Back Matter

Back Matter

Marcello Caiola
Published Date:
August 1995
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    Appendix I Estimates of Financial Variables

    This appendix describes rules of thumb for estimating accounts of the banking system as a whole on the basis of central bank data. Basically, the purpose of the exercise is to use a limited set of information to estimate missing financial statistics.

    Description of the Methodology

    The methodology assumes that, over short periods such as two to three months and in the absence of exceptional factors, certain basic relationships and trends do not show substantial variations. For example, seasonal fluctuations of currency issue recur every year. Thus, if in normal circumstances currency issue declines sharply during the first quarter of the year and rises strongly during the last quarter, these seasonal trends could also be expected to take place during the period to be estimated. Also, the relationship between currency in circulation and total bank liabilities to the private sector may be forecast on the basis of previous years’ experience and more recent trends.

    However, it must be stressed that this technique should be used only for countries with a “normal” situation, and it should be supplemented by additional information available to the desk economist (see “Comments on Outcome” below). This technique would be of little assistance in the case of countries with rapid inflation and/or financial turmoil, because historical trends and relationships would be of limited validity.

    Central bank accounts are available with a minimum of delay, usually two to three months before data for the banking system as a whole. Nevertheless, total banking system accounts may be estimated on the basis of central bank accounts, unless additional information indicates the existence of drastic changes. Table I-1 provides a comparison of estimates of banking system accounts for August, September, and October 1992. The remaining tables present an estimate of Chile’s total banking system accounts at the end of August, September, and October 1992. Data are derived from the Boletín Mensual of the Central Bank of Chile. For purposes of this exercise, banking system accounts are divided into central bank accounts (for which data are available) and accounts of the rest of the banking system (for which estimates must be made). Also, monetary accounts are estimated in an aggregate fashion to minimize errors involved in estimating each individual account (Table I-2).

    Two methods are used: Under Alternative A, estimates are based on three-month moving averages (Table I-3); whereas under Alternative B, estimates are based on monthly data (Table I-4). Alternative A smooths out sudden monthly fluctuations through averaging, but it does not fully capture recent upward or downward trends. The reverse applies to Alternative B.

    Estimates for August 1992

    The following paragraphs describe how the estimates for the month of August 1992 were prepared (Tables I-3 and I-4). A similar methodology was followed to estimate 1992 data (at end-September and end-October) on the assumption that the desk economist had central bank data for these periods, and 1992 data (at end-July and end-August) for the rest of the banking system and for the banking system as a whole. (See Tables I-5 through I-8 for detailed calculations.)

    It was assumed that the staff had access to the central bank accounts up to the end of August 1992 and to the accounts for the rest of the banking system (as well as for the banking system as a whole) up to the end of June 1992. The 1992 accounts for end-of-August for the rest of the banking system and for the banking system as a whole were estimated as follows using the two alternatives mentioned above.

    • Net international reserves. On the basis of past data, the rest of the banking system is assumed to hold no net international reserves.

    • Other net foreign assets. The 12-month change in nominal terms April-June 1991 to April-June 1992 in the case of Alternative A; and the change from June 1991 to June 1992 in the case of Alternative B1—were applied to the stock at the end of August 1991. In the absence of more detailed information or in the event of recent wide fluctuations, another alternative would be to assume that net foreign assets of the rest of the banking system had remained unchanged since the last known observation in June 1992.

    • Credit to the public sector, net. The 12-month change in nominal terms was applied to the stock at the end of August 1991.

    • Credit to the private sector. The 12-month percentage change was applied to the stock at the end of August 1991.

    • Official capital and reserves. The 12-month change in nominal terms was applied to the stock at the end of August 1991.

    • Unclassified assets, net. Residual entry.

    • Liabilities to the private sector. This item may be estimated either on the basis of the ratio of currency in circulation to total bank liabilities to the private sector or on the basis of 12-month percentage changes. The ratio of currency to total liabilities may need to be adjusted for seasonal fluctuations (which would appear to be relevant in Table I-1) as well as for trends during the last 12 months, for example, if the ratio has been rising or declining steadily; and

    • Net system float. This item is very difficult to estimate. In the absence of timing differences, the intersystem float would be nil; however, in practice, claims and liabilities among banks would never match. In making an estimate, it is assumed that the stock of the intersystem float is nil, but this could result in large changes in the previous observation, as well as in the net unclassified assets, which are estimated as a residual. A more preferable alternative would be to assume that the outstanding interfloat at the end of August 1992 was the same as the average outstanding interfloat in April-June 1992 for Alternative A, and the same as at the end of June 1992 for Alternative B.

    Comments on Outcome

    To emphasize some of the shortcomings of the suggested methodology, the estimates in the example were based exclusively on numerical relationships, whereas in normal circumstances, the desk economist would have access to additional information such as policy decisions on use of monetary policy instruments, trends in foreign borrowing by banks, and information on public sector borrowing requirements. Also, the estimates in this appendix make no allowance for exchange rate fluctuations, even though several bank accounts (net foreign assets, credits and liabilities to the private sector) included components denominated in foreign currency.

    Notwithstanding these shortcomings, estimates based on the methodology described above do not differ substantially from actual data, except in the case of net foreign assets (commercial banks appear to have intensified their foreign borrowing in 1992) and liabilities to the private sector at the end of September 1992. In the example, estimates on the basis of Alternative B appear to be slightly better than those based on Alternative A; in particular, for net foreign assets Alternative B would capture the rising foreign borrowing of the commercial banks.

