Section 3: Institutional Units and Sectors

International Monetary Fund
Published Date:
November 2009
  • ShareShare
Show Summary Details

3.1 Section 3 outlines the concepts of an institutional unit and residence, and explains the allocation of institutional units to sectors and sub-sectors. It expands on matters that are relevant for the presentation of debt securities statistics and considers some borderline cases.

Definition of an institutional unit

3.2 An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities (2008 SNA 4.2). The main attributes of institutional units are described in 2008 SNA 4.2 (a) to (d).

Definition of residence

3.3 The residence of an institutional unit is the economic territory where it has its centre of predominant economic interest (2008 SNA 4.10). The centre of predominant economic interest of an institutional unit is the economic territory where it engages and intends to engage in economic activities and transactions on a significant scale for one year or more (BPM6 4.114). The most commonly used concept of economic territory is the area under the effective economic control of a single government. However, an economic territory may be larger or smaller than this, as in a currency or economic union or a part of a country or of the world (2008 SNA 4.10).

3.4 An institutional unit is a resident of one economic territory only, determined by its centre of predominant economic interest (BPM6 4.113). The connection of an institutional unit to a particular economic territory is determined by aspects such as its physical location and being subject to the jurisdiction of the government of the territory. Corporations are considered to have their centre of predominant economic interest in the economy where they are legally constituted and registered: in some instances, a corporation may have little or no physical presence (BPM6 4.134). Beyond this general definition, certain special cases merit consideration (BPM6 4.131-4.137).

International and regional organisations

3.5 International and regional organisations are not considered residents of the territories in which they are located or they conduct their affairs (BPM6 4.105). International organisations, such as international financial institutions, should be classified as nonresidents in all national statistics. Regional organisations are classified as residents of the economic entity formed by the national economies belonging to the region, which might be a currency union or a political union, but not as residents of any national economy (BPM6 4.142).

Offshore enterprises

3.6 Some countries create separate physical or legal zones that are under their control but to which legal, tax and other regulatory benefits are extended. Offshore banks enjoy low or no taxation and exemptions from regulations normally imposed on onshore institutions, such as reserve requirements or foreign exchange restrictions. These financial corporations mostly serve non-residents or conduct financial intermediation between residents and non-residents (MFS Guide 3.90). Offshore institutional units are residents of the economy where they are incorporated or registered (BPM6 4.8).

Multi-territory enterprises

3.7 Multi-territory enterprises are single enterprises that run seamless operations over more than one economic territory, but for which branches cannot be identified as attributable to a single economic territory (BPM6 4.41). Typical cases are enterprises with cross-border operations such as hydroelectric projects on border rivers, pipelines, bridges, or tunnels that cross borders.

3.8 In the case of multi-territory enterprises, the BPM6 recommends identifying separate institutional units for each economy. However, if this is not feasible because separate accounts cannot be developed, it is then necessary to prorate the total operations of the enterprise into the individual economic territories. Without providing definitive advice, the BPM6 mentions a range of possible prorating factors, including: equity holdings, equal splits, splits based on operational factors such as tonnages or wages and any prorating formula utilised for taxation (BPM6 4.43).

Allocation of institutional units

3.9 International statistical standards group resident institutional units into five mutually exclusive sectors: non-financial corporations; financial corporations; general government; households, and non-profit institutions serving households (NPISH). Non-financial corporations, financial corporations, and general government are further divided. The scope of each sector is outlined below.

Non-financial corporations

3.10 The non-financial corporations sector comprises resident corporations (and nonprofit institutions) whose principal activity is the production of market goods and non-financial services (2008 SNA 4.94). Some non-financial corporations may have secondary financial activities, such as producers or retailers of goods that provide consumer credit directly to their customers. Such corporations are classified as non-financial corporations, provided their main activity is the production of goods and non-financial services (2008 SNA 4.95).

3.11 The non-financial corporations sector can be divided, on the basis of the types of institutional units exercising control over them, into public non-financial corporations, national private non-financial corporations and foreign controlled non-financial corporations (2008 SNA 4.96).

