Abstract

The government influences the national economy through a variety of its transactions: purchases and payments for goods and services, receipts from taxes and sales, transfer payments, and lending and borrowing transactions. To provide data on government activities for the purpose of economic analysis, these transactions are compiled and recorded as government finance statistics. While such statistics necessarily reflect the institutions and practices of the individual countries, a common system of definitions and classifications helps users of these statistics to identify more clearly the impacts of government operations on the national economy and also permits comparisons between countries. Toward this end, the International Monetary Fund has published annually since 1977 the Government Finance Statistics Yearbook, presenting standardized data on the operations of member governments.1 The definitions and standards followed in the compilation of the data are based primarily on A Manual on Government Finance Statistics,2 which has been discussed in draft form with government officials and which is to be published in revised form by the International Monetary Fund.

The government influences the national economy through a variety of its transactions: purchases and payments for goods and services, receipts from taxes and sales, transfer payments, and lending and borrowing transactions. To provide data on government activities for the purpose of economic analysis, these transactions are compiled and recorded as government finance statistics. While such statistics necessarily reflect the institutions and practices of the individual countries, a common system of definitions and classifications helps users of these statistics to identify more clearly the impacts of government operations on the national economy and also permits comparisons between countries. Toward this end, the International Monetary Fund has published annually since 1977 the Government Finance Statistics Yearbook, presenting standardized data on the operations of member governments.1 The definitions and standards followed in the compilation of the data are based primarily on A Manual on Government Finance Statistics,2 which has been discussed in draft form with government officials and which is to be published in revised form by the International Monetary Fund.

This workshop discusses the types of government activities to be measured and the means of measuring them, presents the analytical framework for the organization of these statistics, and shows the categories into which government transactions may be classified. It then demonstrates some practical applications of these principles with reference to data for Kenya.

PRINCIPLES OF GOVERNMENT FINANCE STATISTICS

No single, ideal method for organizing government financial transactions will, at the same time, serve the different purposes of accountability, financial control, and economic and financial analysis. In this section of the workshop are discussed the principles adopted in the GFS Yearbook for the purpose of facilitating economic and financial analysis. Three basic organizing principles have been identified:3

The institutional sector in the economy called government is to be defined not by legal or structural criteria but by the function it performs—primarily the provision of nonmarket services for collective consumption and the transfer of income for purposes of public policy, with funds coming mainly from compulsory levies on other sectors.

To provide data for the economic and financial analysis of government and of its effects upon the economy, one should measure—not estimate or impute—the flow of payments between this sector and the rest of the economy during a given period of time.

Because the ultimate effect of each transaction on the rest of the economy may be indeterminate or unclear, transactions should be classified not by their ultimate purpose or effect but by the immediate nature or characteristic of each transaction as it occurs.

The meaning and practical implications of each of these three principles are discussed below in some detail.

Definition of Government

Government is defined to cover all units performing government functions—that is, the implementation of public policy through the provision of primarily nonmarket services and the transfer of income, supported mainly by compulsory levies on other sectors.4

General government—the broadest definition of government—is made up of (1) central government, covering all units that are agencies or instruments of a country’s central authority, whose jurisdiction extends to all parts of its territory; (2) state, provincial, or regional governments, comprising governmental units exercising a competence independently of central government in a part of a country’s territory encompassing a number of smaller localities; (3) local governments, consisting of governmental units exercising an independent competence in the various urban and rural jurisdictions of a country’s territory; and (4) any supranational authorities exercising functions relating to tax and governmental expenditure within the national territory.

Social security funds are within the government sector, as defined above, and are treated as part of central government or other levels of government at which they operate rather than as a separate subsector of general government.5 This treatment reflects the basic similarity between social security and other government social programs and the growing integration of social security operations in the broad mix of government countercyclical, social, and economic policies.