    Table I-1.Comparison of Estimates: Banking System Accounts, 1992(In billions of Chilean Pesos)
    Stocks at End of
    Net foreign assets
    Alternative A2,0272,0772,104
    Alternative B1,9181,9602,015
    Credit to public sector, net
    Alternative A2,2332,1982,300
    Alternative B2,2292,1972,311
    Credit to private sector
    Alternative A5,6905,9056,125
    Alternative B5,7495,9576,164
    Liabilities to private sector
    Alternative A:
    On basis of currency in circulation5,9316,1346,894
    On basis of percent changes6,6427,1796,762
    Alternative B:
    On basis of currency in circulation6,2506,2297,158
    On basis of percent changes6,6167,2346,740
    Sources: Tables I.2 through I.8.
    Table I-2.Chile: Monetary Accounts1(In billions of Chilean Pesos)
    Banking System
    Net foreign assets5927097097928298638991,2671,4061,5471,8241,7221,7841,860
    Net international reserves2,0252,0992,0522,0562,1582,1982,2712,6952,9173,1393,4523,4763,6253,805
    Other net foreign assets−1,433−1,390−1,343−1,264−1,329−1,335−1,372−1,428−1,511−1,592−1,628−1,754−1,841−1,945
    Domestic credit4,4644,6564,5554,6464,9755,3955,2115,8205,7175,5465,5585,7815,7526,140
    Public sector, net1,9542,0102,0862,1592,1982,3142,4212,2252,2442,2052,2652,2502,1842,281
    Private sector3,9784,0264,0684,1584,3084,4344,5595,2145,3015,4295,5865,8255,9716,182
    Capital and reserves−1,598−1,628−1,608−1,638−1,653−1,671−1,687−1,454−1,628−1,631−1,635−1,623−1,664−1,795
    Unclassified assets, net1302489−33122318−82−165−200−457−658−671−739−528
    Liabilities to private sector4,5574,9114,8414,9535,0705,5305,1846,1356,2946,3176,4796,5926,6746,883
    Other liabilities4,2634,6154,5394,6794,7695,2394,8695,7315,8965,9406,0906,2196,3006,478
    Intersystem float−499−454−423−485−734−728−926−952−829−776−903−911−862−1,117
    Interbank float, net−410−359−300−334−572−561−718−730−560−545−686−642−446−753
    Other financial institutions−137−152−137−111−111−123−143−147−213−126−144−171−290−283
    Banks interfloat, net485714−40−51−44−65−75−56−105−73−98−126−81
    Central Bank
    Net foreign assets1,2961,3561,3191,3071,3991,4241,4931,9232,1292,3352,6412,6662,8232,983
    Net international reserves2,0252,0992,0522,0562,1582,1982,2712,6952,9173,1393,4523,4763,6253,805
    Other net foreign assets−729−743−733−749−759−774−778−772−788−804−811−810−802−822
    Domestic credit2442003173173753714505624352973452−84−134
    Public sector, net2,0792,0732,1562,2092,2652,3812,4652,4342,3582,3482,3782,3692,3272,407
    Private sector−245−249−255−254−260−261−261−266−270−269−270−274−268−271
    Capital and reserves−541−553−533−546−552−577−579−374−536−562−559−518−535−634
    Unclassified assets, net−1,049−1,071−1,051−1,092−1,078−1,172−1,175−1,232−1,117−1,220−1,515−1,525−1,608−1,636
    Liabilities to private sector346347357333357336366488486459475467497571
    Other liabilities525155595645518488828694123166
    Intersystem float−1,194−1,209−1,279−1,291−1,417−1,459−1,577−1,997−2,078−2,173−2,200−2,251−2,242−2,278
    Interbank float, net−1,225−1,219−1,333−1,341−1,456−1,516−1,606−2,029−2,126−2,227−2,255−2,306−2,172−2,319
    Other financial institutions311054503957293248545555−7041
    Banks interfloat, net
    Other Banks
    Net foreign assets−704−647−610−515−570−561−594−656−723−788−817−944−1,039−1,123
    Net international reserves
    Other net foreign assets−704−647−610−515−570−561−594−656−723−788−817−944−1,039−1,123
    Domestic credit4,2204,4564,2384,3294,6005,0244,7615,2585,2825,2495,5245,7295,8366,274
    Public sector, net−125−63−70−50−67−67−44−209−114−143−113−119−143−126
    Private sector4,2234,2754,3234,4124,5684,6954,8205,4805,5715,6985,8566,0996,2396,453
    Capital and reserves−1,057−1,075−1,075−1,092−1,101−1,094−1,108−1,080−1,092−1,069−1,076−1,105−1,129−1,161
    Unclassified assets, net1,1791,3191,0601,0591,2001,4901,0931,0679177638578548691,108
    Liabilities to private sector4,2114,5644,4844,6204,7135,1944,8185,6475,8085,8586,0046,1256,1776,312
    Other liabilities4,2114,5644,4844,6204,7135,1944,8185,6475,8085,8586,0046,1256,1776,312
    Intersystem float6957558568066837316511,0451,2491,3971,2971,3401,3801,161
    Interbank float, net8158601,0331,0078849558881,2991,5661,6821,5691,6641,7261,566
    Other financial institutions−168−162−191−161−150−180−172−179−261−180−199−226−220−324
    Banks interfloat, net485714−40−51−44−65−75−56−105−73−98−126−81
    Source: Chile, Central Bank of Chile, Boletln Mensual, various issues.
    Table I-3.Chile: Monetary Accounts: Estimated End-August 1992 (Alternative A) End-of-Period Stocks(In billions of Chilean Pesos)
    1991 Average Apr.–June1991 August1992 Average Apr.–JuneChange Average Apr.–JuneAugust 1992
    Banking System
    Net foreign assets6708291,4077372,0271,722−305
    Net international reserves2,0592,1582,9178583,4763,476
    Other net foreign assets−1,389−1,329−1,510−122−1,4491−1,754−305
    Domestic credit4,5584,9755,6941,1364,7555,7811,026
    Public sector, net2,0172,1982,2252082,23312,25017
    Private sector4,0244,3085,3151,2915,69025,825135
    Capital and reserves−1,611−1,653−1,57140−1,6301−1,6237
    Unclassified assets, net129122−274−403−1,537−671866
    Liabilities to private sector4,7705,0706,2491,4795,93136,592661
    Other liabilities4,4724,7695,8561,3835,5586,219661
    Intersystem float−459−734−852−394−8524−911−59
    Interbank float, net−356−572−612−255−612−642−30
    Other financial institutions−142−111−162−20−162−171−9
    Banks interfloat, net40−51−79−118−79−98−19
    Central Bank
    Net foreign assets1,3241,3992,1298052,6662,666
    Net international reserves2,0592,1582,9178583,4763,476
    Other net foreign assets−735−759−788−53−810−810
    Domestic credit2543754311785252
    Public sector, net2,1032,2652,3802772,3692,369
    Private sector−250−260−268−19−274−274
    Capital and reserves−542−552−49152−518−518
    Unclassified assets, net−1,057−1,078−1,190−133−1,525−1,525
    Liabilities to private sector350357478128467467
    Other liabilities535685329494
    Intersystem float−1,227−1,417−2,083−855−2,251−2,251
    Interbank float, net−1,259−1,456−2,127−868−2,306−2,306
    Other financial institutions323945135555
    Banks interfloat, net
    Other Banks
    Net foreign assets−654−570−722−69−639−944−305
    Net international reserves
    Other net foreign assets−654−570−722−69−6391−944−305
    Domestic credit4,3054,6005,2639584,7035,7291,026
    Public sector, net−86−67−155−69−1361−11917
    Private sector4,2744,5685,5831,3095,96436,099135
    Capital and reserves−1,069−1,101−1,080−11−1,1121−1,1057
    Unclassified assets, net1,1861,200916−270−124854866
    Liabilities to private sector4,4204,7135,7711,3515,4646,125661
    Other liabilities4,4204,7135,7711,3515,46436,125661
    Intersystem float7696831,2304621,39931,340−59
    Interbank float, net9038841,5166131,6941,664−30
    Other financial institutions−174−150−207−33−217−226−9
    Banks interfloat, net40−51−79−118−79−98−19
    Liabilities to private sector:
    Central bank/total7.347.047.647.877.08
    12-month percent change31.0116.9830.02
    Credit to private sector
    12-month percent change32.0732.0735.21
    Liabilities to private sector on basis of 12-month percent changes6,6426,592−50
    Of which other banks6,1756,125−50
    Table I-4.Chile: Monetary Accounts: Estimated End-August 1992 (Alternative B) End-of-Period Stocks(In billions of Chilean Pesos)
    1991 June1991 August1992 JuneChange June-JuneAugust 1992
    Banking System
    Net foreign assets7098291,5478381,9181,722−196
    Net international reserves2,0522,1583,1391,0873,4763,476
    Other net foreign assets−1,343−1,329−1,592−249−1,5581−1,754−196
    Domestic credit4,5554,9755,5469915,1085,781673
    Public sector, net2,0862,1982,2051192,22912,25021
    Private sector4,0684,3085,4291,3615,74925,82576
    Capital and reserves−1,608−1,653−1,631−23−1,6131−1,623−10
    Unclassified assets, net9122−457−466−1,257−671586
    Liabilities to private sector4,8415,0706,3171,4766,25036,592342
    Other liabilities4,5394,7695,9401,4015,8776,219342
    Intersystem float−423−734−776−353−7764−911−135
    Interbank float, net−300−572−545−245−545−642−97
    Other financial institutions−137−111−12611−126−171−45
    Banks interfloat, net14−51−105−119−105−987
    Central Bank
    Net foreign assets1,3191,3992,3351,0162,6662,666
    Net international reserves2,0522,1583,1391,0873,4763,476
    Other net foreign assets−733−759−804−71−810−810
    Domestic credit317375297−205252
    Public sector, net2,1562,2652,3481922,3692,369
    Private sector−255−260−269−14−274−274
    Capital and reserves−533−552−562−29−518−518
    Unclassified assets, net−1,051−1,078−1,220−169−1,525−1,525
    Liabilities to private sector357357459102467467
    Other liabilities555682279494
    Intersystem float−1,279−1,417−2,173−894−2,251−2,251
    Interbank float, net−1,333−1,456−2,227−894−2,306−2,306
    Other financial institutions5439545555
    Banks interfloat, net
    Other Banks
    Net foreign assets−610−570−788−178−748−944−196
    Net international reserves
    Other net foreign assets−610−570−788−178−7481−944−196
    Domestic credit4,2384,6005,2491,0115,0565,729673
    Public sector, net−70−67−143−73−1401−11921
    Private sector4,3234,5685,6981,3756,02336,09976
    Capital and reserves−1,075−1,101−1,0696−1,0951−1,105−10
    Unclassified assets, net1,0601,200763−2972684854586
    Liabilities to private sector4,4844,7135,8581,3745,7836,125342
    Other liabilities4,4844,7135,8581,3745,78336,125342
    Intersystem float8566831,3975411,47531,340−135
    Interbank float, net1,0338841,6826491,7611,664−97
    Other financial institutions−191−150−18011−181−226−45
    Banks interfloat, net14−51−105−119−105−987
    Liabilities to private sector:
    Central bank/total7.377.047.277.477.08
    12-month percentage change3.4923.2730.02
    Credit to private sector
    12-month percent change33.4633.4635.21
    Liabilities to private sector on basis of 12-month percent change6,6166,592−24
    Of which other banks6,1496,125−24
    Table I-5.Chile: Monetary Accounts: Estimated End-September 1992 (Alternative A) End-of-Period Stocks(In billions of Chilean Pesos)
    1991 Average May–July1991 September1992 Average May–JulyChange Average May–JulySeptember 1992
    Banking System
    Net foreign assets7378631,5928562,0771,784−293
    Net international reserves2,0692,1983,1691,1003,6253,625
    Other net foreign assets−1,332−1,335−1,577−245−1,5481−1,841−293
    Domestic credit4,6195,3955,6079884,8935,752859
    Public sector, net2,0852,3142,2381532,19812,184−14
    Private sector4,0844,4345,4391,3555,90525,97166
    Capital and reserves−1,625−1,671−1,631−7−1,6271−1,664−37
    Unclassified assets, net75318−438−513−1,582−739843
    Liabilities to private sector4,9025,5306,3631,4626,13436,674540
    Other liabilities4,6115,2395,9751,3645,7606,300540
    Intersystem float−454−728−836−382−8364−862−26
    Interbank float, net−331−561−597−266−597−446151
    Other financial institutions−133−123−161−28−161−290−129
    Banks interfloat, net10−44−78−88−78−126−48
    Central Bank
    Net foreign assets1,3271,4242,3681,0412,8232,823
    Net international reserves2,0692,1983,1691,1003,6253,625
    Other net foreign assets−742−774−801−59−802−802
    Domestic credit278371255−23−84−84
    Public sector, net2,1462,3812,3612,2152,3272,327
    Private sector−253−261−270−17−268−268
    Capital and reserves−544−577−552−8−535−535
    Unclassified assets, net−1,071−1,172−1,284−213−1,608−1,608
    Liabilities to private sector346336473128497497
    Other liabilities55458530123123
    Intersystem float−1,260−1,459−2,150−891−2,242−2,242
    Interbank float, net−1,298−1,516−2,203−905−2,172−2,172
    Other financial institutions38575214−70−70
    Banks interfloat, net
    Other Banks
    Net foreign assets−591−561−776−185−746−1,039−293
    Net international reserves
    Other net foreign assets−591−561−776−185−7461−1,039−293
    Domestic credit4,3415,0245,3551,0114,9775,836859
    Public sector, net−61−67−123−62−1291−143−14
    Private sector4,3374,6955,7081,3726,17336,23966
    Capital and reserves−1,081−1,094−1,0792−1,0921−1,129−37
    Unclassified assets, net1,1461,490846−300264869843
    Liabilities to private sector4,5565,1945,8901,3345,6376,177540
    Other liabilities4,5565,1945,8901,3345,63736,177540
    Intersystem float8067311,3145091,40631,380−26
    Interbank float, net9679551,6066391,5751,726151
    Other financial institutions−171−180−213−42−91−220−129
    Banks interfloat, net10−44−78−88−78−126−48
    Liabilities to private sector:
    Central bank/total7.056.087.448.107.45
    12-month percent change29.8210.9220.69
    Credit to private sector
    12-month percent change33.1733.1734.66
    Liabilities to private sector on basis of 12-month percent change7,1796,674−505
    Of which other banks6,6826,177−505
    Table I-6.Chile: Monetary Accounts: Estimated End-September 1992 (Alternative B) End-of-Period Stocks(In billions of Chilean Pesos)
    1991 July1991 September1992 JulyChange July-JulySeptember 1992
    Banking System
    Net foreign assets7928631,8241,0321,9601,784−176
    Net international reserves2,0562,1983,4521,3963,6253,625
    Other net foreign assets−1,264−1,335−1,628−364−1,6651−1,841−176
    Domestic credit4,6465,3955,5589125,1725,752580
    Public sector, net2,1592,3142,2651062,19712,184−13
    Private sector4,1584,4345,5861,4285,95725,97114
    Capital and reserves−1,638−1,671−1,6353−1,6131−1,664−51
    Unclassified assets, net−33318−658−625−1,369−739630
    Liabilities to private sector4,9535,5306,4791,5266,22936,674445
    Other liabilities4,6795,2396,0901,4115,8556,300445
    Intersystem float−485−728−903−418−9034−86241
    Interbank float, net−334−561−686−352−686−446240
    Other financial institutions−111−123−144−33−144−290−146
    Banks interfloat, net−40−44−73−33−73−126−53
    Central Bank
    Net foreign assets1,3071,4242,6411,3342,8232,823
    Net international reserves2,0562,1983,4521,3963,6253,625
    Other net foreign assets−749−774−811−62−802−802
    Domestic credit31737134−283−84−84
    Public sector, net2,2092,3812,3781692,3272,327
    Private sector−254−261−270−16−268−268
    Capital and reserves−546−577−559−13−535−535
    Unclassified assets, net−1,092−1,172−1,515−423−1,608−1,608
    Liabilities to private sector333336475142497497
    Other liabilities59458627123123
    Intersystem float−1,291−1,459−2,200−909−2,242−2,242
    Interbank float, net−1,341−1,516−2,255−914−2,172−2,172
    Other financial institutions5057555−70−70
    Banks interfloat, net
    Other Banks
    Net foreign assets−515−561−817−302−863−1,039−176
    Net international reserves
    Other net foreign assets−515−561−817−302−8631−1,039−176
    Domestic credit4,3295,0245,5241,1955,2565,836580
    Public sector, net−50−67−113−63−1301−143−13
    Private sector4,4124,6955,8561,4446,22536,23914
    Capital and reserves−1,092−1,094−1,07616−1,0781−1,129−51
    Unclassified assets, net1,0591,490857−2022394869630
    Liabilities to private sector4,6205,1946,0041,3845,7326,177445
    Other liabilities4,6205,1946,0041,3845,73236,177445
    Intersystem float8067311,2974911,33931,38041
    Interbank float, net1,0079551,5695621,4861,726240
    Other financial institutions−161−180−199−38−74−220−146
    Banks interfloat, net−40−44−73−33−73−126−53
    Liabilities to private sector:
    Central bank/total6.726.087.337.987.45
    12-month percent change30.8112.6420.69
    Credit to private sector 12-month percent change34.3434.3434.66
    Liabilities to private sector on basis of 12-month percent change7,2346,674−560
    Of which other banks6,7376,177−560
    Table I-7.Chile: Monetary Accounts: Estimated End-October 1992 (Alternative A) End-of-Period Stocks(In billions of Chilean Pesos)
    1991 Average June-Aug.1991 October1992 Average June–Aug.Change Average June–Aug.October 1992
    Banking System
    Net foreign assets7778991,6989212,1041,860−244
    Net international reserves2,0892,2713,3561,2673,8053,805
    Other net foreign assets−1,312−1,372−1,658−346−1,7011−1,945−244
    Domestic credit4,7255,2115,6289035,6536,140487
    Public sector, net2,1482,4212,240922,30012,281−19
    Private sector4,1784,5595,6131,4356,12526,18257
    Capital and reserves−1,633−1,687−1,6303−1,7361−1,795−59
    Unclassified assets, net33−82−595−628−1,037−528509
    Liabilities to private sector4,9555,1846,4631,5086,89436,883−11
    Other liabilities4,6624,8696,0831,4216,4896,478−11
    Intersystem float−547−926−863−316−8634−1,117−254
    Interbank float, net−402−718−624−222−624−753−129
    Other financial institutions−120−143−147−27−147−283−136
    Banks interfloat, net−26−65−92−66−92−8111
    Central Bank
    Net foreign assets1,3421,4932,5471,2062,9832,983
    Net international reserves2,0892,2713,3561,2673,8053,805
    Other net foreign assets−747−778−808−61−822−822
    Domestic credit336450128−209−134−134_
    Public sector, net2,2102,4652,3651552,4072,407
    Private sector−256−261−271−15−271−271
    Capital and reserves−544−579−546−3−634−634
    Unclassified assets, net−1,074−1,175−1,420−346−1,636−1,636
    Liabilities to private sector349366467118571571
    Other liabilities57518731166166
    Intersystem float−1,329−1,577−2,208−879−2,278−2,278
    Interbank float, net−1,377−1,606−2,263−886−2,319−2,319
    Other financial institutions48295514141
    Banks interfloat, net
    Other Banks
    Net foreign assets−565−594−850−285−879−1,123−244
    Net international reserves
    Other net foreign assets−565−594−850−285−8791−1,123−244
    Domestic credit4,3894,7615,5011,1125,7876,274487
    Public sector, net−62−44−125−63−1071−126−19
    Private sector4,4344,8205,8841,4506,39636,45357
    Capital and reserves−1,089−1,108−1,0836−1,1021−1,161−59
    Unclassified assets, net1,1061,093825−28259941,108509
    Liabilities to private sector4,6064,8185,9961,3906,3236,312−11
    Other liabilities4,6064,8185,9961,3906,32336,312−11
    Intersystem float7826511,3455631,41531,161−254
    Interbank float, net9758881,6386641,6951,566−129
    Other financial institutions−167−172−202−34−188−324−136
    Banks interfloat, net−26−65−92−66−92−8111
    Liabilities to private sector:
    Central bank/total7.
    12-month percent change30.4432.9832.77
    Credit to private sector
    12-month percent change34.3534.3535.60
    Liabilities to private sector on basis of 12-month percent change6,7626,883121
    Of which other banks6,1916,312121
    Table I-8.Chile: Monetary Accounts: Estimated End-October 1992 (Alternative B) End-of-Period Stocks(In billions of Chilean Pesos)
    1991 August1991 October1992 AugustChange August-AugustOctober 1992
    Banking System
    Net foreign assets8298991,7228932,0151,860−155
    Net international reserves2,1582,2713,4761,3183,8053,805
    Other net foreign assets−1,329−1,372−1,754−425−1,7901−1,945−155
    Domestic credit4,9755,2115,7818066,0546,14086
    Public sector, net2,1982,4212,250522,31112,281−30
    Private sector4,3084,5595,8251,5176,16426,18218
    Capital and reserves−1,653−1,687−1,62330−1,7461−1,795−49
    Unclassified assets, net122−82−671−793−676−528148
    Liabilities to private sector5,0705,1846,5921,5227,15836,883−275
    Other liabilities4,7694,8696,2191,4506,7536,478−275
    Intersystem float−734−926−911−177−9114−1,117−206
    Interbank float, net−572−718−642−70−642−753−111
    Other financial institutions−111−143−171−60−171−283−112
    Banks interfloat, net−51−65−98−47−98−8117
    Central Bank
    Net foreign assets1,3991,4932,6661,2672,9832,983
    Net international reserves2,1582,2713,4761,3183,8053,805
    Other net foreign assets−759−778−810−51−822−822
    Domestic credit37545052−323−134−134
    Public sector, net2,2652,4652,3691042,4072,407
    Private sector−260−261−274−14−271−271
    Capital and reserves−552−579−51834−634−634
    Unclassified assets, net−1,078−1,175−1,525−447−1,636−1,636
    Liabilities to private sector357366467110571571
    Other liabilities56519438166166
    Intersystem float−1,417−1,577−2,251−834−2,278−2,278
    Interbank float, net−1,456−1,606−2,306−850−2,319−2,319
    Other financial institutions392955164141
    Banks interfloat, net
    Other Banks
    Net foreign assets−570−594−944−374−968−1,123−155
    Net international reserves
    Other net foreign assets−570−594−944−374−9681−1,123−155
    Domestic credit4,6004,7615,7291,1296,1886,27486
    Public sector, net−67−44−119−52−961−126−30
    Private sector4,5684,8206,0991,5316,43536,45318
    Capital and reserves−1,101−1,108−1,105−4−1,1121−1,161−49
    Unclassified assets, net1,2001,093854−34696041,108148
    Liabilities to private sector4,7134,8186,1251,4126,5876,312−275
    Other liabilities4,7134,8186,1251,4126,58736,312−275
    Intersystem float6836511,3406571,36731,161−206
    Interbank float, net8848881,6647801,6771,566−111
    Other financial institutions−150−172−226−76−212−324−112
    Banks interfloat, net−51−65−98−47−98−8117
    Liabilities to private sector:
    Central bank/total7.
    12-month percent change30.0238.0732.77
    Credit to private sector
    12-month percent change35.2135.2135.60
    Liabilities to private sector on basis of 12-month percent change6,7406,883143
    Of which other banks6,1696,312143

