Chapter 6 WORKSHOP 4 Flow of Funds

International Monetary Fund
Published Date:
September 1985
  • ShareShare
Show Summary Details

The purpose of this workshop is to show how income and financial transactions undertaken in a modern economy, divided into economic sectors according to type of activity or pattern of behavior, can be organized and summarized conveniently in a set of interrelated accounts. The usefulness of setting up a flow-of-funds system lies in the fact that it describes the financing of the various sectors of the economy and the categories of market instruments used in financial transactions. Such a system brings out explicitly the important macro-economic accounting identities that aid in the formulation of behavioral hypotheses; and it helps in the design and control of development plans, as well as in the design and checking of consistency of short-run financial programs.

The workshop consists of two sections. In the first section, the basic structure and the analytical uses of the flow-of-funds accounts are briefly explained, and there follows a discussion of the use of data from the monetary survey, government finance statistics, and balance of payments statistics in the construction of the flow-of-funds accounts. An exercise involving the construction of current transactions accounts and balance sheets of a hypothetical economy is also part of this section. The second section deals with the construction of an elementary summary of a flow-of-funds account for Kenya on the basis of 1976 data from various official sources. This section also includes a number of issues for discussion.


Basic Structure and Analytical Uses

For convenient presentation of flow-of-funds accounts, the economy of a country may be divided into five sectors: households (PSH), private business firms (PSc), the government sector (GS), the banking sector (B), and the foreign sector (FS). Each sector is engaged in income and expenditure, as well as financial, transactions. Thus, from the viewpoint of flow of funds, the statement of the transaction account of a sector comprises two parts. The first part registers the sources of funds, which consist of the receipts from the sale of goods and services currently supplied and transfers; it also records the uses of these funds, such as the purchase of goods and services. The second part registers the receipts from the sale of financial claims, or the assumption of financial liabilities and the outlays on the acquisition of financial claims, or the repayment of financial liabilities. In presenting the accounts, the banking sector is considered to be confined to financial transactions only. As a financial intermediary, it creates financial liabilities for the other sectors to hold as their financial assets by borrowing from them, and it acquires financial assets from other sectors by lending to them; its own relatively small income-expenditure transactions are included in other sectors. Typically, the five sectoral accounts resemble those in Tables 1–5, which can be consolidated in a summary account, as shown in Table 6.1 All flows and all stock changes in the sectoral accounts are cash transactions. The accounts do not show accrual items in respect of which cash payments are due but have not yet been effected.

TABLE 1.Transactions and Changes in Balance Sheet: Household Sector (PSH)(In units of account)
I. Incomes and Expenditures
1. Current receipts
2. Current expenditures
Consumption (domestic goods)C1
Imports (direct)M1
Current account balance(Y1 + TR)−(C1 + T1 + M1)
3. Saving (current account balance)S1
4. Investment expenditureI1
5. Overall sector positionS1l1
II. Changes in Financial Balance Sheet
1. Claims
Deposits at banks by PSHΔ(PSH/B)
Purchase of government securities by PSHΔ(PSH/GS)
Purchase of private securities by PSHΔ(PSH/PSC)
2. Liabilities
Net borrowing from banks by PSHΔ(B/PSH)
3. Net financing2

The overall sector position, shown in Part I of the accounts, indicates a nonfinancial deficit or a nonfinancial net saving, depending on whether it is negative or positive, respectively. The amount of such deficit or net saving in a sectoral account should be equal to the amount of net financing shown in Part II of the same account. This means that a nonfinancial deficit of a sector will result in an increase in its financial liabilities or a decrease in its holdings of financial assets—and vice versa in the case of a nonfinancial saving. The composition of the holdings of financial assets or liabilities of a sector can be changed as long as the net change is equivalent to the sectoral saving or deficit.

