Bosnia and Herzegovina
Technical Assistance Report-Report on Government Finance Statistics Technical Assistance Mission, (October 1-5, 2018)

This Technical Assistance Report discusses details of the mission conducted to support the Bosnia and Herzegovina authorities, with a specific focus on the Republic of Srpska (RS), in improving government finance statistics (GFS) for decision making. The mission rounded off research to establish appropriate reconciliation procedures, although some statistical discrepancies remain. The goal is to use the compilation and reconciliation procedures for quarterly and annual GFS reporting to Eurostat and the IMF’s Statistics Department. The May 2018 mission initiated the development of a standardized compilation procedure for nonbudgetary public sector units, and more specifically extrabudgetary units. The report recommends focussing on investigating possibilities into incorporating these compilation files into the wider GFS and macroeconomic statistics compilation. On analysis of the financial statements, the mission assessed that Accrued revenues and received donations also require and adjustment to following the European System of National and Regional Accounts 2010 and Government Finance Statistics Manua 2014 recording.

Abstract

This Technical Assistance Report discusses details of the mission conducted to support the Bosnia and Herzegovina authorities, with a specific focus on the Republic of Srpska (RS), in improving government finance statistics (GFS) for decision making. The mission rounded off research to establish appropriate reconciliation procedures, although some statistical discrepancies remain. The goal is to use the compilation and reconciliation procedures for quarterly and annual GFS reporting to Eurostat and the IMF’s Statistics Department. The May 2018 mission initiated the development of a standardized compilation procedure for nonbudgetary public sector units, and more specifically extrabudgetary units. The report recommends focussing on investigating possibilities into incorporating these compilation files into the wider GFS and macroeconomic statistics compilation. On analysis of the financial statements, the mission assessed that Accrued revenues and received donations also require and adjustment to following the European System of National and Regional Accounts 2010 and Government Finance Statistics Manua 2014 recording.

Summary of Mission Outcomes and Priority Recommendations

1. A technical assistance (TA) mission was conducted by Mr. Deon Tanzer, the government finance statistics (GFS) advisor1 for South East Europe during the period October 1–5, 2018, to support the Bosnia and Herzegovina authorities, with a specific focus on the Republic of Srpska (RS), in improving GFS for decision making. This mission was conducted within the context of the second phase of the Swiss State Secretariat for Economic Affairs (SECO) GFS capacity building project. The mission met with officials from the Ministry of Finance of the Republic of Srpska (MOF RS), and the Republic of Srpska Institute of Statistics (RZS).

2. The mission would like to thank the staff of the Republic of Srpska authorities for their courtesy and willingness to share their knowledge with the mission. It is especially grateful to the staff of the MOF RS for their invaluable assistance in organizing the mission (see section D for the list of officials met during the mission).

3. The mission was a follow-up to the May 2018 GFS TA mission, conducted by the GFS advisor. This mission’s focus was to finalize the reconciliation processes, to continue developing a compilation process for nonbudgetary public sector units, and to discuss classification questions in context of GFS compilation per the European System of National and Regional Accounts 2010 (ESA 2010) and the Government Finance Statistics Manual 2014 (GFSM 2014). In the Bosnia and Herzegovina context, the mission aims to support integrated Bosnia and Herzegovina GFS compilation to Eurostat and the IMF as sent by the Central Bank of Bosnia and Herzegovina (CBBH)2 to Eurostat. This includes the ESA 2010 transmission programme (ETP) and the GFS Yearbook tables.

4. On developing reconciliation processes, work was continued on reconciling the financial result with relevant items in the balance sheet [A], and on reconciling stock and flows of groups of balance sheet items [B]. These both serve as fundamental steps in the compilation of GFS. [A] is required to ensure that fiscal balance reconciles with financing, whereby the statistical discrepancy3 can be eliminated or minimized. [B] aims to clearly explain changes in the value of assets and liabilities through (recorded) transactions and other economic flows (without any differences), further ensuring consistency in the GFS framework. Since the May 2018 mission, the MOF RS conducted substantial and successful research to resolve differences between the concept GFS data and fiscal surveillance data sent to EUR; the MOF also liaised intermittently with the GFS Advisor on resolving issues.

5. Further on developing reconciliation processes, the mission rounded off research to establish appropriate reconciliation procedures, although some statistical discrepancies remain. The goal is to use the compilation and reconciliation procedures for quarterly and annual GFS reporting to Eurostat and the IMF’s Statistics Department. As an extension on this, these processes can be incorporated into the compilation of quarterly fiscal surveillance files sent to the IMF’s European Department (EUR). See Section A. ‘Reconciliation Processes’.

