Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698844207793.pdf (Saint Kitts and Nevis)
MANUAL GOVERNMENT FINANCE STATISTICS MANUAL 2014 2014 I N T E R N A T I O N A L M O N E T A R Y F U N D © 2014 International Monetary Fund Cataloging-in-Publication Data Joint Bank-Fund Library Government fi nance statistics manual 2014.

– Washington, D.C. : International Monetary Fund, 2014. pages; cm.

Includes bibliographical references and index.

ISBN: 978-1-49834-376-3 1.

Finance, Public – Statistics – Handbooks, manuals, etc.

I.

International Monetary Fund.


HJ131.M26 2014 ISBN: 978-1-49834-376-3 (paper) 978-1-49837-921-2 (ePub) 978-1-49836-697-7 (Mobi pocket) 978-1-49837-916-8 (web PDF) Disclaimer: Th e views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its member countries.

Please send orders to: International Monetary Fund, Publication Services P.O.
Box 92780, Washington, DC 20090, U.S.A. Fax: (202) 623-7201 Tel.

: (202) 623-7430 E-mail: publications@imf.org Internet: www.elibrary.imf.org www.imfb ookstore.org Contents Foreword .

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.xix Preface .

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.xxi Chapters 1.

2.

Introduction.

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1 Purpose of the Manual .

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1 Th e Evolution of International Statistical Guidelines on GFS.

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2 History .

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2 Th e Update of the GFSM 2001 .

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2 Uses of the GFS Framework .

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3 Structure and Features of the GFS Framework.

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3 Methodological Diff erences with the GFSM 1986 .

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4 Coverage.

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5 Basis of Recording Economic Events .

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5 Valuation .

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5 Balance Sheets .

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5 Integration of Flows and Stock Positions .

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5 Th e Analytic Framework .

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5 Harmonization with Other Methodologies .

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6 Implementation of the GFS Framework.

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6 Structure of the Manual .

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6 Institutional Units and Sectors.

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8 Introduction .

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8 Residence.

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9 Institutional Units.

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11 Defi nition of an Institutional Unit .

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11 Types of Institutional Units .

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12 Households .

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12 Legal and social entities .

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13 Corporations .

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13 Nonprofi t institutions (NPIs) .

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14 Government units .

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14 Application of the Defi nition of an Institutional Unit to Government .

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15 Institutional Sectors .

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16 Defi ning Institutional Sectors .

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16 Nonfi nancial corporations sector .

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16 Financial corporations sector .

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17 General government sector .

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18 iv Contents Households sector.

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18 Nonprofi t institutions serving households (NPISHs) sector .

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18 Th e Use of Subsectors.

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19 Institutional Coverage and Sectorization of the Public Sector .

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19 Delineating General Government and Public Corporations .

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19 Th e General Government Sector and Its Subsectors .

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22 Central government .

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24 State governments.

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25 Local governments .

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26 Social security funds.

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27 Th e Public Corporations Sector and Its Subsectors .

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27 Th e public corporations subsector .

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27 Government control of corporations .

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28 Types of public corporations .

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30 Public nonfi nancial corporations subsector .

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30 Public fi nancial corporations subsector.

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30 Public deposit-taking corporations .

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30 Th e central bank .

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30 Public deposit-taking corporations except the central bank.

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30 Other public fi nancial corporations .

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31 Other groupings of public sector units .

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31 Decision Tree for Sector Classifi cation of the Public Sector.

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31 Practical Application of Sector Classifi cation Principles .

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33 Identifying Quasi-corporations .

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33 Distinguishing Head Offi ces and Holding Companies .

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33 Restructuring Agencies .

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34 Financial Protection Schemes .

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35 Special Purpose Entities.

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35 Joint Ventures .

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36 Sinking Funds .

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36 Pension Schemes.

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37 Provident Funds .

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37 Sovereign Wealth Funds .

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37 Market Regulatory Agencies .

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38 Development Funds and/or Infrastructure Companies or Entities.

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39 3.

Economic Flows, Stock Positions, and Accounting Rules .

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40 Introduction .

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40 Economic Flows.

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40 Transactions.

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40 Monetary transactions .

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41 Nonmonetary transactions .

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42 Two-party nonmonetary transactions .

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43 Internal transactions.

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43 Rearrangements of some transactions .

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43 Rerouting .

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43 Partitioning .

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44 Reassignment.

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44 Other Economic Flows.

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44 Holding gains and losses .

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44 Other changes in the volume of assets/liabilities .

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45 Contents v Stock Positions .

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45 Economic Benefi ts .

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45 Ownership .

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45 Defi nition of Assets and Liabilities.

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46 Financial assets and liabilities .

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46 Nonfi nancial assets .

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47 Accounting Rules.

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47 Type of Accounting System .

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47 Time of Recording Flows.

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48 Alternative recording bases .

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49 Using the accrual basis of recording in the Statements of Operations and Other Economic Flows, and Balance Sheet of the GFS framework.

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50 Application of the accrual principles .

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51 Time of recording and measurement of taxes and other compulsory transfers.

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51 Time of recording dividends .

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52 Time of recording transactions in goods, services, and nonfi nancial assets .

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52 Time of recording transactions in fi nancial assets and liabilities.

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53 Time of recording other economic fl ows.

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54 Using the cash basis of recording in the Statement of Sources and Uses of Cash .

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54 Valuation .

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55 General rule .

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55 Valuation of transactions .

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55 Valuation of stock positions .

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56 Valuation adjustments in special cases .

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57 Valuation of other economic fl ows .

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59 Holding gains and losses .


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59 Other changes in the volume of assets .

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59 Currency .

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59 Unit of account .

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59 Currency conversion .

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60 Domestic and foreign currency .

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60 Currency of denomination and currency of settlement .

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60 Derived Measures .

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60 Netting of Flows and Stock Positions.

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61 Consolidation .

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62 Defi nitions .

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62 Reasons for consolidation .

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63 Conceptual guidelines .

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63 Implementing consolidation .

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64 Consolidation in other datasets .

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65 2008 System of National Accounts .

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65 Financial statements .

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65 4.

The Government Finance Statistics Analytic Framework .

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66 Introduction .

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66 Analytic Objectives .

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67 Construction of the Analytic Framework: Relation to the GFSM 1986 .

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67 Components and Concepts of the Analytic Framework .

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67 Th e Statement of Operations .

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69 Revenue and Expense.

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71 vi Contents Transactions in Nonfi nancial Assets .

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71 Transactions in Financial Assets and Liabilities .

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71 Th e Statement of Sources and Uses of Cash.

