Ch. 11.9 Privatisation and other sales of assets GFS course ch. 13.5.4 Ch. 11.9 Privatisation and other sales of assets In this chapter the issue of privatisation is treated, as well as other types of sales of government assets which are not necessarily linked to privatisation. Also, shortly, privatisation in transition countries is presented. GFS training course 2014

Privatisation and other sales of assets GFS course ch. 13.5.4 Privatisation and other sales of assets Privatisation is defined as transferring: property from public sector to private sector ownership management of a service (activity) from public sector to private sector. The Manual on deficit and debt 2nd edition 2002 distinguishes 4 cases of sales of assets GFS course: chapter 13.5.4

Privatisation and other sales of assets GFS course ch. 13.5.4 23/02/2019 Privatisation and other sales of assets MGDD specifically covers four types: Direct sale of financial assets Direct sale of non-financial assets Indirect sale of financial assets Indirect sale of non-financial assets The Manual on deficit and debt 2nd edition 2002 distinguishes 4 cases of sales of assets GFS course: chapter 13.5.4 3

Privatisation and other sales of assets GFS course ch. 13.5.4 Privatisation and other sales of assets Direct sale of financial assets government sells the shares or other equity it owns (For the definition of shares and other equity (F.5) see ESA95 para 5.86-5.97) In all cases, the direct sales of financial assets do not influence net lending/net borrowing or the net worth, as the transactions only change the portfolio of financial assets and liabilities. The recording is a direct application of ESA95 definition of financial transactions (see ESA95 para. 5.02 and 5.15) and of financial account, saying that the exchange of one financial asset with another does not influence any flow of income or the wealth of an institutional unit or sector. ¹ financial assets representing property rights on corporations or quasi-corporations GFS course: chapter 13.5.4

Direct sales of financial assets GFS course ch. 13.5.4 Direct sales of financial assets Recorded in government’s financial account → withdrawal of shares and other equity (F.5) → a counterpart increase in other financial assets (F.2) No impact on government net borrowing GFS course: chapter 13.5.4

Direct sales of financial assets GFS course ch. 13.5.4 Direct sales of financial assets Recorded in financial account of purchaser → decrease of financial assets, currency / deposits (F.2) → increase of shares and other equity (F.5) GFS course: chapter 13.5.4

Direct sales of financial assets GFS course ch. 13.5.4 Direct sales of financial assets Corporation that is sold: → no change in net lending/net borrowing → in balance sheets it assets/liabilities moves from public corporation sub-sector to private corporations through K.61 GFS course: chapter 13.5.4

Direct sales of financial assets GFS course ch. 13.5.4 Direct sales of financial assets Time of F.5 recording → the change in economic ownership (e.g. as specified in contract) Amount recorded → the full amount of the transaction ¹ the full amount of transaction corresponds to the market value of the assets at the moment of the transaction GFS course: chapter 13.5.4

2. Direct sales of non-financial assets GFS course ch. 13.5.4 2. Direct sales of non-financial assets Government sells directly its non-financial assets Non-financial assets (for example fixed assets – dwellings, machinery and equipments - or land or valuables – art objects, paintings, etc). For the definition of non-financial assets see ESA95 para 7.33-7.43, Table 7.1 and Annex 7.1. GFS course: chapter 13.5.4

Direct sales of non-financial assets GFS course ch. 13.5.4 Direct sales of non-financial assets fixed assets; Inventories; Valuables; Land / other non-produced assets. GFS course: chapter 13.5.4

Direct sales of non-financial assets GFS course ch. 13.5.4 Direct sales of non-financial assets Recording: → in the non-financial account of general government as disposal of non-financial assets; → in the non-financial account of the buyer as acquisition of these assets. → impact on net lending/borrowing of government and buyer The rule of recording is determined by the definition of acquisition and disposals of non-financial assets of ESA95 as well as of capital account (see ESA95 para. 8.46) GFS course: chapter 13.5.4

Direct sales of non-financial assets GFS course ch. 13.5.4 Direct sales of non-financial assets Time of recording → the change of economic ownership (e.g. when specified in contract) The amount → full market value of the assets at the moment of the transaction GFS course: chapter 13.5.4

3. Indirect sales of financial assets GFS course ch. 13.5.4 3. Indirect sales of financial assets A public corporation sells the shares / other equity of a subsidiary The public corporations passes the proceeds of the sale to government ¹ usually a holding company GFS course: chapter 13.5.4