6. On the compiling nonbudgetary public sector units, the mission continued the development of compilation processes as started during the May 2018 mission. These processes are being developed by translating financial statements of these entities into the GFSM 2014 and ESA 2010 frameworks conform a standardized process. The RZS, with the support of the MOF, compiled 5 units since the May 2018, and the mission reviewed the outcomes and completed the reconciliation process for these units. As next steps, a detailed process will be developed with the assistance of the GFS Advisor, while also extending compilation to all relevant units. See section I. B. ‘Compilation of Nonbudgetary Public Sector Units’.

7. On other developments, the RZS is developing detailed data on tax and social contribution revenue, in line with ETP table 0900. Per the request of the RZS, the GFS Advisor reviewed the concept compilation file. RZS aims to develop these data at the Republic of Srpska level, where these can potentially be included in the consolidated Bosnia and Herzegovina ETP reporting data. See Section I. C. ‘Other issues’.

8. Further, on other developments, the Advisor again addressed the publication of the list of general government and public sector units per ESA 2010 and GFSM 2014. The publication remains pending, although a list has been drafted and a preliminary classification has been drafted in cooperation with the Bosnia-wide statistical authorities (see the February 2018 report DM 6418039). RZS indicated that it is resolving technical issues in finalizing whole economy sector classification and can thereby not commit to a target date. During the previous mission, the target date was indefinitely postponed. The Bosnia and Herzegovina Agency for Statistics has also indicated an indefinite postponement of target dates.

Table 1.

Bosnia and Herzegovina, the Republic of Srpska: Priority Recommendations

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Detailed Technical Assessment and Recommendations

A. Reconciliation Processes

9. Reconciliation is a fundamental step in the compilation of GFS. The process entails translating the logic of accounting frameworks into the logic of the GFS framework. First, by verifying the link between revenue and expense flows with reciprocate balance sheet flows [A]. Second, by separately identifying, from accounting records, transactions and other economic flows, and thereafter verifying the link of these flows with the changes in the stock of the related balance sheet account [B].

Reconciliation Process [A]

10. The goal of reconciliation process [A] is to ensure that net lending (+) / net borrowing (-), also known as the fiscal balance, links with financing with the minimum difference possible, and thereby minimizing the so-called statistical difference.

The Republic of Srpska uses accrual accounting, whereby the financial result from the income statement is reconciled against a related account in the balance sheet the ‘Own Sources and Funds’ account.

Reconciliation Step [B]

11. The goal of reconciliation process [B] is to ensure that recorded transactions can be linked up with recorded stock values for distinct balance sheet items. In the context of accrual accounting reporting used in the Republic of Srpska, recording per the double accounting principle, this link should be discerned directly from the accounting records. This is because all transactions, albeit revenue, expenses, acquisitions, repayments, provisions, revaluations, etcetera are recorded with an exact counterpart in the balance sheet. GFS would require revaluations to be recorded as other economic flows; unwind transactions like provisions, and reserve accounting; and adjust valuations, where the accounting standards differ with GFS in this respect.

Continued Development

12. The advisor and the RS authorities evaluated the GFS reconciliation process [A], and [B] as developed in the concept GFS compilation file during and after the May 2018 mission. The file translates integrated financial statement data of the Republic of Srpska budget and, step-by-step, compiles GFS data per the GFSM 2014 framework. These steps are listed in Box 1 and further explained in Appendix I. On a fundamental level, this follows the same compilation process as nonbudgetary units as explained in Appendix II. For instance, steps [A] to [E], described in Appendix II, are technically embedded in the compilation file, although not explicitly described in the steps below. Importantly, the Financial Statement of the Republic of Srpska has specific complications that require additional customized steps (1), (2), & (4) described in Box 1.

6-Step Process Compiling Republic of Srpska Budget GFS Data from the Financial Statement

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13. In parallel, the file compares outcomes with the fiscal data sent to EUR using the Harmonized Reporting Template (HRT) per the GFSM 2001 framework. A key objective is to ensure GFSM 2014 outcomes are as sound as possible and, as a spin-off, to update the HRT compilation process with any new insights.

14. As an outcome, GFSM 2014 data, per the above-mentioned compilation process, compares well with HRT data. The HRT compilation can be updated per the insights gained in this research. The main updates recommended to HRT are listed in 3. Some additional research is required to understand revisions in 2014 financial balance sheet transactions data.

Table 2.