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73 Th e Statement of Other Economic Flows .

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74 Th e Balance Sheet .

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75 Assets .

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75 Liabilities .

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75 Th e Statement of Total Changes in Net Worth .

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76 Th e Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefi ts.

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76 Annex: Using GFS for Fiscal Analysis.

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78 Introduction .

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78 Fiscal Indicators Available from the GFS Framework.

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78 Fiscal Indicators Requiring Additional Data .

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78 5.

Revenue .

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84 Defi ning Revenue .

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84 Time of Recording and Measurement of Revenue .

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85 Th e Classifi cation of Revenue .

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87 Taxes (11) .

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87 GFS tax classifi cations in comparison with other statistical databases .

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87 Treatment of tax refunds and tax relief .

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89 Tax attribution.

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90 Tax categories .

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91 Taxes on income, profi ts, and capital gains (111) .

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91 Taxes on payroll and workforce (112) .

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92 Taxes on property (113) .

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93 Taxes on goods and services (114) .

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94 General taxes on goods and services (1141) .

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94 Value-added taxes (11411).

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95 Sales taxes (11412) .

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95 Turnover and other general taxes on goods and services (11413) .

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95 Taxes on fi nancial and capital transactions (11414).

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95 Excises (1142) .

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95 Profi ts of fi scal monopolies (1143) .

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95 Taxes on specifi c services (1144).

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96 Taxes on use of goods and on permission to use goods or perform activities (1145) .

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97 Boundary with administrative fees.

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97 Boundary with taxes on business activities levied on diff erent bases .

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98 Boundaries with other tax categories .

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98 Boundary with the acquisition or use of an asset .

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98 Other taxes on goods and services (1146) .

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100 Taxes on international trade and transactions (115) .

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100 Other taxes (116).

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101 Social Contributions [GFS] (12).

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102 Th e boundary between social contributions and other categories of taxes .

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102 Social security contributions [GFS] (121) .

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103 Other social contributions [GFS] (122).

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103 Grants (13).

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103 Other Revenue (14) .

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105 Contents vii Property income [GFS] (141) .

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105 Interest [GFS] (1411) .

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105 Dividends (1412).

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106 Withdrawals of income from quasi-corporations (1413) .

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107 Property income from investment income disbursements (1414).

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107 Rent (1415).

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107 Rent on land.

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108 Rent on subsoil assets .

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108 Boundary with rental of produced assets .

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109 Boundary with taxes .

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109 Reinvested earnings on foreign direct investment (1416).

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109 Sales of goods and services (142) .


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110 Fines, penalties, and forfeits (143) .

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111 Transfers not elsewhere classifi ed (144).

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111 Premiums, fees, and claims receivable related to nonlife insurance and standardized guarantee schemes (145) .

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112 6.

Expense .

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114 Defi ning Expense.

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114 Time of Recording Expense .

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114 Th e Economic Classifi cation of Expense .

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115 Compensation of Employees [GFS] (21).

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115 Wages and salaries [GFS] (211) .

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116 Wages and salaries in cash [GFS] (2111) .

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117 Wages and salaries in kind [GFS] (2112).

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118 Employers’ social contributions [GFS] (212) .

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119 Actual employers’ social contributions [GFS] (2121) .

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119 Imputed employers’ social contributions (2122) .

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119 Imputed employers’ social contributions related to nonpension benefi ts.

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119 Imputed employers’ social contributions to employment-related pension benefi ts .

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120 Use of Goods and Services (22) .

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120 Th e boundary between use of goods and services and compensation of employees .

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121 Th e boundary between use of goods and services and transfers .

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122 Th e boundary between use of goods and services and the acquisition of nonfi nancial assets .

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123 Other boundaries related to use of goods and services .

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124 Consumption of Fixed Capital [GFS] (23) .

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124 Interest [GFS] (24) .

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127 Indexation of the coupon payments only .

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129 Indexation of the amount to be paid at maturity .

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129 Subsidies (25) .

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131 Grants (26).

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134 Social Benefi ts [GFS] (27) .

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135 Other Expense (28).

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137 Property expense other than interest (281).

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137 Dividends (2811).

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137 Withdrawals of income from quasi-corporations (2812) .

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138 Property expense for investment income disbursements (2813) .

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138 Rent (2814).

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139 Reinvested earnings on foreign direct investment (2815).

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139 Transfers not elsewhere classifi ed (282).

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139 viii Contents Current transfers not elsewhere classifi ed (2821).

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139 Capital transfers not elsewhere classifi ed (2822) .

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140 Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes (283) .

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141 Annex: Classiﬁ cation of the Functions of Government .

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142 Introduction .

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142 Structure of COFOG Classifi cations .

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142 Uses of COFOG .

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142 Individual versus Collective Goods and Services.

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144 Units of Classifi cation .

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145 Problems in Identifying Functions of Government.

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145 Shared Expenditure .

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145 Administrative Expenditure .

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146 Subsidies.

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146 Consumption of Fixed Capital .

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146 Cross-Classifi cation of Expenditure .

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146 Detailed Classifi cation of the Functions of Government .

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146 General Public Services .

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147 Defense.

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150 Public Order and Safety .

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150 Economic Aff airs.

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151 Environmental Protection .

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158 Housing and Community Amenities.

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160 Health .

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161 Recreation, Culture, and Religion .

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164 Education .

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166 Social Protection .

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168 7.

The Balance Sheet .

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171 Introduction .

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171 Defi ning Assets and Liabilities .

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171 Ownership and the Asset Boundary .

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171 Deriving Defi nitions for Assets and Liabilities.

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173 Valuation of Assets and Liabilities.

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175 Value Observed in Markets .

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175 Value Obtained by Accumulating and Revaluing Transactions .

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177 Present Value of Future Returns .

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177 Classifi cation of Assets and Liabilities .

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177 Nonfi nancial Assets (61) .

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177 Fixed assets (611) .

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178 Buildings and structures (6111) .

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179 Dwellings (61111) .

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179 Buildings other than dwellings (61112) .

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180 Other structures (61113) .

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180 Land improvements (61114) .

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180 Machinery and equipment (6112) .

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180 Transport equipment (61121) .

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181 Machinery and equipment other than transport equipment (61122) .

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181 Information, computer, and telecommunications equipment (ICT) (611221) .

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181 Machinery and equipment not elsewhere classifi ed (611222) .

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181 Contents ix Other fi xed assets (6113) .

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181 Cultivated biological resources (61131).

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182 Intellectual property products (61132) .

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182 Weapons systems (6114) .

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184 Inventories (612) .