    These base periods were used to estimate all other accounts.

    Appendix II Flow of Funds

    This section covers a simplified flow of funds exercise. Tables II-1 to II-5 provide matrices and cross checks used in the preparation of a flow of funds table. Tables II-6 to II-13 are examples of a flow of funds exercise for El Salvador. Tables II-14 to II-20 present two simulations in the preparation of flow of funds data.

    Table II-1.Interrelation of Accounts (Matrix)
    Reference TablesBalance of Payments Total1Nonfinancial Public Sector Trade2Private SectorFinancial System3
    Taxes paid by/to rest of public sector110–210
    Transfers from/to rest of public sector120–220
    Other internal current transfers141–271271–1412
    External current transfers170130–250X
    Service payments abroad, net150–160230X
    Interest payments abroad, net130–140240XX
    Domestic interest payments, net272XX
    Other incomeX142X240–2534
    Capital receiptsXXXX
    Transfers from/to public sector120–220
    External transfers170130–150X
    Other internal transfers141–271271–1412
    Capitalization of financial institutions260251
    Domestic investment (including changes in inventories)X274X252
    Resource gapXXXX
    Internal financingXXX
    Credit to public sector, net510210
    Credit to private sectorX220
    Liabilities to private sectorX400
    Net sales of bonds
    Public sector[521]5
    Private sector522X
    External financingXXXX
    Public sector210400
    Private sector230X
    Financial system
    Net international reserves300100
    X = An amount (including zero) would be recorded in lieu of this symbol.— = Zero by definition.
    Table II-2.Non-Financial Public Sector Operations (Cross Check)
    CodeCross Reference
    110Taxes paid by rest of public sectorII–2–210
    120Transfers from rest of public sectorII–2–220
    130Transfers from abroadII–4–171
    140Other revenues
    141Internal transfers
    142Other revenues
    210Taxes paid to rest of public sectorII–2–110
    220Transfers to rest of public sectorII–2–120
    230Service payments abroadII–4–150
    240Interest payments abroadII–4–131
    250Transfers abroadII–4–171
    260Transfers to financial institutions (capitalization)II–3–251
    270Other expenditures
    271Internal transfers
    272Domestic interest payments
    273Other current expenditures
    274Domestic investment
    400External financing
    410Net use of foreign loansII–4–211
    420Other (export credits, foreign assets)II–4–212
    500Internal financing
    510Net bank creditII–3–210
    520Net sales of bonds (excluding 510)
    521[Public sector]1
    522Private sector
    Table II-3.Operations of the Financial System (Cross Check)
    CodeCross Reference
    100Net foreign assets
    110Monetary authoritiesII-4-300
    120Other net foreign assetsII-4-221
    200Net domestic credit
    210Credit to public sector, netII-2-510
    220Credit to private sector
    230International agenciesII-4-222
    240Interbank float (credit less deposits)
    250Unclassified assets
    251Transfers for capitalizationII-2-260
    252Fixed capital formation
    300Other external transactions
    310Allocation of SDRsII-4-223
    320Valuation adjustments (gold)II-4-224
    330Counterpart fundsII-4-225
    340Medium- and long-term foreign loansII-4-226
    400Liabilities to private sector
    Table II-4.Balance of Payments (Cross Check)
    CodeCross Reference
    100Goods, services, and transfers
    111Public sectorPart of II-2-140
    112Other exports
    121Public sectorPart of II-2-270
    122Other imports
    130Interest, net
    131Public sectorII-2-240
    132BanksPart of II-3-253
    140Other investment income
    150Government services, netII-2-230
    160Other services, net
    171Public sector, netII-2-130 and 250
    172Private sector, net
    200Capital movements
    210Public sector
    211Net use of loansII-2-410
    220Banks, n.i.e.
    221Other foreign assetsII-3-120
    222International agenciesII-3-230
    223Allocation of SDRsII-3-310
    224Valuation adjustment (gold)II-3-320
    225Counterpart fundsII-3-330
    226Medium- and long-term foreign loansII-3-340
    230Private sector
    300Net foreign assets of monetary authoritiesII-3-110
    Table II-5.Bridging Accounts (Matrix)
    Public SectorFinancial SystemPrivate SectorExternal Sector
    I.Public sector statistics1
    • Intrasectorial payment of taxes (110 and 210)

    • Intrasectorial transfers (120 and 220)

    • Net sales of bonds (521)

    • Transfers for capitalization (260)

    • Net bank credit (510)

    • Other revenues (140)

    • Other expenditures (270)

    • Net sales of bonds (522)

    • Other internal financing (530)

    • Transfers from/to abroad (130, 250)

    • Service payments (230)

    • Interest payments (240)

    • Net use of foreign loans (410)

    • Other external financing (420)

    II.Financial system2
    • Net credit to public sector (210)

    • Transfers for capitalization (251)

    • Interbank float (240)

    • Fixed capital formation (252)

    • Other unclassified assets (253)

    • Credit to private sector (220)

    • Liabilities to private sector (400)

    • Net foreign assets (100)

    • International agencies (230)

    • Other external transactions (300)

    III.Balance of payments3
    • Public sector exports (111)

    • Public sector imports (121)

    • Public sector interest payments (131)

    • Government service, net (150)

    • Public sector tranfers, net (171)

    • Public sector capital movements, net (210)

    • Bank interest payments (132)

    • Banks’ capital movements, n.i.e. (220)

    • Monetary authorities, net foreign assets (300)

    • Other exports (112)

    • Other imports (122)

    • Other interest payments (133)

    • Other investment income, net (140)

    • Other services, net (160)

    • Private transfers, net (172)

    • Private sector capital movements, net (230)

    IV.National accounts
    • Public consumption

    • Public investment (including changes in inventories)

    • Banks’ fixed capital formation

    • Private consumption

    • Private investment (including changes in inventories)