TABLE 2.Transactions and Changes in Balance Sheet: Business Firms Sector (PSc)(In units of account)
I. Incomes and Expenditures
1. Current receipts from sale of goods and servicesC1 + I1 + I2 + C3 + I3 + X
Cost of factors of productionY21
Cost of importsM2
Net sales valueY2
2. Current expenditure
Current account balanceY2T2
3. Saving (current account balance)S2
4. Investmenth
5. Overall sector positionS2I2
II. Changes in Financial Balance Sheet
1. Claims
Deposits at banks by PSCΔ(PSC/B)
Purchase of government securities by PScΔ(PSC/GS)
2. Liabilities
Sale of PSC securities to PSHΔ(PSH/PSC)
Net borrowing from banks by PSCΔ(B/PSC)
Net borrowing from FSCMP
3. Net financing
Note: X = C5+l5

Since the expenditures of one sector are the incomes of others, the sum of all sectoral nonfinancial receipts (i.e., all domestic incomes, plus imports, plus all transfers received) equals the sum of all sectoral expenditures (i.e., all consumption expenditures, plus all investment expenditures and all transfers paid by both domestic and foreign sectors). It should be noted that imports are treated as outlays of domestic sectors and receipts of the foreign sector and that exports are considered as outlays of the foreign sector and receipts of domestic sectors. It follows that, for the economy as a whole, including the foreign sector, the overall position is zero, ex post:

TABLE 3.Transactions and Changes in Balance Sheet: Government Sector (GS)(In units of account)
I. Incomes and Expenditures
1. Current receipts (taxes)T
2. Current expenditures
Domestic goodsC3
Services (wages and salaries)Y31
Direct importsM3
Current account balanceT−(C3 + Y31+TR + M3
3. Saving (current account balance)S3
4. Investment expenditureh
5. Overall sector positionS3I3
II. Changes in Financial Balance Sheet
1. Claims
2. Liabilities
Sale of GS securities to PSΔ(PSh/GS) Δ(PSc/GS)
Net borrowing from banks by GSΔ(B/GS)
Net borrowing from FSCMG
3. Net financing
Note; G = C3 + Y31+ TR + M3+I3S3I3= TG.
TABLE 4.Changes in Balance Sheet: Banking Sector (B)(In units of account)
I. Incomes and Expenditures
II. Changes in Financial Balance Sheet
1. Claims
Loans to households by BΔ(B/PSH)
Loans to business firms by BΔ(B/PSc)
Loans to government (net) by BΔ(B/GS)
Holdings of foreign assets (net) by BΔ(B/FS)
2. Liabilities
Deposits by households with BΔ(PSh/B)
Deposits by business firms with BΔ(PScPSc/B
Note: Change In domestic credit (ΔNDC) = Δ(BIPS) + Δ(B/GS).

Given the vertical balance between total saving and total investment and the horizontal balance between payments and receipts, “each column and each row [in Table 6] constitutes one full account of the structure, and the relationships among columns, among rows, and between columns and rows express the interlocking nature of the accounting system as a whole.” 2

Because of the interlocking nature of the system, if the incomes of a sector change during an accounting period, not only that sector's expenditures or its overall position will change, but other sectors will also show corresponding changes. Furthermore, a change in the position of a sector—surplus or deficit—is related to changes in the amount and possibly in the composition of financial assets or liabilities held by the sector. Corresponding adjustments can be found in other sectors. Similarly, a linkage within the sector or between sectors can be traced if a change originates in the holding of a certain financing instrument in a sector. For example, an increase in government investment I3 may be financed by an increase in net borrowing from the banking sector Δ(B/GS), which may decrease the availability of bank loans to business firms Δ(B/PSc), given the total amount of domestic credit of the banking sector. The decrease in Δ(B/PSc) may then lead to a decrease in business investment I2. The flow-of-funds system itself does not indicate the cause and effect of the above adjustments. However, behavioral hypotheses can be investigated within the framework of this accounting system, and different adjustment patterns have different implications for policies.