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185 Materials and supplies (61221) .

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185 Work in progress (61222) .

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185 Finished goods (61223) .

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186 Goods for resale (61224) .

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186 Military inventories (61225) .

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186 Valuables (613) .

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186 Nonproduced assets (614) .

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186 Land (6141) .

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187 Mineral and energy resources (6142).

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187 Other naturally occurring assets (6143) .

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188 Intangible nonproduced assets (6144) .

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188 Contracts, leases, and licenses (61441) .

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189 Marketable operating leases (614411) .

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189 Permits to use natural resources (614412).

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189 Permits to undertake specifi c activities (614413) .

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189 Entitlement to future goods and services on an exclusive basis (614414).

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190 Goodwill and marketing assets (61442).

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190 Financial Assets (62) and Liabilities (63).

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190 Monetary gold and Special Drawing Rights (SDRs) (6201, 6221, 6301, 6321) .

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191 Monetary gold (62011, 62211) .

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191 Special Drawing Rights (SDRs) (62012, 62212, 63012, 63212) .

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193 Currency and deposits (6202, 6212, 6222, 6302, 6312, 6322).

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193 Debt securities (6203, 6213, 6223, 6303, 6313, 6323) .

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194 Loans (6204, 6214, 6224, 6304, 6314, 6324) .

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196 Equity and investment fund shares (6205, 6215, 6225, 6305, 6315, 6325) .

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197 Equity (62051, 62151, 62251, 63051, 63151, 63251) .

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197 Investment fund shares or units (62052, 62152, 62252, 63052, 63152, 63252) .

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198 Insurance, pension, and standardized guarantee schemes [GFS] (6206, 6216, 6226, 6306, 6316, 6326) .

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199 Nonlife insurance technical reserves (62061, 62161, 62261, 63061, 63161, 63261).

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199 Life insurance and annuities entitlements (62062, 62162, 62262, 63062, 63162, 63262) .

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200 Pension entitlements [GFS] (62063, 62163, 62263, 63063, 63163, 63263) .

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200 Claims of pension funds on pension manager (62064, 62164, 62264, 63064, 63164, 63264) .

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202 Provisions for calls under standardized guarantee schemes (62065, 62165, 62265, 63065, 63165, 63265).

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202 Financial derivatives and employee stock options (6207, 6217, 6227, 6307, 6317, 6327).

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202 Financial derivatives (62071, 62171, 62271, 63071, 63171, 63271) .

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202 Options .

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203 Forward-type contracts .

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204 Other issues associated with fi nancial derivatives .

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204 Swap contracts .

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204 Credit derivatives .

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204 Margins.

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205 Employee stock options (62072, 62172, 62272, 63072, 63172, 63272) .

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205 Other accounts receivable/payable (6208, 6218, 6228, 6308, 6318, 6328) .

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205 x Contents Net Worth .

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206 Memorandum Items .

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207 Net Financial Worth (6M2).

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207 Debt .

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207 Gross debt .

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207 Gross debt at market value (6M3) .

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208 Gross debt at nominal value (6M4) .

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208 Gross debt at face value (6M35) .

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208 Net debt .

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208 Concessional loans .

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208 Arrears (6M5) .

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209 Explicit Contingent Liabilities (6M6) .

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209 Overview .

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209 One-off guarantees .

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210 Net Implicit Obligations for Future Social Security Benefi ts (6M7) .

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212 Nonperforming Loan Assets at Fair Value (6M8) .

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212 Classifi cation of the Counterparty of Financial Assets and Liabilities by Institutional Sector .
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213 Classifi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity .

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213 8.

Transactions in Nonﬁ nancial Assets .

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217 Introduction .

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217 Costs of Ownership Transfer .

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218 Valuation .

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219 Time of Recording.

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219 Consumption of Fixed Capital .

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220 Netting of Transactions .

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220 Classifi cation and Recording of Transactions in Nonfi nancial Assets.

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220 Fixed Assets (311).

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222 Major improvements versus maintenance and repair .

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222 Buildings and structures (3111) .

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223 Machinery and equipment (3112) .

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223 Other fi xed assets (3113) .

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223 Cultivated biological resources (31131).

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223 Intellectual property products (31132) .

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224 Costs of ownership transfer on nonproduced assets other than land (31133) .

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225 Weapons systems (3114) .

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225 Inventories (312).

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225 Valuables (313) .

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228 Nonproduced Assets (314) .

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228 Land (3141) .

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228 Mineral and energy resources (3142).

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229 Other naturally occurring assets (3143) .

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229 Intangible nonproduced assets (3144) .

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229 9.

Transactions in Financial Assets and Liabilities.

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230 Introduction .

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230 Valuation .

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231 Time of Recording.

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232 Netting and Consolidation of Flows .

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233 Netting .

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233 Consolidation .

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233 Contents xi Arrears.

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233 Classifi cation of Transactions in Financial Assets and Liabilities by Type of Financial Instrument and Residence.

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234 Monetary Gold and Special Drawing Rights (SDRs) (3201, 3221, 3301, 3321) .

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235 Monetary gold (32011, 32211) .

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235 Special Drawing Rights (SDRs) (32012, 32212, 33012, 33212) .

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235 Currency and Deposits (3202, 3212, 3222, 3302, 3312, 3322) .

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236 Debt Securities (3203, 3213, 3223, 3303, 3313, 3323) .

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236 Debt securities issued at par .

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236 Debt securities issued at a discount or premium .

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237 Index-linked debt securities .

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237 Debt securities with embedded derivatives.

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237 Loans (3204, 3214, 3224, 3304, 3314, 3324) .

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237 Equity and Investment Fund Shares (3205, 3215, 3225, 3305, 3315, 3325) .

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238 Equity (32051, 32151, 32251, 33051, 33151, 33251) .

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238 Privatization/Nationalization .

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239 Investment fund shares (32052, 32152, 32252, 33052, 33152, 33252).

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239 Insurance, Pension, and Standardized Guarantee Schemes [GFS] (3206, 3216, 3226, 3306, 3316, 3326).

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239 Nonlife insurance technical reserves [GFS] (32061, 32161, 32261, 33061, 33161, 33261).

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240 Life insurance and annuities entitlements (32062, 32162, 32262, 33062, 33162, 33262) .

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240 Pension entitlements [GFS] (32063, 32163, 32263, 33063, 33163, 33263) .

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240 Claims of pension fund on pension manager (32064, 32164, 32264, 33064, 33164, 33264) .

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241 Provision for calls under standardized guarantee schemes (32065, 32165, 32265, 33065, 33165, 33265).

