Chapter

4. The Government Finance Statistics Analytic Framework

Author(s):
Sage De Clerck, and Tobias Wickens
Published Date:
March 2015
Share
  • ShareShare
Show Summary Details

This chapter introduces the government finance statistics analytic framework1and describes the relationships among its elements and use of government finance statistics in fiscal analysis.

Introduction

4.1 Government units and public corporations carry out a multitude of activities. To manage the internal operations of government and assess their impact on the economy, these activities—resulting in transactions and other economic flows—must be organized into a framework within which they can be summarized and analyzed. For accountability purposes, these activities may be organized according to the government unit that carries them out. For managerial or planning purposes, these activities may be organized by the kind of item purchased/sold or service provided/acquired. For billing or control purposes, these activities may be organized by the particular transactors with whom the government deals. The GFS framework, on the other hand, is designed to facilitate fiscal analysis in a broader macroeconomic context. While there is clearly a close link between accounting data and macroeconomic statistics, they do not serve the same objectives and may differ in the treatment of particular items.2

4.2 Traditionally, governments have recorded their activities on a cash basis; this is reflected in the analytic framework of the GFSM 1986. Including only cash revenue and expenditure has the advantage of focusing the government’s attention on its financing/liquidity constraint, which has traditionally been viewed as its most binding priority. However, governments have become less liquidity-constrained in carrying out fiscal policy and have become more adept at separating the time of a fiscal action from the time it is paid for, so that cash transactions do not adequately capture either the timing of activities or their economic impact. In consequence, there has been increasing recognition worldwide of the need to adopt the accrual system of recording, which includes a cash-flow statement for assessing fiscal policy.3

4.3 The GFS analytic framework introduced in the GFSM 2001, and as updated in this Manual, reflects these developments and is presented in the form of a set of interrelated accrual-based statements. These statements are harmonized with the 2008 SNA, that integrate flows and stock positions, and are supplemented with a cash-flow statement. The GFS analytic framework facilitates a more comprehensive assessment of the economic impact of government activity and the resulting changes on liquidity and the implications for the sustainability of fiscal policy. More specifically, the use of accrual-based statements and the integration of balance sheets with flows are consistent with the need for government behavior to be determined in the context of its intertemporal budget constraint. For example, a government’s policies will not be sustainable if they significantly reduce its net worth. The framework also provides an improved basis for monitoring efficiency in the allocation and use of all government resources. The analytic framework set out in this Manual encompasses the traditional cash-based fiscal reporting, to support liquidity analysis.

Analytic Objectives

4.4 The GFS analytic framework is a quantitative tool that supports fiscal analysis. To permit effective analysis of fiscal policy, the GFS framework must facilitate the identification, measurement, monitoring, and assessment of the impact of a government’s economic policies and other activities on the economy.

4.5 To achieve the analytic objectives, the GFS framework should generate data that:

  • Are sufficiently detailed and effectively organized to allow an assessment of management and policy decisions

  • Are closely linked to other macroeconomic statistical frameworks (national accounts, balance of payments and international investment position, and monetary and financial statistics)

  • Enable analysts to assess the financial soundness of the general government and public sectors in ways commonly applied to other organizations in the economy4

  • Enable assessment of sustainability over the long term

  • Enable assessment of liquidity constraints and financing needs.

Construction of the Analytic Framework: Relation to the GFSM 1986

4.6 The analytic framework of this Manual builds on the GFSM 1986 framework, and extends it by incorporating additional elements that are useful in assessing fiscal policy. There are three types of modifications:

  • The definitions of individual statistical variables are closely aligned with economic concepts. An important example is the treatment of nonfinancial assets, where the sale of such assets is no longer included in revenue and their purchase is no longer included in expense.

  • Concepts are harmonized with the 2008 SNA. These include: the shift from a functional-based definition of general government and public sectors to one built on institutional units (see paragraphs 2.22–2.48); a switch from using only the cash basis of recording to a framework of accounts using the accrual basis of recording, while maintaining a cash-flow statement (see paragraphs 3.70–3.72); and the complete integration of flows and stock positions (see paragraphs 3.2–3.3).

  • The GFSM 1986 framework has been extended to include nonmonetary transactions, such as inkind and imputed transactions (see paragraphs 3.19–3.20), flows other than transactions (see paragraphs 3.31–3.35), and a balance sheet (see paragraphs 3.36–3.50).

4.7 In principle, the coverage of GFS encompasses all institutional units that materially affect fiscal policies. Therefore, two principal constructs are used for which GFS should be compiled. The general government sector captures those institutional units primarily involved in nonmarket activities of government, while the public corporations sector captures all the activities of public corporations, including their market and quasi-fiscal activities (see Chapter 2). Once an institutional unit has been classified to a sector, all its flows and stock positions are recorded in that sector. Thus, statistics for the general government sector as well as for the public sector should be compiled. The analytic framework described in this chapter can be applied to both sectors, and their subsectors.

Components and Concepts of the Analytic Framework

4.8 The core of the analytic framework is a set of four financial statements. Three of the statements can be combined to show that all changes in stock positions result from flows (see Figure 4.1 and paragraph 3.4). These are the:

  • Statement of Operations

  • Statement of Other Economic Flows

  • Balance Sheet.

Figure 4.1Structure of the GFS Analytic Framework

In addition, the core framework includes a Statement of Sources and Uses of Cash to provide key information on liquidity.

4.9 The Statement of Operations is a summary of the transactions of a sector or subsector in a given reporting period. In essence, transactions represent changes to stock positions that arise from mutually agreed interactions between institutional units, such as the sale of a good or service by one unit and its purchase by another (see paragraph 3.5). The framework also recognizes that a unit can act in two capacities of economic interest and includes as transactions some items that do not involve another institutional unit. For example, consumption of fixed capital recognizes that a unit is both the owner of a fixed asset and the consumer of the services provided by the asset. Taken together, transactions constitute the largest share of the flows associated with the implementation of fiscal policy. As described in the following section, transactions are classified to demonstrate how general government and public sector units raise revenue and spend it, and to show the effects of fiscal policy decisions on the net worth of the sector, on its demand for credit, and on its ability to invest in assets.

4.10 The Statement of Other Economic Flows tabulates changes to stock positions of assets, liabilities, and net worth that come about for reasons other than transactions. More specifically, holding gains and losses represent changes to stock positions that arise from price movements, including exchange rate movements.5Other changes in the volume of assets represent changes to stock positions arising from events such as the discovery of new assets/liabilities (e.g., mineral deposits), depletion or destruction of assets, or reclassification of assets/liabilities.