TABLE 5.Transactions and Changes in Balance Sheet: Foreign Sector (FS)(In units of account)
1. Incomes and Expenditures
1. Current receipts (imports of the domestic economy)M = Y5
2. Current expenditures
Exports of consumption goodsC5
Investment income (net)Y/51
Current account balanceM−(C/5 + Y/51)
3. Saving (current account balance)S5
4. Net investment (exports of investment goods)I5
5. Overall sector position2S5I5
II. Changes In Financial Balance Sheet
1. Claims on banksΔ(FS/B)
2. Claims on PSCMP
3. Claims on GSCMG
4. Net financing
Note: C5 + I5 = XS5I5 = M − (X + Y51).

The equality between the non financial deficit or the nonfinancial net saving, as the case may be, and net financing for each sector, as mentioned above, can be expressed by the following identities:

Alternatively, where PSH and PSC are consolidated into private sector (PS), the identities can be rewritten as:

The new symbols are defined as follows:

  • CM = the flow of foreign capital into the domestic economy (net)

  • CMG = foreign capital movements into GS (net)

  • CMP = foreign capital movements into PS (net)

  • DCP = domestic credit to the private sector

  • IP = private sector investment, i.e., I1 + I2

  • M = imports of goods and nonfactor services

  • MQ = the stock of money and quasi-money (both liabilities of B)

  • NDC = domestic credit of B

  • NDCG = net domestic credit of B to GS

  • NFA = the stock of foreign assets (net)

  • NFI = net factor income from abroad

  • SP = private sector savings, i.e., S1 + S2

  • X = exports of goods and nonfactor services.

Equations of this type may be included in financial models. An example is the Polak model,3 which will be discussed in “The Polak Model: An Application” (Workshop 5). It may be argued that changes in the composition of a sector's portfolio in any period depend in part on the amount of readily available funds, which may act as a short-run constraint. It follows that expected flows of funds may influence sectoral behavior, whether financial or nonfinancial.4

TABLE 6.Summary of Income and Flow-of-Funds Accounts 1
ItemSector PSHSector PSCSector GSSector BSector PSTotal
I. Incomes and Expenditures
1. Receipts
Transfers and taxesTRTTTR
2. Current expenditure
Consumption (domestic)C1C2C3C
Transfers and taxesT1T2TRTTR
Wages and salariesY31Y32Y31+Y32
Current account balance
3. Saving (current account balance)S1S2s1StS
4. Investment expenditureI1I2I2I2I
5. Overall positionS1−I1s2−I2S2−I2S2−I2
II. Changes in Financial Balance Sheet
1. Liabilities or claims
to or on GSΔ(PSH/GS)Δ(PSC/GS)Δ(B/GS)
2. Net financing
Note: See text for explanation of abbreviations.

A financial program may be conceived of as the numerical projection, for the program period, of a flow-of-funds table, which could be linked to a complete matrix of the national accounts. Given the targets of the program, nonfinancial savings or deficits of the economic sectors are first estimated, together with their financing requirements. It would then need to be determined (1) whether these two sets of estimates are consistent with each other among sectors; and (2) whether the banking sector could be induced to mobilize the available savings from the surplus sectors and transfer them, through the creation of appropriate claims, to the deficit sectors, in consistency with the targets set in the program.

Flow-of-funds accounts can also be used in the design and control of development plans. A development plan consists essentially of the control of the flow of available real resources, aiming toward investment to achieve economic growth. The information provided in the flow-of-funds accounts for successive periods of time is useful in determining feasible investment targets for the economic sectors and for the economy as a whole. The relationship between the financing needs of the economic sectors and their expenditures as indicated in the flow-of-funds accounts also suggests the possibility of using financial controls for the implementation of a development plan.

Relations with the Monetary Survey, Government Finance Statistics, and Balance of Payments Statistics

Many countries do not have a comprehensive system of flow-of-funds accounts, in part because of a lack of requisite information. In most cases, data on private sector saving, investment, and financing are so fragmented that the PS columns in the summary account of flow of funds are difficult to fill. Nevertheless, a part of this information gap can be closed by making use of the monetary survey, government finance statistics, and balance of payments statistics, which are generally available. These data are normally compiled with considerably shorter delays and at more frequent intervals than national income data. The crucial problem is that of achieving an adequate and consistent allocation of the data by sector. In order to show the intersectoral relationships as in a flow-of-funds system, changes in assets and liabilities in these accounting sources must be allocated by sector according to consistent criteria, so that flows originating in one sector and directed to another (as shown in the first sector's statement) are consistent with flows recorded in the second sector (as directed to it from the first).