    • Exports of goods and nonfactor services

    • Imports of goods and nonfactor services

    V.Resource gap financing
    • Current account surplus

    • Net capital receipts

    • Net transfers

    • Domestic investment

    • Resource gap

    • Internal financing

      • Bank credit (210)2

      • Other (522 and 530)1

    • External financing (210)3

    • Unclassified assets (240, 253)2

    • Transfers for capitalization (251)2

    • Domestic investment (252)2

    • Resource gap

    • Internal financing

      • Credit to public sector (210)2

      • Credit to private sector (220)2

      • Liabilities to private sector (400)2

    • External financing (100, 230, and 300)2

    • Domestic savings

    • Net capital receipts

    • Net transfers

    • Domestic investment

    • Resource gap

    • Internal financing

      • Bank credit (220)2

      • Claims on banks (400)2

      • Other public sector financing (522 and 530)1

    • External financing (230)3

    Table II-6.El Salvador: Intersectorial Flow of Funds.(In millions of colones)
    196919701971197219731974Projected 1975
    Central Govt.Rest of General Govt.State EnterprisesPrivate SectorFinancial IntermediariesTotalCentral Govt.Rest of General Govt.State EnterprisesPrivate SectorFinancial IntermediariesTotalCentral Govt.Rest of General Govt.State EnterprisesPrivate SectorFinancial IntermediariesTotalCentral Govt.Rest of General Govt.State EnterprisesPrivate SectorFinancial IntermediariesTotalCentral Govt.Rest of General Govt.State EnterprisesPrivate SectorFinancial IntermediariesTotalCentral Govt.Rest of General Govt.EnterprisesPrivate SectorFinancial IntermediariesTotalCentral Govt.Rest of General Govt.EnterprisesPrivate SectorFinancial IntermediariesTotal
    Income and corporate savings20252192,112112,39620870242,27862,58622266552,389102,72225570382,526−32,88630988422,873113,323367Ill363,392133,919399127154,06074,608
    Disposable income25857132,0242,35228376182,1782,55529872272,2902,68732675302,4012,83240293342,74913,279411118283,2673,89053613793,9154,597
    National income1612,0272,0441612,1682,1852022,2722,2941922,4092,4302422,7622,7883613,27833155543,9323,991
    Personal income before taxes and corporate savings2,0272,0272,1682,1682,2722,2722,4092,4092,7622,7623,2783,2783,9323,932
    Corporate taxes11111212152171717202032325252
    Government income819819101010212123151421615520
    Less interest−3−3−4−4−5−5−8−8−8_ i−9−10−1−11−12−1−13
    Other direct taxes3621−572825−533028−583532−674237−794849−975857−115
    Indirect taxes18991982251524023417251253242773142133537414388399−18381
    Current transfers from abroad102939735425455010293910384865258105363
    Internal transfers received7354257175032888942103192941630861254132811081368143412914762745162
    Internal transfers extended−55−5−5−6−71−73−6−5−4−88−74−7−5−6−92−69−6−5−6−86−90−6−6−6−108−108−8−6−7−129−134−11−9−8−162
    Transfers abroad−1−4−5−2−4−6−2−5−7−2−6−8−3−8−11−2−10−12−3−11−14
    Other, including statistical discrepancies−1111−55−10104−4−1211−1−1613−3−671
    Current expenditures208401,8942,142166472,0102,223182552,0982,335218552,1732,446238612,5452,844287793,0973,463326913,5493,966
    Fixed capital formation41624203−127337181224130854151827336074114334647472136136115087817111475168811019185573887
    Inventory changes12930−43733175462H3656−661727322260846262
    Internal transfers extended881311420525819171736365252
    Internal transfers received−4−1−2−1−8−8−3−2−1−14−18−3−2−2−25−6−2−1−9−5−6−2−4−17−11−19−3−3−36−8−35−3−6−52
    Savings less investment−5510−5−1213−49−81319−9722−341313−3912−35−4510−574−232−1819−14−10314−102−3424−84−23775−316−8925−755−12113−307
    Internal financing53−10318−64−14−1624623−14−1239−3610−1210−7668−28−228112−70−15−2748157−16333−2535−5−38
    Private sector claims on financial system−6666−4848−6666−111171−198198−223223−216216
    Financial system credit29−32101−129−11−8−364−4219−6−998−10212−5493−104−37−91314−269−30−616405−3858−1310249−254
    Intra public sector loan1−1−11−11−13121−23221−44−247−1−2424
    Sales of bonds5382−111−3−2−113123−146221335301040
    Purchase of bonds−1−3−4−81−31−1−132−5−7−12−1−5-−6−1−7−27−35−10−30−40
    Purchase and sale of properties2−29−911−11
    Foreign financing22−6574981−3−15−13−22111−12435552−52−66−324636−95610249336801483165610012625307
    Capital movements, n.i.e.22−6393781−3−15145111−11526352−52−2714636−9147493368016733556100126−21261
    Allocation of SDRs111199121244
    Net international reserves (increase −)1212−38−38−51−515151−19−194646
    Sources: Central Reserve Bank of El Salvador; and IMF staff estimates.
    Table II-7.El Salvador: Central Government Operations(In millions of colones)
    By type
    Tax revenue236.0264.6278.9304.9376.1453.3508.0
    Direct taxes72.264.969.975.793.5109.5138.0
    Income tax38.139.745.352.162.680.0110.0
    Inheritance tax4.
    Property tax20.120.519.719.923.125.221.0
    Emergency tax9.
    Taxes on foreign trade84.6113.5106.6118.4154.6186.3193.0
    Stabilization tax10.713.514.815217.521.823.0
    Other import taxes46.551.553.655.761.071.374.0
    Export taxes27.448.538.247.576.193.296.0
    Of which: on coffee26.547.537.346.674.089.961.0
    Taxes on domestic transactions79.286.2102.4110.8128.0157.5177.0
    Liquor and beer24.626.528.632.134.644.951.0
    Petroleum products16.717.218.919.922.421.422.0
    Selective consumption tax3.57.0
    Other consumption taxes3.
    Stamp tax8.612.523.226.531.844.748.0
    Automobile registrations5.
    Other taxes4.
    Nontax revenue16.918.322.323.628.834.337.0
    Transfers from:
    National lottery3.63.74.5426.36.06.0
    Private sector3.
    Sale of goods and services2.
    Income from public services6.
    Interest, rent, and dividends1.
    By origin
    Ordinary budget252.1282.2300.0327.3403.0484.5542.0
    Special funds0.
    By origin
    Budgetary expenditures245.32812328.1367.3419.1518.6631.0
    Emergency expenditures41.30.60.1
    Special funds20.
    By economic classification
    Current expenditures258.5241.3261.42912334.1407.9472.0
    Wages and salaries127.9131.3141.1158.31712202.3232.3
    Goods and services30.930.039.053.961.385.689.6
    Emergency expenditures41.30.60.1
    Internal debt1.
    External debt1.
    Transfers to:
    Rest of general government32.749.241.140.453.767.775.8
    State enterprises3.13.410.06.413.514.327.1
    Financial intermediaries1.10.30.3
    Private sector18.421.022.522.921.625.232.5
    Capital expenditures48.849.873.582.489.1113.7162.0
    Fixed capital formation40.636.954.374.272.078.1109.6
    Transfers to:
    Rest of general government4.
    State enterprises1.
    Financial intermediaries1.
    Private sector1.
    Current account surplus−5.641.639.837.370.879.773.0
    Overall surplus or deficit−54.4−8.2−33.7−45.1−18.3−34.0−89.0
    Loans granted, net0.6−4.6−1.0−12.7−23.0−44.0−24.5
    Rest of general government−0.2−0.1−0.42.0
    State enterprises0.2−0.6−0.8−12.0−22.2−46.7−24.5
    Financial intermediaries0.4−0.6−0.40.7
    External financing, net2.17.911.335.445.649.456.3
    Internal financing, net51.70.923.422.4−4.328.657.2
    Central Reserve Bank26.2−10.420.47.5−36.8−33.9
    Credit and advances3.5−−17.52.3
    Treasury bonds16.93.218.7−0.4−11.9−20.9
    Deposits (increase −)5.8−−7.4−15.3
    Rest of banking system2.0−0.2−
    Deposits (increase −)−0.4−0.2−1.20.1−0.4−2.4
    Other financial intermediaries (bonds)0.14.0−1.5−2.2
    Rest of general government (bonds)1.50.5−0.10.410.0
    Pending operations22.8−2.9−0.115.516.733.530.0
    Other treasury bonds, net4.50.31.5−
    Other cash holdings (increase −)−0.90.4−1.12.1−1.5
    Sale of property2.
    Purchase of bonds (rest of public sector)−0.10.7−0.20.4−0.6−0.5
    Sources: Ministry of Finance; Central Reserve Bank of El Salvador; and Fund staff estimates.
    Table II-8.El Salvador Consolidated Operations of General Government(In millions of colones)
    Current revenue278.0309.6332.2363.1447.5540.4609.3
    Taxes and other revenues269.0301.4321.9352.8435.2526.6595.3
    Transfers from:
    State enterprises3.
    Private sector5.
    Current expenditures271.5244.6281.8311.0349.9428.6500.2
    Wages and salaries157.1163.5179.9194.7213.3257.2295.6
    Goods and services42.444.454.670.981.4110.2118.3
    Emergency expenditures41.30.60.1
    Transfers to:
    State enterprises3.13.410.06.413.514.327.1
    Financial intermediaries1.10.30.3
    Private sector23.026.529229.328.133.144.0
    Current account surplus6.565.050.452.197.6111.8109.1
    Capital receipts0.
    Transfers from:
    Private sector0.
    Capital expenditures50.660.376.988.096.5122.1172.5
    Fixed capital formation46.354.469.684.884.794.9128.3
    Inventory changes0.−0.12.1
    Transfers to:
    State enterprises1.
    Financial intermediaries1.
    Private sector1.
    Overall surplus or deficit (−)−43.95.3−21.0−35.01.1−10.3−63.4
    Loans granted, net0.6−0.6−0.8−12.6−22.6−46.0−24.5
    Foreign financing, net2.48.612.437.549.052.756.1
    Internal financing, net40.9−13.39.410.1−27.53.631.8
    Financial system, net25.0−18.312.97.7−45.1−36.4−4.7
    Sources: Ministry of Finance; Central Reserve Bank of El Salvador; financial reports of individual autonomous entities; and Fund staff estimates.
    Table II-9.El Salvador: Consolidated Operations of State Enterprises(In millions of colones)
    Current revenues70.178.392.499.7118.7136.1164.1
    Property income0.
    Sales of goods and services65.074.381.592.4103.7115.4134.9
    Transfers from:
    Central Government3.13.410.06.413.514.327.1
    Private sector1.20.40.1
    Current expenditures51.254.657.761.476.499.7149.1
    Wages and salaries27.429.028.630.133.941.465.6
    Goods and services12.113.216.418.926.438.863.6
    Transfers to:
    Central Government3.
    Private sector1.
    Current account surplus18.923.734.738.342.336.415.0
    Capital receipts1.
    Transfers from:
    Central Government1.
    Private sector0.30.40.2
    Capital expenditures24.
    Fixed capital formation23.612.018.242.760.7117.5185.3
    Inventory changes1.3−
    Overall surplus or deficit (−)−4.518.113.1−4.3−13.8−83.5−135.5
    Loans received from Central Government, net−
    Foreign financing, net1.7−3.0−1.3−4.95.535.699.8
    Bonds held abroad, net−0.4−0.3
    Internal financing, net3.0−15.7−12.6−2.8−
    Financial system2.1−3.1−
    Sale and purchase of property−0.4−0.2−11.6−3.0
    Sale of bonds outside financial system2.9−0.8−2.512.53.612.422.0
    Sources: Central Reserve Bank of El Salvador; financial reports of individual state enterprises; and Fund staff estimates.
    Table II-10.El Salvador: Private Sector Income, Savings, and Expenditure(In millions of colones)
    Income and corporate savings2,1122,2782,3892,5262,8733,3924,060
    Personal income and corporate savings21,9702,1152,2142,3422,6833,1813,817
    Transfers received, net44556547626979
    Other−11−5−104−12−166 -
    Capital transfers21−31233
    Fixed capital formation203241273346361475573
    Inventory changes293754−66726062
    Savings less investment−12−9−3974−103−237−121
    External financing, net−6−152−980126
    Internal financing182439−76112157−5
    Financial system351632−7811618233
    General government−20−62−9−14−48−37
    State enterprises3145111023−1
    Source: Table II-6.
    Table II-11.El Salvador: Changes in Credit Extended by Financial System(In millions of colones)
    Central Reserve Bank64.8−28.346.340.268.8205.9111
    Commercial and mortgage banks27.233.833.083.8142.4101.982
    Nonbank intermediaries29.029.011.5−10.334.169.053
    Intersystem float−−5.416.9−0.6
    Central Government, net28.7−10.619.4311.6−23.9−29.78
    Rest of public sector, net−1.2−10.8−15.43−1.0−7.610.4−3
    Official capital and reserves (increase −)−7.0−7.6−9.7−12.9−22.4−27.1−12
    Private sector101.163.997.993.3313.9405.4249
    Foreign liabilities (medium- and long-term)−24.6157.7−16
    Liabilities to private sector65.947.966.3170.9198.1222.8216
    Allocation of SDRs10.59.411.73.6
    International reserves, net (increase −)24.7−26.58.5−75.585.1−4.346
    Banking system12.4−37.60.1−51.450.6−19.046
    Nonbank intermediaries12.311.18.4−24.134.514.7
    Table II-12.El Salvadon Detailed Accounts of Financial System1(In millions of colones)
    I. Central Reserve Bank (BCR)
    International reserves, net92.1137.8130.1178.2148.3179.0125
    Foreign assets140.8156.9158.0205.8154.4244.9191
    Net IMF position−35.0−16.3−25.5−23.8−54.0−54
    Short-term liabilities−13.7−2.8−2.4−3.86.1−11.9−12
    Domestic credit263.7235.4281.7321.9390.7596.6708
    Credit to Central Government, net40.730.350.758.221.4−12.5−13
    Credit to rest of public sector, net39.735.723.729.219.624.619
    Bond Stabilization Fund5.
    Official capital and reserves−45. 8−51.9−59.7−67.8−41.4−59.0−66
    Credit to commercial and mortgage banks126.3125.1139.8143.4217.6286.6350
    Credit to nonbank intermediaries39. 152.381.3106.0132.8297.7354
    Credit to private sector24.
    Subscription to international agencies, net11.711.913.115.823.528.233
    Unclassified assets, net22.020.621.425.310.729.429
    Allocation of SDRs10.519.931.635.235.235
    Foreign liabilities (medium- and long-term)
    Liabilities to financial intermediaries157.7166.0181.4227.8261.3301.4341
    Commercial and mortgage banks153.6163.2176.9218.4255.9295.3333
    Private nonbank intermediaries2.
    Official nonbank intermediaries2.
    Liabilities to private sector134.0136.6145.6174.6200.8248.6285
    Currency in circulation132.2135.0144.3173.3198.9237.4266
    Sight deposits1.
    Prior deposits for foreign exchange use0.
    II. Commercial and Mortgage Banks
    International reserves, net1.4−−16.5−28.2−20
    Foreign assets10.723.018.919.935.952.452
    Short-term liabilities−9.3−29.7−18.0−15.7−52.4−80.6−72
    Claims on BCR153.6163.2176.9218.4255.9295.3333
    Cash in vaults15. 416.814.316.618.221.024
    Reserve deposits138. 2146.4162.6196.6237.7274.3309
    Participation certificates5.2
    Domestic credit555.0587.6635.3722.7939.31,110.21,256
    Credit to Central Government, net0.40.2−0.8−
    Credit to rest of public sector, net−4. 3−11.1−11.5−18.0−16.0−11.6−8
    Bond Stabilization Fund−5. 0−5.0−5.0−4.9−4.5
    Credit to nonbank intermediaries0.71.41.424.125.56.813
    Credit to private sector531. 7571.9626.1695.6883.21,064.91,193
    Unclassified assets, net31.530.
    Foreign liabilities (medium- and long-term)
    Liabilities to financial intermediaries148.1147.5169.9184.7281.5359.3429
    Central Reserve Bank126. 3125.1139.8143.4217.6286.6350
    Private nonbank intermediaries14.215.122.825.930.440.547
    Official nonbank intermediaries47. 67.37.315.433.532.232
    Liabilities to private sector557.5592.6639.5757.2894.11,015.31,137
    Sight deposits150. 8155.3164.3194.9250.3291.4326
    Time and savings deposits263.7290.2331.7391.0458.3523.1593
    Foreign currency deposits1.
    Mortgage bonds80. 283.682.088.388.6105.7116
    Capitalization bonds13.713.613.312.713.414.315
    Capital and reserves57.558.761.669.883.078.985
    Less adjustment5−10.0−10.0−14.0
    III. Consolidated Banking System (I+II)
    International reserves, net93.5131.1131.0182.4131.8150.8105
    Foreign assets151.5179.9176.9225.7190.3297.3243
    Net IMF position−35.0−16.3−25.5−23.8−54.0−54
    Short-term liabilities−23.0−32.5−20.4−19.5−58.5−92.5−84
    Domestic credit692.4697.9777.2901.21,112.41,420.21,614
    Credit to Central Government, net41.130.549.958.123.1−5.12
    Credit to rest of public sector, net35.424.612.211.23.613.011
    Bond Stabilization Fund0.
    Official capital and reserves−45.8−51.9−59.7−67.8−41.4−59.0−66
    Credit to nonbank intermediaries39.853.782.7130.1158.3304.5367
    Credit to private sector556.4578.0632.3702.2885.01,066.51,195
    Subscriptions to international agencies, net11.711.913.115.823.528.233
    Unclassified assets, net53.550.846.551.360.172.172
    Allocation of SDRs10.519.931.635.235.235
    Foreign liabilities (medium- and long-term)68.564.168.669.544.8193.1175
    Liabilities to nonbank intermediaries25.925.234.650.769.378.887
    Liabilities to private sector691.5729.2785.1931.81,094.91,263.91,422
    Currency in circulation132.2135.0144.3173.3198.9237.4266
    Sight deposits151.8156.1164.9195.4251.0292.3327
    Time and savings deposits263.7290.2331.7391.0458.3523.1593
    Less adjustment5−10.0−10.0−14.0
    Prior deposits for foreign exchange use0.
    Foreign currency deposits1.
    Mortgage bonds80.283.682.088.388.6105.7116
    Capitalization bonds13.713.613.312.713.414.315
    Capital and reserves57.558.761.669.883.078.985
    IV. Consolidated Rest of Financial System
    International reserves, net−12.5−23.6−32.0−7.9−42.4−57.1−57
    Foreign assets2.32.13.616.71.21.31
    Short-term liabilities−14.8−25.7−35.6−24.6−43.6−58.4−58
    Claims on bank24.624.534.144.569.478.887
    Domestic credit149.6192.5233.0270.2343.1557.8673
    Credit to Central Government, net−24.0−24.0−24.0−20.6−9.5−11.0−11
    Credit to rest of public sector, net0.50.5−2.5−2.5−2.5−1.5−2
    Credit to private sector179.2221.5265.1288.5419.6643.5765
    Official capital and reserves−24.3−25.8−27.7−32.5−81.3−90.8−96
    Unclassified assets, net18.220.322.
    Intersystem float0.110.710.210
    Foreign liabilities (medium- and long-term)30.438.140.540.840.950.353
    Liabilities to banks40.254.082.9130.1158.3304.5367
    Central Reserve Bank39.552.681.5106.0132.8297.7354
    Other banks0.71.41.424.125.56.813
    Liabilities to private sector91.1101.3111.7135.9170.9224.7283
    Sight deposits0.
    Time and savings deposits22.529.939.362.186.8115.8141
    Private capital and reserves60.363.265.369.780.0102.3134
    V. Consolidated Financial System (III+IV)
    International reserves, net93.5131.1131.0182.4131.8150.8105
    Domestic credit800.5835.7926.81035.11,297.31,673.51,920
    Credit to Central Government, net17.16.525.937.513.6−16.1−9
    Credit to rest of public sector, net35.925.
    Bond Stabilization Fund0.
    Official capital and reserves−70.1−77.7−87.4−100.3−122.7−149.8−162
    Credit to private sector735.6799.5897.4990.71,304.61,710.01,960
    Subscription to international agencies, net11.711.913.115.823.528.233
    Unclassified assets, net71.771.168.688.566.279.579
    Intersystem float−1.7−1.0−0.7−6.110.810.210
    Allocation of SDRs10.519.931.635.235.235
    Foreign liabilities (short-term)−12.5−23.6−32.0−7.9−42.4−57.1−57
    Foreign liabilities (medium- and long-term)98.9102.2109.1110.385.7243.4228
    Liabilities to private sector782.6830.5896.81,067.71,265.81,488.61,705
    Currency in circulation132.2135.0144.3173.3198.9237.4266
    Sight deposits152.5156.9165.8196.7252.1293.6329
    Time and savings deposits286.2320.1371.0453.1545.1638.9734
    Less adjustment5−10.0−10.0−14.0
    Prior deposits for foreign exchange use0.
    Foreign currency deposits1.
    Capital and reserves117.8121.9126.9139.5163.0181.2219
    Sources: Central Reserve Bank of El Salvador and IMF staff estimates.
    Table II-13.El Salvador: Balance of Payments(In millions of dollars)
    Goods and services226.5259.8−33.3260.5266.1−5.6270.6302.0−31.4339.4338.90.5404.7460.0−55.3525.9670.9−145.0621.2763.1−141.9
    Merchandise trade202.1211.7−9.6236.1214.221.9243.2247.8−4.6301.7278.523.2360.6373.9−13.3471.9560.6−88.7549.3637.0−87.7
    Other transportation2.15.1−−−
    Factor income4.512.6−−8.44.314.3−−10.75.420.4−−−24.0
    Direct investment6.2−6.26.7−6.76.4−6.46.8−6.89.5−9.53.824.9−21.1
    Interest payments2.85.0−−−−−3.6
    Other factor income1.−−0.8
    Government, n.i.e.−−−10.8
    Other services5.98.2−−−2.79.913.3−3.412.716.4−3.714.029.3−15.3
    Transfer payments15.72.213.516.32.014.320.12.917.215.02.912.
    Central Government4.
    Private capital26.529.2−2.49.415.3−5.830.029.60.431.731.10.630.632.3−1.732.050.0
    Direct investment7.
    Long-term loans5.−−0.710.−4.5
    Trade credits12.012.03.4−3.417.617.615.9−15.910.06.04.0
    Other short-term and errors and omissions1.925.2−−2.10.423.9−23.514.−7.2
    Official capital5.
    Central Government1.
    Rest of general government0.−0.1
    State enterprises3.−−−
    Financial intermediaries18.−9.118.514.63.9113.844.968.922.028.4−6.4
    Central bank10.−1.611.−9.8103.544.059.5−7.6
    Commercial banks0.1−0.10.2−0.20.1−0.10.1−0.10.1−0.10.2−0.2
    Official nonbank intermediaries2.−
    Private nonbank intermediaries6.−9.313.81.312.58.70.68*1
    Long-term liabilities0.−
    Transactions with nonmonetary international agencies2.−−−−3.11.9−1.92.0−2.0
    Allocation of SDRs3.
    International reserves, net (increase −)5.0−15.0−20.620.2−7.618.4
    Sources: Central Reserve Bank of El Salvador; and IMF staff estimates.