4.11 The Balance Sheet records the stock positions of assets, liabilities, and net worth of the sector or sub-sector at the end of each reporting period.

4.12 The Statement of Sources and Uses of Cash records cash inflows and outflows using a classification similar to that of the Statement of Operations, but with a focus on the net change in cash flows arising from transactions during the reporting period.

4.13 In addition to the core statements of the GFS framework, two supplementary statements are included in the framework due to their analytic usefulness. These statements are the:

  • Statement of Total Changes in Net Worth

  • Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefits.

4.14 The Statement of Total Changes in Net Worth combines the revenue and expense transactions from the Statement of Operations with the Statement of Other Economic Flows in one statement. In its summary format, this supplementary statement serves to highlight the total changes in net worth of government.

4.15 The Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefits summarizes the explicit and implicit guarantees outstanding. Contingent liabilities create fiscal risks and may arise from deliberate public policy or from unforeseen events. The stock positions of explicit and some implicit contingent liabilities are recorded as memorandum items to the GFS balance sheet (see paragraphs 7.251–7.261). For details on the recording of contingent liabilities, also see paragraphs 7.251–7.259 and the PSDS Guide, paragraphs 4.3–4.26.

The Statement of Operations

4.16 The Statement of Operations (see Table 4.1) presents details of transactions in revenue and expense, as well as the net investment in nonfinancial assets, the net acquisition of financial assets, and the net incurrence of liabilities.6 Revenue is defined as the increase in net worth resulting from transactions, and expense as the decrease in net worth resulting from transactions. The net investment in nonfinancial assets equals the acquisitions minus disposals of fixed assets, minus consumption of fixed capital, plus changes in inventories, plus the net acquisition (acquisitions minus disposals) of valuables and nonproduced assets.

Table 4.1Statement of Operations
Transactions Affecting Net Worth:
1Revenue
11Taxes
12Social contributions [GFS]
13Grants
14Other revenue
2Expense
21Compensation of employees [GFS]
22Use of goods and services
23Consumption of fixed capital [GFS]
24Interest [GFS]
25Subsidies
26Grants
27Social benefits [GFS]
28Other expense
NOB/GOBNet/gross operating balance (1−2)1
Transactions in Nonfinancial Assets:
31Net/gross investment in nonfinancial assets2
311Fixed assets
312Inventories
313Valuables
314Nonproduced assets
2MExpenditure (2+31)
NLBNet lending (+)/Net borrowing () [GFS]
(1-2-31 = 1-2M = 32-33)
Transactions in Financial Assets and Liabilities (Financing):
32Net acquisition of financial assets
321Domestic3
322External3
33Net incurrence of liabilities
331Domestic3
332External3

The net operating balance equals revenue minus expense. The gross operating balance equals revenue minus expense other than consumption of fixed capital.

The net investment in nonfinancial assets equals acquisitions minus disposals minus consumption of fixed capital. The gross investment in nonfinancial assets equals acquisitions minus disposals.

Classified by instrument and/or sector of the counterparty (see Tables 9.1 and 9.2).

The net operating balance equals revenue minus expense. The gross operating balance equals revenue minus expense other than consumption of fixed capital.

The net investment in nonfinancial assets equals acquisitions minus disposals minus consumption of fixed capital. The gross investment in nonfinancial assets equals acquisitions minus disposals.

Classified by instrument and/or sector of the counterparty (see Tables 9.1 and 9.2).

4.17 Two important analytic balances are derived in the Statement of Operations. Revenue minus expense equals the net operating balance, reflecting the total change in net worth due to transactions. The subsequent deduction of the net investment in nonfinancial assets results in net lending (+) / net borrowing (−), which is also equal to the net result of transactions in financial assets and liabilities. In addition to these balances, the annex to Chapter 4 describes a number of other important fiscal indicators that could be derived from GFS and that are used in fiscal analysis.

4.18 The net operating balance is a summary measure of the sustainability of the reporting sector or subsector’s operations. It is comparable to the national accounts concept of saving plus net capital transfers receivable. The net operating balance as defined here excludes gains and losses resulting from changes in price levels and other changes in the volume of assets. The component of the change in net worth that is due to transactions can largely be attributed directly to government policies since governments have direct control over the decisions that lead to the interaction with other units by mutual agreement. The same cannot always be said for the other components of the total change in net worth. For example, changes in the market prices or events that impact on the volume of assets or liabilities are not in the direct control of government. Still, these risks need to be monitored so that governments can manage them proactively to minimize their potential fiscal impact.

4.19Net lending (+) / net borrowing () is a summary measure indicating the extent to which government is either putting financial resources at the disposal of other sectors in the economy or abroad, or utilizing the financial resources generated by other sectors in the economy or from abroad. It may therefore be viewed as an indicator of the financial impact of government activity on the rest of the economy and the rest of the world. While this balancing item is conceptually the same as in the 2008 SNA, amounts reported as net lending/net borrowing may differ to the extent that a government maintains an unfunded pension scheme for its employees (see paragraphs 5.95, 7.192–7.193 and Appendixes 2 and 7).

4.20 The gross operating balance as presented in the Statement of Operations differs from the net operating balance in that it does not include consumption of fixed capital as an expense. Consumption of fixed capital can be difficult to measure in practice and a satisfactory estimate may not be available. If so, the gross operating balance may be more practical for analysis than the net operating balance.7 The net operating balance is, however, preferred in principle because it captures all costs of operations during the reporting period.

4.21 Expenditure is the sum of expense and the net investment in nonfinancial assets and is presented as an additional aggregate in the Statement of Operations. This aggregate is not influenced by the level of consumption of fixed capital and is therefore suitable for international comparisons between countries even if they cannot reliably measure consumption of fixed capital.

4.22 As illustrated in Table 4.1, the Statement of Operations is divided into three sections that present: revenue and expense transactions; transactions in nonfinancial assets; and transactions in financial assets and liabilities. The following paragraphs follow this structure in providing an overview of the various categories of transactions. These definitions and descriptions are not intended to be comprehensive. In each section, reference is made to the chapter that contains more detailed information.

Revenue and Expense

4.23 Revenue is an increase in net worth resulting from a transaction.8 The major types of revenue are taxes (11), social contributions (12), grants (13), and other revenue (14).9 The detailed classification of revenue is described in Chapter 5. The disposal of a nonfinancial asset by sale or barter is not revenue because it has no effect on net worth. Rather, it changes the composition of the balance sheet by exchanging one asset (the nonfinancial asset) for another (the proceeds of the sale). Similarly, amounts receivable from loan repayments and loan disbursements are not revenue. These are transactions in assets or liabilities as described in Chapters 8 and 9.