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241 Financial Derivatives and Employee Stock Options (3207, 3217, 3227, 3307, 3317, 3327) .

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241 Financial derivatives (32071, 32171, 32271, 33071, 33171, 33271) .

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241 Employee stock options (32072, 32172, 32272, 33072, 33172, 33272) .

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242 Other Accounts Receivable/Payable (3208, 3218, 3228, 3308, 3318, 3328) .

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243 Classifi cation of Transactions in Financial Assets and Liabilities by Sector and Residence .

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243 Classifi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity .

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244 10.

Other Economic Flows .

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245 Introduction .

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245 Holding Gains .

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246 Holding Gains in General .

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246 Holding Gains for Particular Types of Assets .

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249 Fixed assets (411) .

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249 Inventories (412) .

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249 Valuables (413) .


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250 Nonfi nancial assets disposed of during the reporting period.

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250 Monetary gold and Special Drawing Rights (SDRs) (4201, 4221, 4301, 4321) .

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250 Financial assets and liabilities with fi xed monetary values .

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250 Debt securities (4203, 4213, 4223, 4303, 4313, 4323) .

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250 Equity and investment fund shares (4205, 4215, 4225, 4305, 4315, 4325) .

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251 Insurance, pension, and standardized guarantee schemes (4206, 4216, 4226, 4306, 4316, 4326).

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251 Financial derivatives and employee stock options (4207, 4217, 4227, 4307, 4317, 4327).

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252 Financial assets denominated in foreign currencies .

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252 Debt instruments that do not accrue interest .

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252 xii Contents Other Changes in the Volume of Assets .

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253 Appearance or Disappearance of Existing Economic Assets .

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253 Th e Eff ect of External Events on the Value of Assets .

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256 Catastrophic losses .

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256 Uncompensated seizures .

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257 Other volume changes not elsewhere classifi ed .

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257 Fixed assets (511) .

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257 Exceptional losses in inventories (512) .


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257 Life insurance and annuities entitlements (52062, 52162, 52262, 53062, 53162, 53262) .

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258 Pension entitlements (52063, 52163, 52263, 53063, 53163, 53263) .

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258 Provisions for calls under standardized guarantee schemes (52065, 52165, 52265, 53065, 53165, 53265).

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258 Changes in Classifi cation.

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258 Changes in sector classifi cation and structure .

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258 Changes in classifi cation of assets and liabilities .

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259 Appendixes 1.

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261 Introduction .

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261 Changes from the GFSM 2001 .

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261 Chapter 1 .

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261 Chapter 2 .

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262 Chapter 3 .

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263 Chapter 4 .

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263 Chapter 5 .

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264 Chapter 6 .

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266 Chapter 7 .

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268 Chapter 8 .

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270 Chapter 9 .

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270 Chapter 10 .

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271 Cross-Cutting Changes in Terminology .

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272 Changes from the GFSM 1986 .

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273 Introduction .

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273 Coverage of Units .

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273 Time of Recording Economic Events.

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274 Coverage of Events .

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274 Valuation .

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274 Gross and Net Recording of Flows .

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274 Integration of Flows and Stocks .

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274 Defi nitions and Classifi cations .

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275 Balancing Items.

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276 Harmonization with Other Statistical Systems.

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276 2.


Social Protection .

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277 Introduction .

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277 Th e Nature of Social Protection .

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277 Boundary between Social Protection and Private Insurance.

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279 Classifi cation Criteria for Social Protection Arrangements .

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280 Typology of Social Protection Arrangements .

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282 Social Assistance .

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283 Contents xiii Social Insurance Schemes .

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284 Social security schemes .

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285 Other employment-related social insurance schemes .

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286 Employment-related pensions and other retirement benefi t schemes .

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286 Nonautonomous employment-related pension schemes .

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287 Autonomous employment-related pension schemes .

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289 Defi ned-benefi t pension schemes .

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290 Defi ned-contribution pension schemes.

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290 Government assumption of employment-related pension obligations of other institutional units .

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291 Employment-related nonpension social insurance schemes .

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292 3.

Debt and Related Operations.

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294 Introduction .

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294 Debt Reorganization.

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294 Debt Forgiveness.

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294 Debt Rescheduling and Refi nancing .

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295 Debt rescheduling .

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295 Debt refi nancing .

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296 Debt Conversion and Debt Prepayment .

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296 Debt conversion .

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296 Debt prepayment.

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297 Debt Assumption and Debt Payments on Behalf of Others .

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297 Debt assumption .

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297 Debt payments on behalf of others.

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299 Other Debt-Related Issues.

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300 Debt Write-Off s and Write-Downs .

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300 New Money Facilities .

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300 Debt Defeasance .

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300 Debt Concessionality .

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301 Debt Arising from Bailout Operations .

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301 Th e sectorization issue .

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301 Statistical treatment of “capital injections” .

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302 Debt of Special Purpose Entities.

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304 Debt Arising from Securitization .

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305 Debt Arising from Off -Market Swaps .

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307 On-Lending of Borrowed Funds .

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308 Stock Positions and Related Flows with the IMF .

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309 Quotas .

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309 Reserve position in the IMF .

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309 Credit and loans from the IMF .

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310 Remuneration .

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310 IMF No.

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310 Special Drawing Rights (SDRs).

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311 4.

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312 Introduction .

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312 Leases, Licenses, Permits, and Other Contracts .

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312 Introduction .

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312 Leases .

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312 Operating leases .

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313 xiv Contents Financial leases .

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313 Resource leases .

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314 Licenses and Permits to Use a Natural Resource .

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315 Radio spectrum .

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316 Land .

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316 Timber .

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318 Fish .

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318 Water.

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319 Mineral and energy resources .

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319 Sharing Assets .

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319 Permits to Undertake a Specifi c Activity .

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320 Permits issued by government .

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320 Conditions for government permits recognized as assets.

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321 Permits to use natural resources as sinks.

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321 Contracts for future production .

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323 Leases as Assets .

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323 Public-Private Partnerships .

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324 Introduction .

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324 Determining Economic Ownership of PPP-Related Assets .

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325 Statistical Treatment .

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326 Insurance and Standardized Guarantee Schemes .

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327 Introduction .

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327 Types of Insurance and Standardized Guarantee Schemes.

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327 Defi ning Terminology Used in Insurance .

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328 Statistical Treatment of Nonlife Insurance and Standardized Guarantees .

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329 Flows and stock positions recorded by public sector units as nonlife insurers or guarantors .

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329 Flows and stock positions recorded by public sector units as nonlife policyholders and holders of standardized guarantees .