Departmental enterprises are treated as part of the level of government to which they are attached. Departmental enterprises are unincorporated industrial, commercial, or financial units that are closely integrated with the rest of a government department or agency and that are engaged mainly in supplying goods and services to other units of government or selling goods and services to the public on a minor scale. Examples of nonfinancial departmental enterprises are printing and publishing services for government (ancillary units), government restaurants in public buildings, and rental dwellings for government employees.

Public enterprises are considered outside the government sector. Government-owned and/or government-controlled industrial or commercial units that are incorporated, or that sell goods and services to the rest of the economy on a large scale, are classified in the non-financial public enterprise sector. Examples are publicly owned railways and airlines, the postal service, and industries that are nationalized or are established by the government itself. Government-owned and/or government-controlled financial institutions that accept demand, time, or savings deposit liabilities, or both incur liabilities and acquire financial assets in the market, are classified in the public financial institutions sector.

Also excluded from government are any monetary functions performed by government, such as the issue of currency or transactions with the International Monetary Fund, and any acceptance of demand, time, or savings deposit liabilities.6 All such transactions are assigned to the public financial institutions sector, with the net flow to or from the government appearing in the statistics as a flow between the government and the public financial institutions sector.

Measurement of Government Transactions

This section discusses some basic principles for the measurement of government transactions, as adopted in the GFS Yearbook.

Cash Principle

The International Monetary Fund’s standards for compiling government finance statistics provide for entering government transactions on a cash basis; money receipts and payments should be recorded as of the time they are settled in cash.7 This reporting basis approximates the flow of funds and resources between the government and the rest of the economy, avoids problems of evaluation, corresponds closely with other financial statistics, and is therefore eminently useful for financial policy and financial programming.

In the GFS Yearbook, data for the principal aggregates—revenue, grants, expenditure, lending minus repayments, and financing—are generally on a payment or cash basis, representing government payments to or receipts from the rest of the economy during the chronological time period indicated. Data for the detailed components are based on the most reliable statistics available from the government accounts as close to the payment stage as possible. Where details are on a different basis from the cash totals, adjustment items are provided.

When purchases are made or revenues received in government debt instruments, the various parts of the operation are shown as separate transactions. For example, when a government makes a purchase for which it pays in the form of a fixed-term security or contractual obligation redeemable in cash, this is shown as an expenditure and a simultaneous borrowing transaction at that time, and then it is shown as a debt redemption when it is redeemed in cash.

Gross vs. Net Treatment of Receipts and Payments

As a general principle, nonindustrial receipts and payments should be shown on a gross basis, so that the statistics will reflect the full magnitude and impact of the raising of government revenue and its disposition.8 Thus, school fees are not counted as an offset to the cost of providing school services and are not subtracted as a “negative expenditure,” nor are the costs of collecting taxes deducted from tax receipts as “negative revenue.”

An adjustment of significant magnitude may sometimes be required when receipts and payments in the accounts are shown net of appropriations-in-aid, i.e., revenues arising in the course of operations of government departments or agencies and treated as “negative expenditures” in their accounts, with only the remaining amount shown as a cost or need for budgetary appropriation. To reflect fully the magnitude of both government revenues and expenditures, receipts and payments must be augmented by the amount of appropriations-in-aid included as “negative expenditures” in the accounts.

For industrial activities carried out by departmental enterprises, only their operating surpluses or deficits are included in government revenues or expenditures, respectively, since it is the operating surplus or deficit resulting from sales and expenditures of government industries’ production that provides income for the government or requires government outlays.9 Capital transactions of industrial activities, however, are treated on a gross basis as an integral part of the government’s operations.

Consolidation

In compiling government finance statistics, it is necessary to eliminate transactions between all units within the government itself and to combine in a common set of categories the sum of their transactions with the rest of the economy. This process is referred to as consolidation.

