1. 1 The GFSM 2001 System – An Overview Rif Basanti Deputy Chief of Government Finance Division Statistics Department, IMF Government Finance Statistics IMF Statistics Department

2. 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. 3 Why a revision of the GFS Manual 1986? 1/3  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. 4 Why a revision of the GFS Manual 1986? 2/3  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.

5. 5 Why a revision of the GFS Manual 1986? 3/3  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

6. 6 Objectives of the GFS Manual 2001 1/3  To achieve analytic objectives, the new GFS system should generate data that: are directly linked to other macroeconomic statistical systems; harmonized as fully as possible with the 1993 SNA enable analysts to do assessments of financial soundness of government in ways applied to other organizations in economy

7. Non- financial assets Financial assets Liab NFA FA Liab FA NFA Expense Revenue Opening balance Transactions Other economic flows Closing balance Revenue Expend- iture FA Liab Liabilities Opening liabilities Closing liabilities Transactions GFSM 2001:GFSM 1986: Government Finance Statistics systems 2/3

8. GFSM 2001 analytical framework 3/3 Expense Revenue Statement of Government Operations Change in net worth Tr = = + - - Liabilities Financial assets Non- financial assets Change in net worth OEF Statement of Other Economic Flows = + - Net worth Closing Balance Sheet Liabilities Net worth Opening Balance Sheet = ++ -- = StocksTransactions Net lending/ borrowing + = Net finanical worth = Net financial worth Change in net f.worth OEF Other flowsStocks Financial assets Financial assets Liabilities Financial assets Non- financial assets Non- financial assets Non- financial assets

9. 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. 10 The GFSM 2001 System (1/3)  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. 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. 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. 13 OPENING BALANCE SHEET Nonfinancial Assets Financial Assets Liabilities Net Worth Changes in Net Worth F L O W S CLOSING BALANCE SHEET Net Worth Nonfinancial Assets Financial Assets Liabilities TRANSACTIONS Revenue Expense = NET OPERATING BALANCE minus Nonfinancial Assets = NET LENDING/ BORROWING minus Liabilities Financial Assets cash other financial assets minus OTHER ECONOMIC FLOWS Holding Gains & Losses Other Changes in the Volume of Assets Nonfinancial Assets Financial Assets Liabilities Nonfinancial Assets Financial Assets Liabilities

14. 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. 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. 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. 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. 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. 19 Revenue -Expense =Net operating balance (gross operating balance) -Transactions in nonfinancial assets =Net lending/borrowing - Transactions in financial assets +Transactions in Liabilities The Statement of Government Operations 2/6 Financing = zero (because of double-entry recording)

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

21. 21  Expense Compensation of employees Use of goods and services Consumption of fixed capital Interest Subsidies Grants Social benefits Other expense The Statement of Government Operations 4/6 Transfers

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

23. 23  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.) The Statement of Government Operations 6/6

24. 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 govt)

25. 25 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 Statement of Other Economic Flows 2/2

26. 26 Balance Sheet 1/2  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. 27 Balance Sheet 2/2  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. 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 itself)  Net change in government’s overall cash position is sum of the net cash received from all the above

29. 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. 30 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

31. 31 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

32. 32 Implementation 1/1  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

33. 33 Implementation 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

34. FA Liab NFA FA Liab FA Expense Revenue Transactions Revenue Current and capital expend- iture FA Liab Stocks of liabilities Stocks of liabilities Transactions GFSM 2001:GFS 1986: => Step 1: Cash basis => reclassification to new GFS I.Cash data to GFS tables 1 to 5 II.Partial balance sheet (Table 6) Stocks of financial assets & liabilities Stocks of financial assets & liabilities 1 2 3 6 3 3 COFOG 5 * Net operating balance ** Net lending / borrowing * ** Migration path: 6 FA by sectors 4

35. FA NFA FA Liab FA Expense Revenue Transactions Liab Transactions => Step 2: Full coverage of units and events (approach accrual recording) I.Statement of Government Operations (Tables 1-5) II.Partial balance sheet (Table 6) Stocks of financial assets & liabilities Stocks of financial assets & liabilities 1 2 3 6 3 3 COFOG 5 * Net operating balance ** Net lending / borrowing * ** FA NFA Expense Revenue Stocks of financial assets & liabilities Stocks of financial assets & liabilities Liab FA Step 1: Migration path: 6 NW tr FA by sectors 4

36. FA NFA FA Liab FA Expense Revenue Transactions Liab Transactions => Step 3: Full accrual accounting for financial accounts I.Statement of Government Operations (Tables 1-5) II.Other Economic Flows for financial assets III.Partial balance sheet (Table 6) Stocks of financial assets & liabilities Stocks of financial assets & liabilities 1 2 3 6 3 3 * Net operating balance ** Net lending / borrowing * ** FA NFA Expense Revenue Stocks of financial assets & liabilities Stocks of financial assets & liabilities Liab FA Step 2: Migration path: FA Liab Other economic flows 6 66 NW tr

37. FA NFA FA Liab FA Expense Revenue Transactions Liab Transactions => Step 4: Accrual accounting for nonfinancial assets I.Statement of Government Operations (Tables 1-5) II.Statement of Other Economic Flows III.Integrated stocks and flows (Table 6) Opening balance Closing balance 1 2 3 6 3 3 * ** FA NFA Expense Revenue Stocks of financial assets & liabilities Stocks of financial assets & liabilities Liab FA Step 3: Migration path: FA Liab Other economic flows 6 66 NW tr FA NFA 66 NW OEF NW Liab Other economic flows

38. NFA FA NFA FA Liab FA NFA Expense Revenue Opening balance Transactions Other economic flows Closing balance Liab GFS as a fiscal policy instrument Current Accounts Accumulation Accounts Balance Sheet ESA 95 GFSM 2001 Chart of Accounts COA

39. Capital transfers & Non-financial assets Income account Production account Transactions GDP (value added) ESA95 SNA’93 Financial assets & liabilities Saving Revenue account Expense account Financial assets & liabilities Non-financial assets GFS2001 Transactions Operating balance Net lending / borrowing Current account Capital account Financial assets & liabilities Current account balance Transactions BOP’93 Financial assets & liabilities Transactions MFS2000 export G&S import G&S income transactions current transfers capital transfers transactions in NPNFA