1. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department Seminar on the Implementation of the International Statistical Standards in the Financial Statistics of Eurasian Economic Union (EAEU) Dilijan, Armenia May 31 － June 3, 2016 Government Finance Statistics

2. Government Finance Division IMF Statistics Department Introduction 2 Cash-based Not aligned with latest SNA, BOP, MFS Focused on single balancing item – deficit/surplus Focused on liquidity constraint/financing requirement only Limited stock data Flows and stocks not integrated Lending minus repayments above-the-line Countries moved to resource-based accounting in late 1990s (sustainability, balance sheets, noncash flows, etc.) Not aligned with latest SNA, BOP Some errors and omissions Classifications and presentational issues

3. Government Finance Division IMF Statistics Department Introduction GFSM 2001/2014: Analytic objectives 3 GFSM framework is a quantitative tool that supports fiscal analysis Should facilitate identification, measurement, monitoring, and assessment of impact of a government’s economic policies and other activities on economy Data generated from GFS should Allow assessment of management and policy decisions Be closely linked with other macroeconomic statistical systems (SNA, BOP, MFS) Enable analysts to assess financial soundness of general government and public sectors in ways commonly applied to other sectors of economy Enable assessment of sustainability over the long term Enable assessment of liquidity constraints and financing needs GFSM 2014

4. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department Sector Coverage

5. Government Finance Division IMF Statistics Department Overview of coverage and sectorization Distinguish between domestic economy and rest of the world (resident / nonresident) - Residence Residence Domestic economy consists of institutional unitsinstitutional units Group these institutional units into five mutually exclusive sectors of the domestic economyfive mutually exclusive sectors of the domestic economy - Nonfinancial corporations sector (private & public) - Financial corporations sector (private & public) - General government sector - Households sector - Nonprofit institutions serving households sector 5

6. Government Finance Division IMF Statistics Department Coverage and Sectorization Sector Overview 6 Public sector General government Central government State governments Local governments Public corporations Public nonfinancial corporations Public financial corporations Coverage and sectorization is based on institutional units, control, market/nonmarket activity

7. Government Finance Division IMF Statistics Department 7 General government sector General government Local governments Central government State governments Social Security Fund(s) Budgetary Central Government Extrabudgetary Central Government Social Security Fund(s) Alternative General government sector and its main subsectors

8. Government Finance Division IMF Statistics Department Delineating general government and public corporations (1/5) General government - All government units - All nonmarket NPIs controlled by government units - Public enterprises that are legally corporations but do not satisfy criteria to be corporations in macroeconomic statistics Need to delineate market and nonmarket producers to determine which enterprises are government units and which are public corporations 8

9. Government Finance Division IMF Statistics Department Delineating general government and public corporations (2/5) Market producer - Institutional unit that provides all or most of its output to others at prices that are economically significant Nonmarket producer - Institutional unit that provides all or most of its output to others for free or at prices that are not economically significant Economically significant prices - Have a significant effect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy 9

10. Government Finance Division IMF Statistics Department Delineating general government and public corporations (3/5) Economically significant prices normally result when - Sales cover the majority of the producer’s costs; and - Consumers are free to choose whether to buy and how much to buy on the basis of the prices charged Public control of unit  prices may be modified for public policy purposes - Cause difficulties in determining whether the prices charged are economically significant or not 10

11. Government Finance Division IMF Statistics Department Delineating general government and public corporations (4/5) Economically significant prices - Consider sales and production costs - No prescriptive numerical relationship between sales and production costs o Expected that value of goods and services sold (sales) by public corporations to average at least half of the production costs over a sustained, multiyear period  Sales: before taxes and excluding subsidies on products  Production costs: compensation of employees + use of goods and services + consumption of fixed capital + other taxes on production Should make the distinction between market and nonmarket producers on a case-by-case basis - Keep a classification for several years  Reclassify if pricing holds for several years or expected to hold for several years 11

12. Government Finance Division IMF Statistics Department Delineating general government and public corporations (5/5) Government-owned entities supplying goods and services to government - Market or nonmarket? o Nonmarket producer if  a dedicated provider of ancillary services  providing goods and services in absence of competition with private producers and choice of government is not based on price o In general, do not satisfy conditions of being an institutional unit, so classify with unit that controls it General government unit is a nonmarket producer - Most have nonmarket establishments - Can have market establishments o If these market producers satisfy criteria of a separate institutional unit, classify as a quasi-corporation o Otherwise, remain in general government 12