    Chart II-1.El Salvador: Domestic Savings, Investment, and Financing

    (In millions of colones)

    Source: Table II-6.

    1 Excluding changes in net international reserves.

    Preparation of Flow of Funds Table

    Simulation A

    Available Information


    In view of the limited information available, the flow of funds table would have to combine transactions of local governments, state enterprises, and the private sector into a single sector. However, some information for each of these three individual sectors is available, and it may be shown separately.

    Steps to be followed (see Table II-19)

    • Balance of payments data for capital movements, changes in net international reserves, interest payments, and transfers received and extended are entered in the flow of funds table.

    • Overall surplus/deficit in “Total” column to be equal to total “External Financing” with a reverse sign. (Total “Internal Financing” is zero by definition.)

    • Monetary accounts data are entered in the flow of funds table. Changes in other unclassified accounts and interbank float are recorded as “Other (including statistical discrepancy).”

    • Bank credit is attributed to individual sectors; changes in liabilities to private sector are attributed to private sector.

    • Central government operations are entered in the flow of funds table.

    • Central government transfers and interest are attributed to individual sectors.

    • Data for total consumption and investment are entered in the flow of funds table.

    • Foreign grants received by the Central Government are attributed to “Extrabudgetary Operations,” as they were not recorded in the budget. Their contra-entry is recorded as “Consumption” (and/or “Investment,” depending on the information available).

    • Contra-entries to extrabudgetary foreign loans to the Central Government and to foreign loans to local governments are recorded under investment, as these loans entirely financed investment outlays (see Table II-18). In addition, investment by local governments is increased to reflect a contra-entry to Central Government’s transfer to local governments.

    • The entries for “Other (including statistical discrepancy)” for the central bank are adjusted to reflect interest receipts and payments.

    • The contra-entries to “Central government bonds, net” and to “Other, net” central government internal financing are attributed to the local governments/state enterprises/private sector combined group.

    • Overall surpluses/deficits of individual sectors are calculated.

    • The residual investment, that is total investment less investment attributed to individual sectors, is attributed to the combined local governments/state enterprises/private sector.

    • Savings are calculated.

    • The residual consumption, that is total consumption less consumption attributed to individual sectors, is attributed to the combined local governments/state enterprises/private sector group. In the case of extrabudgetary operations, consumption outlays are equal to the amount required to balance the column.

    • The contra-entry to “Other (including statistical discrepancy)” is attributed to “Private sector.”

    • “Total income” can be calculated both for the country and for the individual (or combined) sectors.

    • “Other income” of the combined local governments/state enterprises/private sector is calculated as a residual.

    Simulation B

    Available Information


    The flow of funds table may present data for all individual sectors; however, data for local governments are incomplete, and those for the private sector are partly derived as a residual.

    Steps to be followed (see Table II-20)

    • 1-9. These steps are similar to those in Simulation A.

    • 10. Data on the operations of the state enterprises are entered in the flow of funds table. Surplus/deficit of state enterprises would be equal to sales of goods and services less other current expenditures.

    • 11. Other central government earmarked revenues are recorded as “Other income” of extrabudgetary operations.

    • 12. Central government bonds sold to the private sector and other internal financing of the private sector are calculated as a residual.

    • 13. Overall surpluses/deficits are calculated.

    • 14. Private investment is calculated as a residual.

    • 15. Savings are calculated.

    • 16. Consumption for extrabudgetary operations, local governments, and private sectors are calculated. The first two are estimated on the basis of available data on income and savings; consumption of the private sector is a residual.

    • 17. The entries for “Other (including statistical discrepancy)” for the central bank and other banks are adjusted to reflect interest receipts and payments.

    • 18. Contra-entry to “Other (including statistical discrepancy)” is attributed to private sector.

    • 19. Income, Total and “Other income” are calculated both for the country and for the individual sectors.

    Table II-14.Flow of Funds: Changes in Monetary Accounts
    Total SystemCentral BankOther Banks
    Net international reserves−30−27−3
    Net domestic credit17755122
    Credit to Central Government, net57534
    Budgetary operations4040
    Extrabudgetary operations17134
    Credit to local governments, net642
    Credit to state enterprises, net88
    Credit to private sector104104
    Unclassified assets2−24
    Central government transfers1−5−5
    Profit and losses−4−3−1
    Others, net11110
    Use of medium- and long-term foreign loans761
    Liabilities to private sector14226116
    Currency in circulation2626
    Interbank float24−2
    Central bank credit to banks16−16
    Banks’ deposits with central bank2−1214
    Table II-15.Flow of Funds: Central Government Operation
    Transfers from state enterprises4
    Other revenues211
    Current expenditures177
    Transfers to34
    Local governments15
    State enterprises3
    Private sector14
    Interest payments to14
    Central bank3
    Private sector6
    Other current expenditures129
    Current account surplus38
    Capital expenditures87
    Transfers to23
    Local governments6
    State enterprises12
    State banks5
    Surplus/deficit (−)−49
    Foreign loans21
    Internal financing28
    Central bank credit, net40
    Net sale of bonds5
    Other, net−17
    Table II-16.Flow of Funds: Balance of Payments
    Goods, services, and transfers−68
    Interest payments−101
    Other services, credit15
    Other services, debit−36
    Private transfers6
    Official transfers received5
    Official transfers extended−2
    Capital movements38
    Use of foreign loans by public sector55
    Central Government, budgetary30
    Central Government, extrabudgetary12
    Local governments7
    State enterprises6
    Amortizations by public sector−15
    Central Government−9
    Local governments−4
    State enterprises−2
    Banking system, net7
    Central bank6
    Other banks1
    Other, including net errors and omissions−9
    Changes in net international reserves (increase −)30
    Table II-17.Flow of Funds: Operations of State Enterprises
    Central government transfers3
    Sales of goods and services72
    Current expenditures82
    Transfers to9
    Central Government4
    Local governments5
    Interest payments to7
    Other current expenditures66
    Current account surplus/deficit (−)−7
    Central government transfers received12
    Capital expenditures22
    Overall surplus/deficit (−)−17
    Foreign loans4
    Internal financing13
    Central bank credit, net3
    Other bank credit, net5
    Purchase (−)/sale of central government bonds2
    Other, net3
    Table II-18.Flow of Funds: Additional Information
    1.National accounts data
    Total consumption600
    Total investment200
    2.Foreign grants to public sector (5) were entirely in the form of consumption goods.
    3.Extrabudgetary foreign loans to the Central Government (12), and foreign loans to local governments (7) were entirely for financing of investment.
    4.Other central government earmarked revenues (12) were earmarked for the financing of current expenditures.
    Table II-19.Flow of Funds: Simulation A
    TotalState BudgetExtra-budgetary (operationsLocal GovernmentsState EnterprisesPrivate SectorCentral BankOther Banks
    Transfers received
    Transfers extended
    Interest received963
    Interest payments
    Surplus/deficit (−) of state enterprises
    Other income733211518131
    Other (including statistical discrepancy)14−6 −5−8
    Capital transfers−236125
    Overall surplus/deficit (−)−68−49−2914−2−2
    Internal financing2817−12−31−2
    Private sector claims on banks−14226116
    Bank credit401768104−57−118
    Central government bonds, net5−5
    Other, net−1717
    External financing68211234−9334
    Use of foreign loans623012766313
    Other capital movements−9−93
    Change in net international reserves (increase −)30273
    Table II-20.Flow of Funds: Simulation B
    TotalState BudgetExtrabudgetary OperationsLocal GovernentsState EnterprisesPrivate SectorCentral BankOther Banks
    Transfers received
    Transfers extended
    Interest received13634
    Interest payments
    Surplus/deficit (−) of state enterprises66
    Other income72721112500131
    Other (including statistical discrepancy)18−6 −5−12 −8
    Capital transfers−236125
    Overall surplus/deficit (−)−68−49−29−9−1740−2−2
    Internal financing2817613−31−31−2
    Private sector claims on banks−14226116
    Bank credit401768104−57−118
    Central government bonds, net52−71
    Other, net−173141
    External financing68211234−9334
    Use of foreign loans623012166313
    Other capital movements−9−93
    Change in net international reserves (increase −)30273
    Appendix III Budget Review

    This appendix provides rules of thumb for reviewing the quality of a country’s budget.