Financial corporations

3.12 The financial corporations sector consists of all resident corporations principally engaged in providing financial services to other institutional units. The production of financial services takes the form of financial intermediation, financial risk management, liquidity transformation, or auxiliary financial activities (2008 SNA 4.98). The financial corporations sector can be divided into nine sub-sectors according to their activity in the market and the type and liquidity of their liabilities.

Central bank

3.13 The central bank is the national financial institution that exercises control over key aspects of the financial system. This sub-sector comprises: the national central bank, including where it is part of a system of central banks; currency boards or |independent currency authorities that issue national currency fully backed by foreign exchange reserves; and central monetary agencies of essentially public origin (for example, agencies managing foreign exchange or issuing banknotes or coins) that keep a complete set of accounts but are not classified as part of central government (2008 SNA 4.104).

3.14 A currency union comprises two or more economies that have a regional central decision making body, normally a currency union central bank (CUCB), with the authority to issue the legal tender of the area and conduct a single monetary policy (BPM6 A3.9). Presently, there are two kinds of currency unions. A centralised currency union model has a CUCB owned by the governments of the member countries, and the central bank operations in each member country are carried out by branches or agencies of the regional central bank. A decentralised currency union model comprises a CUCB and national central banks that own the CUCB and act as the central bank for the countries where they are located.9

3.15 A CUCB is an international or supranational financial institution that acts as a common central bank for member countries of a currency union. The CUCB is an institutional unit in its own right (BPM6 A3.11). If the currency union is structured such that the CUCB has headquarters in one country and national offices in each member country, its headquarters are considered a separate unit resident in the region as a whole and not in any member economy. National offices of CUCB, which act as the central bank for those countries, are treated as a resident of the country where they are located (MFS Guide 3.53).

Deposit-taking corporations except the central bank

3.16 Deposit-taking corporations except the central bank have financial intermediation as their principal activity. They incur liabilities in the form of deposits or financial instruments that are close substitutes for deposits (2008 SNA 4.105).

3.17 In general, this sub-sector comprises commercial banks, universal banks, all-purpose banks, savings banks (including trustee savings banks and savings and loan associations), post office giro institutions, post banks, giro banks, rural credit banks, agricultural credit banks, co-operative credit banks, credit unions, and specialised banks or other financial corporations if they take deposits or issue liabilities included in the national definition of broad money (2008 SNA 4.106).

Money market funds

3.18 Money market funds (MMF) are collective investment schemes that raise funds by issuing shares or units. The proceeds are invested mainly in money market instruments, other MMF shares or units, transferable debt instruments with a residual maturity of not more than one year, bank deposits and instruments that provide a rate of return close to the interest rates of money market instruments. MMF shares or units are often transferable by cheque or other means of direct third-party payment. Because of the nature of the instruments the schemes invest in, their shares or units may be regarded as close substitutes for deposits (2008 SNA 4.107).

Non-MMF investment funds

3.19 Non-MMF investment funds are collective investment schemes that raise funds by issuing shares or units. The proceeds are invested primarily in financial assets, other than short-term assets, or in non-financial assets, such as real estate (or both). Non-MMF investment fund shares or units are generally not close substitutes for deposits (2008 SNA 4.108).

Other financial intermediaries except insurance corporations and pension funds

3.20 Other financial intermediaries except insurance corporations and pension funds consist of financial corporations that are engaged in providing financial services by incurring liabilities in forms other than currency, deposits or close substitutes of deposits, on their own account for the purpose of acquiring financial assets by engaging in financial transactions on the market (2008 SNA 4.109).

3.21 Units classified in this sub-sector include financial corporations that specialise in the securitisation of assets. In Section 4, these institutional units are referred to as securitisation corporations.

3.22 Also classified in the other financial intermediaries sub-sector are: security and derivative dealers (operating on own account); financial corporations engaged in lending (including the separately incorporated finance subsidiaries or associates of retailers) that may undertake financial leasing and personal or commercial finance; central clearing counterparties, and specialised financial corporations as outlined in 2008 SNA 4.110.

Financial auxiliaries

3.23 Financial auxiliaries are financial corporations principally engaged in activities closely related to financial intermediation, but that do not act as intermediaries (2008 SNA 4.111). Units in this sub-sector do not raise funds or extend credit on their own account.

