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The GFSM 2001 System - An overview

The GFSM 2001 System - An overview. Government Finance Division Statistics Department IMF June 1, 2009. Contents of Lecture. Why revise the GFSM 1986? Objectives of the GFSM 2001 The GFSM 2001 system Coverage Definitions Accounting rules Analytic framework Statements Balances

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The GFSM 2001 System - An overview

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  1. The GFSM 2001 System- An overview Government Finance Division Statistics Department IMF June 1, 2009

  2. Contents of Lecture • Why revise the GFSM 1986? • Objectives of the GFSM 2001 • The GFSM 2001 system • Coverage • Definitions • Accounting rules • Analytic framework • Statements • Balances • Implementation Government Finance Division, IMF Statistics Department

  3. Why a revision of the GFS Manual 1986?(1/4) • Conceptual framework was ± 20 years old at time of revision • 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 Government Finance Division, IMF Statistics Department

  4. 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 Government Finance Division, IMF Statistics Department

  5. 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. Government Finance Division, IMF Statistics Department

  6. Why a revision of the GFS Manual 1986?(4/4) • At that time, 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 Government Finance Division, IMF Statistics Department

  7. 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 Government Finance Division, IMF Statistics Department

  8. Objectives of the GFS Manual 2001 (2/2) • To achieve analytic objectives, the GFSM 2001 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 Government Finance Division, IMF Statistics Department

  9. Coverage and Sectorization in the GFSM 2001 System General government Public nonfinancial corporations Public financial corporations • Nonmonetary • Monetary (including the central bank) Nonfinancial public sector Nonmonetary public sector Public sector Coverage and sectorization is based on institutional units, control, market/nonmarket activity Government Finance Division, IMF Statistics Department

  10. 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 Government Finance Division, IMF Statistics Department

  11. The GFSM 2001 System(2/3) • Transactions in nonfinancial assets • net acquisition of nonfinancial assets • acquisitions • disposals • 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 Government Finance Division, IMF Statistics Department

  12. The GFSM 2001 System(3/3) • Integrated system • Full integration of flows and stocks • Basic principle of GFSM 2001 system: opening balance sheet value + transactions + other economic flows = closing balance sheet value Government Finance Division, IMF Statistics Department

  13. STOCKS F L O W S STOCKS OPENING BALANCE SHEET NET WORTH TRANSACTIONS OTHER ECONOMIC FLOWS CLOSING BALANCE SHEET NET WORTH Holding Gains & Losses Other Changes in Volume of Assets Revenue minus Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Nonfinancial Assets Expense = NET OPERATING BALANCE CHANGE IN NET WORTH (HG) CHANGE IN NET WORTH (OVC) minus Financial Assets • Financial • Assets • cash • other financial assets Financial Assets Financial Assets Financial Assets = NET LENDING / BORROWING minus Liabilities Liabilities Liabilities Liabilities Liabilities Changes in Net Worth Government Finance Division, IMF Statistics Department

  14. Accounting Rules(1/3) • Accrual-based recording • when transaction takes place, i.e., when • income is earned • resources are used • liabilities are incurred • assets are acquired • it is a timing and data coverage question • Double-entry accounting Government Finance Division, IMF Statistics Department

  15. 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 Government Finance Division, IMF Statistics Department

  16. 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 • Data presented for a group of units are consolidated in GFS Government Finance Division, IMF Statistics Department

  17. GFSM 2001 Statements • Four statements: • Statement of Government Operations • Statement of Other Economic Flows • Balance Sheet • Statement of Sources and Uses of Cash Government Finance Division, IMF Statistics Department

  18. 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) Government Finance Division, IMF Statistics Department

  19. 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) Government Finance Division, IMF Statistics Department

  20. Statement of Government Operations (3/6) • Revenue • Taxes • Social contributions • Grants • Other revenue Government Finance Division, IMF Statistics Department

  21. 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 Government Finance Division, IMF Statistics Department

  22. Statement of Government Operations (5/6) • Transactions in nonfinancial assets • Fixed assets * • Inventories (net change) • Valuables • Nonproduced assets * * Minus consumption of fixed capital Government Finance Division, IMF Statistics Department

  23. 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 (e.g., securities other than shares, loans, shares and other equity, etc.) • by “sector” of counter party (e.g., general government, central bank, depository corporations, etc.) Government Finance Division, IMF Statistics Department

  24. 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 government) Government Finance Division, IMF Statistics Department

  25. Statement of Other Economic Flows(2/2) 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 Government Finance Division, IMF Statistics Department

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

  27. Balance Sheet(2/2) • Nonfinancial assets • Financial assets • Liabilities • Net worth(t) {= Net worth(t-1) + changes in net worth from transactions [net operating balance](t) + changes in net worth from other economic flows(t)} Government Finance Division, IMF Statistics Department

  28. 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—currency & deposits—itself) • Net change in government’s overall cash position is sum of the net cash received from all the above Government Finance Division, IMF Statistics Department

  29. Statement of Sources and Uses of Cash (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 the stock of cash Government Finance Division, IMF Statistics Department

  30. STATEMENT OF GOVERNMENT OPERATIONS VS. CASH FLOW STATEMENT Revenue Nonfinancial Assets Expense • Financial • Assets • cash • other financial assets Liabilities Statement of Government Operations 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 minus = NET OPERATING BALANCE minus = NET LENDING/ BORROWING minus Government Finance Division, IMF Statistics Department

  31. 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 nonfinancial assets • Cash surplus/deficit • Net cash inflow from operating activities minus net cash outflow from investments in nonfinancial assets Government Finance Division, IMF Statistics Department

  32. 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 Government Finance Division, IMF Statistics Department

  33. 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 Government Finance Division, IMF Statistics Department

  34. Implementation of GFSM 2001(2/2) • Nonetheless, countries are encouraged to develop a migration path towards the GFSM 2001 • It is likely that this migration path 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 Government Finance Division, IMF Statistics Department

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