Republic of Srpska Budget: Comparison Revenue and Expenditure, ‘New’ GFSM 2014 Framework Data and ‘Old’ HRT Data, million KM, 2014–2016

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15. The differences in ‘new’ and ‘old’ GFSM 2014 data can be explained by some key changes in the compilation process:

  • a. ‘New’ data are compiled using integrated financial statements. Hereby, transactions related to Roads, Highways, and Forests are not yet included in this presentation (and will be included at a later compilation stage).

  • b. The classification of revenue, expenditure, and financing transactions has changed through the update of the bridge from the COA and to GFSM 2014 conducted during this project, whereby some revenue and expenditure items have changed classification. This includes COA line-items 47 and 77 (see also para 16. )

  • c. Balance sheet transactions are calculated indirectly using TR = CB – OB – OVC – OPC, instead of directly using transactions recorded under COA items 5, 6, 8 and 9

16. The update of the bridge from the COA to GFSM 2014 research during the development of the ‘new’ compilation process has adjusted the recording of COA line-items 47 and 77 COA. In the current HRT compilation process these items are excluded. Previous insights noted that these relate to specific accrual recordings and should be excluded while compiling HRT. However, the research conducted over the course of the project indicates that some items are revenue and expense items aligned with the GFSM 2014 framework, others relate to OPCs and should be recorded as part of balance sheet flows (see also para 15. c), while items related to provisions should be unwound rather than excluded (see also paras 28. 0). 0 provides an overview of the classifications per ESA 2010 and GFSM 2014 frameworks.

Table 3.

Republic of Srpska: Adjustments on Revenue and Expense per GFSM 2014 and ESA 2010

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17. A further outcome of this process is that balance sheet data can be compiled in line with the ESA 2010 and GFSM 2014 frameworks. An important note here is that valuation, recognition, and instrument coverage criteria used to compile Republic of Srpska financial accounts have not been tested on the extent that these overlap with ESA 2010 and GFSM 2014. See 0 for 2014–2016 data. importantly, these data currently exclude the balance sheets of the roads, highways, forests, IRB RS, local government, social security funds, and extrabudgetary units. Further development work will be required to include and consolidate these entities to the general government presentation.

18. As described in Step 3b, the compilation process records GFSM 2014 and ESA 2010 codes in parallel. This potentially allows for ETP tables to be compiled in parallel. As a scoping exercise, the mission developed a high-level presentation of revenue and expense following the ESA 2010 classification. In this way, aggregate outcomes can be compared. For instance, Compensation of employees, payable (D1) per ESA 2010 corresponds with Compensation of employees (21) per GFSM 2014. Also, Net-lending/Net-borrowing (B9) per ESA 2010 corresponds with Net-lending/Net-borrowing (NLB) per GFSM 2014. Further work is needed to verify and develop methodology per ESA 2010. See 0

Table 4.

Republic of Srpska Budget, Balance Sheet per GFSM 2014, million KM, 2014–2016

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Table 5.

Republic of Srpska Budget: Revenue and Expenditure per ESA 2010, million KM, 2014–2016

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19. By following this compilation process, HRT can be updated per GFSM 2014 and linked with the wider Bosnia and Herzegovina GFS compilation. The GFS Advisor is also working in parallel with the Federation of Bosnia and Herzegovina and the Ministry of Finance and Treasury Bosnia and Herzegovina to update HRT compilation per GFSM 2014.

20. Because this process uses a parallel bridge between GFSM 2014 and ESA 2010, these data can potentially also be used as input for the compilation of GFS Yearbook and ETP data. However, currently, GFS Yearbook and ETP data are separately compiled by the CBBH. Thereby, currently, HRT data can mainly be used as a cross-reference to GFS Yearbook and ETP outcomes and vice versa, until compilation processes are integrated.

21. In addition, because this compilation process has established reconciliation [A] and [B], these data serve the reconciliation process used in the compilation of Excessive Deficit Procedure notification tables. The statistical discrepancies are not fully eliminated, however, with the complex nature of Republic Srpska financial statement data, this process currently provides the most insights into how NLB relates with financing, while at the same time relating stocks and flows of the full balance sheet perfectly.

22. Although further research will help the remaining issues related to the statistical discrepancy, the next steps in expanding the compilation process can be considered. These include (for a, b, and c, comprehensive financial statements of these units are required):

  • a. Including Roads, Highways and Forests, plus the IRB with comprehensive financial statements’ data

  • b. Including local government

  • c. Including extrabudgetary units

  • d. Consolidation

  • e. Investigate possibilities into incorporating these compilation files into the wider GFS and macroeconomic statistics compilation.