13. Government Finance Division IMF Statistics Department Public sector and other sectors of the economy 13 General Government Sector Nonfinancial Corporations Financial Corporations HouseholdsNPISHs Central govt State govts Local govts Public corporations Private Private corporations = Public sector

14. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department The GFS Framework

15. Government Finance Division IMF Statistics Department Accounting Rules Principles (1/2) 15 Accounting rules in GFSM are the same as in other macroeconomic statistical systems Accrual-based recording  Recording of transactions when transactions / an event take place, i.e. - Income is earned - Resources are used - Liabilities are incurred - Assets are acquired Cash flow data as additional requirement  to allow analysis of liquidity contraints/position Double-entry accounting  Every debit entry has a credit entry and vice versa

16. Government Finance Division IMF Statistics Department Accounting Rules Principles (2/2) 16 Time of recording Flows on an accrual basis are recorded when - Economic benefits associated with the events have flowed to, or from, unit involved, or - It is probable that future benefits will flow to, or from, the unit; and - Monetary value of the events can be reliably measured Cash flows are recorded when cash changes ownership - Cash flow statement Valuation All flows and stock positions are valued at current market prices - Transactions  amounts that willing buyers pay to acquire something from willing sellers (at arms length transactions) - Stock positions  current market value (later in this lecture)

17. Government Finance Division IMF Statistics Department The GFSM Framework Overview (1/8) 17 Balance sheet approach Stock positions of assets, liabilities, and net worth (assets minus liabilities) Stock positions are connected with flows S = stock position; T = transactions; OEF = other economic flows S0S0 TOEFS1S1 ++= Stocks Flows Opening Balance Sheet Value Transactions Other Economic Flows Closing Balance Sheet Value

18. Government Finance Division IMF Statistics Department The GFSM Framework Overview (2/8) 18 Stock Positions The total holdings of assets and/or liabilities at a given point in time Recorded in balance sheet at the beginning and end of the reporting period Only economic assets (defined by ownership and economic benefits) Nonfinancial and financial assets Liabilities (defined by ownership and economic (financial) claims) Net worth (total assets minus total liabilities)

19. Government Finance Division IMF Statistics Department The GFSM Framework Overview (3/8) 19 Economic Flows Two types in the system: Transactions & Other Economic Flows - Transactions - Other economic flows Interaction by mutual agreement (or analytically useful to treat as such) Exchanges or transfers - Exchange = one unit provides a good, service, asset, or labor to a second unit and receives in return a good, service, asset, or labor of the same value - Transfer = one unit provides a good, service, asset, or labor to a second unit without receiving simultaneously in return a good, service, asset, or labor of the same value Transactions

20. Government Finance Division IMF Statistics Department The GFSM Framework Overview (4/8) 20 Economic Flows (continued) Monetary or nonmonetary - Monetary = one unit makes a payment (receives a payment) or incurs a liability (receives an asset) to (from) another unit state in units of currency - Nonmonetary = transactions not initially stated in units of currency. Examples: Two-party nonmonetary transactions, e.g. Barter, renumeration in kind, transfers in kind, etc. Internal transactions: Single unit acts in two different capacities, e.g. consumption of capital (owner of asset and cost of using asset in production) Transactions (cont.)

21. Government Finance Division IMF Statistics Department The GFSM Framework Overview (5/8) 21 Economic Flows (continued) Changes in the value of assets or liabilities that do not result from transactions (i.e., all other flows that are not transactions) “Unilateral” events rather than mutual agreements Comprise of - Changes in the volume of assets (volume changes) - Holding gains and losses (price changes) Other Economic Flows

22. Government Finance Division IMF Statistics Department The GFSM Framework Overview (6/8) 22 Transactions Revenue Expense Assets & Liabilities Definition An increase of net worth resulting from transactions Definition A decrease of net worth resulting from transactions Excludes disposals of Assets (= exchanges of one asset for another) Excludes acquisitions of Assets (= exchanges of one asset for another)

23. Government Finance Division IMF Statistics Department The GFSM Framework Overview (7/8) 23 Transactions Revenue Expense Assets & Liabilities  Net investment in nonfinancial assets Grouped into Acquisitions Disposals Consumption of fixed Capital (“GFS depreciation”) Nonfinancial Assets Financial Assets Liabilities  Net acquisition of financial assets  Net incurrence of liabilities = Financing Separate identification of financial assets & liabilities by Residence Instrument Counterparty sector