The International Monetary Fund’s standards include guidelines for assembling the transactions of the general government sector, requiring three levels of consolidation: (1) the consolidation within each government, eliminating intragovernmental transactions; (2) the consolidation of all governments at a single level, eliminating only intergovernmental transactions between regional governments or between local governments, for example; and (3) the consolidation of the central, regional, and local governments into the general government sector as a whole, eliminating intergovernmental transactions between levels of government.

Currently, however, the GFS Yearbook does not present data for consolidated general government, because of the practical difficulties in obtaining data for all subsectors in sufficient detail and without long delays. Emphasis is placed on compiling the transactions of central governments, which usually become available much earlier, with more frequency, and in far greater detail than those covering other subsectors of general government. Moreover, the central government is by far the most important subsector of general government from the standpoint of fiscal policy.

Detailed data are presented in the GFS Yearbook for consolidated central governments, as well as separately for their extrabudgetary components or social security funds. In a number of cases, however, data for central governments do not cover all central government units (as indicated at the end of the GFS Yearbook’s country notes). For state and local governments, only summary data are presented.

Classification of Government Transactions

This section outlines the analytical framework for the classification of government transactions into the major categories of the statistical system—revenue, grants, expenditure, lending minus repayments, and financing. Comments are made on the classification within each major category.10

Basic Distinctions

In the GFS Yearbook, transactions are generally classified by their characteristics at the time of payment rather than by any subsequent use. Six basic distinctions in the nature of government transactions are set forth, the cross-classification of which yields the analytical framework (see Chart 1). The first two distinctions (receipts vs. payments; repayable vs. nonrepayable) apply to all transactions. The next two distinctions (requited vs. unrequited; current vs. capital) apply only to nonrepayable transactions, and the last two distinctions (financial assets vs. liabilities; currency and deposits vs. debt and equities) apply only to repayable transactions.

CHART 1.
CHART 1.

Analytical Framework for Classification of Government Transactions

Source: Jonathan Levin, “New Tools for Measuring Government,” Finance and Development, Vol. 12, No. 2 (June 1975), p. 18.

The meaning of each distinction is briefly discussed below.11

1. Receipts vs. payments. The basic difference between transactions lies in whether they are receipts (source of funds into the government) or payments (use of funds).

2. Repayable vs. nonrepayable. Repayable transactions generate or extinguish a claim for repayment and are distinguished from nonrepayable transactions involving no claim for repayment.

3. Requited vs. unrequited. Requited transactions involve payment for a quid pro quo, such as goods, services, use or ownership of property, or factor services received in return, whereas an unrequited transaction brings no concurrent counterpart in exchange.

4. Current vs. capital. The basis for this distinction lies in the fact that use of capital goods meant to be used in the process of production, and having an economic life of more than one year, affects future income and present wealth as the capitalized present value of the future income flow.

5. Financial assets vs. liabilities. This distinction is necessary because of the asymmetry between the government’s financial assets and liabilities. While government borrowing is directed toward meeting government financial needs, government lending is generally undertaken for policy-oriented purposes and not for the management of liquidity.

6. Currency and deposits vs. debt and equities. Important differences separate currency and deposit transactions from those involving debt and equities. Government holdings of currency and deposits constitute working balances, held for liquidity purposes. Thus, they are more akin to government liabilities, which are also incurred to generate liquidity, than they are to other government financial assets. Among government liabilities, currency and deposits have a special characteristic. Any currency issues of government are considered to represent government performance of the monetary authorities function and are shown as liabilities of the monetary authorities. Similarly, any demand, time, or savings deposit liabilities accepted by the government are classified as liabilities of the financial institutions sector.

The relevance of the above distinctions becomes apparent in their delineation of the major groups of transactions.

Revenue

Revenue includes all nonrepayable receipts, requited and unrequited, other than grants from other governments and international institutions. The detailed classification of revenue and grants is presented in the Appendix (Table A). Revenues are divided between current and capital revenue, the latter including only receipts from the sale of capital assets. Current revenue, therefore, embraces all tax revenue and current nontax revenue.

