1. Military expenditure Chapter 11.16
Military expenditure Chapter 11.16
Before the session, on the white board put up a selection of military expenditures and ask the participants how they would classify:
Bullets, missiles, rockets, ballistic missiles, ships, fighter jets, satellites, docks, airports. Get them thinking about it.
Assets are used continually in the production of defence services.
GFS/EDP-course 2013

2. Military expenditure : Chapter 11.16
Background
2006 Eurostat decision on recording of Military equipment expenditure
Harmonisation of the time of recording of military equipment expenditure
MGDD – implementation of ESA95
Military equipment is treated as intermediate consumption
MGDD – implementation of ESA10
Military equipment is considered as fixed assets - treated as GFCF
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

3. Definition military equipment/goods
Definition military equipment/goods
ESA95: (intermediate consumption but this changes in ESA10) Destructive weapons and equipment to deliver them Goods that are designed specifically for combat operations and are used exclusively by military forces SNA93 provided a list of good considered as military goods: rockets, missiles silos, carriers, warships, submarines, fighter aircraft, bombers, tanks
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

4. Definition military equipment/goods
Definition military equipment/goods
ESA95 Military equipment is not considered as fixed assets - recorded as intermediate consumption - P.2 Fixed assets which can be also used for civil purposes are Gross fixed capital formation - P.51 (infrastructure (ports, air facilities), equipment for observation, transportation, etc).
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

5. Definition military equipment/goods
Definition military equipment/goods
ESA10
makes a clear distinction between WEAPON SYSTEM and OTHER MILITARY GOODS (ESA10 created a new category – Military inventories)
WEAPON SYSTEM (AN.114) – classified as GFCF: vehicles and other equipment such as warships, submarines, military aircraft, tanks, missile carriers and launchers …
ARMS OF MASS DESTRUCTION - a specific case/ asset (e.g. ballistic missiles)
OTHER MILITARY GOODS – ammunition, missiles, rockets, bombs and other single-use military items
recorded as Military inventories (AN. 124) when purchased (impact on B.9) → when they are used, they are recorded as a reduction change in inventories and Intermediate consumption expenditure.
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

6. Military expenditure : Chapter 11.16
Changes ESA95 / ESA10
Military equipment are in ESA10 considered as ASSETS - all military equipment expenditure is recorded as GFCF (used repeatedly or continuously in the production of defense service for more than one year). Military equipment that were in ESA95 considered as INTERMEDIATE CONSUMPTION are in ESA10 considered as GFCF. The distinction between dual purpose (military / civilian) and single purpose (military) is no longer relevant.
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

7. Time of recording of military expenditure
Time of recording of military expenditure
General rule: when the goods are delivered (i.e. at the change in economic ownership)
Long-term contracts:
Delivery of similar items over a long period of time
time of actual delivery of each item → no changes
Provision of services /maintenance
time when the service is provided → no changes
Complex systems from different suppliers (e.g. electronic system)
time of delivery of the individual operational item → no changes
Question over when the change in economic ownership takes place. Does this correspond to the point when contracts are signed (i.e. govt will at least fund R&D), when final delivery occurs, when cash transfers?
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

8. Time of recording of military expenditure
Time of recording of military expenditure
Equipment built over several years : record at the time of the transfer of ownership, on a delivery basis
ESA10 rule: unfinished goods are part of work in progress, which is recorded in the inventories of its producer and are reduced when economic ownership transfers to clients.
ESA makes an exception for "structures" acquired under a contract of sale, agreed in advance. E.g. building, airfield
Transfer assumed to take place progressively -work in progress- according to milestone payments. Rationale: it is likely that the structure will be acquired progressively by the ordering unit.
NB "structures" excludes items like ships.
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

9. Time of recording of military expenditure
Time of recording of military expenditure
R&D: Significant change in ESA10
ESA R&D is part of GFCF…. including freely available R&D
Exception for R&D that will not provide a benefit to the owner: classify as intermediate consumption.
R&D realised independently of the final product (not related to specific military equipment or item to be delivered)
→ recorded when R&D takes place or payment is made:
If benefits are expected for government or to be freely available for any other unit – record as GFCF at the time of payment
If no expected benefit for government
– record as investment grant at the time of payment
R&D strictly related to a contract foreseeing future manufacturing of identical items – expenditure to be apportioned to the deliverable goods and recorded later (i.e. R&D is ‘refundable’ later)
Payments by government for such R&D recorded as a financial advance (F.8)
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

