The GFSM 2001 System - An overview

1
The GFSM 2001 System- An overview

• Government Finance Division
• Statistics Department
• IMF
• June 1, 2009

2
Contents of Lecture

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

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Why a revision of the GFS Manual 1986?(1/4)

• Conceptual framework was 20 years old at time
  of revision
• 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

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

• Revenue and grants were defined as
• All nonrepayable receipts
• Expenditure was defined as
• All nonrepayable payments
• Lending minus repayments (net lending)
• Transactions in financial claims acquired for
  purposes of public policy
• Repayable transactions, included above the line
  with nonrepayable transactions

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

• 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.

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Why a revision of the GFS Manual 1986?(4/4)

• At that time, 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

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Objectives of the GFS Manual 2001(1/2)

• A system to address evolving changes
• in the way countries maintain their government
  accounts, and
• analyze data in these accounts
• A manual that
• serves specialized needs of compilers, analysts,
  and policy makers, and
• subject to those needs, a manual that is
  harmonized as fully as possible with the 1993 SNA

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Objectives of the GFS Manual 2001 (2/2)

• To achieve analytic objectives, the GFSM 2001
  system should generate data that
• are directly linked to other macroeconomic
  statistical systems
• enable analysts to do assessments of financial
  soundness of government in ways applied to other
  organizations in economy

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Coverage and Sectorization in the GFSM 2001 System

• General government
• Public nonfinancial
• corporations
• Public financial
• corporations
• Nonmonetary
• Monetary
• (including the central bank)

Nonfinancial public sector
Nonmonetary public sector
Public sector
Coverage and sectorization is based on
institutional units, control, market/nonmarket
activity
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The GFSM 2001 System(1/3)

• Balance sheet approach
• stock of assets, liabilities, and net worth
  (assets minus liabilities)
• 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

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The GFSM 2001 System(2/3)

• Transactions in nonfinancial assets
• net acquisition of nonfinancial assets
• acquisitions
• disposals
• 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

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The GFSM 2001 System(3/3)

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

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F L O W S
STOCKS
STOCKS
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Accounting Rules(1/3)

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

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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

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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
• Data presented for a group of units are
  consolidated in GFS

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GFSM 2001 Statements

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

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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)

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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)
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Statement of Government Operations (3/6)

• Revenue
• Taxes
• Social contributions
• Grants
• Other revenue

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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
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Statement of Government Operations (5/6)

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

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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 (e.g., securities
  other than shares, loans, shares and other
  equity, etc.)
• by sector of counter party (e.g., general
  government, central bank, depository
  corporations, etc.)

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Statement of Other Economic Flows(1/2)

• 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 government)

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Statement of Other Economic Flows(2/2)

• 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

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Balance Sheet(1/2)

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

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Balance Sheet(2/2)

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

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Statement of Sources and Uses of Cash(1/2)

• 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 cashcurrency depositsitself)
• Net change in governments overall cash position
  is sum of the net cash received from all the above

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Statement of Sources and Uses of Cash (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 the
  stock of cash

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STATEMENT OF GOVERNMENT OPERATIONS VS. CASH FLOW
STATEMENT
Statement of Government Operations
Statement of Sources Uses of Cash

• Cash inflows and outflows from transactions
• Operating activities
• Purchases sales of nonfin. assets

minus
NET OPERATING BALANCE
minus
NET LENDING/ BORROWING
minus
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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
  nonfinancial assets
• Cash surplus/deficit
• Net cash inflow from operating activities minus
  net cash outflow from investments in nonfinancial
  assets

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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

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Implementation of GFSM 2001(1/2)

• 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

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Implementation of GFSM 2001(2/2)

• Nonetheless, countries are encouraged to develop
  a migration path towards the GFSM 2001
• It is likely that this migration path 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