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330 5.

Regional Arrangements .

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332 Introduction .

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332 Types of Regional Arrangements.

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332 Custom Unions .

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332 A designated agency levies, collects, and distributes the proceeds from the duties .

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333 A designated agency levies and distributes duties but member governments collect duties on behalf of the designated agency .

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334 Member governments have collective rights to levy, collect, and distribute the duties .

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334 Member governments have collective rights to levy the duty, but only one member collects and distributes the duties.

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335 Economic Unions .

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335 Introduction.

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335 Residence in an economic union .

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336 Recording some specifi c transactions related to regional organizations.

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336 Monetary and Currency Unions.

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337 Using the GFSM Statistical Framework under Regional Arrangements .

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338 Harmonization Requirements for GFS in Economic or Monetary Unions .

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339 6.

GFS and International Public Sector Accounting Standards .

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341 Introduction .

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341 Comparison of IPSASs and GFS Reporting Guidelines .

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341 Conceptual Diff erences between IPSASs and GFS Reporting Guidelines .

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342 Objectives.

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342 Contents xv Reporting entity .

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342 Recognition criteria .

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344 Valuation (measurement) bases .

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345 Treatment of revaluations and other volume changes .

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346 Presentation and Terminology Diff erences.

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347 Diff erent names for statements .

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347 Classifi cation structures .

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347 Minimum level of detail.

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348 Disclosure of additional information.

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348 Mapping from IPSAS fi nancial statement aggregates to GFS aggregates .

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349 Total assets and total liabilities .

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349 Net worth .

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349 Revenue and expense .

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349 Consumption of fi xed capital (assets) .

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350 Operating balance.

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350 7.

GFS and Other Macroeconomic Statistics .

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351 Introduction .

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351 Overview of Similarities and Diff erences.

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352 Coverage and Accounting Rules.

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352 Comparison of the Analytical Frameworks of GFS and the SNA .

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353 Comparison of the Accounts in GFS and the SNA .

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353 Linkages between GFS and the SNA .

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357 Current accounts.

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357 Th e production account .

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357 Th e distribution of income accounts .

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362 Th e primary distribution of income account .

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362 Th e generation of income account .

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363 Th e allocation of primary income account .

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364 Th e secondary distribution of income account.

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365 Th e redistribution of income in kind account .

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366 Th e use of disposable income account .

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367 Th e accumulation accounts .

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368 Th e capital account .

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368 Th e fi nancial account .

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369 Th e other changes in the volume of assets accounts .

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369 Th e revaluation account .

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370 Th e balance sheet .

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370 Comparison of the Analytical Frameworks of the GFS and the Balance of Payments and the International Investment Position.

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370 Comparison of the Accounts in GFS and Balance of Payments and the International Investment Position .

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370 Linkages between GFS and Balance of Payments and the International Investment Position .

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372 Th e balance of payments .

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372 Th e current account .

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372 Th e goods and services account .

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372 Th e primary income account.

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374 Th e secondary income account.

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375 Th e capital account .

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376 Th e fi nancial account .

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377 xvi Contents Th e other changes in fi nancial assets and liabilities account .

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378 Th e international investment position.

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378 Comparison of the Analytical Frameworks of the GFS and the Monetary and Financial Statistics .

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378 Comparing the Accounts in GFS and Monetary and Financial Statistics.

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378 Linkages between GFS and Monetary and Financial Statistics .

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379 Comparison of the Analytical Framework of the GFS and the System of Environmental-Economic Accounting Central Framework.

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380 Comparing the Accounts in GFS and SEEA Central Framework.

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380 Th e Nature of Environmental Protection Activities and Accounting .

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380 Linkages between GFS and SEEA Central Framework .

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381 Environmental payments to government .

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381 Environmental taxes .

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381 Treatment of value-added taxes .

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382 Other payments to government .

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383 Rent .

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383 Sales of goods and services .

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383 Fines and penalties .

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383 Environmental transfers by nongovernment institutional units .

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383 Permits to use environmental assets.

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383 Environmental payments by governments .

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384 Environmental subsidies and similar transfers.

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384 8.

GFS Classiﬁ cations.

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385 9.

Glossary .

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396 Tables 3.1 Detailed Classifi cation of Counterparty Information .

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64 Statement of Operations .

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70 4.1 Statement of Sources and Uses of Cash.

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73 4.2 Statement of Other Economic Flows.

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74 4.3 4.4 Balance Sheet .

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75 Statement of Total Changes in Net Worth .

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76 4.5 Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for 4.6 Future Social Security Benefi ts.

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77 4A.1 Fiscal Indicators Available from the GFS Framework.

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79 4A.2 Fiscal Indicators Requiring Additional Data .

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83 5.1 Summary Classifi cation of Revenue .

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88 5.2 Detailed Classifi cation of Taxes on Income, Profi ts, and Capital Gains (111).

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92 5.3 Detailed Classifi cation of General Taxes on Goods and Services (1141) .

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94 5.4 Detailed Classifi cation of Taxes on Use of Goods and on Permission to Use Goods or Perform Activities (1145) .

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99 5.5 Detailed Classifi cation of Taxes on International Trade and Transactions (115) .

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100 5.6 Detailed Classifi cation of Social Contributions [GFS] (12) .

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102 5.7 Detailed Classifi cation of Grants (13) .

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104 5.8 Detailed Classifi cation of Interest [GFS] (1411) .

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105 5.9 Detailed Classifi cation of Dividends (1412).

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106 5.10 Detailed Classifi cation of Sales of Goods and Services (142) .

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110 5.11 Detailed Classifi cation of Transfers Not Elsewhere Classifi ed (144) .

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112 5.12 Detailed Classifi cation of Premiums, Fees, and Claims Receivable Related to Nonlife Insurance and Standardized Guarantee Schemes (145) .

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113 Contents xvii 6.1 Summary Economic Classifi cation of Expense .

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116 6.2 Detailed Classifi cation of Compensation of Employees [GFS] (21) .

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117 6.3 Relationship between Inventories (612) and Use of Goods and Services (22) .

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121 6.4 Detailed Classifi cation of Consumption of Fixed Capital [GFS] (23) .

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125 6.5 Detailed Classifi cation of Interest (24) .

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127 6.6 Detailed Classifi cation of Subsidies (25).

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131 6.7 Detailed Classifi cation of Grants (26) .

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135 6.8 Detailed Classifi cation of Social Benefi ts (27) .

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136 6.9 Detailed Classifi cation of Dividends (2811).