The monetary survey is a consolidated statement of the banking system, i.e., the monetary authorities and deposit money banks. It does not include other financial intermediaries. In this classification, the nonbank financial intermediaries are lumped together with the private sector. Similarly, when government finance statistics are available only for the central government, municipal and local governments and public enterprises are classified with the private sector. Furthermore, in terms of data classification, there are differences between national income accounts, on the one hand, and balance of payments statistics and government finance statistics, on the other.

The sectoral position for the foreign sector (X-M), which represents net lending to the rest of the world in the national income accounts, is not identical to the net balance on current account in the balance of payments.5 Among other differences, net lending in the national income accounts classification (1) includes the net purchases of nonfinancial intangible assets, such as leases, (2) excludes earnings reinvested in direct investment enterprises, and (3) excludes shipments of commodities between a parent enterprise and its subsidiary that do not involve a change of ownership. In the balance of payments, (1) net purchases of nonfinancial intangible assets are included in the capital account, (2) the direct investors' share of reinvested earnings is shown as investment income and is balanced by entries in the capital account, and (3) shipments of commodities between a parent enterprise and its subsidiary without a change of ownership are included with merchandise.

Expenditures and revenues of the government in the national income accounts are not identical to those reported in the government finance statistics. A significant difference is that national income accounts adhere to an accrual basis of recording, reflecting production and delivery, whereas transactions in the government finance statistics are recorded on a payments basis. Other major differences are: (1) resources representing past or future transactions, such as consumption of fixed capital and imputed contributions to unfunded pension schemes, are excluded from the government finance statistics while they are included in the national income accounts; (2) government lending operations undertaken for public policy purposes are classified with expenditure in the government finance statistics rather than with financing (as in national accounts) ; and (3) banking and monetary authorities' functions performed by government are separated from government in the government finance statistics, while they are grouped with government in the national accounts.6

When consistent allocation by sector is made and data are classified appropriately, the monetary survey, the central government budgetary operations, and the balance of payments summary can be used in the columns for B, GS, and FS in the summary of flow-of-funds accounts (Table 6). Part of the column for PS, i.e., a consolidated account for PSH and PSC, can then be filled in, even without the national income accounts pertaining to the sector.

National Income Accounts and Flow of Funds of a Hypothetical Economy

The following statistical data on current and financial transactions are assumed for a hypothetical economy during a certain year (year n).

1. The household sector spent $9,700 million on consumption and $100 million on housing. Income tax payments amounted to $2,000 million. When the financial transactions of this sector were consolidated, it was found that its currency holdings had increased by $30 million and its deposits with banks had risen by $250 million. Moreover, household holdings of market instruments had risen by $120 million, of which $70 million were in corporate stocks and the remainder were in government bonds. Borrowing from banks had increased by $100 million.

2. The corporate sector received $450 million from intra-sector sales of investment goods, $3,100 million from sale of goods and services to the government, and $4,250 million from exports of goods and services. On the other hand, this sector paid $11,100 million to household units for factor services and spent $4,700 million on imports; tax payments to the government amounted to $1,500 million. Its financial assets increased by $450 million ($410 million in demand deposits and $40 million in holdings of government bonds), and its financial liabilities to banks rose by $530 million.

3. The government sector's net tax receipts were insufficient to cover expenditures amounting to $2,900 million on current account ($1,000 million for wages and salaries of government employees and $1,900 million for consumption goods and other services) and $1,200 million on capital goods. In view of the financing requirements, the government issued treasury bonds, which were sold to the public, and borrowed $510 million from the banking system.

4. The foreign sector incurred current expenditures (hypothetical economy's exports) equal to $4,000 million, whereas its receipts (hypothetical economy's imports) amounted to $4,700 million. In addition, this sector spent $250 million on investment expenditures. The credit balance that resulted from these transactions was reflected in a credit entry on the consolidated balance sheet of the hypothetical economy's banking system.