Indirect sales of financial assets GFS course ch. 13.5.4 Indirect sales of financial assets Recording in national accounts: General government sector → a withdrawal of shares or other equity; → a counterpart entry as an increase of another financial asset (e.g. currencies or deposits). Irrespective of whether the holding company selling on behalf of general government pays back the full amount of the proceeds of the sale or only partially, the recording in national accounts is the same. GFS course: chapter 13.5.4

Indirect sales of financial assets GFS course ch. 13.5.4 Indirect sales of financial assets Recorded only in financial account no impact on net lending/borrowing of government or the company ¹ changing the portfolio of financial assets GFS course: chapter 13.5.4

3. Indirect sales of financial assets GFS course ch. 13.5.4 3. Indirect sales of financial assets Time of recording for government → the moment when the public corporation pays the proceeds The amount → the full amount of the transaction. ¹ irrespective of when the contract between the seller and the buyer is signed GFS course: chapter 13.5.4

4. Indirect sales of non-financial assets GFS course ch. 13.5.4 4. Indirect sales of non-financial assets A corporation indirectly owned by government sells non-financial assets and the proceeds are passed to government GFS course: chapter 13.5.4

Indirect sales of non-financial assets GFS course ch. 13.5.4 Indirect sales of non-financial assets Recording for general government: → withdrawal of shares / other equity; → increase in another financial asset (F.2); → no impact on net lending/net borrowing. Timing: when transaction takes place The proceeds of sales should not be recorded as capital transfers, as they can not be considered as a transfer of income but a transfer of wealth. In para. 4.165 of ESA95 reference is made to indirect sales which should be recorded as financial transactions (transactions in shares and other equity – F.5) in national accounts, even if in the public accounts or business accounts these are recorded as dividends, taxes or other income flows. GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries Privatisation → extended in transition economies Includes the transfer of government assets to former owners or to the population Is the inverse of nationalisation or seizure This issue became more important during the process of transition from ESA79 to ESA95 and the preparation for enlargement with the 10 new Member States in 2004. Most of these countries were at the beginning of the ‘nineties in a process of transformation from government controlled economies to market oriented economies. GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries A. restitution in kind non-financial assets formerly nationalised or confiscated returned to original owners Maybe same asset as the one nationalised or confiscated or a different one It can be the case of dwellings, valuables, land or buildings or other non-produced assets like water resources or subsoil assets. These could be owned, at the time of the restitution either by general government or by public corporations (non-financial or financial). GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries A. → a fixed capital formation sale by general government, counterbalanced by a capital transfer in kind; → no impact on net lending/net borrowing; → impact on the net worth; a positive impact on the receiving sector and a negative impact on general government; ¹ due to the capital transfer ² For the receiving sector (it could be households but also other sectors) the same transactions but with the reverse sign should be recorded in national accounts. Usually in case of dwellings but also other tangible fixed assets GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries B. Restitution through financial compensation → a capital transfer from government (payable by general government) to the sector benefiting; → impact on the net lending/net borrowing; → impact on net worth; → simultaneously a financial transaction. ¹ either in cash or in kind ² as a decrease of financial assets of government and an increase for the receiving sector GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries C. privatisation through issue of vouchers Vouchers → either contingent assets or financial assets; impact on net lending/net borrowing and net worth depends on when the vouchers are used. ¹ Impact or not on B.9 and net worth. If fulfilling the criterion to be classified as financial assets, the recording is in financial derivatives (F.34). Para.5.05 of ESA95 clarifies when vouchers are financial assets: if they are tradable, if information on transactions carried out and the market prices exist and if the total value of the market can be established. ² in general by households but also by non-profit institutions; for example, for acquiring financial or non financial assets GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries C. privatisation through issue of vouchers Financial assets recognised as such when issued are recorded at the time of issuance (if tradable F.71); Contingent assets are not recorded at issuance but when exchanged for financial or non-financial assets. GFS course: chapter 13.5.4

Privatisation in transition countries GFS course ch. 13.5.4 Privatisation in transition countries C. privatisation through issue of vouchers if financial assets → in government balance sheets increase the stock of non-EDP liabilities So, no impact on government debt calculated for EDP purposes ¹ The definition of government debt excludes government liabilities in financial derivatives GFS course: chapter 13.5.4