Taxes are defined as compulsory, unrequited, nonrepayable contributions, enacted by government for public purposes. Tax revenue is shown net of refunds paid out during the period and net of corrective transactions; however, it is not reduced by any governmental expenditure for collection and administration. Taxes also include compulsory social security contributions, as well as the profits transferred to government from fiscal monopolies, which reflect the use of the government’s taxing power to collect excise-like revenue through the monopoly sale of selected products. Tax revenue is classified into seven major categories according to the base on which the tax is levied or the kind of action that creates the liability.

Nontax revenue includes requited receipts from property income, fees and charges, nonindustrial sales, and the operating surpluses of departmental enterprises. Also included are some unrequited receipts such as fines, forfeits, and private donations.

Capital revenue covers the value of government sales of fixed capital assets, strategic stocks, and land and intangible assets.

Grants

Grants are defined as unrequited, nonrepayable, noncompulsory receipts from other governments—domestic or foreign—and international institutions. Current grants are those made for purposes of current expenditure or for general or indeterminate purposes, including both current and capital expenditure. When either donor or recipient considers the transfer to be of a capital nature, it should be treated as a capital grant.

In arriving at an overall deficit or surplus, the GFS Yearbook groups grants with revenue as transactions that reduce the deficit rather than finance it. This choice follows the approach in the United Nations’ A System of National Accounts (SNA).

Expenditure

Expenditure includes all nonrepayable payments by government, whether requited or unrequited and whether for current or capital purposes. Unlike the treatment in receipts, payments of grants or transfers to other governments form a category within expenditure rather than a separate group outside it.

Several of the distinctions within expenditure are of special significance to overall measures of government and economic activity. Thus, only requited payments contribute to the measurement of consumption, capital formation, and product in the SNA. The distinction between current and capital payments is essential for the measurement of government savings.

The classification of expenditure follows two main lines: the economic effect of the expenditure upon the community; and the purpose or function for which the expenditure is made. The economic classification is of particular interest for macroeconomic analysis.

In the classification of expenditure and lending minus repayments by economic type in the Appendix (Table C), prime distinctions are drawn between current and capital expenditure and between requited and unrequited payments. Current expenditure encompasses expenditure on goods and services, interest payments, and subsidies and other current transfers. Expenditures on durable goods and equipment for military purposes are classified as current expenditure, except for factories and dwellings used as households of servicemen.

Capital expenditure comprises acquisition of fixed capital assets with both a normal life of more than one year and more than a significant minimum value, purchases of strategic stocks, purchases of land and intangible assets, and capital transfers. Purchase of capital assets for use outside government, e.g., by nonfinancial public enterprises, is classified as a purchase of equities and is included as part of lending minus repayments.

In the classification of expenditure by function shown in the Appendix (Table B), expenditures are classified into nine major categories, with a number of subcategories within each. This classification focuses on the purpose for which the expenditures were made, irrespective of the government agency through which they were made.

Lending Minus Repayments

Lending minus repayments comprises government transactions in claims upon others undertaken for purposes of public policy rather than for management of government liquidity or for earning a return. It covers both debts and equities. Changes in government holdings of currency and deposits, however, are classified under financing rather than under lending minus repayments. Government lending undertaken for liquidity purposes, whether by sinking funds, social security schemes, or any other units of government, is classified under financing rather than under lending minus repayments.

In arriving at the overall deficit or surplus, the GFS Yearbook groups lending minus repayments with expenditure rather than with financing, differing in this respect from the SNA, which groups under financing all transactions affecting claims. This treatment reflects the asymmetry between government lending and borrowing. Lending, as defined above, is undertaken not to influence liquidity or to acquire a profitable financial asset, but to pursue objectives of public policy.

Lending minus repayments, which itself forms an economic category in the classification of expenditure and lending minus repayments by economic type, can also be classified by the function or purpose for which it is made. This is shown in Table B.1 of the Appendix, with categories corresponding to those for expenditure in Table B of the Appendix.