5. The balance sheet of the banking sector, i.e., the central bank and the commercial banks, recorded the transactions shown in Table 7.

TABLE 7.Summary Balance Sheets of the Central Bank and the Commercial Banks of the Hypothetical Economy(In millions of U.S. dollars)
ItemEnd of Year n – 1End of Year nItemEnd of Year n -1End of Year n
Summary balance sheet of the central bank
Net international reservesCurrency issue
(foreign exchange)1,250800Currency held by banks420435
Credit to banks1,0301,300Currency outside banks and GS9701,000
Credit to government (net)130640Deposits of banks
Required reserve deposits1,0201,305
Summary balance sheets of commercial banks
Reserve accounts1,4401,740Credit from central bank1,0301,300
Currency in vaults420435Liabilities to private sector3,0103,670
Deposits in central bank1,0201.305PSH1,0101,260
Credit to private sector2,6003,230PSC2,0002,410
Note: See text for explanations of abbreviations.


  • 1. On the basis of the statistical information provided, construct account tables showing the current transactions and the balance sheet changes of each sector separately (similar to Tables 1–5).

  • 2. Show how the constructed account tables can be grouped together to provide a summary of transactions of the hypothetical economic system (similar to Table 6).


Basic income and financial data for Kenya for the years 1975–76 are provided in Tables 8–14. Several points should be mentioned before the flow-of-funds accounts are compiled. First, since no separate data are available for the household and corporate sectors, the transactions of these two sectors vis-à-vis is the other sectors of the economy are consolidated into one sector, i.e., the private sector. The format for the current transactions account and for changes in the balance sheet of the private sector is provided in Table 16. Second, insufficient information is available regarding the income and financial transactions of the local governments, other official entities, and the nonbank financial institutions. For this reason and from a practical policymaking point of view, the government sector includes only Budgetary Central Government, while the banking sector comprises the Central Bank and the commercial banks.

Table 15 summarizes the relevant data on income-expenditure and financial transactions, as provided in Tables 8–14, for the compilation of flow-of-funds accounts for Kenya for 1976. Some adjustments have been made for the convenience of the compilation.

TABLE 8.Kenya: Selected National Accounts Data, 1975–76(In millions of Kenya shillings)
GDP at factor cost in current prices20,56025,257
Indirect taxes and subsidies2,7833,325
GDP at market prices23,34328,581
Imports of goods and services8,3589,436
Use of resources
Private fixed investment2,8243,390
Public fixed investment2,0262,450
Change in stocks−275133
Gross investment4,5765,973
Private consumption15,73117,542
Public consumption4,2564.943
Total consumption19,98722,485
Gross domestic expenditure24,56328,457
Exports of goods and services7,1389,560
National income
GDP at factor cost20,56025,257
Factor incomes received from abroad428352
Factor incomes paid abroad1,2561,444
GNP at factor cost19,73224,165
Indirect taxes and subsidies2,7833,325
GNP at market prices22,51527,490
Source: Kenya, Economic Survey, 1978.
TABLE 9.Kenya: Summary of Central Government Budgetary Operations, Fiscal Years 1976 and 1977(In millions of Kenya shillings; year ending June 30)
1Current revenue5,1236,149
2Capital revenue
3Total revenue (1 +2)5,1236,149
5Total revenue and grants (3 + 4)5,3256,383
6Current expenditure4,9045,580
7Capital expenditure1,2591,660
8Total expenditure (6 + 7)6,1647,240
9Lending minus repayments870470
10Expenditure and lending minus repayments (8 + 9)7,0347,710
11Current account surplus or saving (without grants) (1 –6)219569
12Gross fixed capital formation1,0591,388
13Gross capital formation1,0591,388
14Overall deficit/surplus (5 – 10)−1,709−1,327
15Financing (= 14)1,7091,327
15.2.2Deposit money banks350684
15.2.3Central Bank50−689
Sources: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978), and International Financial Statistics, various issues; Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1977.
TABLE 10.Kenya: Expenditure and Lending Minus Repayments by Economic Type for Budgetary Central Government, Fiscal Years 1976 and 1977(In millions of Kenya shillings; year ending June 30)
ITotal expenditure and lending minus