10. Time of recording of military expenditure
Time of recording of military expenditure
Leasing of military equipment: → no changes
always a financial lease (government is economic owner of the asset)
Impact on B.9 and government debt at the time when the good is put at the disposal of the military forces → Subsequent lease payments are interest payable (impact on B.9) and repayment of loan (financial transaction).
Borderline case – civilian equipment that may also be used for military support (air tankers, cargoes) – possibly recorded as operational lease
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

11. Time of recording of military expenditure
Time of recording of military expenditure
Expenditure is recorded at time of delivery of military goods (at change in economic ownership).
ESA10: In exceptional cases this time of recording can be in advance of the complete delivery of goods (e.g. staged payments).
Pre-payments are recorded as financial transactions in F.8 financial advance / receivable (assets of government); subsequent deliveries are recorded as expenditure
Post-payments are recorded as financial transactions F.8 payable (liabilities of government) while expenditure is
recorded at delivery
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

12. Military expenditure : Chapter 11.16
Table 7. Military equipment expenditure (weapons and supporting equipment)
Country: XXXX
Date of response: xx/xx/2014
relation
2010
2011
2012
2013
source and titles
reference
Deliveries (positive amounts) 1
of which: Settlements in kind (positive amounts) 2
Transactions in other receivables F.81 (gov. assets) 2 3
tab item (6)
Transactions in other payables F.81 (gov. liabilities) 2 4
tab item (6)
Transactions in other financial instruments (liabilities) 1,2 5
Cash payments # (positive amounts) 6
Discrepancy 7=
Stocks in other receivables AF.81 (assets of gov.) 8
Stocks in other payables AF.81 (liabilities of gov.) 9
Stocks in other related liabilities of gov. 10
Data are to be consistent with data reported in EDP T3A
The sign convention applied in financial accounts is to be used here
(this is for receivables the same sign, for payables the reverse sign of EDP tables)
1) credit or prepayment in the form of other instruments than "trade credits"
2 exclusive of interest accrued or interest payments unless indicated
Stocks:
Table 7.1. Military equipment: deliveries and cash measures
in million units of national currency
Flows:
Comments:
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

13. Military expenditure : Chapter 11.16
relation
2010
2011
2012
2013
label (and source)
reference
Amounts in EDP Table 2 A working balance 12
EDP T2A
Amounts in EDP Table 2 A correction line 1* 13
Amounts in EDP Table 2 A correction lines 2* 14
15=
Data are to be consistent with data reported in EDP T2A
Please add additional rows, if needed
* Please indicate the label of the line
Amounts in B.9
in million units of national currency
Table 7.2. Military equipment expenditure as reported in EDP Table 2A
Comments:
Military expenditure : Chapter 11.16
GFS/EDP-course 2013

14. Military expenditure : Chapter 11.16
3.3.1 Generally within 1 year of delivery
3.3.2 Possibly deviate from deliveries by more than 0.05% of GDP
for a given year
If Yes (3.4.2)
If Yes (3.5.1) Do you have deliveries of military equipment built
over many years delivered in the period , or deliverable in
If Yes (3.5.2) Are those deliveries susceptible to differ by more
than 0.05% of GDP from the amount of cash or other
considerations provided in the context of the fulfilment of such
contracts, for each of the year 2010 to 2013
Indicate
Yes or No
3.2 Is it current practice for military equipment contracts to include
noticeable prepayments or late payments?
Always, Sometimes or Never
3.3 In case noticeable prepayments or late payments exist, are cash
payments (or other considerations provided):
A. Cash information
Yes or No; if yes indicate the amount
financial lease or operating lease
E. Deliveries from direct sources
(MOF, MOD,…)
F. Deliveries from other sources (e.g.
trade statistics)
G. Others
B. Cash information corrected for
actual data on receivables/payables
D. Accrual based accounting source
C. Cash information corrected for
large deliveries
3.4 Leases: Do you have leases on military equipment contracted over
the reporting period ?
3.5 Equipment built over many years
Comments:
Table 7.3. Qualitative information
3.1 What is the main basis for recording, in national accounts,
acquisitions of military equipment?
Indicate A to G; specify for G
Possible basis for recording, abbrev:
Military expenditure : Chapter 11.16
GFS/EDP-course 2013