4.24 Expense is a decrease in net worth resulting from a transaction.10 The major types of expense are compensation of employees (21), use of goods and services (22), consumption of fixed capital (23), interest (24), subsidies (25), grants (26), social benefits (27), and other expense (28). In addition, expense can be classified according to the functions of government, such as health or social protection. The economic and functional classifications of expense are described in Chapter 6. The acquisition of a nonfinancial asset by purchase or barter is not an expense because it has no effect on net worth. Rather, it changes the composition of the balance sheet by acquiring one asset (the nonfinancial asset) against the disposal/reduction in another asset or by incurring a liability (the payable for the asset). Similarly, amounts payable on loans extended and repayments on loans incurred are not classified as expense. These are transactions in assets or liabilities as described in Chapter 8 and 9.

Transactions in Nonfinancial Assets11

4.25 The second section of the Statement of Operations (see Table 4.1) records transactions that change a government’s net investment in nonfinancial assets. Nonfinancial assets are economic assets other than financial assets. Nonfinancial assets are stores of value and provide benefits either through their use in the production of goods and services or in the form of property income and holding gains. These assets are classified as fixed assets (311), inventories (312), valuables (313), and nonproduced assets (314). The classification of nonfinancial assets is described in Chapter 7 and transactions in nonfinancial assets are discussed in Chapter 8.

Transactions in Financial Assets and Liabilities

4.26 The third section of the Statement of Operations (see Table 4.1) records financing transactions, which are transactions that change a government’s holdings of financial assets and liabilities (financial assets and liabilities are defined in paragraphs 3.48 and 3.45, respectively). The classification of financial assets and liabilities is described in Chapter 7 and transactions in financial assets and liabilities are discussed in Chapter 9.

4.27 Transactions in financial assets can be classified in multiple ways; for ease of presentation, Table 4.1 indicates a classification of financial assets according to whether the counterpart liability was incurred by a resident (indicated by “domestic” in the table) or a nonresident (indicated by “external”) and similarly for the classification of liabilities.

4.28 There are additional classifications of transactions in financial assets and liabilities in GFS. The first classification is based on the type of financial instruments involved in the transactions. The instruments are: monetary gold and SDRs; currency and deposits; debt securities; loans; equity and investment fund shares or units; insurance, pension, and standardized guarantee schemes; financial derivatives and employee stock options; and other accounts receivable/payable (see Table 9.1). The second classification is based on the sector of the counterparty of the transactions in financial instruments. That is, transactions in liabilities are classified according to the sector of the institutional unit conducting the counterpart transaction in financial assets, such as financial corporations, nonfinancial corporations, households, and nonprofit institutions serving households (see Table 9.2).

Box 4.1Policy Lending

Whether to consider the acquisition of a financial asset or assumption of a liability as being for public policy purposes, for liquidity management, or for other purposes rests largely on an assessment of the particular purpose for acquiring the instrument.1

Some fiscal policies that may lead to the ownership of financial claims include fostering new industries, assisting ailing government corporations, or helping particular businesses that are experiencing economic adversity. For example, a government unit may provide loans at favorable rates to particular economic sectors, acquire shares in a corporation active in a particular geographical region or in a function that the government wishes to promote, or sell shares in a public corporation for less than their market value.

Liquidity management, on the other hand, refers to actions taken to ensure the availability of financial assets to fulfill requirements for short-term funds and to ensure that such funds earn the best available rate of return. Prudent financial management requires that government units acquire and dispose of financial assets in the process of their financing operations. The motive underlying these transactions is the effective management of finances.

Other purposes for acquiring financial assets, and perhaps incurring related liabilities, include the need to make a long-term provision for society, such as acquiring financial assets derived from the sale of natural resource assets to hold in a special-purpose government fund.

Some factors that should be considered when identifying policy-related financial instruments are as follows:

  • Nonnegotiable financial assets are usually held for policy-related purposes, as are negotiable financial claims issued by a lower level of government and held by a higher level of government.

  • Financial assets issued by a public corporation—for example, shares and other equity, debt securities, or loans—and held by government are typically held for public policy purposes.

  • A government statement about the acquisition of a financial asset may indicate that the purpose is policy-related.

  • Noncommercial terms favoring the borrower generally indicate a policy-related purpose, such as concessional interest rates on loans or arrangements for repayment that do not meet normal commercial standards.

  • Assets acquired as a result of government units acting as guarantors are likely to be policy-related.

  • Assets acquired through nationalization are policy-related.

  • Holdings of monetary gold, SDRs, currency, and nonlife insurance technical reserves are always liquidity-related.

  • Deposits may be acquired for policy or liquidity purposes.

1 As explained in paragraph 6.91 and Box 6.3, under some circumstances, “capital or equity injections” are considered to be expense (i.e., when they do not result in an effective financial claim on the debtor).

4.29 Another possible classification of transactions in financial assets and liabilities is whether they were acquired or disposed of for the purpose of public policy or liquidity management. This distinction is not included in the Statement of Operations, but is used to define the overall fiscal balance, as described in the annex to Chapter 4, Table 4A.2.

4.30 Public policy-related assets or liabilities (also called policy lending—see Box 4.1) may be acquired for a variety of reasons, such as fostering new industries, assisting ailing government corporations, or helping particular businesses suffering economic adversity. Such transactions can take a variety of forms, including loans, equity securities, and debt securities. Given that there is often a concessional element to such transactions, it is useful to identify them in a separate category so that for some analyses the fiscal impact of these policy-related transactions in assets could be assessed separately.12

4.31 All other transactions in financial assets are assumed to be for liquidity management or other purposes. That is, the assets are acquired to earn a market rate of return while keeping sufficient funds on hand to finance day-to-day operations, or to meet the long-term needs of society, such as through a special-purpose government fund.

The Statement of Sources and Uses of Cash

4.32 Information on the sources and uses of cash is important for assessing the liquidity of the general government and public sectors. The Statement of Sources and Uses of Cash (see Table 4.2) shows the total amount of cash generated or absorbed by current operating activities, transactions in nonfinancial assets, and transactions involving financial assets and liabilities other than the financial asset currency and deposit (cash) itself. The net change in the stock of cash is the sum of the net cash received from these three sources.