    A mission should request fiscal data for a sufficient number of years to enable budgeted amounts and actual results to be compared. The following conclusions can be reached on the basis of trends shown in Table III-1:

    A. Revenues in the official budget document are usually overestimated by some 8 percent. Further investigation will be required to identify which category of revenues consistently differs from amounts budgeted and what are the causes of these differences.

    B. Originally budgeted appropriations are usually revised upward during the course of the year (this is prima facie evidence that the original budget tends to underestimate expenditures). The budgetary process with regard to expenditures appears to have improved in 1991, as the revised budgetary appropriations were only 6.5 percent higher than those in the original budget (the deviation was almost 17 percent in 1989 and 1990), but the budgetary process appears to have weakened again in 1992.

    C. Regarding expenditures (on an accrual basis), almost 97 percent of the revised budgetary appropriations was actually spent in the 1989-92 period. In this context, remember that total expenditures cannot be higher than total appropriations. However, expenditures as a percentage of revised budgetary appropriations show an upward trend.

    D. In 1989 and 1990, payments were, on average, some 91.5 percent of the expenditures of the respective years, but the ratio dropped to 82 percent in 1991. This drop indicates that a floating debt was accumulating; hence, a presentation on a strictly cash basis would not show the extent of the fiscal imbalance.

    E. The floating debt returned to a “normal” level in 1992 (payments of the year were equal to 90 percent of the expenditures). However, from a programming point of view, it is important to note that payments in 1992 were some 6 percent higher than total expenditures because of the payment of the large floating debt of the previous year. The financing needs for 1992 were, therefore, higher than the year’s deficit. As a rule of thumb, the “normal” unpaid bills of a year, that is the “normal” floating debt that is being transferred to the next year, represent roughly the same percentage of total expenditures for the year. That is, if total expenditures grow over time, the outstanding floating debt would also be expected to grow over time. However, any sudden sharp increase or decrease from the normal ratio should be interpreted as a signal that a change of policy has taken place, which needs to be investigated.

    F. Both the original and the revised budgets tended to underestimate the actual deficit for the year. In reviewing the original central government budget for 1993, a mission could assume—as a first working proposition and pending a more in-depth investigation—that the deficit shown in the original budget is likely to be greatly underestimated, because revenues are usually overestimated and expenditures underestimated. Also, in that particular country, the floating debt could be an important element to be taken into account when preparing the monetary program Table III-2. Obviously, this initial quick review would need to be substantiated by further investigation of both revenues and expenditures.

    Table III-1.Latina: Budgeted and Actual Central Government Operations(In millions of local currency)
    Original budget1,0001,1001,2501,400
    Actual revenues9001,0121,1381,274
    2 : 1 (in percent)90929191
    Original budget appropriations1,2001,3701,6901,850
    Revised budget appropriations1,4001,6001,8002,000
    Payments of the year’s budget1,2401,4101,4381,757
    Unpaid bills of the year (floating debt)110140312195
    2 : 1 (in percent)116.6116.8106.5108.1
    3 : 1 (in percent)112.5113.1103.8105.5
    3 : 2 (in percent)96.496.997.497.6
    4 : 3 (in percent)91.991.082.290.0
    5 : 3 (in percent)
    Total payments
    Payments of the year’s budget1,2401,4101,4381,757
    Payments of previous years’ budgets1110140312
    As a percent of expenditures of the year9890106
    On basis of original budget200270440450
    On basis of revised budget400500550600
    Actual (accrual)450538612678
    Table III-2.Latina: Analytical Presentation of Central Government Operations(In millions of local currency)
    Changes in floating debt30172−117
    Debt of the year(140)(312)(195)
    Debt of the previous year(−110)(−140)(−312)
    Financing needs508440795
    Source: Table III-1.

    Central Government Budgetary Operations: Budget, Accrual, and Cash Presentations

    Tables III-3 to III-6 review El Salvador’s central government operations in 1983. To review these operations, one needs three documents:

    • the budget for 1983, including its modifications;

    • the Treasury balance sheet for the end of 1982 and the end of 1983; and

    • the implementation of the 1983 budget.

    Operations in any given year result in either an excess or a shortfall of budgetary receipts over expenditures. From a budget point of view, external and internal borrowings and repayments are considered receipts and expenditures, respectively. The difference between these broadly defined receipts and expenditures represents the budget surplus or deficit for the year, to be added to or subtracted from the accumulated surplus or deficit of the previous years shown in the balance sheet.

    El Salvador’s original budget for 1983 is shown in Table III-3. To summarize, these data showed (in millions of colones):

    Estimated cumulative financial deficit as of Dec. 31, 1982−250
    Current revenues1,457
    Other revenues for the financing of the operating budget265
    Capital receipts587
    Total receipts2,059
    Operating expenditures1,473
    Capital expenditures586
    Total expenditures2,059

    In preparing the budget document for 1983, the Salvadoran authorities estimated the operations for 1982, because the budget document is usually prepared before the end of the year. In this example, they estimated the accumulated deficit (that is, for 1982 and for previous years) at C 250 million.

    Table III-3 presents the Treasury balance sheet. At the end of 1982, total assets amounted to C 1,880 million, and total liabilities, C 2,138 million. The “actual” accumulated deficit amounted to C 258 million, as opposed to the figure of C 250 million included in the budget document for 1983, which was an estimate. Apart from the fixed assets, which represent central government participation in the capital of certain public sector funds, entities, and banks, the most important assets were pending revenues, loans to the rest of the public sector that were not included in the budget (otherwise they would have been reported as expenditures) and cash holdings. On the expenditure side, the most important items were the floating debt, expenditure for which payment has not yet been made and commitments for which the order of payments has not yet been issued; short-term loans and advances; and provisions against certain assets.

    Table III-4 presents the central government budgetary operations for 1983.

    A. Column (1) presents the original budget data. From a budget point of view, the operations for 1983 are expected to show an excess of receipts over expenditures of C 250 million, which would entirely wipe out the accumulated (estimated) deficit of previous years. From an analytical point of view, the 1983 operations would result in an overall deficit of C 516 million, to be financed by the use of foreign loans and sales of bonds.

    B. The budget was modified during the year (column (2)): expenditures were increased by C 129 million, including C 40 million of additional amortizations, to be financed by additional budgetary revenues for an equal amount, including C 65 million of additional use of foreign loans, and C 40 million of additional sales of bonds and bank credit, so that the overall result of the budget would remain unchanged. However, from an analytical point of view, the central government deficit to be financed by other sectors would increase to C 581 million.

    C. Column (3) presents actual operations on an accrual basis. From an analytical point of view, both revenues and expenditures fell short of budgeted amounts, and the overall deficit was lower than anticipated. Also, the use of both foreign loans and the sales of bonds was well below budgeted amounts. The Treasury increased its floating debt (in El Salvador, accrual presentation is at the commitment level, whereas cash presentation is at the payment level). From a budgetary point of view, the year ended with a deficit of C 127 million instead of a projected surplus of C 250 million.

    D. Column (4) presents cash movements in the 1983 budget. The difference between accrual and cash is represented by the commitments for which payments have not yet been made, which is C 136 million and will be reflected in lower cash expenditures. The cash deficit will also be decreased by the same amount.

    E. In addition to cash movements related to the budget for 1983, certain cash movements during the year were related to previous years (column (5)). Pending revenues for C 20 million were collected and orders of payment for C 145 million were issued against pending commitments of previous years.

    F. Total cash movements for the calendar year 1983 are shown in column (6), which is the sum of columns (4) and (5).

    G. Column (7) presents the total transactions of calendar year 1983 on an accrual basis. The differences between this column and column (3) are entirely on the financing side, as the cash movements related to previous years affect balance sheet items exclusively (changes in commitments, pending revenues, and cash).

    Apart from the operations related to the year’s budget, and apart from other cash movements shown in column (5), the Treasury balance sheet underwent certain revisions during the course of the year that affected the accumulated surplus or deficit. These changes are shown in Tables III-3 and III-5, and were required because certain pending revenues could not be collected for a variety of reasons, and certain commitments and orders of payment were canceled. In this example, the cumulative deficit from previous years was reduced by C 29 million because of these adjustments.

    Table III-3.El Salvador: Treasury Balance Sheet1(End-of-year data; in millions of colones)
    Original 1982Adjustment2Adjusted 19821983Change
    Operational accounts1,056−17588192342
    Pending revenues{+79
    Taxes and other revenues384−254209189−20
    Foreign loans pending disbursement376376376
    Loans and other short-term assets
    Loans to extrabudgetary funds and to rest of public sector17117119625
    Public sector bonds77158
    Accrued interest on bonds11
    Cash and deposits
    Treasury (foreign loans)13132411
    Revolving funds111110−1
    Transitory accounts
    Expenditures in abeyance1414195
    Prepayment of expenditures333
    Accounts receivable555
    Fixed assets824824824
    Capitalization of extrabudgetary funds and state entities301301287−14
    Loans to rest of public sector429429429
    Capitalization of state banks959510813
    Operational accounts1,314−2041,1101,279169
    Floating debt
    Commitments of{+67
    Previous years321−2761122693−145
    Current year302430241365136
    Orders of payments254−12244459215
    Loans and advances
    Loans from extrabudgetary funds2525−25
    Central bank advance against future sale of bonds5454
    Transitory accounts
    Prepaid taxes44−4
    Revenues in abeyance44446−38
    For pending taxes47+156238−24
    For accounts receivable555
    Permanent surplus (contra-entry to fixed assets)824824824
    3.Operational surplus (−)/deficit258−29229356127
    Cumulative of previous years258−29229229
    Deficit of CY 1983127127
    Source: Adapted from El Salvador, Ministry of Finance, Informe Complementario Constitucional sobre la Hacienda Pública, Ejercicio Fiscal 1983 (San Salvador: 1983).
    Table III-4.El Salvador. Central Government Budgetary Operations, 1983(In millions of colones)
    OriginalFinalAccrualCurrent yearPrevious yearsCashAccrual
    External financing
    Use of loans207272102102102102
    Internal financing
    Changes in commitments136−9
    Bank credit25
    Budget presentation
    Table III-5.El Salvador. Changes in Accumulated Deficit, 1983(In millions of colones)
    Initial balance258
    Increase in deficit
    Pending revenues not to be collected254
    Additional orders of payments2
    Additional commitments67
    Adjustments to provisions for pending taxes15338
    Decrease in deficit
    Cancellation of orders of payments12
    Cancellation of commitments276
    Increase in pending taxes79−367
    Ending balance229
    Source: Adapted from El Salvador, Ministry of Finance, Informe Complementario Constitucional sobre la Hacienda Pública, Ejercicio Fiscal 1983 (San Salvador: 1983).
    Table III-6.El Salvador Impact of the 1983 Budget Operations on the Treasury Balance Sheet(In millions of colones)
    Budget ImplicationsActual
    End of 1982ChangeEnd of 1983AdjustedChangesEnd of 1983
    Accumulated surplus (−)or deficit258−2502−29127356

    Tables III-3 and III-6 also present the Treasury balance sheet at the end of 1983 as a result of the operations that took place during the year. The net change in assets and liabilities amounted to C 127 million, which is the difference between budgetary receipts and expenditures, broadly defined for budget purposes.

    Analysis of Central Government Revenue

    El Salvador’s central government revenue increased to C 484 million in 1974, from C 252 million in 1969 or to 12.3 percent of GDP from 10.6 percent (Table III-7). At first sight, it appears that the revenue effort was the satisfactory result of a strong tax administration. The purpose of this appendix is to analyze the tax effort by answering the following two basic questions:

    A. If El Salvador’s tax system—as well as structural aspects of its economy and exogenous factors affecting revenues—had remained unchanged since 1969, would theoretical revenue have been higher or lower than actual revenue?