Financing

Financing, by definition, is equal to the overall deficit or surplus. In the GFS Yearbook (see Summary Table in the Appendix), the overall deficit or surplus is equivalent to the balance of revenue, grants, expenditure, lending, and repayments:

overalldeficit/surplus=(revenue+grants)-(expenditure+lendingminusrepayments).

These are the items above the line; the remaining items, described as financing, would be below the line. Financing, therefore, covers all transactions involving government’s holdings of currency and deposits, government liabilities, and any financial assets held by the government for the purpose of liquidity rather than public policy. Government currency issues, as well as demand, time, and savings deposit liabilities accepted by the government, are considered to be financial institutions functions, so that any net flow of funds from these sources is classified as coming from the financial institutions sector.

Financing is divided into domestic financing, obtained from residents, and financing abroad, obtained from nonresidents. It is further classified by type of debt holder (see Table D in the Appendix) and by type of debt instrument (see Table E in the Appendix). For the purpose of economic and financial analysis, the classification by debt holder is probably the more useful one, since it groups together debt holders with homogeneous patterns of economic behavior. To the extent that debt instruments are held by groups with homogeneous patterns of economic behavior, this classification can be similarly useful.

Debt

Debt represents the outstanding stock of recognized, direct liabilities of the government to the rest of the economy and the world, generated in the past and scheduled to be extinguished by government operations in the future or to continue as perpetual debt. Excluded are intragovernmental or intergovernmental debt of the sector or subsector of government being measured, currency issues and other debt of the monetary authorities, dormant or repudiated debt not being serviced, and any floating debt of unpaid obligations.

Debt is classified by type of debt holder (see Table F in the Appendix) and by type of debt instrument involved (see Table G in the Appendix). Categories correspond to those for financing.

ISSUES FOR DISCUSSION

1. How is the overall deficit/surplus defined in the GFS Yearbook? Explain the rationale behind this definition. How does the definition for the overall deficit/surplus in your own country’s budget differ from this? What is the rationale behind the definition utilized in your country?

2. How does the GFS Yearbook treat such funds as social security funds, sinking funds, road maintenance funds, etc.? What are the major funds excluded from your own country’s budgetary accounts? What is the GFS Yearbook’s rationale for including these funds and the rationale in your own country for excluding them?

3. How are transactions with the International Monetary Fund treated in the GFS Yearbook?

4. How does the GFS Yearbook treat the distinction between capital and current expenditure? What is the rationale behind this treatment?

5. How does the GFS Yearbook treat various kinds of transactions by government involving financial claims on others? Is this treatment consistent with that discussed in the workshops on the monetary and financial survey (Workshop 1) and on the balance of payments (Workshop 3)?

GOVERNMENT FINANCE STATISTICS FOR KENYA

This section of the workshop demonstrates some practical applications of the principles discussed above, with reference to Kenya.

Coverage

The general government sector in Kenya consists of the Central Government and various local governments (see Table 1).12

TABLE 1.

Kenya: Units of General Government

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978), p. 147.

The central government units covered by the General Budget comprise the Presidency, the Legislature, the Judiciary, and 18 ministries and departments. There are a number of funds operated by the ministries (see Table 2), the net outcome of their transactions being reflected either as a change in balance with the ministry concerned or in cash held with the Paymaster General. Most of these funds receive their income from commercial transactions (for example, the Sugar Equalization Fund). However, in a few cases, the revenue of these funds is derived from taxes or fees of a governmental nature (for example, the Hides and Skins Cess Fund), and these transactions should be included in government data on a gross basis. In the data for the Central Government published in the GFS Yearbook, the transactions of all these funds are in fact excluded, except insofar as they receive funds from or hold balances with the ministries and departments concerned. However, the amounts involved are generally small, except where transactions are of a commercial nature and are to be netted in any case.

TABLE 2.