24. Government Finance Division IMF Statistics Department The GFSM Framework Overview (8/8) 24 GFSM Framework Is an integrated framework Always remember the basic principle of the GFSM framework: OPENING BALANCE SHEET VALUE +TRANSACTIONS +OTHER ECONOMIC FLOWS =CLOSING BALANCE SHEET VALUE  See next page

25. Government Finance Division IMF Statistics Department The GFSM Framework Schematic Presentation 25 Revenue Stocks Flows Stocks Opening Balance Sheet Closing Balance Sheet Transactions Other Economic Flows Nonfinancial Assets Financial Assets Liabilities Nonfinancial Assets Financial Assets Liabilities Nonfinancial Assets Financial Assets Liabilities Nonfinancial Assets Financial Assets Liabilities Nonfinancial Assets Financial Assets Liabilities Expense - = Net Operating BalanceNet Worth Change in Net Worth (Holding Gains) Change in Net Worth (Other Volume Changes) Net Worth - = Net Lending/ Net Borrowing HOLDING GAINS OTHER VOLUME CHANGES

26. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department Statements and Tables

27. Government Finance Division IMF Statistics Department Statements and Tables Overview 27 The GFSM framework can be presented in the following statements 4 Core Statements Statement of Operations Statement of Other Economic Flows Balance Sheet Statement of Sources and Uses of Cash 2 Additional Statements Summary of total changes in net worth Summary of contingent liabilities Explicit contingent liabilities Implicit obligations for future social security benefits For data reporting purposes there are 9 detailed reporting tables (Details on stock positions, transactions & other economic flows)

28. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 28 Summarizes public sector unit’s (or sector’s/ subsector’s) transactions in a given reporting period - Accrual based recording for all transactions - Cash transactions are summarized separately in the cash flow statement Transactions are classified according to whether they: - Result in an increase net worth (revenue) - Result in a decrease net worth (expense) - Change the stock of a nonfinancial asset (“capital asset”) - Change the stock of a financial asset or liability (“financing”)

29. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 29 Without “expenditure” aggregate (GFSM 2001): With “expenditure” aggregate (GFSM 2014): Revenue –Expense =Net operating balance (Gross operating balance) * –Transactions in nonfinancial assets =Net lending(+)/net borrowing (–) – Transactions in financial assets +Transactions in liabilities Revenue [1] –Expense [2] = Net operating balance (Gross operating balance) [1] – [2] * Transactions in nonfinancial assets [3] Expenditure [4] = [2] + [3] =Net lending(+)/net borrowing(–) [1] – [4] = [1] – [2] – [3] – Transactions in financial assets +Transactions in liabilities = zero (because of double-entry accounting) * Changes in net worth from transactions

30. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 30 Revenue Taxes - Taxes on income, profits, and capital gains - Taxes on payroll and workforce - Taxes on property - Taxes on goods and services - Taxes on international trade and transactions - Other taxes Social contributions [GFS] - Social security contributions [GFS] - Other social contributions [GFS] [GFS] = different definition from 2008 SNA

31. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 31 Revenue (continued) Grants - From foreign governments - From international organizations - From other general government units Other revenue - Property income [GFS] - Sales of goods and services - Fines, forfeits, and penalties - Transfers not elsewhere classified - Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes [GFS] = different definition from 2008 SNA

32. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 32 Expense Compensation of employees [GFS] - Wages and salaries [GFS] - Social contributions [GFS] Use of goods and services Consumption of fixed capital [GFS] Interest [GFS] - To nonresidents [GFS] - To residents other than general government units [GFS] - To general government units [GFS] Subsidies - To public corporations - To private enterprises - To other sectors [GFS] = different definition from 2008 SNA

33. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 33 Expense (continued) Grants - To foreign governments - To international organizations - To other general government units Social benefits [GFS] - Social assistance benefits [GFS] - Social security benefits [GFS] - Employer social benefits [GFS] Other expense - Property expense other than interest - Transfers not elsewhere classified - Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes [GFS] = different definition from 2008 SNA

34. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 34 Transactions in nonfinancial assets Fixed assets - Buildings and structures * - Machinery and equipment * - Other fixed assets * - Weapons systems * Inventories (net change) Valuables Nonproduced assets - Land - Mineral and energy resources - Other natural occurring assets - Intangible nonproduced assets * Minus consumption of fixed capital Produced assets

35. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 35 Transactions in financial assets & liabilities -> Multiple ways to classify: By residence of counterparty (domestic, external) By type of financial instrument (for example, currency and deposits, debt securities, loans, etc.) By “sector” of counterparty (for example, general government, central bank, nonfinancial corporations, etc.)

36. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 36 Financial assets/liabilities by instrument Monetary gold and Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment funds shares Insurance, pension, and standardized guarantee schemes Financial derivatives and employer stock options Other accounts receivable/payable

37. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations 37 Financial assets/liabilities by residency and institutional sector of the counterparty Domestic - General government - Central bank - Deposit-taking corporations except the central bank - Other financial corporations - Nonfinancial corporations - Households and nonprofit institutions serving households External - General government - International organizations - Financial corporations except international organizations - Other nonresidents

38. Government Finance Division IMF Statistics Department Statements and Tables Statement of Other Economic Flows 38 Shows influences on the public sector unit’s financial position in accounting period from flows other than transactions, that is: Holding gains/losses in assets and liabilities (revaluations): Changes in the price of the asset or liability Other changes in the volume of assets and liabilities - Exceptional or unexpected events (for example, floods, earthquakes, wars, etc.) - Normal events (for example, discovery of subsoil asset) - Reclassifications (for example, unit reclassified from central to local government)

39. Government Finance Division IMF Statistics Department Statements and Tables Statement of Other Economic Flows 39 Statement of Other Economic Flows 9Change in net worth due to other economic flows (4 + 5) 4Change in net worth due to holding gains 41Nonfinancial assets 42Financial assets 42Liabilities 5Change in net worth due to other changes in the volume of assets and liabilities 51Nonfinancial assets 52Financial assets 53Liabilities

40. Government Finance Division IMF Statistics Department Statements and Tables Balance Sheet 40 Shows the stock positions of assets, liabilities, and net worth of public sector unit at beginning and end of accounting period Only economic assets are recorded in GFS, that is, owners of the assets can: - Enforce ownership rights - Derive economic benefits (by holding or using it) Valued at current market value (Amount that would have to be paid to acquire the asset on the reporting date, taking into account its age, condition, and other relevant factors) Assets by type of asset / instrument Liabilities by type of instrument

41. Government Finance Division IMF Statistics Department Statements and Tables Balance Sheet 41 Balance Sheet 6Net (61 + 62 – 63) [ = net worth t-1 + changes in net worth from transactions t + changes in net worth from other economic flows t ] 61Nonfinancial assets 611Fixed assets 612Inventories 613Valuables 614Nonproduced assets 62Financial assets 621Domestic 622External 63Liabilities 631Domestic 632External Memorandum items

42. Government Finance Division IMF Statistics Department Statements and Tables Statement of Sources & Uses of Cash 42 Shows the total amount of cash generated or absorbed by public sector unit through - Current operations - Transactions in nonfinancial assets - Transactions in financial assets and liabilities (other than cash— currency and deposits—itself) Net change in government’s overall cash position is sum of the net cash received from all the above Similar to cash flow statement in accounting

43. Government Finance Division IMF Statistics Department Statements and Tables Statement of Sources & Uses of Cash 43 Statement of Sources & Uses of Cash Without “expenditure cash flows” aggregate (GFSM 2001): With “expenditure cash flows” aggregate (GFSM 2014): Cash inflow from operating activities –Cash outflow from operation activities =Net cash inflow from operating activities [1] – [2] –Net cash outflow from investments in nonfinancial assets =Cash surplus(+)/ cash deficit(–) + Net cash inflow from financing activities –Net acquisition of financial assets other than cash +Net incurrence of liabilities =Net change in the stock of cash Revenue cash flows [1] –Expense cash flows [2] =Net cash inflow from operating activities [1] – [2] – Cash outflow from investments in nonfinancial assets [3] Expenditure cash flows [4] = [2] + [3] =Cash surplus(+)/cash deficit(–) [1] – [4] + Net cash inflow from financing activities –Net acquisition of financial assets other than cash +Net incurrence of liabilities =Net change in the stock of cash