Table 4.2Statement of Sources and Uses of Cash
Cash Flows from Operating Activities:
C1Revenue cash flows
C11Taxes
C12Social contributions
C13Grants
C14Other receipts
C2Expense cash flows
C21Compensation of employees
C22Purchases of goods and services
C24Interest
C25Subsidies
C26Grants
C27Social benefits
C28Other payments
CIONet cash inflow from operating activities (C1-C2)
Cash Flows from Transactions in Nonfinancial Assets:
C31Net cash outflow from investment in nonfinancial assets1
C311Fixed assets
C312Inventories2
C313Valuables
C314Nonproduced assets
C2MExpenditure cash flows (C2+C31)
CSDCash surplus (+) / Cash deficit () (C1−C2−C31 = C1−C2M = C32−C33)
Cash Flows from Transactions in Financial Assets and Liabilities (Financing):
C32xNet acquisition of financial assets other than cash
C321xDomestic3
C322xExternal3
C33Net incurrence of liabilities
C331Domestic3
C332External3
NFBNet cash inflow from financing activities (C33−C32x)
NCBNet change in the stock of cash (CSD+NFB = C3202 = C3212+C3222)

The net cash outflow from investment in nonfinancial assets equals purchases minus sales.

On a cash basis, the category inventories (C312) is limited to changes in strategic stocks. Other inventories are, by definition of the cash basis of recording, considered an expense when acquired.

Classified by instrument and/or sector of the counterparty (see Tables 9.1 and 9.2).

The net cash outflow from investment in nonfinancial assets equals purchases minus sales.

On a cash basis, the category inventories (C312) is limited to changes in strategic stocks. Other inventories are, by definition of the cash basis of recording, considered an expense when acquired.

Classified by instrument and/or sector of the counterparty (see Tables 9.1 and 9.2).

4.33 The net change in the stock of cash refers to the financial asset currency and deposits (3202). Currency consists of notes and coins that are of fixed nominal values and are issued or authorized by the central bank or government. Deposits are all claims, represented by evidence of deposit, on the deposit-taking corporations (including the central bank) and, in some cases, general government or other institutional units. The classification of this financial asset is described in Chapter 7 and transactions are discussed in Chapter 9.

4.34 The Statement of Sources and Uses of Cash (Table 4.2) reflects transactions when using the cash basis of recording. This, in effect, means that transactions are captured only when cash is received or when cash payments are made (see paragraphs 3.67 and 3.103–3.105).

4.35 Additional useful information for fiscal analysis is obtained from an analysis of the differences between amounts reported in the Statement of Operations and the Statement of Sources and Uses of Cash.

There are some broad types of transactions that are recorded in Table 4.1 but not in Table 4.2:

  • Expense transactions that will be settled in cash in the future—With accrual recording, a purchase of goods and services is recognized when the ownership of goods changes hands or services are provided. The associated cash payment may not take place until a subsequent reporting period, in which case it would not be included in Table 4.2 in the same period as it appears in Table 4.1. The fiscal implication of such differences in amounts reported may indicate a larger need for liquidity in the future to provide for the payments of accrued expense.

  • Revenue transactions that were settled in cash but will be earned in the future—Revenue can be received in cash before it is earned by the delivery of goods or provision of services to the purchaser. In addition, taxes and other compulsory revenue may be earned, but may be unpaid and will be settled in the future. The fiscal implication of such differences may indicate a larger demand for service delivery in the future, or a need to assess the efficiency of tax collection efforts.

  • There may also be transactions in assets and liabilities that will be settled in cash in future periods, such as the interest accruing from the amortization of the discount on a zero-coupon or other discounted bond. There may be fiscal implications for liquidity management.

  • There are transactions that are not in cash by their nature. Consumption of fixed capital, imputed transactions, barter, other transactions in kind, and debt forgiveness and write-off are noncash transactions and would therefore not be recorded in a Statement of Sources and Uses of Cash. The difference between the two statements in this case will be an indication of the size of economic activities not measured in cash.

The Statement of Other Economic Flows

4.36 The Statement of Other Economic Flows (see Table 4.3) presents changes in assets, liabilities, and net worth that are not the result of transactions. They are classified as changes either in the value or volume of assets, liabilities, and net worth. The balancing item of this statement, the change in net worth due to other economic flows, is defined as the sum of the change in net worth due to holding gains or losses and the change in net worth due to other changes in the volume of assets. In line with the integrated approach, these other economic flows are classified by the type of asset or liability affected. Other economic flows are described in Chapter 10.

Table 4.3Statement of Other Economic Flows
9Change in net worth due to other economic flows (4+5)1
4Change in net worth due to holding gains and losses
41Nonfinancial assets
411Fixed assets
412Inventories
413Valuables
414Nonproduced assets
42Financial assets2
43Liabilities2
5Change in net worth due to other changes in the volume of assets and liabilities
51Nonfinancial assets
511Fixed assets
512Inventories
513Valuables
514Nonproduced assets
52Financial assets2
53Liabilities2

See Table 10.2 for a detailed classification of other economic flows.

Classified by residence, instrument, and/or sector of the counterparty (see Tables 9.1 and 9.2).

See Table 10.2 for a detailed classification of other economic flows.

Classified by residence, instrument, and/or sector of the counterparty (see Tables 9.1 and 9.2).

4.37 Change in net worth due to holding gains or losses is defined as the sum of the positive or negative holding gains and holding losses on all assets and liabilities. These include all changes in the value of assets, liabilities, and net worth due solely to price effects. They can result from changes in the general price level or in relative prices. Changes in the exchange rate cause holding gains or losses in financial assets and liabilities denominated in a foreign currency (see paragraph 10.44).

4.38 Change in net worth due to other changes in the volume of assets and liabilities is defined as the sum of the positive and negative other changes in the volume of assets and liabilities. These changes in the volume of assets and liabilities, other than from transactions and price effects, may arise for a variety of reasons. They can be described as resulting from the appearance or disappearance of existing resources as economic assets, effects of external events that are exceptional and unexpected, and changes in classification (see paragraphs 10.46–10.84).

The Balance Sheet

4.39 A balance sheet is a statement of the values of the stock positions of assets owned and of the liabilities owed by an institutional unit or group of units, drawn up in respect of a particular point in time. The Balance Sheet, shown in Table 4.4, presents the stock positions of assets and liabilities at the end of the reporting period in comparison to the stock positions at the beginning of the reporting period.13 The main balancing item on the balance sheet is net worth. The net worth of an institutional unit (or grouping of units) is the total value of its assets minus the total value of its liabilities. The change in net worth (comprising the change in net worth due to transactions in revenue and expense and the change in net worth due to other economic flows) is a fiscal indicator for assessing the sustainability of fiscal activities.

Table 4.4Balance Sheet
Opening

balance
Closing

balance
6Net worth (61+62−63)
61Nonfinancial assets
611Fixed assets
612Inventories
613Valuables
614Nonproduced assets
62Financial assets
621Domestic1
622External1
63Liabilities
631Domestic1
632External1
Memorandum items2

Classified by instrument and/or sector of the counterparty (see Tables 7.9 and 7.11).