repayments (II + V)
IITotal expenditure (III + IV)6,1647,240
IIICurrent expenditure4,9045,580
1Expenditure on goods and services2,2302,965
1.1Wages and salaries1,2951,379
1.2-3Employers' contributions1822
1.4Other purchases of goods and services9181,564
2Interest payments391479
3Subsidies and other current transfers2,2832,136
3.3Transfers to other levels of National Government1,2581,365
3.6Transfers abroad2026
IVCapital expenditure1,2591,660
4Acquisition of fixed capital assets1,0591,383
6Purchases of land and intangible assets174272
7Capital transfers26
7.1.1To other levels of National Government26
VTotal lending minus repayments870470
8.1To other levels of Government434161
Sources: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978); Kenya, Appropriation Accounts, Other Public Accounts and the Accounts ot the Funds for the Year 1975/76 and 1976/77.
TABLE 11.Kenya: Monetary Survey, December 1974–June 1977(In millions of Kenya shillings)
Net foreign assets9698545611,1891,4593,776
Central Bank 11,0619336811,1921,4493,717
Commercial banks−96−79−108−12−646
Domestic credit4,9665,2976,4146,5637,4757,795
Government (net)9301,1001,7671,5001,8981,495
Official entities223221303250215205
Private sector33,8133,9764,3444,8135,3626,098
Other items (net)−18−59180321479622
Money and quasi-money5,8196,0776,8147,4328,45410.952
Currency outside banks1,0861,0221,2341,1941,6251,765
Demand deposits42,9303,0303,3063,7724,0495,731
Quasi-money1.6032,0252,2742,4662 7803.456
SDR allocations1341345
Sources: Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1977: International Monetary Fund, International Financial Statistics, July 1978.
TABLE 12.Kenya: Summary Accounts of the Monetary Authorities, December 1974–June 1977(In millions of Kenya shillings)
Net foreign assets1,0659336891,2011,4653,730
Foreign assets1,3541,3801,4391,8672,3094,477
Foreign exchange 11,3381,3401,4037,8622,2824,432
Reserve position in the Fund
Foreign liabilities2289447750666644747
Domestic credit7268721,205678787—53
Government (net)4905661.171636778−53
Treasury bills1488723416420
Government securities177149150709497741
SDR allocations used by
Trust Fund loans25
Official entities
Commercial banks23626634429
Other items (net) 3−132138281145251287
Reserve money1,7891,5331,6131,7342,0013,390
Currency outside banks1,0861,0221,2341,1941,6251,765
Currency in commercial banks253161174189205217
Banks' deposits3813131313111331,268
Official entities' deposits6937744038139
SDR allocations1341344
Sources: Central Bank of Kenya, Annual Report for the Financial Year Ended 30th June, 1977; International Monetary Fund, International Financial Statistics, July 1978.
TABLE 13.Kenya: Summary Accounts of the Commercial Banks, December 1974–June 1977(In millions of Kenya shillings)
Net foreign assets−96−79−108−12−646
Foreign assets304268372352407400
Foreign liabilities400347480364413354
Deposits with Central Bank2612911242851081.240
Domestic credit4,4764,7115,2435,9276,6977.851
Government (net)4405145968641,1201,548
Treasury bills3264244938151,0151,499
Government securities184177174166159185
Official entities223221303250215205
Private sector3,8/33,9764,3444,8135,3626,093
Other items (net)−44—33—10912145135
Liabilities to Central Bank254291914
Money and quasi-money4,6685,0885,5236.3846,8599,220
Demand deposits2,8813,0633,2493,8584,0795,764
Time and savings deposits1,8032,0252,2742,4662,7803,456
Sources: Central Bank of Kenya, Annual Report for the Financial year Ended 30th June, 1977; International Monetary Fund, International Financial Statistics, July 1978.
TABLE 14.Kenya: Balance of Payments Summary, 1976(In millions of Kenya shillings)