Kenya: Government Accounts and Funds

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978), pp. 147–48.
TABLE 3.

Kenya: Sources of Data

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2, (Washington, 1978), p. 148.

Also, a relatively large number of central government units have their own budgets (see Table 1), which should be consolidated with the General Budget, but at present the data for these units do not permit such a consolidation. Included here is the National Hospital Insurance Fund, which provides cash benefits for hospital treatment to employees with earnings above a certain minimum level and to their dependents. Since its revenues are also derived from nonrepayable contributions made by both employers and employees, it is to be regarded as a social security fund.

An important question on the coverage of the Central Government relates to the appropriate sectoral assignment of the National Social Security Fund (NSSF). In spite of its name, the NSSF is in fact a provident fund, fed by compulsory contributions from both employers and employees and paying lump-sum benefits in respect of age, survivors, sickness, or emigration up to the amount of the accumulated contributions made in the name of the employee, plus interest. The NSSF should not be treated as part of the social security sector, since the participants have a vested right to their accumulated individual contributions and these contributions therefore cannot be regarded as government revenue. In view of its function, the NSSF is to be regarded as a financial institution and properly belongs in the public financial institutions sector (see Table 5). Since benefit payments are low in the initial phases of operation of the pension scheme, and since the scheme has been expanded gradually to cover an increasing number of employees, the NSSF has realized large and growing annual surpluses. Most of the accumulated surpluses have been invested in government securities.

Table 4.

Kenya: Nonfinancial Public Enterprises

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2, (Washington, 1978), p. 148.
TABLE 5.

Kenya: Public Financial Institutions

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2, (Washington, 1978), p. 148.

Local government includes 11 municipal councils and 38 county councils. In addition, there are 11 town councils which account for less than 5 per cent of the total amount spent by all local authorities. The municipalities, especially the two largest councils (Nairobi and Mombasa), provide the broadest range of services and exercise the greatest degree of local autonomy in decision making. Their functions include primary education, health services, water supply, and road construction and maintenance. The municipalities account for about three fourths of the total amount spent by all local authorities. Prior to its abolition in 1974, the graduated personal tax contributed about one third of the total revenues of municipal councils, but has now been largely replaced by central government grants. The functions of the county councils were drastically reduced when their responsibilities for primary education, public health, and roads were assumed by the Central Government in 1969. The Central Government then also took over the county council’s graduated personal tax and abolished the general grants.

There are more than 60 nonfinancial public enterprises owned or controlled by the Government of Kenya (see Table 4). In general, these are self-sufficient in their current operations, but they receive substantial loans and grants from the Central Government for development.

Central Government Budgetary Procedures

The fiscal year for the central government units covered by the General Budget runs from July 1 to June 30.13 The annual appropriation accounts of the Central Government are in two parts—the recurrent and the development budgets. The development budget consists of the estimated annual expenditures and lending of the Government under the Development Plan; these outlays are financed mainly by external loans and grants, and domestic long-term borrowing. Supplementary appropriations may be made with the approval of Parliament during the course of the year.

Government accounts, including the Recurrent Exchequer, the Development Exchequer, and the Paymaster General’s Account (see Table 2), are held with the Central Bank of Kenya. The overseas accounts of the Government consist principally of working balances held with the Crown Agents in London. Receipts of the Government, including internal and external loans, are paid into the Exchequer Accounts, and transfers from the Exchequer Accounts require the specific authority of Parliament. Treasury control over authorized expenditures is maintained through control over transfer of funds from the Exchequer Accounts to the Paymaster General’s Account, which constitute the “supply issues.” Actual payments are then made by ministries from the Paymaster General’s Account.