See Chapter 7 for a list of standard memorandum items that should be included on the balance sheet.

Classified by instrument and/or sector of the counterparty (see Tables 7.9 and 7.11).

See Chapter 7 for a list of standard memorandum items that should be included on the balance sheet.

4.40 For public corporations, using changes in net worth as a fiscal indicator for assessing sustainability should be approached with caution. Because of the inclusion of shareholders’ equity as a liability in the calculation of net worth, the interpretation of net worth may be counterintuitive for public corporations. In cases where the market value of a public corporation’s shares and equity is increasing by more than the market value of the recognized assets minus liabilities, the net worth of the public corporations will decrease in GFS (and in other macroeconomic statistics). Thus, for public corporations’ own funds (including the value of shares and other equity and net worth) may provide a more useful fiscal indicator than net worth alone (see paragraphs 7.229–7.232 for more details on own funds).

4.41 Where market values of some nonfinancial assets are not available or are unreliable, net financial worth is another fiscal indicator of sustainability. The net financial worth of an institutional unit (or grouping of units) is the total value of its financial assets minus the total value of its liabilities.

4.42 The Balance Sheet shows the stock positions in assets and liabilities. (The definitions and classifications of assets and liabilities are described in Chapter 7.)

Assets

4.43 The assets included in the Balance Sheet are economic assets, defined as resources over which ownership rights are enforced and from which economic benefits may flow to the owners. Economic benefits arise from owning and using economic assets over a period of time. Assets not owned and controlled by a reporting unit or sector and assets that have no economic value are excluded.

4.44 As shown in Table 4.4, stock positions in assets are classified in the same way that transactions and other economic flows in assets are classified. Assets are either nonfinancial or financial. Nonfinancial assets are further classified as fixed assets, inventories, valuables, or nonproduced assets. Financial assets are classified by residence of the counterparty and by type of instrument. Financial assets can also be classified by sector of the counterparty and maturity.

Liabilities

4.45 A liability is established when one unit (the debtor) is obliged, under specific circumstances, to provide funds or other resources to another unit (the creditor). Most classifications that apply to financial assets also apply to liabilities. Liabilities are classified by the residence of the counterparty and by type of instrument. Liabilities can also be classified by sector of the counterparty and maturity.

The Statement of Total Changes in Net Worth

4.46 The Statement of Total Changes in Net Worth (see Table 4.5) combines the results from the Statement of Operations for revenue and expense transactions with the Statement of Other Economic Flows in one statement. The statement provides a clear statistical explanation of the factors causing the change in the net worth of government. It explains the sources of changes in assets and liabilities from one reporting period to another in terms of transactions in revenue and expense and other economic flows. In its summary format, this supplementary statement serves to highlight the total change in net worth of government.14

Table 4.5Statement of Total Changes in Net Worth
Transactions Affecting Net Worth:
1Revenue
2Expense
NOBNet operating balance (1–2)1
Change in Net Worth due to Other Economic Flows:2
91Nonfinancial assets
41Holding gains
51Other changes in the volume of
nonfinancial assets
92Financial assets
42Holding gains
52Other changes in the volume of
financial assets
93Liabilities
43Holding gains
53Other changes in the volume of liabilities
9Total other economic flows (91+92−93)
CNWTotal change in net worth (NOB+9)

The net operating balance equals revenue minus expense.

Classified by categories of assets and liabilities as needed.

The net operating balance equals revenue minus expense.

Classified by categories of assets and liabilities as needed.

The Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefits

4.47 The Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefits records the explicit and some implicit contingent liabilities. Contingent liabilities are obligations that do not arise unless a particular, discrete event(s) occurs in the future. These contingencies create fiscal risks and may arise from deliberate public policy or from unforeseen events. The stock positions of contingent liabilities are recorded as a memorandum item to the balance sheet (see paragraph 7.255). Some details on the nature and composition of these contingencies are recorded in this statement (see Table 4.6).15

Table 4.6Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefits
6M6Total explicit contingent liabilities
6M61Publicly guaranteed debt1
6M62Other one-off guarantees2
6M63Explicit contingent liabilities not elsewhere classified
Legal claims
Indemnities
Uncalled share capital
6M7Net implicit obligations for future social security benefits
Present value of implicit obligations for future social security benefits
Minus: Present value of future contributions to social security schemes

It is recommended that details of publicly guaranteed debt (i.e., loan and other debt instrument guarantees) are shown by maturity and type of debt instrument, at nominal values.

For example, credit guarantees and other similar contingent liabilities (such as lines of credit and loan commitments), contingent “credit availability” guarantees, and contingent credit facilities.

It is recommended that details of publicly guaranteed debt (i.e., loan and other debt instrument guarantees) are shown by maturity and type of debt instrument, at nominal values.

For example, credit guarantees and other similar contingent liabilities (such as lines of credit and loan commitments), contingent “credit availability” guarantees, and contingent credit facilities.

4.48 In GFS, the net implicit obligations for future social security benefits (other than employment-related retirement benefits) are not recognized as liabilities (see Appendix 2).16 Social security contributions are classified as revenue (and therefore as an increase in net worth), and social security benefits payable as expense (a decrease in net worth). This treatment is in line with conventional fiscal analysis. Alternatively, in a full intertemporal framework, social security contributions may be seen more appropriately as akin to a buildup of assets (arising from contributions made) associated with future liabilities of the government. Likewise, many social security benefit payments may be seen as the extinction of previously incurred government liabilities. This approach is not taken in the main tables of GFS because it is considered that social security schemes, other than employment-related pension schemes, do not result in a contractual liability for the government—that is, there is no direct link between the contributions made and the benefits eventually payable.

4.49 Indeed, it is not uncommon for governments to change unilaterally the structure of benefits of social security schemes (e.g., by changing the circumstances under which the benefits become payable or the amount of the benefit). Moreover, in most cases, these benefits become payable only when certain contingent events occur, such as sickness or unemployment. Nonetheless, it is important for a government to be aware of the implicit contingent liability that arises from its social security programs. Such a contingency recognizes the present value of future benefits that have already been earned according to the existing laws and regulations, net of the present value of future contributions to the scheme according to existing laws and regulations. As a result, a memorandum item is included in the Balance Sheet, with more details on these net obligations disclosed in this Statement (see Table 4.6).

