The GFSM 2001 System

1
Government Finance StatisticsIMF Statistics
Department

• The GFSM 2001 System
• An Overview
• Rif Basanti
• Deputy Chief of Government Finance Division
• Statistics Department, IMF

2
Contents

• Why revise the GFSM 1986?
• Objectives of the GFSM 2001
• The GFSM 2001 system
• Coverage
• Definitions
• Accounting rules
• Analytic framework
• Statements
• Balances
• Implementation

3
Why a revision of the GFS Manual 1986?1/3

• Conceptual framework is 20 years old
• Cash-based recording, thus ignored inter alia
• arrears
• interest on discounted bonds
• in kind transactions
• consumption of fixed capital
• Emphasis was on a single deficit measure
• revenue plus grants minus expenditure minus net
  lending deficit/surplus

4
Why a revision of the GFS Manual 1986?2/3

• Financing was defined as
• Government liabilities (net borrowing) and
  changes in cash deposits (financial asset)
• Focus of cash-based system was on govts
  financing constraint
• Liquidity constraint viewed as most binding
  priority of govt.

5
Why a revision of the GFS Manual 1986?3/3

• Recently new topics have assumed importance for
  fiscal analysis, e.g.,
• arrears, transactions in kind, balance sheet
  items (stocks, net worth), sustainability of
  fiscal policy
• world-wide shift toward resource-based
  accounting, because of dissatisfaction with
  cash-based accounting
• Other related statistics Manuals have been
  revised, e.g., SNA, BOP

6
Objectives of the GFS Manual 2001 1/3

• To achieve analytic objectives, the new GFS
  system should generate data that
• are directly linked to other macroeconomic
  statistical systems harmonized as fully as
  possible with the 1993 SNA
• enable analysts to do assessments of financial
  soundness of government in ways applied to other
  organizations in economy

7
Government Finance Statistics systems 2/3
GFSM 2001
GFSM 1986
Transactions
Transactions
Revenue
Revenue
Expend- iture
Expense
Other economic flows
Opening balance
Closing balance
Non- financial assets
NFA
NFA
NFA
Financial assets
FA
FA
FA
FA
Opening liabilities
Closing liabilities
Liab
Liab
Liab
Liab
Liab
Liab
Liabilities
8
GFSM 2001 analytical framework3/3
Statement of Government Operations
Revenue
-
Expense
Statement of Other Economic Flows
Closing Balance Sheet
Opening Balance Sheet

Change in net worth Tr
Change in net worth OEF
Net worth
Net worth




Non- financial assets
Non- financial assets
Non- financial assets
Non- financial assets




Net lending/ borrowing
Net finanical worth
Net financial worth
Change in net f.worth OEF



Financial assets
Financial assets
Financial assets
Financial assets
-
-
-
-
Liabilities
Liabilities
Liabilities
Liabilities
Stocks
Transactions
Other flows
Stocks
9
Coverage of the GFSM 2001 System

• General government
• Public non-financial
• corporations
• Public financial
• corporations
• Nonmonetary
• Monetary
• (incl. the central bank)

Non-financial public sector
Non-monetary public sector
Public sector
10
The GFSM 2001 System(1/3)

• Measures of revenue and expense
• revenue
• transactions that increase net worth
• exclude sales of assets (which are exchanges of
  one asset for another)
• expense
• transactions that reduce net worth
• exclude acquisition of assets

11
The GFSM 2001 System(2/3)

• Transactions in nonfinancial assets
• net acquisition of nonfinancial assets
• acquisition
• disposal
• consumption of fixed capital
• Financing (transactions in financial assets and
  liabilities)
• identify financial assets and liabilities
  separately (by residency, instrument, sector)
• net acquisition of financial assets
• net incurrence of liabilities

12
The GFSM 2001 System(3/3)

• Integrated system
• Full integration of flows and stocks (operating
  statements and balance sheets)
• Basic principle of GFSM 2001 system
• opening balance sheet value
• transactions
• other economic flows
• closing balance sheet value

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14
Accounting Rules(1/3)

• Accrual-based recording
• when transaction takes place
• income is earned
• resources are used
• liabilities are incurred
• assets are acquired
• it is a timing and data coverage question
• Double-entry accounting

15
Accounting Rules(2/3)

• Time of Recording
• Flows are recorded when
• economic benefits associated with the events have
  flowed to or from the unit involved, or
• it is probable that future benefits will flow to
  or from the unit, and
• the monetary value of the events can be reliably
  measured
• Valuation
• All flows and stocks are valued at current market
  prices