Table 6.

Additional Recommendations

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B. Compilation of Nonbudgetary Public Sector Units

23. Several public sector units form part of general government, but not the budget, per ESA 2010 and GFSM 2014. These extrabudgetary units therefore need to be compiled as part of GFS from financial statements that are reported to the Agency for Intermediation, Informatics and Finance-APIF. Likewise, public sector units outside general government report financial statements to the APIF.

24. To compile GFS, a procedure is required to translate accounting financial statements into the ESA 2010 and GFSM 2014 frameworks. During the May 2018 mission, the GFS Advisor, together with the RZS and MOF RS started developing a concept GFS compilation file. This in line with a compilation procedure discussed during March 2018 SECO-funded GFS workshop held in Ljubljana, Slovenia. The procedure follows a systematic approach to unravel a(n) (audited) financial statement and translate line-by-line income statement and balance sheet items into the ESA 2010 and GFSM 2014 frameworks. It aligns fundamental accounting principles with the frameworks in a step-by-step approach. It, for instance, adjusts for provisions, exchange rate gains, and impairments that are treated differently in accounting and in GFS. See May 2018 mission report Section B. ‘Compilation of nonbudgetary public sector units’ and Appendix II ‘Proposed compilation process for extrabudgetary units’ of this report for a wider explanation.

25. With this backdrop, the May 2018 mission initiated the development of a standardized compilation procedure for nonbudgetary public sector units, and more specifically extrabudgetary units. This procedure can largely be standardized since the financial statements are reported to APIF through a template covering nonfinancial corporations. Data are recorded with the 4-digit real sector COA and the procedure uses a bridge from the 4-digit COA to ESA 2010 and GFSM 2014.

26. The mission first developed a high-level compilation process of 4 extrabudgetary units. These units are Radio Television Republic of Srpska, Institute of Dentistry, Health Center Celinac, and the Investment-Development Bank of the Republic of Srpska, and cover 2016 and 2017. The compilation process allows for calculating revenue, expenditure and financial transactions, determining other economic flows (OEFs), and balance sheet data. The process also includes a procedure to determine and reconcile NLB and financing. A further procedure compiles and reconciles stocks and flows of balance sheet items. See Appendix II for a comprehensive description.

27. Since the May 2018 mission, the RZS, in collaboration with the MOF RS, compiled additional entities per the compilation process described above. A key focus was to reconcile NLB with Financing. Hereby the RZS and MOF RS researched procedures to distinguish OEFs from transactions in the income statement. In some cases, this required analyzing the notes of financial statements to find (more detailed) clarification on 4-digit COA line-items. For instance, COA 679 Income from reduction of liabilities, termination of unused long-term provisions and other incomes includes recordings on collected damages, provisions for severances-released, awards-released and refunds staff mobile phone. This requires the compiler to separate out the recording of provisions from this line-item and record an appropriate adjustment for provisions.

28. The mission discussed an appropriate recording to adjust for provisions. In financial accounting, a provision is a present liability of an entity arising from past events, the settlement of which is expected to result in an outflow, but with an uncertain amount or timing. For instance, if a policy decision is made to retrench staff in stages during future years, the accountant records a provision of the total estimated retrenchment costs in the period the decision is made. See 0 for an illustration.

  • a. The amount recorded is an estimate of the future cost (per accounting regulations)

  • b. This amount is recorded as an accrued expense (1) and a provision liability (2) (on the balance sheet) in the period the decision is made

  • c. In the period the retrenchment costs are actually paid, an outflow is recorded -decreasing the provision liability (3)

  • d. Periodically, the estimate is reevaluated. If the estimate is evaluated to be higher, an accrued expense and provision liability is recorded again per the adjustment amount – see (b) above. If the estimate is evaluated to be lower, a provision release (4) is recorded as part of income, decreasing the provision liability (5)

Figure 1.
Figure 1.

Illustration Adjusting and Unwinding of Provisions from Financial Statements Recording to GFS Recording

Citation: IMF Staff Country Reports 2019, 104; 10.5089/9781498311045.002.A001

29. To comply with ESA 2010 and GFSM 2014, an adjustment of provisions is accordingly recorded. The recording of provisions in the financial accounts differs with the recording in ESA 2010 and GFSM 2014 mainly due to the time of recording. Whereas provisions are future uncertain expenses recorded now in financial accounts, ESA 2010 and GFSM 2014 only records transactions during the period or “at the time economic value is created, transformed, exchanged, transferred, or extinguished” (see ESA 2010 para 1.101 and GFSM 2014 para 3.62). See 0 for an illustration of the process to unwind and provision recording into GFS.