Data from the Exchequer Accounts, however, cannot be used to provide a complete picture of government budgetary operations, since they exclude revenue raised and spent by the government departments (known as appropriations-in-aid). In the fiscal year ended June 30, 1977, the appropriations-in-aid amounted to about 8 per cent of total government revenue. In addition, transactions reported in the Exchequer Accounts are recorded at the time the funds are received from or credited to the Paymaster General’s Account and not when they enter or leave the government sector through that account. In practice, because of the pressure to enter into commitments before the end of the fiscal year, when the “supply issues” lapse, substantial differences sometimes arise between expenditures recorded and cash payments made. Furthermore, it is not possible to make an economic or functional analysis of government expenditure according to the GFS Yearbook system from the data as recorded in the Exchequer Accounts, and only a limited analysis of revenue can be made.

In order to obtain government data according to GFS Yearbook formats, it is necessary, therefore, to turn to the Appropriation Accounts. In the data derived from the Appropriation Accounts and published in the GFS Yearbook, revenues are recorded at the time the funds are received by the Receivers of Revenue and payments are recorded at the time checks drawn on the Paymaster General’s Account are issued.

Statistical Tables

Table 6 presents government finance statistics tables for Kenya. These comprise the Summary Table: Budgetary Central Government and Tables A through G, showing the details of budgetary central government revenue, grants, expenditure, lending minus repayments, financing, and debt. The time series presented in these tables cover the five fiscal years 1973–77. For local governments, only summary data are presented.

Table 6.

Kenya: Government Finance Statistics Tables, Fiscal Years 1973–77

(In millions of Kenya shillings)

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978), pp. 146–47.Note: n.e.c = not elsewhere classified.

EXERCISES

Exercise A

  • Data on the budgetary operations of the Central Government of Kenya in the fiscal year ended June 30, 1977 are provided below. On the basis of these data, derive the following principal aggregates for fiscal year 1977: (a) revenue, (b) grants, (c) expenditure, (d) lending minus repayments, and (e) financing, as shown in the Summary Table: Budgetary Central Government of Table 6.

Kenya: Data on Budgetary Operations1

(In millions of Kenya shillings)

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Derived from the Appropriation Accounts, Other Public Accounts and the Accounts of the Funds for the Year 1976/77 and from data submitted to the International Monetary Fund’s Bureau of Statistics.

Include revenue, grants, borrowing, and repayment of government lending.

Include expenditure, lending, and amortization.

There are no departmental enterprises with an operating surplus.

Exercise B

  • Explain how you would classify the following items in the Appropriation Accounts, Other Public Accounts and the Accounts of the Funds for the Year 1976/77, with reference to Table A or C or D of Table 6.

    1. Personal emoluments

    2. Construction of buildings and works for Armed Forces

    3. Equity participation in commerce and industry

    4. Central Bank of Kenya profits

    5. Purchase of locomotives and wagons for Kenya Railways

    6. Loan from the International Monetary Fund

    7. Capital contributions relating to government shareholding in banks

    8. Rent of government buildings and houses

    9. Traveling and accommodation expenses

    10. Refund of import duties

    11. Passages and leave expenses

    12. Loan interest receipts

    13. Purchase of land

    14. Construction of water supplies

    15. Scholarships to students

    16. Pensions and gratuities

    17. Subvention to Maize and Produce Board

    18. Government sinking fund contribution

      • (a) For external debt redemption

      • (b) For internal debt redemption

    19. New building for the Treasury

    20. Appropriations-in-aid

      • (a) Sale of machinery and equipment

      • (b) Sale of farm produce

      • (c) School fees

Exercise C

  • The following data on the domestic financing operations of Budgetary Central Government can be obtained from the Appropriation Accounts, Other Public Accounts and the Accounts of the Funds for the Year 1976/77.

From these data, derive the classification and amounts of domestic financing by type of debt instrument for the year ended June 30, 1977, as shown in Table E of Table 6. Indicate what additional information would be needed to prepare a classification of domestic financing by type of debt holder.

Kenya: Data on Domestic Financing Operations

(In millions of Kenya shillings)

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ISSUES FOR DISCUSSION

  1. To what extent are the data on Central Government presented in the GFS Yearbook incomplete in terms of coverage and reporting basis?