44. Government Finance Division IMF Statistics Department Statements and Tables Statement of Operations vs. Cash Flow Statement 44 Revenue Statement of Operations Nonfinancial Assets Financial Assets Currency & Deposits Other Liabilities Expense - - Statement of Sources & Uses of Cash = Net Operating Balance = Net Lending/ Net Borrowing Cash inflows & outflows from transactions Operating Activities Purchases/Sales of nonfinancial Assets Financing activities (other than cash) = Net change in the stock of cash

45. Government Finance Division IMF Statistics Department Statements and Tables Statement of Total Changes of Net Worth 45 Combines results of statement of operations and statement of other economic flows Statement of Total Changes of Net Worth Changes in net worth due to transactions Revenue Expense Net operating balance (a) Changes in net worth due to other economic flows Nonfinancial assets Financial assets Liabilities Total other economic flows (b) Total change in net worth (a) + (b)

46. Government Finance Division IMF Statistics Department Statements and Tables Summary Statement of Contingent Liabilities 46 Summary statement of explicit contingent liabilities and net implicit obligations for future social security benefits Summary Statement of contingent Liabilities Total explicit contingent liabilities One-off guarantees Loan and other debt instrument guarantees Other one-off guarantees Other explicit contingent liabilities not elsewhere classified Net implicit obligations for future social security benefits Present value of implicit obligations for future social security benefits Minus: Present value of future contributions to social security schemes

47. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department Core Balances

48. Government Finance Division IMF Statistics Department Core Balances Flows 48 Multiple balancing items for Transactions - Net operating balance o Balance of transactions affecting net worth o Closely related to 2008 SNA concept of “saving” - Net lending (+) / net borrowing (–) o Net operating balance minus transactions in nonfinancial assets - Net cash inflow from operating activities o Balance of cash transactions affecting net worth - Cash surplus (+) / cash deficit (–) o Net cash inflow from operating activities minus net cash outflow from investments in nonfinancial assets Other economic flows - Change in net worth due to holding gains/losses - Change in net worth due to other changes in volume of assets and liabilities - Total change in net worth due to other economic flows

49. Government Finance Division IMF Statistics Department Core Balances Stocks & additional balances 49 Multiple balancing items for Balance sheet - Net worth - Financial net worth - Gross debt - Net debt Can add many other analytical balances - Primary balance - Overall fiscal balance (incorporate policy lending, etc.) - Etc.

50. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department Implementation of GFSM

51. Government Finance Division IMF Statistics Department GFSM Implementation 51 It is recognized that full implementation of the GFS framework is a long-term activity Priorities can only be established by each country taking into account their situation, including available resources Countries are encouraged to develop a migration path towards the GFS framework Migration path will likely 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 Debt -> financial balance sheet -> full balance sheet

52. Government Finance Division IMF Statistics Department GFSM 2014 Summary of changes from GFSM 2001 52 Brought GFS framework in line with 2008 SNA and BPM6, to extent possible Added expenditure aggregate Changed “foreign” to “external” - External refers to classification by residence of the counterparty - Foreign refers to classification by currency of denomination Changed some descriptors in the statement of sources and uses of cash Added two statements - Statement of total changes in net worth - Summary of contingent liabilities

53. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Government Finance Division IMF Statistics Department Public Sector Debt Statistics (PSDS) Definitions & Accounting Principles

54. Government Finance Division IMF Statistics Department Definition of debt Gross debt 54 Total Gross Debt Definition (Or “total debt”; “total debt liabilities”) - consists of all liabilities that are debt instruments Debt liabilities of residents owed to - Residents  domestic debt - Nonresidents  external debt If by currency, then use “foreign”

55. Government Finance Division IMF Statistics Department Definition of debt Gross debt 55 Debt Instruments Definition Financial claims that require payment(s) of interest and/or principal by the debtor to the creditor at a date (or dates) in the future.  Definition is consistent with the debt definition in other macroeconomic statistics Special Drawing Rights Currency & Deposits Debt Securities Loans Other Accounts Payable Insurance, Pension, and standardized Guarantee Schemes

56. Government Finance Division IMF Statistics Department Definition of debt Gross debt 56 Liabilities (in macroeconomic statistics) Debt Instruments Special Drawing Rights Currency & Deposits Debt Securities Loans Other Accounts Payable Equity & Investment Fund Shares Financial Derivatives & Employee Stock Options Insurance, Pension, and standardized Guarantee Schemes X X Special Drawing Rights Currency & Deposits Debt Securities Loans Other Accounts Payable Insurance, Pension, and standardized Guarantee Schemes