3.24 The most common types of financial auxiliaries are insurance brokers and agents, loan and securities brokers, investment advisers, flotation corporations, corporations that arrange derivative and hedging instruments without issuing them, corporations providing infrastructure for financial markets, managers of pension funds and mutual funds, stock and insurance exchanges, foreign exchange bureaux, nonprofit institutions serving financial corporations, head offices of financial corporations that are principally engaged in controlling financial corporations, and central supervisory authorities of financial intermediaries and financial markets when they are separate institutional units (2008 SNA 4.112).

Captive financial institutions and money lenders

3.25 Captive financial institutions and money lenders consist of institutional units providing financial services, where most of either their assets or liabilities are not transacted on open financial markets (2008 SNA 4.113). The sub-sector includes: trusts; brass plate companies; holding corporations that hold only the assets of a group of subsidiary corporations and whose principal activity is owning the group without any other service to the enterprises in which the equity is held; special purpose entities (SPE) or conduits;10 money lenders, pawnshops, etc. (2008 SNA 4.114).

3.26 Resident captive financial institutions, such as trusts, brass plate companies, holding companies, SPE and conduits, are simply passive holders of assets and liabilities and are always related to another corporation, often as a subsidiary. They are not treated as separate institutional units but as integral parts of the parent corporation, as they cannot act independently of their parent corporation (2008 SNA 4.53 to 4.66). Captive financial institutions set up outside the country where the parent corporation resides are treated as separate units and residents of the economic territory where they are incorporated or registered (BPM6 4.52). SPE set up by general government with characteristics and functions similar to captive financial institutions are also treated as an integral part of general government if they are resident, but as separate institutional units if they are nonresident units.

Insurance corporations

3.27 Insurance corporations consist of incorporated, mutual and other entities, whose principal function is to provide life, accident, sickness, fire or other forms of insurance to individual institutional units or groups of units or reinsurance services to other insurance corporations. Captive insurance, that is, an insurance corporation that serves only its owners, is included in this sub-sector. Also included are deposit insurers, issuers of deposit guarantees and other issuers of standardised guarantees (2008 SNA 4.115).

Pension funds

3.28 Pension funds are set up to provide retirement benefits for specific groups of employees (and self-employed persons). Governments sometimes organise pension schemes for their employees that are independent of the social security system. The pension fund sub-sector consists of only those social insurance pension schemes that are institutional units separate from the units that create them (2008 SNA 4.116). Excluded from this sub-sector are non-autonomous pension schemes managed by employers, government-sponsored pension schemes funded through wage taxes (pay-as-you-go schemes), and arrangements organised by non-government employers, when the reserves of the fund are simply included among the employer’s own reserves or are invested in securities issued by that employer (BPM6 4.90).

General government

3.29 Government units are unique kinds of legal entities established by political processes that exercise legislative, judicial, or executive authority over other institutional units within a given area (2008 SNA 4.117). Within a single territory there may be different levels of government.

3.30 Two methods for delineating the sub-sectors of general government are distinguished. First, the general government sector can be divided into central government, state government, local government and social security funds (2008 SNA 4.129). Alternatively, social security funds may be allocated to other general government sub-sectors (central, state and local) in accordance with the level of government at which they operate (2008 SNA 4.130). The choice between the two methods depends mainly on the size, and importance, of social security funds within a country and on the way they are managed (2008 SNA 4.132).

Central government

3.31 The political authority of central government extends over the entire territory of the country. The central government has the authority to impose taxes on all resident and non-resident units engaged in economic activities within the country. It is responsible for providing collective services for the benefit of the community as a whole, such as national defence, relations with other countries, and law and order, and it also seeks to ensure the efficient operation of the social and economic system of the country. In addition, it may incur expenses on the provision of services primarily for the benefit of individual households, such as education or health, and it may make transfers to other institutional units, including other levels of government (2008 SNA 4.135).

3.32 The central government may include units that engage in financial transactions that in other countries would be performed by central banks or other deposit-taking corporations. When financially integrated into the central government and under its direct control and supervision, these monetary authority functions are recorded as part of the central government sector, rather than in the financial sector (2008 SNA 4.139).