4.50 The implicit contingent liabilities related to social security schemes exclude the liabilities associated with employment-related pension schemes, including in cases where the employment-related pensions are provided through the social security scheme. In GFS, imputed obligations incurred for unfunded government employee retirement schemes are considered to involve a contractual liability for a government or public sector unit to its employees. As a result, the actual or imputed contributions receivable to such employment-related schemes are considered to give rise to an incurrence of a liability, and the payment of retirement benefits is considered to be a reduction in the same liability (see paragraph 6.25).

Annex: Using GFS for Fiscal Analysis

This annex describes the use of GFS in creating fiscal indicators.

Introduction

4.51 This annex offers an overview of the application of the GFS framework in creating commonly used fiscal indicators.1 Some of these indicators can be observed or derived directly from the GFS framework, while others can be derived using a combination of GFS with other macroeconomic data.

4.52 Fiscal indicators may be produced for the general government and public sectors (see Chapter 2). Fiscal indicators for the subsectors of general government and the public sector can also be produced to take account of the decentralized nature of fiscal responsibilities in an economy. Using data from the GFS framework enhances the comparability of data across countries (see paragraph 1.13), which is important in establishing robust analytical findings.

Fiscal Indicators Available from the GFS Framework

4.53 The GFS framework produces fiscal indicators from the transactions, other economic flows, stock positions, aggregates, or balancing items. For example, in the Statement of Operations, net lending/ net borrowing is the basic indicator of the fiscal balance, measured from “above-the-line” as revenue minus expenditure (with expenditure comprising expense plus the net investment in nonfinancial assets). This fiscal balance can alternatively be measured from “below-the-line” as the difference between transactions in financial assets and liabilities, also referred to as financing transactions. From an above-the-line perspective, GFS provide detailed information on revenue sources, and the composition of expenditure, while the “below-the-line” approach provides detailed information on how governments invest surpluses or finance deficits.

4.54 The Balance Sheet offers data on regularly used fiscal stock position indicators, such as the gross and net debt, and the stock position and composition of various categories of assets and liabilities (see paragraphs 7.14–7.19). Additional aggregates, such as the stock position of cash and the maturity breakdown of other financial instruments, are useful for an analysis of liquidity. Balancing items such as net worth and net financial worth allows for an analysis of the wealth of government.

4.55 An analysis of gross debt sustainability requires calculating a primary balance, which can be calculated by excluding interest expense from the calculation of net lending/net borrowing or cash surplus/ deficit. When net debt is considered in the analysis, the primary balance should be calculated excluding the impact of interest expense and interest revenue. Similarly, the fiscal burden—an indicator of the compulsory contributions to the government—can be derived from transactions related to taxes and social contributions.

4.56Table 4A.1 presents a list of some fiscal indicators that are directly available from GFS or that can be derived from GFS.

Table 4A.1Fiscal Indicators Available from the GFS Framework
Fiscal IndicatorEquivalent Term in Statistical MethodologiesGFS Codes
Fiscal balances
Cash balance

(also referred to as deficit/ surplus)
Cash surplus (+) / Cash deficit (−) (CSD) equal to the net cash inflow from operating activities minus the net cash outflow from investment in nonfinancial assets.

Cash surplus/cash deficit is also equal to total cash flows from financing transactions.
C1−C2−C31, or

C1−C2M, or



NFB+NCB
Net operating

balance (NOB)
Revenue minus expense.

Net operating balance is also equal to change in net worth due to transactions.
1−2
Gross operating

balance (GOB)
Revenue minus expense, excluding consumption of fixed capital.1−2+23
Net lending/net

borrowing (NLB)
Revenue minus expense minus net investment in nonfinancial assets; or Revenue minus expenditure; or

Net operating balance minus net investment in nonfinancial assets; or Gross operating balance minus gross investment in nonfinancial assets.

Net lending/net borrowing is also equal to total financing.
1−2−31, or

1−2M, or

NOB−31, or

GOB−31.1+31.2

32−33
Primary cash

balance
Cash surplus/cash deficit excluding interest expense or net interest expense.

For gross debt sustainability analysis, use cash surplus/cash deficit excluding interest expense.

For net debt sustainability analysis, use cash surplus/cash deficit excluding net interest expense.




CSD+C24



CSD+C24−C1411
Primary

operating

balance
Net operating balance excluding interest expense or net interest expense. For gross debt sustainability analysis, use net operating balance excluding interest expense.

For net debt sustainability analysis, use net operating balance excluding net interest expense.




NOB+24



NOB+24−1411
Primary balanceNet lending/net borrowing excluding interest expense or net interest expense.

For gross debt sustainability analysis use net lending/net borrowing excluding interest expense.

For net debt sustainability analysis use net lending/net borrowing excluding net interest expense.




NLB+24



NLB+24−1411
Other Macroeconomic Fiscal Indicators
Above-the-line

transactions
All transactions in revenue, expense, and net investment in nonfinancial assets.

(The main balancing items, such as cash surplus/cash deficit or net lending/ net borrowing, serve as the “line.”)
1, 2, and 31, or



C1, C2, and C31
Below-the-line

transactions
All transactions in the net acquisition of financial assets, and the net incurrence of liabilities—also referred to as financing transactions.

(The main balancing items, such as cash surplus/cash deficit or net lending/ net borrowing, serve as the “line.”)
32 and 33, or NFB and NCB
Fiscal burdenRevenue in the form of taxes plus social contributions.

(In principle, only compulsory social contributions should be included—where voluntary social contributions are significant, these need to be excluded to calculate the fiscal burden, in which case this indicator becomes a fiscal indicator requiring additional data.)
11+12, or

11+121+122
Tax burdenRevenue in the form of taxes.11
Direct taxesTaxes that take into account individual circumstances of taxpayers (e.g., taxes on individual and corporate income).111+1131+1132+1136
Indirect taxesTaxes that do not take into account individual circumstances of taxpayers (e.g., taxes imposed on goods and services).112+114+115+116
Capital taxesCapital taxes are taxes levied at irregular and infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts, or other transfers.1133+1135
Government final

consumption expenditure
Approximated by compensation of employees, plus the use of goods and services, plus consumption of fixed capital, plus purchases of goods and services for direct transfer to households (mainly social benefits in kind), minus the sales of goods and services.21+22+23+282−142
Gross savingGross operating balance excluding net capital transfers receivable (capital transfers including net capital grants and capital taxes); or



Net lending/net borrowing excluding gross investment in nonfinancial assets, and excluding net capital transfers receivable (capital transfers including net capital grants and capital taxes).
GOB−(1133+1135+1312+1322+1332+1442+1452−2612−2622−2632−2822−2832), or

NLB+31+23−(1133+1135+1312+1322+1332+1442+1452−2612−2622−2632−2822−2832)
Capital spendingNet investment in nonfinancial assets equals acquisition of nonfinancial assets minus disposal of nonfinancial assets minus consumption of fixed capital.31.1−31.2−31.3
Gross investment in nonfinancial assetsNet acquisition of nonfinancial assets equals acquisition of nonfinancial assets minus disposal of nonfinancial assets.

