The IMF has updated the international standards for the compilation and presentation offiscal data in its forthcoming publication, the second edition of the Government Finance Statistics Manual (GFS). The revisions substantially modernize and improve the presentation offiscal accounts and enhance the value of these data for policy analysis as well as for academic research. The new manual is also written to provide analysts with needed flexibility.
Financial events around the world have underscored how government fiscal policies must take a wide variety of circumstances into account at the design stage. For example, public finance analysts use fiscal statistics to examine many economic issues: the size of the public sector; its contribution to aggregate demand, investment, and saving; the impact of fiscal policy on the economy, including resource use, monetary conditions, and national indebtedness; the tax burden; tariff protection; and the social safety net. In addition, analysts have become increasingly interested in assessing the effectiveness of spending on poverty alleviation, the sustainability of fiscal policies, net debt, net wealth, and contingent claims, including the liabilities of social security schemes.
Fiscal analysts often need to use balancing items, which are select groupings of accounting entries calculated and expressed as a single amount. The new manual provides various balancing items from which analysts can choose one to fit a specific purpose. Examples include the following:
The net operating balance, which is the change in net worth resulting from transactions, is a measure of the sustainability of current government operations.
Net lending/borrowing summarizes the government’s financial transactions and is calculated as the increase in financial assets less the incurrence of liabilities. It provides a measure of the government’s demand for credit.
By dividing financial assets and liabilities into domestic and foreign components, the demand for foreign borrowing can be calculated.
The cash surplus/deficit is a measure of the cash required to finance a government’s operations, including it acquisition of nonfinancial assets.
The manual also includes an overall fiscal balance, which is net lending/borrowing adjusted for alternative treatments of selected transactions in assets (mainly financial assets) because many governments engage in such transactions as a means to carry out public policy rather than to manage its liquidity.
The GFS also introduces some entirely new and important features. For example, transactions and other flows are recorded using the accrual basis in accounting rather than the cash basis in the previous edition (1986). Governments have become adept at separating the time of a cash payment from the associated resource flow. By focusing on resource flows, the new GFS highlights government commitments for future cash flows as well as failures to meet previously scheduled cash flows. The manual includes balance sheets and records economic events other than transactions, such as the effects of exchange rate changes and the occurrence of natural disasters. The inclusion of balance sheets reflects the growing awareness that information on assets and liabilities is necessary for certain aspects of modern fiscal analysis. By including all economic events rather than just transactions with other units, an integrated system that explains all changes in the balance sheet can thus be produced.
Fiscal analysis cannot be conducted in a vacuum. Frequently, fiscal statistics must be combined with statistics related to the rest of the economy. The new GFS is therefore written to work well with the other internationally recognized macroeconomic statistical manuals dealing with the national accounts, balance of payments, and monetary and financial statistics.
Many countries will, of course, require a long transition period to fully convert their fiscal statistics to conform with the new standards. At a minimum, however, countries can convert their statistics classifications according to the new manual. Beginning with the 2002 edition of the Government Finance Statistics Yearbook, the IMF’s database will be converted in accordance with the new classifications.
The GFS manual is available on the IMF website at http://www.imf.org/external/pubs/ft/gfs/manual/index.htm.