State government

3.33 A state, province, or region is the largest geographical area into which the country as a whole may be divided for political or administrative purposes (2008 SNA 4.141). A state government usually has the fiscal authority to levy taxes on institutional units that are resident in or engage in economic activities in its area of competence. A state government may receive transfers from the central government, but it must be able to appoint its own officers independently of external administrative control and have spending autonomy. If a regional unit is entirely dependent on funds from the central government, and if the central government controls the ways in which those funds are to be spent at the regional level, it should be treated as a central government agency (2008 SNA 4.142).

Local government

3.34 Local government units are institutional units whose fiscal, legislative and executive authority extends over the smallest geographical areas distinguished for administrative and political purposes. The same rules regarding administrative authority, stated above, that determine whether state governments should be considered as a separate institutional unit or a central government agency should also apply to local governments in their relations with the central and state governments (2008 SNA 4.145).

Social security funds

3.35 Social security funds are institutional units that operate social security schemes that cover the community as a whole or large sections of the community and are imposed and controlled by government units. The schemes cover a wide variety of programmes, providing benefits in cash or in kind for old age, invalidity or death, survivors, sickness and maternity, work injury, unemployment, family allowance, health care, etc (2008 SNA 4.124). The social security funds sub-sector consists of the social security funds operating at all levels of government (2008 SNA 4.147).


3.36 A household is a group of persons who share the same living accommodation, pool some or all of their income and wealth, and consume certain types of goods and services collectively, mainly housing and food (2008 SNA 4.149). An unincorporated enterprise can only be treated as a corporation if it is possible to separate all assets into those that belong to the household in its capacity as a consumer from those belonging to the household in its capacity as a producer (2008 SNA 4.157).

Non-profit institutions serving households

3.37 Non-profit institutions serving households (NPISH) provide goods and services to households free of charge or at prices that are not economically significant.11 NPISH consist mainly of associations such as: trade unions; professional or learned societies; consumers’ associations; political parties (except in single-party states where the political party is included in general government); churches and religious societies (including those financed by government); social, cultural and recreational sports clubs; and organisations that provide goods and services for philanthropic purposes rather than for the units that control them (2008 SNA 4.166 and 4.167).

Special issues

Public-private partnerships

3.38 Public-private partnerships (PPP) are arrangements used by governments in partnership with the private sector to finance the construction and operation of fixed assets (roads, bridges, tunnels, etc.). PPP can take numerous forms and names, such as private finance initiatives (PFI), build-operate-transfer (BOT) schemes, build-own-operate-transfer (BOOT) schemes, etc.12 For example, under a BOT scheme, a private corporation finances, designs, constructs, and operates a facility for a specified period of time. After the end of the contract, ownership of the asset is transferred to the government (2008 SNA 22.157 to 22.166).

3.39 Because of the complex sharing arrangements for the risks and returns of the assets that may be stipulated in the contracts, the economic owner of the fixed assets is often unclear and a question may arise as to whether the PPP is a private corporation or a general government unit. Of relevance to the question of sectoral allocation (general government or private corporation) of securities issued by a PPP, is the nature of the economic relationship between the government and private corporation, which should be carefully analysed, going beyond the legal arrangements. Although it is not possible to prescribe a uniform treatment for the sectoral allocation of all PPP, important factors to be considered are who bears most of the construction, availability, demand and obsolescence risks, and the degree of government control over the project design and over the services provided (2008 SNA 22.159).

Public sector

3.40 The public sector11 consists of all institutional units of the general government sector plus all public corporations. Public corporations comprise public non-financial corporations, public financial corporations other than the central bank, and the central bank (2008 SNA 22.41).

3.41 To be classified as a public corporation, an institutional unit must be controlled by a government unit, another public corporation, or some combination of them, and sell most of its output at economically significant prices (2008 SNA 22.27). The government may secure control over a corporation by owning more than half of the voting equity securities or otherwise controlling more than half of the equity holders’ voting power; or through special legislation empowering the government to determine corporate policy or to appoint the directors (2008 SNA 4.80).

    Other Resources Citing This Publication