Current account10,55211,250−698
Trade balance6,2248,156−1,934
Imports, c.i.f.8,158−8,758
Exports, f.o.b.6,2246,224
Freight and insurance55092458
Other transportation1,516558958
Foreign travel858260596
International investment income3101,262−952
Government transactions, n.e.s.170232−62
Other services284318−34
Capital account1,6772371,440
Private long-term51250462
Government long-term702−8710
Government corporations long-term18886102
Government corporations68−2
Commercial banks−3567−102
Errors and omissions34
Overall balance776
Financing (increase in assets)158934−776
Gross official reserves870−870
Use of Fund credit158158
Other liabilities164−64
Sources: For the current account and the capital account (except commercial banks), the data are taken from Kenya, Economic Survey, 1978. The data for commercial banks and financing are taken from International Monetary Fund, International Financial Statistics, July 1978, in order to ensure consistency with the monetary accounts for purposes of financial programming (see Workshop 9: Financial Programming). The adjustment for the resulting discrepancy is contained in the residual item, Errors and omissions.Note: n.e.s. = not elsewhere specified.
TABLE 15.Kenya: Income-Expenditure and Financial Transactions, 1976(In millions of Kenya shillings; at current prices)
Income-Expenditure Transactions
Private sectorAmountSources1
Imports of goods and nonfactor services9,436(8 and 14)
Payments (abroad) for factor services1,444(14)
Tax payments4,934(9)
Other payments to Government702(9)
Transfer payments abroad347(10 and 14)
Receipts from the sale of goods and services to Government4,257(10)
Exports of goods and nonfactor services9,560(8 and 14)
Transfer receipts
From the Government2,187(10)
From abroad422(9 and 14)
Receipts from factor services (abroad)352(14)
Other income4,749(8 and 9)
Intrasector investment (including variation in stocks)4,749(8 and 9)
Government sector
Consumption of goods and services1,241(10)
Payments for wages and salaries1,792(10)
Government investment1,224(9 and 10)
Transfer payments
To private sector2,187(10)
Tax revenue4,934(9)
Transfer receipts from abroad218(9)
Other income702(9)
Foreign sector
Payments for goods and nonfactor services (exports of the domestic economy)9,560(8 and 14)
Transfer payments640(14)
Payments for factor services352(14)
Receipts from the sale of goods and services (imports of the domestic economy)9,436(8 and 14)
Transfer receipts370(14)
Receipts from factor services1,444(14)
Financial Transactions2
Banking sector
Credit to private sector930(11)
Credit to government sector254(11)
Foreign assets905(12 and 13)
Currency in circulation (outside banks)391(11)
Treasury deposits with the banking sector123(11)
Demand deposits of the private sector743(11)
Time and savings deposits of the private sector506(11)
Other liabilities to private sector299(11)
Foreign liabilities27(12 and 13)
Other sectors
Private sector's holdings of government securities increased by600(9,11,14)
Outstanding external debt of Government increased by552(9)
Direct foreign investment in the private sector increased by1,024(9 and 14)
Government loans to the private sector increased by670(9)
TABLE 16.Kenya: Transactions and Changes in Balance Sheet of the Private Sector (PS), 1976(In millions of Kenya shillings)
I. Incomes and Expenditures
1. Current receipts
Sales to Government
Factor services
Other income
2. Current expenditures
Factor services
Other payments
Current account balance
3. Saving (current account balance)
4. Investment expenditure
5. Overall sector position
II. Changes in Financial Balance Sheet
1. Claims
Deposits at banks
Purchase of government securities
2. Liabilities
Loans from the Government
Borrowing from banks
Borrowing from foreign sector
Net financing
TABLE 17.Kenya: Summary of Income and Flow-of-Funds Accounts, 1976(In millions of Kenya shillings)
ItemSector PS

Source Use
Sector GS

Source Use
Sector B

Source Use
Sector FS

Source Use

Source Use
I. Incomes and Expenditures
1. Receipts
Other income
2. Current expenditure
Current account balance
3. Saving
4. Investment expenditure
5. Overall position
II. Changes in Financial Balance Sheet
1. Liabilities (claims)
to (on) B
to (on) FS
to (on) PS
to (on) GS
2. Net financing
Note: See text for explanation of abbreviations.