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137 6.10 Detailed Classifi cation of Transfers Not Elsewhere Classifi eds (282).

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140 6.11 Detailed Classifi cation of Premiums, Fees, and Claims Payable Related to Nonlife Insurance and Standardized Guarantee Schemes (283) .

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141 6A.1 Classifi cation of Expenditure by Functions of Government According to Divisions and Groups .

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143 6A.2 Cross-Classifi cation of Expenditure by Functional and Economic Classifi cations .

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147 7.1 Balance Sheet .

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172 7.2 Summary Classifi cation of Nonfi nancial Assets .

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178 7.3 Classifi cation of Buildings and Structures .

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179 7.4 Classifi cation of Machinery and Equipment .

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181 7.5 Classifi cation of Other Fixed Assets .

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182 7.6 Classifi cation of Inventories .

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185 7.7 Classifi cation of Other Naturally Occurring Assets .

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188 7.8 Classifi cation of Intangible Nonproduced Assets .

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189 7.9 Classifi cation of Financial Assets and Liabilities by Instrument and Residence of the Counterparty .

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192 7.10 Classifi cation of Memorandum Items to the Balance Sheet.

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207 7.11 Cross-Classifi cation of Financial Assets and Liabilities by the Institutional Sector of the Counterparty .

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214 7.12 Classifi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity and by Type of Debt Instrument .

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215 8.1 Classifi cation of Transactions in Nonfi nancial Assets .

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221 9.1 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classifi ed by Instrument and Residence of the Counterparty .

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234 9.2 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classifi ed by Residence of the Counterparty .

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244 10.1 Statement of Other Economic Flows (Abbreviated) .

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245 10.2 Classifi cation of Other Economic Flows.

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247 A2.1 Illustrative Recording of Flows Related to Social Assistance .

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283 A2.2 Illustrative Recording of Flows Related to Social Security Schemes.

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287 A2.3 Illustrative Recording of Flows Related to Employment-Related Pension Schemes.

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288 A2.4 Illustrative Recording of Flows Related to Employment-Related Nonpension Social Insurance Schemes .

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293 A3.1 Summary of the Statistical Treatment of On-Lending of Borrowed Funds by Institutional Unit A .

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308 A7.1 Main Diff erences between GFS and the SNA.

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354 A7.2 Linkages of the Statement of Operations in GFS with Sequence of SNA Transaction Accounts .

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356 A7.3 Correspondence of GFS and SNA Revenue Transaction Categories .

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358 A7.4 Correspondence of GFS and SNA Expense Transaction Categories.

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361 A7.5 Correspondence of GFS and SNA Transactions in Nonfi nancial Asset Categories .

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371 A7.6 Correspondence of GFS and SNA Financial Assets and Liabilities.

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373 A8.1 Classifi cation of Revenue .

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387 xviii Contents A8.2 Classifi cation of Expense.

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388 A8.3 Classifi cations of Flows and Stock Positions in Assets and Liabilities .

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389 A8.4 Classifi cations of the Counterparty of Transactions and Stock Positions in Financial Assets and Liabilities by Institutional Sector .

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393 A8.5 Classifi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity and by Type of Debt Instrument .

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394 A8.6 Classifi cation of Expenditure by Functions of Government According to Divisions and Groups.

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395 Figures 2.1 Types of Institutional Units and Th eir Relation to Sectors of the Economy .

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17 2.2 Th e Public Sector and Its Relation to Other Institutional Sectors of the Economy .

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19 2.3 Th e Public Sector and Its Main Components.

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20 2.4 Decision Tree for Sector Classifi cation of Public Entities.

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32 4.1 Structure of the GFS Analytic Framework .

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68 7.1 Net Worth in a Macroeconomic Statistics Balance Sheet.

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207 7.2 Overview of Liabilities and Contingent Liabilities in Macroeconomic Statistics .

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211 8.1 Illustrating the Treatment of Costs of Ownership Transfer on Nonproduced Assets .

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226 A2.1 Boundary between Social Protection and Private Insurance .

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279 A2.2 Typology of Social Protection .

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281 A3.1 Decision Tree for the Statistical Treatment of Debt Assumption .

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298 A3.2 Decision Tree for the Statistical Treatment of “Capital Injections”.

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303 A4.1 Illustrating the Treatment of Licenses and Permits to Use a Natural Resource.

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315 A7.1 Diagram of the Sequence of SNA Accounts .

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355 A8.1 Th e Classifi cation Coding System for GFS .

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386 Boxes 2.1 Government Control of Nonprofi t Institutions .

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23 2.2 Government Control of Corporations .

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29 4.1 Policy Lending .

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72 6.1 Th e Calculation of Consumption of Fixed Capital .

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126 Implicit Subsidies of Central Banks.

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133 6.2 6.3 Transactions with Public Corporations .

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134 A4.1 Criteria to Determine Whether a License Represents and Asset Sale or Rent .

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317 A4.2 Statistical Treatment of Permits Issued by Government: Examples .

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322 A4.3 Practical Example of Leases as Assets .

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324 A4.4 Determining the Economic Ownership of PPP-Related Assets .
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325 A4.5 Practical Applications of the Economic Ownership Concept .

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326 A5.1 Regional Arrangements in the Harmonizing of GFS .

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340 A6.1 Summary Comparison of GFS and IPSASs .

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343 A7.1 In-Kind Transactions.

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363 Index .

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421 Foreword Th e international fi nancial crisis in recent years, and the associated large fi scal defi cits and rising debt levels in many countries, underscored the importance of reliable and timely statistics on the general government and public sectors.
Th ese events have shown the importance of internationally comparable data that allow detecting sources of vulner- ability early and taking timely corrective measures.

One focus of the IMF’s work is on increasing the availability of key economic indicators.

Th e IMF undertakes a range of activities for this purpose, including the IMF Statistics Department’s work to prepare manuals describing method- ologies that should be used to compile economic and fi nancial statistics.
In this regard, I am pleased to introduce the third edition of the Government Finance Statistics Manual.

Th is manual takes its place alongside the other manuals pre- pared by the Statistics Department, including the Balance of Payments and International Investment Position Manual, the Monetary and Financial Statistics Manual, Public Sector Debt Statistics: Guide for Compilers and Users, and the Quarterly National Accounts Manual.
Like the other manuals, this manual is harmonized with the System of National Accounts 2008.

Th is manual represents a major step forward in clarifying the standards for compiling and presenting fi scal statistics and strengthens the worldwide eff ort to improve public sector reporting and transparency.