57. Government Finance Division IMF Statistics Department Definition of debt Gross debt Some other definitions of debt may exist due to specific legal, institutional, and practical arrangements Total debt should include all debt instruments, but narrower definitions are sometimes presented 57  Always clearly identify the definition according to the included instruments

58. Government Finance Division IMF Statistics Department Definition of debt The public sector “debt matrix” 58

59. Government Finance Division IMF Statistics Department Definition of debt Gross debt To be considered debt, a liability must exist and must be outstanding Debt liabilities are typically established through provision of economic value by the creditor to the debtor Normally under a contractual arrangement, but can also be created by force of law (e.g. arising from taxes, penalties) Debt liability is not established until items change ownership, services rendered, income accrues 59

60. Government Finance Division IMF Statistics Department Definition of debt Gross debt 60 Contingencies are not included in gross or net debt of the guarantor because they are not unconditional liabilities Unless and until the guarantee is called debt belongs to original debtor However, information on contingencies is important for vulnerability analysis

61. Government Finance Division IMF Statistics Department Definition of debt Gross debt Debt liabilities comprise principal and interest 61 Principal Interest Definition The provision of economic value by the creditor, or creation of debt liabilities through other means, establishes a principal liability for the debtor, which, until extinguished, may change in value over time Definition A form of investment income that is receivable by the owners of certain kinds of financial assets (SDRs, deposits, debt securities, loans, and other accounts receivable) for putting these financial assets and other resources at the disposal of another institutional unit

62. Government Finance Division IMF Statistics Department Accounting principles Valuation 62 Market Value Fair Value Reflects perceptions of repayment risk, market interest rates, market liquidity, the ability to use the instrument for repurchase (or similar types of) transactions, risk preferences, and other opportunities on the market Ideally determined on organized market for that instrument prevailing on the reference date to which the position relates (or last closing date) “Market-equivalent” value The amount for which a financial asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction An estimate of what could be obtained if the creditor had sold the financial claim

63. Government Finance Division IMF Statistics Department Accounting principles Valuation 63 Nominal Value Face Value The amount that the debtor owes to the creditor at any moment Reflects the value of the debt at creation + any subsequent economic flows, e.g. repayment of principal, exchange rate and other valuation changes (other than market price changes) Starting point for establishing legal liability Used in vulnerability and sustainability analysis A measure of value from the viewpoint of the debtor The undiscounted amount of principal to be repaid at maturity Use of face value as a proxy for nominal value in measuring the gross debt position can result in an inconsistent approach across all instruments and is not recommended

64. Government Finance Division IMF Statistics Department Accounting principles Valuation In macroeconomic statistics, financial assets and liabilities should be valued as if they were acquired in market transactions on the balance sheet reporting date (reference date) Market values for debt instruments other than debt securities are not generally available (proxy: nominal value) Public Sector Debt Statistics Guide recommends to - Value all debt instruments at nominal value (not face value) - Value debt securities at market and nominal value 64

65. Government Finance Division IMF Statistics Department Accounting principles Valuation 65 Nontraded InstrumentsTraded Instruments Nominal ValueNominal & Market Value Nominal Value = Amount advanced + unpaid interest accrued – amounts repaid (legal liability) Note that for nonperforming loans nominal value may provide insufficient information (fair value as additional information recommended) Bills, bonds, debentures, negotiable certificates of deposit, etc. Nominal Value = value of debt at creation and subsequent economic flows Market value = based on price at which it is traded in a financial market (or NPV as fair value)

66. Government Finance Division IMF Statistics Department Accounting principles Valuation 66 InstrumentValuation Nonlife insurance technical reserves Insurance accounting—value of prepaid premiums and claims incurred but not paid Life insurance and annuities entitlements Amount of reserves to meet future claims already accrued (present value of all future claims) Pension entitlements under defined-benefit schemes Formulas agreed in advance Present value of promised benefits Pension entitlements under defined-contribution schemes Liability is the current market value of the pension fund’s assets Provisions for calls under standardized guarantee schemes Present value of the expected calls under outstanding guarantees, net of any recoveries the guarantor expects to receive from the defaulting borrowers (a similar approach as for nonlife insurance Insurance, Pension and standardized Guarantee Schemes

67. Government Finance Division IMF Statistics Department Accounting principles Currency Unit of account Must convert all debt liabilities expressed in another currency or commodity to a reference unit of account Denominate external debt in domestic currency unit Currency conversion: Use market (spot) rate prevailing on the balance sheet date (Midpoint between buying and selling rates) 67