    B. Was the increase in revenue in nominal and in real terms attributable to discretionary decisions, structural changes in the economy, exogenous factors, or administrative performance?

    Such a study should begin by setting the base—1969—and relating each revenue component to a certain benchmark, as well as surveying the tax legislation. The analysis would then be an attempt to quantify additional or foregone revenue attributable to the factors mentioned in the two basic questions. The so-called improvement (or deterioration) in tax administration can be measured by comparing theoretical collections with actual collections.

    During the period under analysis, the structure of central government revenue changed somewhat (Table III-8). From 1970 to 1974, direct taxes accounted for some 23 percent of total revenue (the decline from 28.6 percent in 1969 was attributable entirely to the disappearance of an emergency tax that was levied only in that year), as a higher yield of income tax compensated for a steady decline in collections of other direct taxes. Contributions from taxes on foreign trade fluctuated between 33.5 percent and 40 percent of total revenue, reflecting changes in collections of export taxes; import taxes declined steadily throughout the period. Notwithstanding the introduction of several new taxes, the share of taxes on domestic transactions tended to decline, accounting for 20.2 percent of total revenues in 1974, compared with over 24 percent in 1969. Collection of other taxes grew steadily, reflecting a revision of the stamp tax.

    In general, deliberate government decisions regarding revisions of the tax system had only a minor net impact on total central government revenues. Table III-9 compares, on the one hand, revenue that would have been collected if the revenue structure, broadly defined, had remained unchanged since 1969, and the negative impact from the widening of exemptions and elimination of taxes with, on the other, the actual level of revenues, showing separately revenue resulting from adoption of new tax measures, changes in coffee tax collection, and other unspecified factors. Government decisions resulted in revenue collecting in 1974 that was only 4 percent higher than the revenue that would have been collected if the tax system had remained unchanged.

    Further details are shown in Table III-10, where individual tax performance is related to certain benchmarks that are considered to be most appropriate for a given country. Thus, since income tax in El Salvador during 1969-74 was levied on the income generated in the previous year, income tax receipts are compared with the GDP of the previous year. Taxes on domestic transactions are instead compared with private consumption, and other direct taxes are compared with GDP of the current year.

    The rapid increase in central government revenues appears to be attributable mostly to the growth of economic activity and to higher coffee export prices. Revenues from improvements in tax administration and from new revenue measures contributed only modestly to the increase in total central government revenues, as they were almost fully offset by shortfalls in revenues attributable to import tax exemptions; to the decline in other direct tax receipts; and, in 1973-74, to the fact that collections of taxes on domestic transactions were adversely affected by accelerating inflation, because they were calculated mostly on a specific rather than an ad valorem basis (Tables III-11 and III-12).

    Table III-7.Salvador: Central Government Revenues
    (In millions of colones)
    Total revenues252.7282.2300.0327.3403.0484.5
    Direct taxes72.264.969.975.793.5109.5
    Income tax38.139.745.352.162.680.0
    Emergency tax9.
    Other direct taxes24.824.924.523.530.829.5
    Taxes on foreign trade84.6113.5106.6118.4154.6186.3
    Import taxes57.265.068.470.978.593.1
    Export taxes27.448.538.247.576.193.2
    Taxes on domestic transactions60.764.669.473.883.397.7
    Other taxes18.521.633.037.044.759.8
    Nontax revenues16.117.621.122.426.931.2
    (In percent of GDP)
    Total revenues10.611.011.111.412.112.3
    Table III-8.El Salvador: Central Government Revenue Structure(In percent)
    Direct taxes28.623.023.323.123.222.6
    Income tax15.
    Other direct taxes13.
    Taxes on foreign trade33.640.235.536.238.438.4
    Import taxes22.723.022.821.719.519.2
    Export taxes10.917.212.714.518.919.2
    Taxes on domestic transactions24.122.923.122.520.720.2
    Other taxes7.37.611.011.411.112.3
    Nontax revenues6.
    Table III-9.El Salvador. Revenues Estimated on the Basis of the 1969 Performance and Actual Revenues1(In millions of colones)
    Revenues estimated on the basis of the 1969 performance242.8255.3280.6300.3337.5410.4
    Estimated revenues not collected because of exonerations and other government policies2.2−7.4−3.7−17.3−23.4
    Revenue collections from taxes existing in 1969242. 8257.5273.2296.6320.2387.0
    Revenues arising from new tax measures3.011.916.022.140.2
    Revenue collections after taking into account government decisions242.8260.5285.1312.6342.3427.2
    Revenues arising from changes in coffee prices19.39.99.345.256.7
    Revenues arising from other factors2.14.95.315.42.6
    Actual central government revenues242.8281.9299.9327.2402.9484.5

    Income tax receipts rose rapidly after 1972, mostly attributable to an improvement in tax administration, as evidenced by the growth in the number of taxpayers that submitted and paid taxes. Similarly, the ratio of income tax to taxable income rose from an average of 11 percent in 1969-71 to about 12.5 percent in 1972-73 (Table III-13).

    If the base for taxes on domestic transactions had remained unchanged after 1969, collections from these taxes would have amounted to C 99 million in 1974 (see Table III-10). In addition, rates of some taxes were increased after 1969, and these changes are estimated to have yielded C 16 million in 1974. Therefore, receipts from taxes on domestic transactions should have amounted to C 115 million in 1974. Actual collections amounted instead to C 98 million. The shortfall from the theoretical calculation can be attributed to several factors. Most of the taxes on domestic transactions were specific rather than ad valorem, and receipts lagged somewhat as domestic inflation accelerated in 1973-74. The increase in certain domestic prices also resulted in a drop in demand for some products. Finally, domestic sales of gasoline and diesel dropped in 1974 and, moreover, the use of premium gasoline shifted to use of regular gasoline (which was subject to a lower tax) as a result of price increases (Table III-14).

    Import tax collections also showed a shortfall compared with the theoretical calculations on account of a change in the structure of imports and an increase in exemptions. Thus, imports subject to duty declined from 37.5 percent of total imports in 1969 to about 31 percent in 1974. Imports exempt from duty under the Central American Common Market treaty also declined in relative terms during the period. By contrast, imports exempt from duty under other laws and contracts rose from 34.5 percent of total imports in 1969 to about 50 percent in 1974. As a result of these developments, the average import duty declined from 11 percent in 1969 to 6.5 percent in 1974 (Table III-15).

    The sharp rise in revenues from other taxes mostly reflected a reform of the stamp tax that was adopted in 1970.

    Table III-10.El Salvador. Comparison Between Revenues Estimated on the Basis of 1969 Tax System and Actual Revenues(In millions of colones)
    Total central government revenues252.9282.9301.2328.5404.9487.6
    Revenues on basis of 1969 tax system243.6256.1281.5301.3338.6407.2
    Revenues arising from new tax measures3.011.916.022.140.2
    Emergency tax9.
    Estimated revenues not collected because of exoneration and other government policies2.2−7.4−3.7−17.3−21.3
    Revenues arising from other government policies and administrative efficiency5.25.516.24.8
    Revenues arising from changes in coffee prices19.39.99.345.256.7
    Income tax38.139.745.352.162.680.0
    Revenues on basis of 1969 tax system138.139.542.744.947.855.2
    Other factors0.
    Other direct taxes34.125.224.623.630.929.5
    Revenues on basis of 1969 tax system224.826.828.230.034.640.9
    Emergency tax9.
    Other factors−1.9−3.7−6.5−3.8−11.4
    Import taxes357.265.068.470.978.593.1
    Revenues on basis of 1969 tax system57.258.475.376.995.3117.7
    Estimated revenues not collected for changes in import structure−0.9−1.5−8.7−1.0
    Estimated revenues not collected because of imports from CACM0.2−0.8−2.3−3.8−3.5
    Estimated revenues not collected because of exemption policy2.0−6.6−1.4−13.5−21.1
    Other factors5.
    Export taxes427.448.538.247.576.193.2
    Revenues on basis of 1969 tax system27.429.228.338.230.936.5
    Additional revenues due to changes in coffee prices19.39.99.345.256.7
    Taxes on domestic transactions60.764.669.473.883.397.7
    Revenues on basis of 1969 tax system560.764.567.469.881.898.9
    Gasoline tax reform1.73.02.9
    Cigarette tax reform2.02.3
    Delayed collection of cigarette tax1.2−1.2
    Liquor tax reform7.5
    Special consumption tax3.5
    Other factors0.12.01.1−2.3−17.4
    Other taxes18.521.633.037.044.759.8
    Revenues on basis of 1969 tax system618.519.620.521.324.930.2
    Stamp tax reform3.011.914.317.124.0
    Other factors−
    Transfers from rest of public sector3.
    Revenues on basis of 1969 tax system73.
    Other factors0.
    Other nontax revenues13.314.315.817.421.326.3
    Revenues on basis of 1969 tax system813.314.315.116.118.521.9
    Other factors0.
    Table III-11.El Salvador: Additional Revenues Since 1969(In millions of colones)
    Additional revenues139.157.184.4160.1241.7
    Revenues arising from higher coffee export prices19.39.99.345.256.7
    Revenues arising from growth in economic activity12.537.857.594.7167.6
    Other factors7.39.417.620.217.4
    New tax measures(3.0)(11.9)(16.0)(22.1)(40.2)
    Import tax exemptions(2.2)(−7.4)(−3.7)(−17.3)(−23.4)
    Administrative efficiency and others(2.1)(4.9)(5.3)(15.4)(0.6)
    Table III-12.El Salvador: Coffee Exports and Export Taxes
    Export Taxes2
    Volume1On basis of 1969 PricesActualDifference
    Table III-13.El Salvador: Income Tax Statistics(Value figures in millions of colones)
    1.Declared income1,996.22,107.52,167.12,615.32,966.6
    2.Taxable income339.4359.0375.7419.3501.7
    3.Income tax37.439.942.652.361.0
    Assessed income tax33.233.538.045.454.3
    Adjustments, fines, etc.
    4.Item 3/Item 1 (percent)
    5.Item 3/Item 2 (percent)
    6.Taxable income as percent of GDP14.214.013.914.515.1
    7.Number of declarations paying income tax (in thousands)16.716.917.919.122.5
    Table III-14.El Salvador: Consumption of Gasoline and Diesel(In millions of gallons)
    Total ConsumptionTotalRegularPremiumDiesel
    Table III-15.El Salvador: Import Tax Losses(Value figures in millions of colones)
    1.Imports, c.i.f.1523.1534.0618.6695.2934.71,401.5
    2.Tax rate (import taxes as percent of total imports)10.9312.1711.0610.208.406.64
    3.Theoretical import tax collections on basis of previous year’s tax rate58.475.376.995.3117.7
    4.Actual import tax collections257.265.068.470.978.593.1
    5.Estimated import tax gains or losses (4−3)6.6−6.9−6.0−16.8−24.6
    6.Factors affecting collections
    Change in average tax rates−0.9−1.5−8.7−1.0−13.6
    Imports subject to duty196.1225.9242.8282.7317.0431.1
    Actual rate of taxation (percent)29.128.828.125.124.821.6
    Changes in actual rate (percent)−0.4−0.6−3.1−0.3−3.2
    Tax gains or losses (−)2.0−7.5−23.0−44.8−52.1
    Change in CACM trade0.2−0.8−2.3−3.8−3.5
    Imports from CACM146.3144.3151.8174.8219.6271.7
    Change in trade (increase −)−0.9−1.5−8.7−1.0−13.6
    Tax gains or losses on basis of the year’s rate0.2−0.8−2.3−3.8−3.5
    Change in exemption policy2.0−6.6−1.4−13.5−19.9
    Imports, specifically exempted, excluding CACM trade180.6163.8224.0237.7398.1698.7
    Changes in trade (increase −)16.8−60.2−13.7160.4300.6
    Tax gains or losses on basis of the year’s rate2.0−6.6−1.4−13.5−19.9

    Analysis of Government Salary Bill

    The following numerical examples present the information required and the calculations necessary to determine a country’s government salary bill.