Government fi nance sta- tistics are a basis for fi scal analysis, and they play a vital role in developing and monitoring sound fi scal programs and in conducting surveillance of economic policies.
Th e Executive Board of the IMF approved the use of the government fi nance statistics framework as the standard for presenting the Fund’s fi scal data.

I therefore urge member countries to adopt the guidelines of the manual as the basis for compiling and disseminating government fi nance statistics, and for reporting this information to the Fund.
Th is manual has been prepared by the Statistics Department in close consultation with the Government Finance Sta- tistics Advisory Committee, established to provide expert opinions from a broad range of countries and international organizations.

Th e changes to the manual and revised text were posted on the website of the IMF for worldwide com- ments from compilers and users.

Th e process underlying the revision of the manual demonstrates the spirit of inter- national collaboration and cooperation.
I would like to thank all of the experts involved for their invaluable assistance and for their collaborative and cooperative spirit.

Christine Lagarde Managing Director International Monetary Fund This page intentionally left blank Preface Th e Government Finance Statistics Manual 2014 (GFSM 2014) is part of a series of international guidelines on statisti- cal methodologies that have been issued by the International Monetary Fund.
Th e Manual updates the Government Finance Statistics Manual 2001, and is the third edition of guidelines that describe a specialized macroeconomic statis- tical framework, the government fi nance statistics (GFS) framework, designed to support fi scal analysis.
Th e Manual was produced by the IMF’s Statistics Department in fulfi llment of its mission to provide strong leadership for the development and application of sound statistical practices, and is published in service of the worldwide trend toward greater accountability and fi scal transparency.

Th e Manual is designed for use by compilers of GFS, fi scal analysts, and other users of fi scal data.
It may also be informative to compilers and users of other macroeconomic statistics in understanding the relations between the vari- ous sets of macroeconomic statistics, in particular, to compilers of the national accounts who may depend on GFS as an input to their work.

Th e guidelines also explain the relationship of GFS with internationally accepted accounting standards and may therefore be useful for those involved in reforming government accounting systems.
Th e Manual is focused, however, on conceptual descriptions of defi nitions, classifi cations, and conceptual guidelines for compiling and disseminating GFS, and, as such, it does not describe the methods to be used to compile the statistics.
Th e GFSM 2014 is supplemented by practical guidance on the compilation of the statistics provided in Government Finance Statistics: Compilation Guide for Developing Countries 2011 and Quarterly Government Finance Statistics: Guide for Compilers and Users, as well as through technical assistance and training work with individual countries.

However, the text of these practical guidelines is not intended to take precedence over the methodological guidance provided in the Manual.
In addition to this English language version, the Manual will be published in Arabic, Chinese, French, Russian, and Spanish.

Fiscal analysis continues to evolve in response to the growing complexity of formulating and evaluating fi scal policies.

In particular, globalization increases demands for internationally comparable data, while concerns about the sustain- ability of fi scal policies increase demands for information on the balance sheets of government and the broader public sector.
Moreover, because of the demand for cross-sectoral consistency in macroeconomic data, the concepts and prin- ciples set out in the Manual are harmonized with those of the System of National Accounts 2008 (2008 SNA) and the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6).
For consistent guidance on debt-related issues, the GFSM 2014 is also supplemented with the Public Sector Debt Statistics: A Guide for Compilers and Users (PSDS Guide) and the External Debt Statistics: Guide for Compilers and Users 2013 (2013 EDS Guide).

Th e GFSM 2014 recommends disseminating fully integrated fl ows and stock positions, recorded on an accrual basis, while maintaining cash-fl ow data to allow an assessment of the liquidity constraints of government.
It is recognized that the implementation of the fully integrated system described in the Manual will take some time and will need to progress at a pace determined by the diff ering needs and circumstances of the country involved.

In particular, many countries will need to revise their underlying accounting systems to refl ect the accrual basis of recording and revised classifi cations.
Acknowledgments Th e preparation of GFSM 2014 was a complex endeavor involving a number of people with diff erent skills who were able to build on each other’s work over an extended period.

Th e Manual was produced under the direction of two direc- tors of the Statistics Department: Ms. Adelheid Burgi-Schmelz (2009–2012) and Mr. Louis Marc Ducharme (2013–).
xxii Preface Th e work was supervised by Mr. Robert Heath (Deputy Director), Ms. Claudia Dziobek (Chief, Government Finance Division), and Mr. Robert Dippelsman (former Deputy Chief, Government Finance Division), all from the Statistics Department.

Ms. Sagé De Clerck (Senior Economist, Government Finance Division, Statistics Department) was the primary draft er and also coordinated and edited contributions to the Manual.
Many staff in the Government Finance Division contributed to the project, in particular, Mmes.

Majdeline El-Rayess, Viera Karolova, Phebby Kufa, and Kara Rideout, and Messrs. Miguel Alves, Alberto Jiménez de Lucio, Gary Jones, Mike Seiferling, Philip Stokoe, Deon Tanzer, and Tobias (Murto) Wickens.

Contributions were also made by former staff members and experts in GFS including Mmes.
Brigitte Batschi, Paola De Rita, Irina Dubinina, and Betty Gruber, and Messrs. Ismael Ahamdanech-Zarco, Jo- hann Bjorgvinsson, Paul Cotterell, Jean-Pierre Dupuis, Cor Gorter, Carlos Gutierrez, Héctor Hernández, Ciaran Judge, Leonard Haakman, Brooks Robinson, and Vincent Marie.

Mmes.

Katy Hurston and Sheridan Parsonson supported the preparation of discussion papers and prepared draft s for publication.
Current and former staff from other divisions of the Statistics Department also contributed to the project, including the Balance of Payments Division (Ms. Rita Mesias and Mr. Marcelo Dinenzon); Financial Institutions Division (Messrs. Jose Cartas, Th omas Elkjaer, and Richard Wal- ton); and Real Sector Division (Messrs. Manik Shrestha and Daniel Smith).

Current and former staff from other departments of the IMF also contributed to the Manual.
In particular, col- laboration between the IMF’s Statistics and Fiscal Aff airs Departments is acknowledged.

Contributors from the Fiscal Aff airs Department included Mmes.

Adrienne Cheasty, Chita Marzan, Delphine Moretti, Isabel Rial, and Christine Richmond, and Messrs. Sanjeev Gupta, Richard Hughes, Tim Irwin, Kris Kaufman, Abdul Khan, Geremia Palomba, and Shamsuddin Tareq.

Contributors from the Finance Department included Mmes.
Sheila Basset, Elena Budras, Mary Hoare, and Jane Mburu, and Messrs. Preet Bhullar, Claudio De Luca, Carlos Janada, and Barry Yuen.