  2. What is the rationale for the different sectoral treatments of the National Social Security Fund and the National Hospital Insurance Fund?

  3. Comment on the practical problems that would be encountered in preparing a consolidated statement for Budgetary Central Government and local governments on the basis of the data in the GFS Yearbook.

  4. The item “Changes in Cash, Deposits, etc.” in the GFS Yearbook (Table E of Table 6) is essentially determined as a residual from the Government’s accounts. It may be compared with the actual movements in government deposits with the banking system as follows: Comment on the possible reasons for the discrepancies between the data derived from the Government’s accounts and those obtained from the monetary accounts.

  5. On the basis of the data in the GFS Yearbook tables presented above, determine the changes in the net financial position of Budgetary Central Government for the fiscal years 1973—77, vis-à-vis:

  • (a) The rest of the domestic economy

  • (b) The foreign sector

  • Comment on the significance of these changes in the context of a flow-of-funds analysis.

  • 6. Discuss the problems encountered in comparing the data on financing by type of debt holder (Table D of Table 6) and by type of debt instrument (Table E of Table 6) with the changes in the corresponding stocks of debt in Tables F and G of Table 6. What factors may account for the discrepancies between the figures for domestic and external financing by long-term bonds and long-term loans not elsewhere classified in Table E of Table 6 and the changes in the corresponding stocks in Table G of Table 6?

  • 7. With reference to the data presented in the Summary Table: Budgetary Central Government of Table 6, comment on overall budgetary developments over the period 1973—77. In particular, to what extent are the developments in fiscal year 1977 consistent with the objectives of reducing the pressure on domestic prices and the balance of payments and diverting more resources to economic development? Indicate what additional information, if any, would be desirable for discussing this issue.

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978).

Source: International Monetary Fund, International Financial Statistics, various issues.

Appendix

Government Finance Statistics Tables

Data Fund Codes, Line Numbers, and Titles of Lines in the GFS Yearbook

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Source: International Monetary Fund, Government Finance Statistics Yearbook, Vol. 2 (Washington, 1978), pp. 8–13.Note: n.e.c. = not elsewhere classified.
1

International Monetary Fund, Government Finance Statistics Yearbook, Vol. 1 (Washington, 1977); hereinafter referred to as the GFS Yearbook. Issued annually.

2

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

3

Jonathan Levin, “New Tools for Measuring Government,” Finance and Development, Vol. 12, No. 2 (June 1975), p. 15.

4

See Government Finance Statistics Yearbook, Vol. 2 (1978), p. 2.

5

In the United Nations’ A System of National Accounts (New York, 1968), social security funds are treated as a separate subsector of general government.

6

In the United Nations’ A System of National Accounts, government performance of monetary authority transactions and acceptance of deposits are included within government so long as they are not carried out by units that both incur liabilities and acquire financial assets in the market.

7

In contrast, the United Nations’ A System of National Accounts is on an accrual basis, so that transactions are recorded at the time claims or liabilities arise or when they are due without penalty.

8

In the United Nations’ A System of National Accounts, various expenditure categories are shown on a net basis; e.g., purchase of land or intangible assets are net of sales.

9

The United Nations’ A System of National Accounts also treats departmental enterprise activity on a net basis, but consolidates the operating deficits with surpluses.

10

For titles of lines in the GFS Yearbook, see the Appendix. The Summary Table of central government operations contains the principal aggregates. Its component tables, Tables A through G, show the details of revenue, grants, expenditure, lending minus repayments, financing, and debt.

11

For a more detailed discussion, see Jonathan Levin, “New Tools for Measuring Government,” pp. 16–18.

12

Up to early 1977, the East African Community also raised taxes and made expenditures within each of the three member countries; these operations and their financing were regarded as part of the general government sector.

13

For other central government units, the fiscal year is indicated in Table 1. For local governments, the fiscal year coincides with the calendar year.