68. Government Finance Division IMF Statistics Department Accounting principles Currency Domestic and foreign currency Domestic currency is that which is legal tender in the economy and issued by the monetary authority for that economy All other currencies are foreign currencies - SDRs are considered foreign currency. Also other currencies issued by an international organization, except in context of a currency union 68

69. Government Finance Division IMF Statistics Department Accounting principles Currency Distinguish between currency of denomination and currency of settlement Currency of denomination is the currency in which the value of flows and stock positions is fixed as specified in the contract between the parties Currency of settlement may be different from the currency of denomination. If so, a currency conversion is involved each time a settlement occurs 69

70. Government Finance Division IMF Statistics Department Accounting principles Maturity Maturity of a debt instrument: time until the debt is extinguished according to the contract between the debtor and the creditor Maturity can be either short- or long-term and relate to original or remaining maturity. Short-term: Payable on demand or within one year Long-term: More than one year or no stated maturity 70

71. Government Finance Division IMF Statistics Department Accounting principles Maturity Three-way classification to allow for deriving debt statistics on both original and remaining maturity bases (a) Short-term debt on original maturity basis (b) Long-term debt due for payment within one year or less (c) Long-term debt due for payment in more than one year Short-term debt, remaining maturity: (a) + (b) Long-term debt, original maturity: (b) + (c) 71

72. Government Finance Division IMF Statistics Department Accounting principles Consolidation Consolidation is a method of presenting statistics for a set of units (or entities) as if they constituted a single unit, e.g. General Government Public Sector Consolidation involves the elimination of all transactions and debtor-creditor relationships that occur among the units being consolidated 72

73. Government Finance Division IMF Statistics Department Net debt Net debt is calculated as gross debt minus financial assets corresponding to debt instruments 73 Gross Debt (Debt Instruments) Special Drawing Rights Currency & Deposits Debt Securities Loans Other Accounts Payable Insurance, Pension, and standardized Guarantee Schemes Financial Assets (Corresponding Instruments) Special Drawing Rights/ Monetary Gold Currency & Deposits Debt Securities Loans Other Accounts Payable Insurance, Pension, and standardized Guarantee Schemes Net Debt = –

74. Government Finance Division IMF Statistics Department Institutional Coverage Budgetary Central Government Extrabudgetary Central Government (o/w) Specific Funds Central Government State/Regional Government Local Government General Government Public Nonfinancial Corporations Public Financial Corporations (o/w) Central Bank Total Public Sector Debt Instrument Coverage SDRs Currency & Deposits Debt Securities Loans Insurance/Pension/Std. Guarant. Other Accounts Payable Valuation Face Value Nominal Value Market Value Other: Classification (Gross Debt) Residence Currency of Denomination Original Maturity Remaining Maturity Type of Instrument Holder Type Frequency Monthly Quarterly Annually Metadata Detailed Summary Other Guaranteed Debt incl. in Gross DebtReconciled Stocks & Flows Central Compiling Agency assignedWB/IMF-Database Project No. of Agencies publishing dataConsolidated Debt Statistics PSDS Summary Sheet: [COUNTRY] Notes: “ X: published; na not available; - not applicable; dn:„don‘t know“; 0: zero value (i.e. no debt); np: available but not published Y/N Number Other Information Guarant. Debt/Contingenc. Financial Derivatives Pos.

75. Government Finance Division IMF Statistics Department WB/IMF PSDS Database (1/4) The World Bank, in coordination with the IMF, and consulting with the Inter-Agency Task Force on Finance Statistics (TFFS), to launch the public sector debt database in 2010 Centralized, online database: www.worldbank.org/qpsd Data presentation Country data/metadata Cross-country data Time series data By institutional coverage By instruments 75

76. Government Finance Division IMF Statistics Department Public Sector Debt Template (2/4) 76

77. Government Finance Division IMF Statistics Department Institutional coverage (3/4) General government o/w Central government (required) - o/w Budgetary central government Public nonfinancial corporations Public financial corporations Total public sector Consolidated! 77

78. Government Finance Division IMF Statistics Department Reporting requirements (4/4) Country coverage Started with developing and emerging market countries Expanded to developed countries Frequency Quarterly Historical data, if available The reporting currency should be the domestic currency Converted to US Dollar by World Bank The sectors should be reported consolidated 78