  • a. This requires ‘unwinding adjustments’ of accrued provision expense and releases of provisions recorded as income. At the same time, outflows recorded in the balance sheet should be recorded as expense accrued in the current period

  • b. The resulting adjustment in revenue leads this line-item to be reduced to zero (6)

  • c. The resulting adjustment in expense leads this line-item first to be reduced to zero, and subsequently to be equal to the outflow recorded in the provision liability (7)

  • d. The provision liability disappears from the balance sheet.

30. On analysis of the financial statements, the mission assessed that Accrued revenues and received donations (AOP 133) also require and adjustment to following the ESA 2010 and GFSM 2014 recording. This line-item is recorded in the balance sheet as part of the Long-term provisions, deferred tax liabilities and accrued revenues account and would otherwise not be recorded as part of the GFS balance sheet. However, this item reflects donations and grants received (from other governments) and are recorded as liabilities, but not debt liabilities. The flows recorded in this line-item reflect a gradual amortization of a(n) (in-kind) grant received. The financial statement recording spreads the receipt of the grant over time as an asset depreciates. However, in ESA 2010 and GFSM 2014, the receipt of the grant should be recorded at the time the asset is transferred to the government. Again, this requires adjustments to be recorded.

  • a. In the financial statement, the in-kind grant is recorded as an asset acquired and received donation liability in the year it is received from the donor

  • b. In subsequent years, the asset is depreciated and decreases the value of the asset. The grant revenue is accrued in line with this depreciation (value) and thus also amortizes the received donation liability

  • c. When adjusting to record per ESA 2010 and GFSM 2014, the time of recording is fully brought forward to the year the assets is economically transferred.

  • d. To record this adjustment, the following adjustment is recorded

  • e. The stock and flow of Received donations are adjusted by [1]

  • f. Grants received are adjusted by [1]

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31. After researching, unit-per-unit, the adjustments required, the mission completed a reconciliation process for 4 units discussed in para 26. The process currently allows for estimating revenue, expenditure, and financing transactions, as well as balance sheet stocks and flows on the highest aggregation level. This also includes estimates for net operating balance, NLB, financing and net (financial) worth. Next steps include:

  • a. Classifying all 4-digit financial statement line-items per ESA 2010 and GFSM 2014 [using bridge from the Real sector COA]

  • b. Disaggregating select 4-digit line-items, where further specification is required per ESA 2010 and GFSM 2014

  • c. Adjusting and documenting additional adjustments to adhere to ESA 2010 and GFSM 2014

  • d. Identifying and classifying consolidation items, including labeling countersectors

  • e. Expanding the compilation to all units for 2016–2017

32. It is important to note that as development of these compilation files continue, new insights may lead to updates of the COA Real Sector to ESA 2010 and GFSM 2014

Table 7.

Bosnia and Herzegovina, the Republic of Srpska: Additional Recommendations

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C. Other Issues

Table 0900

33. The RZS has started to develop concept detailed data on tax and social contribution revenue, in line with ETP table 0900. Per the request of the RZS, the GFS Advisor reviewed the concept compilation file. RZS aims to develop these data at the Republic of Srpska level, where these can potentially be included in the consolidated Bosnia and Herzegovina ETP reporting data. The compilation process is still in development, so the advisor did not evaluate the outcomes.

34. Table 0900 has been developed using cash data from 2 sources of data

  • a. Indirect Tax Authority (ITA) – the data follow a (slightly) different COA than the Republic of Srpska budgetary COA. These cover Bosnia and Herzegovina-wide indirect taxes, such as Value Added Tax

  • b. Republic of Srpska Tax Administration – these data follow the Republic of Srpska budgetary COA and are used as input to compile. These cover Republic of Srpska-specific taxes such as Personal Income Tax

35. To ensure consistency across all GFS outputs, it is advisable to use single sources of data. A more robust source of data will be the budgetary data recorded by the Republic of Srpska Ministry of Finance, also currently used to compile fiscal surveillance GFS reporting to and discussed above in Section A. These data are the key source for official fiscal data. Linked to this, it is advisable to compare outcomes with official reporting – such as the HRT data sent to EUR.

D. Officials Met During the Mission

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Bosnia and Herzegovina: Technical Assistance Report-Report on Government Finance Statistics Technical Assistance Mission, (October 1-5, 2018)
Author: International Monetary Fund. Statistics Dept.