEF Net worth = = = = Non- financial assets Non- financial assets Non- financial assets Non- financial assets + + + + Net finanical worth Net lending/ borrowing Change in net f.worth OEF Net financial worth + = = Financial assets Financial assets Financial assets Financial assets - - - - Liabilities Liabilities Liabilities Liabilities Stocks Transactions Other flows Stocks
Coverage of the GFSM 2001 System General government Public non-financial corporations Public financial corporations • Nonmonetary • Monetary (incl. the central bank) Non-financial public sector Non-monetary public sector Public sector
The GFSM 2001 System(1/3) • 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
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
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
F L O W S TRANSACTIONS Revenue minus Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Expense OTHER ECONOMIC FLOWS OPENING BALANCE SHEET CLOSING BALANCE SHEET Holding Gains & Losses Other Changes in the Volume of Assets = NET OPERATING BALANCE minus Financial Assets • Financial • Assets • cash • other financial assets Financial Assets Financial Assets Financial Assets = NET LENDING/ BORROWING minus Liabilities Liabilities Liabilities Liabilities Liabilities Net Worth Net Worth 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
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
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
GFSM 2001 Statements • Four statements: • Statement of Government Operations • Statement of Other Economic Flows • Balance Sheet • Statement of Sources and Uses of Cash
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)
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 + Transactions in Liabilities Financing = zero (because of double-entry recording)
The Statement of Government Operations 3/6 • Revenue • Taxes • Social Contributions • Grants • Other revenue
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 • Other expense Transfers
The Statement of Government Operations 5/6 • Transactions in nonfinancial assets • Fixed assets * • Inventories (net change) • Valuables • Nonproduced assets * * Minus consumption of fixed capital
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.)
Statement of Other Economic Flows1/2 • 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)
Statement of Other Economic Flows2/2 Changes in nonfinancial assets Holding gains Other volume changes + Changes in financial assets Holding gains Other volume changes + Changes in liabilities Holding gains Other volume changes = Changes in net worth from other economic flows
Balance Sheet1/2 • 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
Balance Sheet2/2 • 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)}
Statement of Sources and Uses of Cash1/2 • 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
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
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
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
Implementation 1/1 • 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
Implementation 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
Step 1: Cash basis => reclassification to new GFS I. Cash data to GFS tables 1 to 5 II. Partial balance sheet (Table 6) Migration path: GFS 1986: GFSM 2001: Transactions Transactions Revenue Revenue 1 4 FA by sectors Current and capital expend- iture 2 Expense => 5 COFOG * Stocks of financial assets & liabilities Stocks of financial assets & liabilities 3 NFA ** FA FA 3 FA 6 FA Stocks of liabilities Stocks of liabilities Liab Liab Liab Liab 3 Liab 6 Liab * Net operating balance ** Net lending / borrowing
Step 2:Full coverage of units and events (approach accrual recording) I. Statement of Government Operations (Tables 1-5) II. Partial balance sheet (Table 6) Migration path: Step 1: Transactions Transactions Revenue Revenue 1 4 FA by sectors => Expense 2 Expense 5 COFOG * Stocks of financial assets & liabilities Stocks of financial assets & liabilities Stocks of financial assets & liabilities Stocks of financial assets & liabilities NFA 3 NFA ** FA FA FA FA 3 FA 6 FA Liab Liab Liab Liab 3 Liab 6 Liab NW tr * Net operating balance ** Net lending / borrowing
Step 3:Full accrual accounting for financial accounts I. Statement of Government Operations (Tables 1-5) II. Other Economic Flows for financial assets III. Partial balance sheet (Table 6) Migration path: Step 2: Transactions Transactions Revenue Revenue 1 => Expense 2 Expense * Stocks of financial assets & liabilities Stocks of financial assets & liabilities Stocks of financial assets & liabilities Stocks of financial assets & liabilities NFA 3 NFA Other economic flows ** FA FA FA FA 3 FA 6 FA 6 FA Liab Liab Liab Liab 3 Liab 6 Liab 6 Liab NW tr NW tr * Net operating balance ** Net lending / borrowing
Step 4:Accrual accounting for nonfinancial assets I. Statement of Government Operations (Tables 1-5) II. Statement of Other Economic Flows III. Integrated stocks and flows (Table 6) Migration path: Step 3: Transactions Transactions Revenue 1 Revenue => Expense 2 Expense Other economic flows Opening balance Closing balance * Stocks of financial assets & liabilities Stocks of financial assets & liabilities NFA NFA 3 NFA 6 NFA 6 NFA Other economic flows ** FA FA FA FA FA 3 FA 6 FA 6 FA Liab Liab Liab Liab Liab 3 Liab 6 Liab 6 Liab NW tr NW tr NW OEF NW
GFS as a fiscal policy instrument GFSM 2001 Transactions Revenue COA ESA 95 Expense Other economic flows Opening balance Closing balance Chart of Accounts NFA NFA NFA NFA Current Accounts FA FA FA FA Accumulation Accounts Liab Liab Liab Liab Balance Sheet
ESA95 SNA’93 GFS2001 BOP’93 export G&S import G&S income transactions current transfers Transactions Transactions Transactions Revenue account Production account Current account GDP (value added) Expense account Income account Current account balance Operating balance Saving capital transfers transactions in NPNFA Non-financial assets Capital transfers & Non-financial assets Capital account MFS2000 Transactions Financial assets & liabilities Financial assets & liabilities Financial assets & liabilities Financial assets & liabilities Net lending / borrowing