Net investment in nonfinancial assets plus consumption of fixed capital.
31.1−31.2, or

31+23
Gross capital

formation
Acquisition minus disposals of produced nonfinancial assets, which comprise fixed assets, inventories, and valuables.311.1−311.2+312+313
Gross fixed

capital

formation
Acquisitions minus disposals of fixed assets.311.1−311.2
Net interest expenseInterest expense minus interest revenue.24−1411
Social spendingApproximated by functional classification of expenditure on housing, health, education, and social protection.706+707+709+710
Total expenditure or outlaysExpense plus net investment in nonfinancial assets; or expenditure.2+31, or

2M
Transfer payments excluding grantsTransfers to corporations, households, and nonprofit institutions serving households, which comprise subsidies, social benefits, transfers not elsewhere classified, and premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes.25+27+282+283
Financing Indicators
Total financingTransactions in financial assets minus transactions in liabilities.32−33, or

82−83
Domestic financingTransactions in financial assets minus transactions in liabilities, both with resident institutional units (domestic debtors/creditors).321−331, or

821−831
Foreign financingTransactions in financial assets minus transactions in liabilities, both with nonresident institutional units (external debtors/creditors).322−332, or

822−832
Domestic bank financingTransactions in financial assets and liabilities with the central bank and resident deposit-taking corporations other than the central bank.8212+8213−8312−8313
Domestic nonbank financingTransactions in financial assets and liabilities with resident institutional units other than the central bank and resident deposit-taking corporations other than the central bank; or Transactions in financial assets and liabilities with general government units, and resident other financial corporations, nonfinancial corporations, and households and nonprofit institutions serving households.(821−8212−8213)−(831−8312−8313), or

8211+8214+8215+82168311−8314−8315−8316
Wealth and Debt Indicators
Accounts payableStock position in other accounts payable, which comprise trade credit and advances, and miscellaneous other items due to be paid.6318
ArrearsStock position in amounts unpaid and past the due date for payment.6M5
Contingent liabilitiesObligations that do not arise unless a particular, discrete event(s) occurs in the future.6M6
Total pension and insurance liabilitiesStock position in insurance, pension, and standardized guarantee scheme liabilities plus net obligations for social security benefits.6306+6M7
Gross debtStock position in financial claims that require payment(s) of interest and/ or principal by the debtor to the creditor at a date, or dates, in the future. Includes all liabilities held in debt instruments (i.e., total liabilities excluding equity and investment fund shares and financial derivatives and employee stock options).63−6305−6307, or

6301+6302+6303+6304+ 6306+6308
Net debtGross debt minus stock position in financial assets corresponding to debt instruments. Includes all financial assets/liabilities held in debt instruments (i.e., financial assets/liabilities excluding equity and investment fund shares and financial derivatives and employee stock options).(63−6305−6307)−(62−6205−6207), or 6301+6302+6303+6304+

6306+6308−6201−6202−6203−6204−6306−6308
Gross debt, net of highly liquid assetsGross debt minus financial assets held in the most liquid financial instruments. In most countries, liquid assets would primarily comprise currency and deposits. (Where other financial assets are partly considered highly liquid financial assets, this indicator becomes a fiscal indicator requiring additional data.)63−6305−6307−6201, or

6301+6302+6303+6304+

6306+6308−6201
Net financial wealthNet financial worth equals the stock position in financial assets minus stock position in liabilities.62−63, or

6M1
Net worthStock position in assets minus stock position in liabilities at end of reference period.61+62−63, or6
Total change in net worthNet worth at the end of the current reporting period minus net worth at the end of the previous reporting period. (A split between change in net worth due to transactions [i.e., net operating balance] and change in net worth due to other economic flows is also analytically useful.)6t1−6t0, or

(61+62−63)t1−(61+62−63)t0, or NOB+9

Fiscal Indicators Requiring Additional Data

4.57 Some fiscal indicators require additional information. The overall fiscal balance, for example, reflects the net lending/net borrowing after transactions in assets and liabilities are adjusted for transactions that are deemed to be for public policy purposes (also called “policy lending”). Notably, all proceeds under privatization (including proceeds from the sale of fixed assets) are included as financial items, while policy lending is treated as if it is an expense rather than a transaction in financial assets. For example, privatization proceeds or the repayment of policy lending is treated as financing while capital injections or loans to public corporations (policy lending) are added to expense in calculating the overall fiscal balance. Calculating the overall fiscal balance requires therefore a distinction between transactions in financial assets/liabilities undertaken for public policy purposes and those undertaken for liquidity management (see paragraph 4.29 and Box 4.1).

4.58 Cyclically adjusted and structural balances are other examples of fiscal indicators where information from various datasets must be assembled. These more complex fiscal balances attempt to measure fiscal positions net of cyclical and other transitory effects by taking into consideration the effects of exogenous factors on the fiscal balance. Examples of these more complex balances are also provided in Table 4A.2. Cyclically adjusted balances are measures of the government’s fiscal position in an economy as if the economy was operating at potential gross domestic product (GDP). These balances can be calculated by adjusting the GFS concept of net lending/net borrowing (or other fiscal balances in the GFS framework) for the effect on revenue and expense of the difference between actual and potential GDP. Structural balances are an extension of cyclically adjusted balances, by adjusting for a broader range of factors, such as commodity prices, which may over- or understate fiscal performance.

Table 4A.2Fiscal Indicators Requiring Additional Data
Fiscal IndicatorRelated Term in Statistical Methodologies
Resource revenueRevenue receivable that is related to natural resources. These receivables may be related to various types of taxes, subsidies, dividends, contracts, leases, and licenses, rent, or other transfers.
Resource expenseExpense payable that is related to natural resources. These payables may be related to various types of expense such as subsidies, property expense, and transfers.
Nonresource operating balanceTotal revenue excluding natural resource-related revenue minus total expense excluding natural resource-related expense.
Nonresource primary operating balanceNonresource operating balance excluding interest expense for gross debt sustainability analysis or excluding net interest expense for net debt sustainability analysis.
Nonresource net lending/net borrowingNonresource operating balance minus net investment in nonresource related nonfinancial assets.
Nonresource primary net lending/net borrowingNonresource net lending/net borrowing excluding interest expense for gross debt sustainability analysis or excluding net interest expense for net debt sustainability analysis.
Overall fiscal balanceNet lending/net borrowing adjusted through the rearrangement of transactions in assets and liabilities that are deemed to be for public policy purposes (also called policy lending/borrowing). Policy lending is added to expense. Privatization proceeds from the sale of nonfinancial assets and repayments on policy lending (see Box 4.1) are included as transactions in financial items in calculating the overall fiscal balance.
Overall primary balanceOverall fiscal balance excluding interest expense or net interest expense.