16
Accounting Rules(3/3)

• Netting
• Generally, flows and stocks are recorded on a
  gross basis
• For analytic presentations, the net acquisition
  of assets or net incurrence of liabilities may be
  used
• Revenue categories are presented net of refunds
• Expense categories are presented net of erroneous
  and/or unauthorized transactions
• Consolidation
• In GFS, data presented for a group of units are
  consolidated

17
GFSM 2001 Statements

• Four statements
• Statement of Government Operations
• Statement of Other Economic Flows
• Balance Sheet
• Statement of Sources and Uses of Cash

18
The Statement of Government Operations 1/6

• Summarizes governments transactions in a given
  accounting period
• Transactions are classified according to whether
  they
• increase net worth (revenue)
• decrease net worth (expense)
• change the stock of a nonfinancial asset (capital
  asset)
• change the stock of a financial asset or
  liability (financing)

19
The Statement of Government Operations 2/6

• Revenue
• - Expense
• Net operating balance (gross operating balance)
• - Transactions in nonfinancial assets
• Net lending/borrowing
• - Transactions in financial assets
• Transactions in Liabilities

Financing
zero (because of double-entry recording)
20
The Statement of Government Operations 3/6

• Revenue
• Taxes
• Social Contributions
• Grants
• Other revenue

21
The Statement of Government Operations 4/6

• Expense
• Compensation of employees
• Use of goods and services
• Consumption of fixed capital
• Interest
• Subsidies
• Grants
• Social benefits
• Other expense

Transfers
22
The Statement of Government Operations 5/6

• Transactions in nonfinancial assets
• Fixed assets
• Inventories (net change)
• Valuables
• Nonproduced assets
• Minus consumption of fixed capital

23
The Statement of Government Operations 6/6

• Financing
• Transactions in (all) financial assets and
  liabilities
• Multiple ways to classify
• by residency of counter party (domestic, foreign)
• by type of financial instrument (securities other
  than shares, loans, shares and other equity,
  etc.)
• by sector of counter party (general government,
  central bank, depository corporations, etc.)

24
Statement of Other Economic Flows1/2

• Shows influences on govts financial position in
  accounting period from flows other than
  transactions, i.e.
• Holding gains in assets liabilities
  (revaluations)
• Changes in the price of the asset or liability
• Other volume changes in assets and liabilities
• exceptional or unexpected events (e.g., floods,
  earthquakes, wars, etc.)
• normal events (e.g., discovery of subsoil asset,
  registration of patent)
• reclassifications (e.g., unit from central to
  local govt)

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Statement of Other Economic Flows2/2

• Changes in nonfinancial assets
• Holding gains
• Other volume changes
• Changes in financial assets
• Holding gains
• Other volume changes
• Changes in liabilities
• Holding gains
• Other volume changes
• Changes in net worth from other economic flows

26
Balance Sheet1/2

• Shows the stocks of assets, liabilities and net
  worth at beginning and end of accounting period
• Economic assets are recorded in GFS, i.e., owners
  of assets can
• enforce ownership rights
• derive economic benefits
• Valued at current market value
• Assets by type of asset
• Liabilities by type of instrument

27
Balance Sheet2/2

• Nonfinancial assets
• Financial assets
• Liabilities
• Net worth(t)
• Net worth(t-1)
• changes in net worth due to transactions
  net operating balance(t)
• changes in net worth due to other economic
  flows(t)

28
Statement of Sources and Uses of Cash1/2

• Shows the total amount of cash generated or
  absorbed by government through
• current operations
• transactions in nonfinancial assets
• transactions in financial assets and liabilities
  (other than cash itself)
• Net change in governments overall cash position
  is sum of the net cash received from all the above

29
Statement of Sources and Uses of Cash (Shortened
Version) 2/2

• Cash receipts from government operating
  activities- Cash payments for government
  operating activities Net cash inflow from
  operating activities- Net cash outflow from
  investments in NFAs Cash surplus/deficit Net
  cash inflow from financial operations other
• than cash Net acquisition of
  financial assets other than cash Net
  incurrence of liabilities Net change in stock
  of cash

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Core Balances of the GFSM 2001 System

• Multiple balancing items for transactions
• Net operating balance
• Balance of transactions affecting net worth
• Closely related to 1993 SNA government saving
• Net lending/borrowing
• Net operating balance minus transactions in NFAs
• Cash surplus/deficit
• Net cash inflow from operating activities minus
  net cash outflow from investments in NFAs