  • On the basis of Table 15, construct the current transactions account and compute the saving or dissaving of each sector. The format of Part I of Tables 3, 5, and 16 will facilitate this work. Determine the overall balance or position of each sector.

  • Using the financial data in Table 15, show how each sector financed its deficit or disposed of its surplus, i.e., construct the balance sheet of each sector. The format of Part II of Tables 3, 5, and 16 can be used for this purpose. Note that the financial transactions data are given as changes in assets and liabilities between the end of 1975 and the end of 1976.

  • Construct the balance sheet of the banking sector, using Table 4.

  • Summarize the current accounts and balance sheets of all sectors in Table 17. Note that, apart from the consolidation of the household and corporate sectors into one sector, Table 17 is similar in structure to Table 6.


  • The nonbank financial institutions are excluded from the account for the banking/financial sector. What are the implications of this exclusion?

  • In what sense can the private sector be a borrower and a lender at the same time? Discuss the changes in the financial assets and liabilities of the private sector in Kenya in 1976.

  • Unlike the other sectors of the economy, the claims of the banking sector are always equal to its liabilities, as a consequence of the assumption that this sector is not involved in income-expenditure transactions. However, it is sometimes argued that an active banking sector should, besides stimulating household units to save and corporate units to invest, undertake saving on its own as an economic unit. Is this distinction valid?

  • From an analytical point of view, what are the advantages or disadvantages of the summary of flow-of-funds accounts in comparison with accounts provided in other sources (namely, national income accounts, summary of central government finance, monetary survey, and balance of payments summary)? What light do the tables for the individual sectors shed on the allocation of economic resources among the various sectors in Kenya?

  • Assume that the summary of income and flow-of-funds accounts (in the form shown in Table 17) is the only data available to the Kenyan authorities for a given year. What types of policy issues can be discussed on the basis of this table? What policy instruments can be identified from the table? Can the effects of the use of these instruments be traced in the table? Would your answer change if these summary accounts could be compiled for a series of years?

  • In what way can the summary of income and flow-of-funds accounts be used for the construction of a macroeconomic model? What differences would arise between a model based on a flow-of-funds scheme and one based on market equilibria?

In Tables 1–6, each sector is assigned a subscript number corresponding to the table in which the accounts of that sector are presented. For example, Y1 stands for the income of the household sector (shown in Table 1), S2 denotes the saving of the business firms sector (shown in Table 2), I3 represents the investment expenditure of the government sector (shown in Table 3), and so on. Where two subscripts are shown for income (Y), the second subscript shows the sector which receives the income and the first subscript indicates the sector from which income is received. For example, Y21 means income received by the household sector (subscript 1) from the business firms sector (subscript 2). In the second part of Tables 1–6, which contains the balance sheet of each sector, the symbol preceding the slash (/) represents the sector holding the asset or claim and the symbol following the slash indicates the sector incurring the liability or obligation. For example, (PSH/B) means the claim acquired by the household sector on the banking sector.

Board of Governors of the U.S. Federal Reserve System, Introduction to Flow of Funds (Washington, February 1975), p. 4.

J. J. Polak, “Monetary Analysis of Income Formation and Payments Problems,” Staff Papers, Vol. 6 (November 1957), pp. 1–50.

A. D. Bain, “Flow of Funds Analysis: A Survey,” Economic Journal, Vol. 83 (December 1973). pp. 1055–93, especially p. 1084.

International Monetary Fund, Balance of Payments Manual, 4th edition (Washington, 1977).

International Monetary Fund, A Manual on Government Finance Statistics: Draft (Washington, June 1974).

    Other Resources Citing This Publication