For gross debt sustainability analysis, use overall fiscal balance excluding interest expense.

For net debt sustainability analysis, use overall fiscal balance excluding net interest expense.
Cyclically adjusted balanceTrend balance through an economic cycle, which is the fiscal balance, stripped of the impact of cyclical movements in revenue and expenditure (for government, usually only unemployment benefits payable are eliminated).
Cyclically adjusted primary balanceTrend balance through an economic cycle, which is primary fiscal balance, stripped of the impact of cyclical movements in revenue and expenditure (for government, usually only unemployment benefits payable are eliminated).
Structural balanceUnderlying or permanent fiscal balance, which is the fiscal balance, stripped of the impact of cyclical movements in revenue, expenditure, and the effects of unusual or one-off events.
Structural primary balanceUnderlying or permanent primary fiscal balance, which is the primary fiscal balance, after removing the impact of cyclical movements in revenue, expenditure, and the effects of unusual or one-off events.
Fiscal impulseChange in the structural primary balance between two reporting periods. (Often also calculated using the [overall] structural balance, or the cyclically adjusted [primary] balance.)
Gross financing needsNet lending/net borrowing during a particular reporting period plus debt maturing within that reporting period. (This concept is a forward-looking indicator and should not be confused with total financing.)
Concessional loansLoans that provide to the borrower some concessional benefits. An estimate of the one-off benefit at the point of loan origination can be calculated as equal to the difference between the nominal value of the debt and its present value using a relevant market discount rate.
Development spendingRepresents government’s expenditure on national development and encompasses transactions in the acquisition of nonfinancial assets, usually related to infrastructure. Development spending is often financed from specific designated sources (e.g., foreign loans, foreign grants, privatization proceeds, one-off tax levies).
Quasi-fiscal operationsQuasi-fiscal operations are government operations carried out by institutional units other than government units (e.g., central banks and other public corporations). Quasi-fiscal operations encompass a broad array of activities that have the same fiscal policy impact on the economy as government operations.

4.59 In resource-rich countries, analysts often take into account the volatility of commodity prices (which affects fiscal balances but is outside of the direct control of government) when assessing fiscal performance. Calculating nonresource balances requires removing from net lending/net borrowing (or other fiscal balances) net resource-related revenue and expenditure. These resource-related items are not available in the core classifications of GFS, but could be provided in underlying source data.

4.60Table 4A.2 presents a list of fiscal indicators that are built using GFS with additional data. These fiscal indicators are usefully expressed as a percentage change or as ratios of aggregates, such as GDP.

The GFS analytic framework refers to the structure of accounts and their relationships as a body of thought, while the term GFS framework more generally refers to the framework for the compilation and dissemination of GFS data.

See Appendix 6 for a detailed description of the linkages between GFS and international accounting standards, and see Appendix 7 for linkages between GFS and other macroeconomic statistics.

For example, see Study 11, Part III of International Federation of Accountants, Government Financial Reporting: Accounting Issues and Practices (New York, 2000), and IFAC Recommendations to G-20 meeting, New York, 2010 and 2012.

Organizations in other sectors of the economy record their operations in the form of integrated accounting systems that include income statements, balance sheets, and cash-flow statements.

“Holding gains” is used as a short form of the more general term “holding gains and losses.”

As explained in paragraph 3.69, the Statement of Operations is intended to be compiled using the accrual basis of recording transactions. It is recognized, however, that many governments may be able to compile statistics only on the cash or partial accrual basis for some time. If only cash data are available, the classification of cash flows shown in Table 4.2 should be used. Otherwise, with accrual or partial accrual (noncash) source data, the classification of transactions shown in Table 4.1 should be used. With the exception of consumption of fixed capital, in-kind and imputed transactions, and other accounts receivable/payable, all of the line items in Table 4.1 can be applied to both cash and accrual data. However, the benefits of the fully integrated GFS framework can be derived only when using the accrual basis of recording.

The availability of data on consumption of fixed capital has no influence on net lending/net borrowing. The counterpart entry for the expense recorded for consumption of fixed capital reduces the value of investment in fixed assets—thereby neutralizing the impact on net lending/net borrowing.

In general, transactions that increase net worth result from current operations. Capital transfers are an exception. Capital transfers are defined in paragraph 3.16. In GFS, capital transfers receivable are classified as revenue because they increase the recipient’s net worth and they are often indistinguishable from current transfers in their effect on government operations.

The numbers in parentheses after each classification category are the GFS classification codes. Appendix 8 provides all classification codes used in the GFS system.

As with revenue, transactions that decrease net worth result mainly from current operations. Capital transfers payable or otherwise obligated are an exception. See footnote 8.

This section deals only with the net investment in nonfinancial assets (acquisitions minus disposals of nonfinancial assets, minus consumption of fixed capital) by the reporting unit or sector. Government or public sector institutional units may also facilitate public capital formation by transferring funds to other governments or to public corporations with a requirement that the funds be used to acquire nonfinancial assets. Rather than being considered transactions in nonfinancial assets, these transactions are included in capital transfers, either as capital grants or other expense, as relevant.

The net acquisition of financial assets for policy purposes was called “lending minus repayments” in the GFSM 1986 and was often referred to as “net lending.” These terms should not be confused with the term “net lending/net borrowing” used in this Manual.

Table 7.1 presents the balance sheet in another format.

This format brings the statistical presentation closer to the presentation used in financial statements compiled in accordance with International Public Sector Accounting Standards (see Appendix 6).

For more details, see the PSDS Guide, paragraphs 4.3–4.26.

These implicit obligations exclude amounts that become overdue after all criteria for benefits have been met—GFS include these as liabilities in other accounts payable.

The International Financial Statistics and the Government Finance Statistics Yearbook contain a large and comprehensive database of macroeconomic statistics, including GFS. See also the IMF’s Fiscal Transparency Code at http://www.imf.org/external/np/fad/trans/. First published in 1998 and updated in 2007 and 2014, the IMF’s Code of Good Practices on Fiscal Transparency and accompanying Manual and Guide are centerpieces of the global architecture of fiscal transparency norms and standards.

    Other Resources Citing This Publication