    Basic Information
    Year OneYear TwoYear ThreeYear Four
    Salary bill (in local currency)1,000,0001,200,0001,400,0001,540,000
    Total staff1,0001,1001,3001,320
    Increase in staff10020020
    General increase (percent)0.0510.0620.031
    Special increases
    Increase (percent)0.0420.042
    Staff affected350400
    Average salary after
    general increase31,0001,050.001,156.361,109.23
    Average salary1,0001,090.911,076.921,166.67
    Annual Calculations
    StaffAverage Salary (in local currency)Salary Bill (in local currency)
    Year Two
    Previous year staff1,0001,050.0031,050,000
    New staff41001,050.00365,626
    Total salary bill1,200,000
    Year Three
    Previous year staff
    Before increase1,100545.455600,000
    After increase1,100578.183636,000
    New staff4200142,091
    Special increase635023.108,085
    Year Four
    Previous year staff1,3001,109.2331,442,000
    New staff42013,865
    Special increase740022.208,880
    Calculations for New Staff
    StaffQuarterly Salary (in local currency)Salary Bill (in local currency)
    Year One
    I Q25262.506,563
    II Q50262.5013,125
    III Q75262.5019,688
    IV Q100262.5026,250
    Year Two
    I Q50272.7313,636
    II Q100272.7327,273
    III Q150289.0943,364
    IV Q200289.0957,818
    Year Three
    I Q5277.311,387
    II Q10277.312,773
    III Q15277.314,160
    IV Q20277.315,546
    Note: The Year Four average salary, after general increase (1,10923) is based on the average salary of Year Three (1,076.92), which does not fully reflect the impact of the mid-year salary increase and the special increases. An alternative would be to base the calculations on the average salary of Year Three, after general increase (1,156.36), which, however, does not reflect the unexplained portion of salary increases in Year Three.

    Central Government Operations: Budgetary, Extrabudgetary, and Adjustments

    This section presents ways of revising central government budgetary operations to include extrabudgetary operations as well as adjustments to assure consistency of fiscal figures with monetary and balance of payments data. For the sake of simplicity, budgetary operations are derived from the preceding section on central government budgetary operations and refer to El Salvador’s budgetary operations for 1983. Extrabudgetary data and reconciliation adjustments, however, are fictional.

    The basic steps are as follows:

    • Enter budgetary data as shown in the preceding section on central government budgetary operations;

    • Adjust these data with those derived from monetary accounts and balance of payments statistics; and

    • Estimate extrabudgetary operations.

    Budgetary Data

    Data in Table III-16 are derived from previous section on central government budgetary operations; the second column of the table presents financing details as derived from the Treasury balance sheet.

    Adjustment to Budgetary Data

    A. Reconciliation with monetary accounts (Table III-16). See item 6 under D below.

    B. Reconciliation with balance of payments data. According to balance of payments and external debt data, it appears that disbursements of a foreign loan included in the budget amounted to C 27 million instead of C 37 million as shown in the budget operations. Since it was decided to use the external debt statistics as a primary source of information, the budgetary entries for expenditure and use of foreign loans should be revised downward by C 10 million. However, an investigation should be carried out to make sure that the budget figure for use of loans does not include expenditure financed by domestic resources in expectation of a loan disbursement. If this were the case, the adjustment for C 10 million would be made “below the line” rather than in expenditure.

    Table III-16.El Salvador: Central Government Budgetary Operations with Adjustments
    Reconciliation Adjustments
    Original DataBalance Sheet EntriesTotalMonetary dataExternal debtTotal
    Other expenditures1,6481,648−101,638
    Surplus/deficit (−)−459−45910−449
    External financing
    Use of loans102102−1092
    Internal financing
    Sale of bonds353353353
    Amortization of bonds−90−90−90
    Bank credit545454
    Cash and deposits (increase −)−23−237−16
    Floating debt1206206206
    Pending taxes202020
    Other short-term assets−34−34−34
    Transitory accounts, net−47−47−47
    Other debts−25−25−25
    Other liabilities−24−24−24
    Timing differences−7−7
    Other, net127−127

    Extrabudgetary Operations

    A. During the year, the Central Government accumulated arrears with both external and internal creditors (Table III-17). External arrears amounted to C 12 million (C 11 million for unpaid principal and C 1 million for unpaid interest). Internal arrears included goods and services received and not paid. As commitments were made for these internal transactions, no adjustment is required because they are already reflected in the budgetary floating debt. Budget data are on an accrual basis. In addition, the Central Government reached an agreement with certain foreign creditors to reschedule C 10 million of amortizations and C 3 million of interest that were due during the year. These liabilities were rescheduled over a seven-year period, with a two-year grace period. Information on the external arrears and on the external debt rescheduling was derived from balance of payments data.

    B. Also, according to balance of payments data, the Central Government received certain foreign grants that were not included in the budget of C 37 million and made use of the following foreign loans outside the budget: (i) extrabudgetary loans for investment, C 93 million; and (ii) extrabudgetary loans for relending to the rest of the public sector and to banks (two-step loans) of C 76 million.

    Two-step loans may be treated in two different ways. The first alternative is to consider them an obligation of the Central Government, with a counterpart entry in the form of a transfer to the final recipient. If this treatment is followed, adjustments would also have to be made in the accounts of the final recipients to ensure consistency and avoid duplication in the use of foreign loans. Also, the debt service of these loans would have to be reported as payments by the Central Government. The second alternative is to consider these loans as foreign obligations of the final recipient, even though they are legally central government debts, on the grounds that the actual use of the money and the servicing of the debt would be made by the final recipient and not by the Central Government. If this alternative is followed, the use and repayment of the two-step loans would not be reported as a central government operation.

    Both treatments are equally acceptable, depending on the circumstances, that is depending on the entities responsible for the use of the loans and the repayment. In this section, the first alternative has been followed in order to show the required entries for that option.

    C. The central bank made some payments abroad on behalf of the Central Government for servicing of central government debts, which had the guarantee of the central bank (C 18 million for principal and C 2 million for interest). The central bank reported the transactions in its balance sheet as a loan to the Central Government (see item 2 under D below).

    D. The following entries can be derived from the central bank balance sheet:

    Dec. 31, 1982Dec. 31, 1983Change
    Credit to Central Government295406111
    1. Advances against sales of bonds5454
    2. Payments abroad on behalf of the Treasury729220
    3. Other extrabudgetary credit to the Central Government14315512
    4. Interest due and not paid by the Central Government506111
    5. Credit to extrabudgetary funds304414
    Deposits of the Central Government15016313
    6. Budgetary deposits10812416
    7. Deposits of ministries127−5
    8. Tax collected and not yet transferred104−6
    9. Sinking funds for servicing of two-step loans (transfer from enterprises)5138
    10. Other deposits4139
    11. Deposits of extrabudgetary funds112−9
    Net credit to the Central Government14524398

    1. This item has already been taken into account in the budgetary operations.

    2. This item has already been taken into account (see C above).

    3. It may be assumed that this credit financed central government extrabudgetary expenditures.

    4. This entry will have to be reported as an extrabudgetary expenditure of the Central Government.

    5. This entry refers to extrabudgetary operations (see F below).

    6. This entry has already been taken into account in the budgetary operations; however, according to the treasury balance sheets, these deposits increased by C 23 million. The difference between the treasury figure and the central bank figure is due to timing discrepancies. The adjustment for timing differences needs to be made so that entries in this table for changes in credit from and deposits with the central bank agree with the monetary accounts. (See Table III-16.)

    7. Since there are no detailed gross deposits and withdrawals, the change in these deposits could be recorded as net revenue (if positive) or net expenditure (if negative).

    8. These deposits reflect revenues that are deposited in a transitory account, and the net change should be recorded as a net revenue.

    9. These accounts refer to deposits into sinking funds made by state enterprises for servicing of external debt. If details on actual amortizations were available, the contra-entries to the charges in these deposits should be amortizations and revenues (intratransfers). In this section it is assumed that actual amortizations amounted to C 4 million; therefore, gross deposits are estimated to have amounted to C 12 million.

    10. Since no details are available on gross deposits and withdrawals, the changes in these deposits could be recorded as net revenue (if positive) or net expenditure (if negative).

    11. For this item, see F below.

    Table III-17.El Salvador: Central Government Extrabudgetary Operations
    Central Bank
    ArrearsDebt ReschedulingForeign Loans and PaymentsPayments abroadOther creditOther depositsEarmarked RevenuesExtrabudgetary FundsTotal
    Other expenditures1320622352226468
    Surplus/deficit (−)−1−3−169−2−2310−67−249
    External financing
    Use of loans1694173
    Changes in arrears1212
    Debt rescheduling1313
    Internal financing
    Bank credit20231457
    Cash and deposits (increase −)−6293
    Floating debt−5−5
    Other short-term assets2020
    Other debts2525

    E. According to information provided by the Ministry of Finance, the Central Government also collected certain revenues (C 2 million), outside the budget, that were earmarked and spent for certain specific purposes.

    F. The following are the operations of the extrabudgetary funds that refer to certain special investment and other extrabudgetary expenditure (in millions of colones). Regarding the revenues, central government transfers were already recorded in the budget as central government expenditures. In order to avoid inflating both total (budgetary and extrabudgetary) revenues and expenditures, these would be recorded as negative intratransfers.

    Central government transfers80
    Foreign grants10
    Other revenues75
    Loans from Central Government20
    Loans to Central Government251
    Central bank credit14
    Deposits with the central bank (increase −)9
    Use of foreign loans42
    Repayment of foreign loans−6
    Unpaid domestic expenditures−53

    Consolidated Central Government Operations

    Table III-18 presents the consolidated (budgetary and extrabudgetary) operations of the Central Government.

    Table III-18.El Salvador: Consolidated Central Government Operations
    Other expenditures1,6384682,106
    Surplus/deficit (−)−449−249−698
    External financing
    Use of loans92173265
    Changes in arrears1212
    Debt rescheduling1313
    Internal financing
    Sale of bonds353353
    Amortization of bonds−90−90
    Bank credit5457111
    Cash and deposits (increase −)−163−13
    Floating debt206−5201
    Pending taxes2020
    Other short-term assets−3420−14
    Transitory accounts, net−47−47
    Other debts−2525
    Other liabilities−24−24
    Timing differences−7−7

    Privatization of State Enterprises

    The purpose of this section is to present the entries in a flow of funds related to the privatization of state-owned enterprises. Since the terms of the sale of state enterprises may vary substantially, the following example is strictly for illustrative purpose, and for this reason, presents very simple transactions.

    Assume that the Government decides to sell, either partly or entirely, two state-owned enterprises to the private sector. Enterprise A will be sold to a locally owned company, whereas Enterprise B will be sold to a foreign-owned company. The sale price is estimated to be L/C 100 for each enterprise. For Enterprise A, the local buyer will pay in cash, either through a reduction of its local bank deposits or through a local bank credit. Enterprise B will also be purchased for cash, and for that purpose the foreign-owned company will sell foreign currency to the local banking system.

    Following are the detailed transactions, in local currency, as they would appear in a flow of funds table:

    Private Sector
    TotalGovernment sectorTotalLocal companyForeign companyBanking system
    Current revenue
    Current expenditure
    Capital receipts200200
    Transfer of investment−200−200−100−100
    New investment
    Resource gap200−200−100−100
    Internal financing:
    Changes in bank deposits (or in bank credit)−20011001100121003
    External financing:
    Direct investment100100100
    Foreign assets (increase −)−100−100

    In the case of Enterprise A, the Central Government will record a capital receipt (L/C 100) and an increase in bank deposits (L/C 100). The private sector will record a transfer (purchase) of investment (L/C 100) and a decline in bank deposits (L/C 100).

    In the case of Enterprise B, the sale of foreign currency by the foreign-owned, foreign-based company (which for balance of payments purposes is considered a resident of the country and, therefore, will be included with the private sector) to local banks to obtain local currency will be recorded in the balance of payments as a direct investment (L/C 100) and an increase in local bank deposits (L/C 100). The local banking system will record an increase in its foreign assets (L/C 100) and in private sector deposits (L/C 100). The actual purchase of the state-owned enterprise will be recorded by the Central Government as a capital receipt (L/C 100) and an increase in government deposits (L/C 100), and by the private sector as a transfer (purchase) of investment (L/C 100) and a decline in private sector deposits (L/C 100).

    As a result of the operation, the stock of the country’s investment did not change. There was only a transfer of ownership of investment from the Central Government to the private sector, offset by government capital receipts. In the balance of payments, foreign direct investment, which is a liability, will increase by L/C 100, offset by an increase in net foreign assets.

    Appendix IV Legal Reserve Requirement and Interest Rate

    Table IV-1 presents the relationship between legal reserve deposits and interest rates. This example makes the following assumptions:

    A. Banks maintain reserves in line with legal requirements, neither more nor less than required, and all resources available for lending are fully utilized.

    B. Administrative costs of banks remain unchanged.

    C. Banks will charge an interest rate on their portfolio sufficient to cover their interest payments on deposits and their administrative costs.

    D. At the beginning of the period, banks are paying 7 percent interest on their time and savings deposits, and legal reserve requirements are 25 percent on demand deposits and 30 percent on time and savings deposits. Banks would then have to charge 8.8 percent on their lending operations.

    E. During the second stage, legal reserve requirements on both demand and time and savings deposits are raised by 5 percentage points. To cover interest payments on deposits and administrative costs, banks would have to raise their lending rates to 9.4 percent.

    F. During the third stage, interest paid on deposits is raised to 3 percent on demand deposits and 9 percent on time and savings deposits. Banks would then have to raise their lending rate to 11.5 percent.

    Table IV-1.Legal Reserve Requirements and Interest Rates
    DepositsInterest Rate (Percent)InterestLegal Reserve Requirement (Percent)Legal Reserves
    1.Initial position
    Total deposits1,00049215
    Time and savings70074920140