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Government Finance Statistics / IMF Statistics Department

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

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

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

  3. 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

  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

  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.

  6. 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 cash-based accounting • Other related statistics Manuals have been revised, e.g., SNA, BOP

  7. Objectives of the GFS Manual 20011/2 • 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

  8. 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

  9. 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

  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

  11. 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

  12. 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

  13. 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

  14. 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

  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

  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 • In GFS, data presented for a group of units are consolidated

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

  18. 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)

  19. 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)

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

  21. 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

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

  23. 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.)

  24. 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)

  25. 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

  26. 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

  27. 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)}

  28. 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

  29. 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

  30. STATEMENT OF GOVT. 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

  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 NFAs • Cash surplus/deficit • Net cash inflow from operating activities minus net cash outflow from investments in NFAs

  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

  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

  34. 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

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

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