Delineation of sectors and financial instruments in a matrix of balance sheets for an economy is central to specifying the BSA framework for analysis of the potential for emerging liquidity or solvency problems. The sectorization and financial instruments in the 7 x 7 matrix presented in this paper provide a useful baseline for applying the BSA and can be adapted to focus on particular sectors to assess vulnerabilities in the economy. This framework can also be modified to accommodate data limitations and still be useful for vulnerability analysis.
This chapter describes the purpose of this manual, the uses of government finance statistics, the structure of the government finance statistics system, major methodological changes from the previous edition of this manual, and methods of implementing the revised system.
A distinguishing feature of emerging market crises in the 1990s and early 2000s was the sudden disruption in the capital accounts of key sectors of the economy. Capital account crises typically occur as creditors quickly lose confidence, prompting sudden and large-scale portfolio adjustments such as massive withdrawals of bank deposits, panic sales of securities, or abrupt halts of debt rollovers. As the exchange rate, interest rates, and other asset prices adjust, the balance sheet of an entire economy can sharply deteriorate.
1. International financial crises in the late 1990s underscored the importance of disseminating comprehensive information on countries’ international reserves and foreign currency liquidity1 on a timely basis. Deficiencies in such information have made it difficult to anticipate and respond to crises by obscuring financial weaknesses and imbalances. (See Box 1.1) Moreover, both the complexity and the importance of such information have increased as a result of the ongoing globalization of financial markets and financial innovations. The international financial activities2 that countries’ central banks and government entities undertake now occur in myriad forms, involve multiple domestic and foreign entities, and span locations around the globe. To assess countries’ foreign currency liquidity requires supplementing traditional data on international reserves that cover largely cross-border and balance-sheet activities with those on foreign currency positions and off-balance-sheet activities.
This chapter describes the flows other than transactions that are recorded in the GFS system. The two major categories of these other economic flows are holding gains and other changes in the volume of assets.
58. This chapter provides guidelines to assist countries in reporting data on the authorities’ foreign currency resources (comprising reserve assets and other foreign currency assets) in Section I of the template. Items I.A.(1) through I.A.(5) are used to report information on reserve assets and item I.B., on other foreign currency assets. All items in Section I refer to outstanding assets (stock) on the reference date. As noted in para. 42, to facilitate liquidity analysis, it is recommended that information on special features of the reporting country’s reserves management policy and major sources of funds for reserve assets and other foreign currency assets be described in country notes accompanying the template data. To enhance data transparency, it is also important to indicate in country notes specific changes in the reporting country’s exchange rate arrangements (for example, the implementation of dollarization) and their impact on the level of the country’s reserve assets.
The particular framework of a BSA application—a matrix of intersectoral balance sheets in terms of sectors of the economy and components of the balance sheet (Table 1)—depends on the focus of analysis and, as a practical matter, the availability of data. Allen and others (2002) provide a generic matrix encompassing four sectors (government, financial, nonfinancial, nonresident) with assets and liabilities broken down by (short- and long-term) maturity and currency (domestic, foreign). The framework presented in this paper uses the same breakdown of assets and liabilities but expands it to seven sectors.6