31
Other Analytic Measures

• Some other analytic measures for fiscal policy
  (see Box 4.1 in GFSM 2001)
• Overall fiscal balance
• Net lending/borrowing minus acquisition of
  financial assets for policy purposes
• Overall primary balance
• Overall fiscal balance plus net interest expense
• Net worth
• Total stock of assets minus liabilities
• Net financial worth
• Total stock of financial assets minus liabilities

32
Implementation 1/1

• It is recognized that full implementation of the
  new GFS system is a long-term activity
• Priorities can only be established by each
  country taking into account their situation,
  including available resources

33
Implementation 2/2

• Nonetheless, countries are encouraged to develop
  a migration path towards the new system.
• It is likely that this will include, over time
• improving existing cash-based data systems
• adopting the new classification structure
• making adjustments to existing data for serious
  deficiencies
• developing balance sheet information

34
Step 1 Cash basis gt reclassification to new
GFS I. Cash data to GFS tables 1
to 5 II. Partial balance
sheet (Table 6)
Migration path
GFSM 2001
GFS 1986
Transactions
Transactions
Revenue
Revenue
1
FA by sectors
4
Expense
Current and capital expend- iture
2
gt
COFOG
5

Stocks of financial assets liabilities
Stocks of financial assets liabilities
NFA
3

FA
FA
FA
FA
6
3
Stocks of liabilities
Stocks of liabilities
Liab
Liab
Liab
Liab
Liab
Liab
3
6
Net operating balance Net lending /
borrowing
35
Step 2 Full coverage of units and events
(approach accrual recording)

I. Statement of Government Operations (Tables
1-5) II. Partial balance
sheet (Table 6)
Migration path
Step 1
Transactions
Transactions
Revenue
Revenue
1
FA by sectors
4
gt
Expense
2
Expense
COFOG
5

Stocks of financial assets liabilities
Stocks of financial assets liabilities
Stocks of financial assets liabilities
Stocks of financial assets liabilities
NFA
3
NFA

FA
FA
FA
6
3
FA
FA
FA
Liab
Liab
Liab
3
Liab
Liab
Liab
6
Net operating balance Net lending /
borrowing
NW tr
36
Step 3 Full accrual accounting for financial
accounts I. Statement of
Government Operations (Tables 1-5)
II. Other Economic Flows
for financial assets
III. Partial balance sheet (Table 6)
Migration path
Step 2
Transactions
Transactions
Revenue
Revenue
1
gt
Expense
2
Expense

Stocks of financial assets liabilities
Stocks of financial assets liabilities
Stocks of financial assets liabilities
Stocks of financial assets liabilities
NFA
3
NFA
Other economic flows

FA
FA
FA
6
3
FA
FA
FA
FA
6
Liab
Liab
Liab
3
Liab
Liab
Liab
Liab
6
6
Net operating balance Net lending /
borrowing
NW tr
NW tr
37
Step 4 Accrual accounting for nonfinancial
assets I. Statement of Government
Operations (Tables 1-5) II. Statement of
Other Economic Flows
III. Integrated stocks and flows (Table 6)

Migration path
Step 3
Transactions
Transactions
Revenue
1
Revenue
gt
Expense
2
Expense
Other economic flows
Opening balance
Closing balance

Stocks of financial assets liabilities
Stocks of financial assets liabilities
NFA
3
NFA
NFA
NFA
NFA
6
6
Other economic flows

FA
FA
FA
6
3
FA
FA
FA
FA
6
FA
Liab
Liab
Liab
3
Liab
Liab
Liab
Liab
6
6
Liab
NW tr
NW tr
NW OEF
NW
38
GFS as a fiscal policy instrument
GFSM 2001
Transactions
Revenue
ESA 95
COA
Expense
Other economic flows
Opening balance
Closing balance
NFA
NFA
NFA
NFA
Current Accounts
Chart of Accounts
FA
FA
FA
FA
Accumulation Accounts
Liab
Liab
Liab
Liab
Balance Sheet
39
ESA95 SNA93
GFS2001
BOP93
export GS import GS income transactions current
transfers
Transactions
Transactions
Transactions
Production account
Revenue account
Current account
GDP (value added)
Income account
Expense account
Current account balance
Operating balance
Saving
capital transfers transactions in NPNFA
Capital transfers Non-financial assets
Non-financial assets
Capital account
MFS2000
Transactions
Financial assets liabilities
Financial assets liabilities
Financial assets liabilities
Financial assets liabilities
Net lending / borrowing