A contribution was also received from the Research Department (Mr. Manmohan Singh).

Government Finance Statistics Advisory Committee Th e GFSM 2014 greatly benefi ted from meetings of the Government Finance Statistics Advisory Committee that were convened in February 2011 and May 2012.
Th e GFSM 2014 benefi ted from the discussions, written contributions, and comments of members of the committee and the organizations they represented.
Country Members Australia Brazil Canada Chile Côte d’Ivoire Denmark Georgia Ghana Japan Michael Davies, Australian Bureau of Statistics Felipe Bardella, Ministry of Finance Fabiana Magalhães Almeida Rodopoulos, Ministry of Finance Kara Rideout, Statistics Canada Héctor Hernández, Ministry of Finance Nicolas Kacou, Ministry of Finance Søren Brodersen, Statistics Denmark Pridon Aslanikashvili, Ministry of Finance Nelly Mireku, Ministry of Finance and Economic Planning Hidehiko Futamura, Cabinet Offi ce Kosuke Suzuki, Cabinet Offi ce Teresa Habitan, Department of Finance Rifaat Basanti, Ministry of Economy and Finance Michael Adams, South African Reserve Bank André Schwaller Philippines Qatar South Africa Switzerland United Kingdom Philip Stokoe, Offi ce for National Statistics United States Pamela Kelly, Bureau of Economic Analysis Preface xxiii Representatives of International Organizations Commonwealth Secretariat of the UK European Central Bank Eurostat Arindam Roy Julia Catz Reimund Mink Gabriel Quiros Hans Olsson Luca Ascoli Denis Besnard Francois Lequiller Alexandre Makaronidis Lena Frej Ohlsson John Verrinder International Public Sector Accounting Standards Board Andreas Bergmann Ian Carruthers Organisation for Economic Co-operation and Development Nadim Ahmad Maurice Nettley Balliram Baball Benson Sim Mohamed Dhehby Shaida Badiee Neil Fantom Ibrahim Levent Evis Rucaj United Nations Conference on Trade and Development United Nations Statistical Division West African Economic and Monetary Union World Bank An earlier draft of the GFSM 2014 was circulated for worldwide comments and the fi nal text benefi ted from the com- ments received from experts in member countries and other international organizations.
Th e IMF Statistics Department gratefully acknowledges the important contribution by comments received in the process of fi nalizing the GFSM 2014.
Louis Marc Ducharme Director Statistics Department International Monetary Fund This page intentionally left blank 1 Introduction Th is chapter describes the purpose and evolution of this Manual, the uses of government fi nance statistics, the structure of the government fi nance statistics frame- work, major methodological changes from the previ- ous editions of this Manual, the implementation of the methodology, and the structure of this Manual.
Purpose of the Manual 1.1 Th e Government Finance Statistics Manual 2014 (GFSM 2014)—the third edition of this Manual1— describes a specialized macroeconomic statistical framework, the government fi nance statistics (GFS) framework, designed to support fi scal analysis.
Th e Manual (i) provides the economic and statistical re- porting principles to be used in compiling the sta- tistics; (ii) describes guidelines for presenting fi scal statistics within an analytic framework that includes appropriate balancing items;2 and (iii) is harmonized with other macroeconomic statistical guidelines.
Th e Manual does not treat systematically the practical as- pects of compiling the statistics.3 1.2 Fiscal policy is the use of the level and compo- sition of the general government and public sectors’ spending and revenue—and the related accumulation of government assets and liabilities—to achieve such goals as the stabilization of the economy, the reallo- cation of resources, and the redistribution of income.
1 Th e fi rst edition was published in 1986 with the title A Manual on Government Finance Statistics.

It is referred to as the GFSM 1986.

Th e second edition was published in 2001 with the title Government Finance Statistics Manual 2001.

It is referred to as the GFSM 2001.

2 Balancing items summarize the net value of the activities covered by a set of reporting entries, such as the net value of total revenue minus total expense.
Chapter 4 provides details on the GFS analytic framework and its balancing items.

3 Guidance on compilation practices can be found in Government Finance Statistics: Compilation Guide for Developing Countries, 2011, Quarterly Government Finance Statistics: Guide for Compil- ers and Users, and other related material.
Th e primary purpose of the GFSM 2014 is to provide a comprehensive conceptual and reporting framework suitable for analyzing and evaluating fi scal policy, es- pecially the performance of the general government sector and the broader public sector of any economy.

Th ese concepts of sectors are described in Chapter 2.

In short, the general government sector consists of resident institutional units that fulfi ll the functions of government as their primary activity.
Th is sector includes all government units and all nonmarket, nonprofi t institutional units (NPIs) that are con- trolled by government units.

Th e function of govern- ment units, broadly described, is to implement public policy through the provision of primarily nonmarket goods and services and the redistribution of income and wealth, with both activities supported mainly by compulsory levies on other sectors.
Th e public sector consists of all resident institutional units controlled directly, or indirectly, by resident government units— that is, all units of the general government sector and resident public corporations.
1.3 Fiscal statistics have traditionally been used to analyze the size of government; its contribution to ag- gregate demand, investment, and saving; the impact of fi scal policy on the economy, including resource use, monetary conditions, and national indebtedness; the tax burden; tariff protection; and the social safety net.
In addition, analysts have become increasingly interested in fi scal rules, structural defi cits, assess- ing the eff ectiveness of spending on poverty allevia- tion, the sustainability of fi scal policies, net debt, net wealth, and contingent claims against government, including the obligations for social security pensions.

See the annex to Chapter 4 for the description of the use of GFS in fi scal analysis.
1.4 Th e GFSM 2014 supports the compilation of in- ternationally comparable statistics for the general gov- ernment sector, the public sector, and their subsectors.

2 Government Finance Statistics Manual 2014 Public corporations, nonfi nancial as well as fi nancial, can carry out government fi scal policies in a variety of ways, and analysis of their fi scal activities frequently requires statistics on all of their activities rather than statistics on specifi c transactions.
Even when statistics are compiled for only the general government sector, some information on public corporations is required.

To refl ect transactions with public corporations, the change in the level of equity ownership held by units of the general government sector and the exposure to risks associated with guarantees provided to these corporations should be recorded.
1.5 Th e basic concepts, classifi cations, and defi ni- tions employed in this Manual refl ect economic prin- ciples that should be universally valid regardless of the circumstances in which they are applied.
Th erefore, the GFS framework is applicable to all types of econo- mies regardless of the institutional or legal structure of a country’s government, the sophistication of its statistical development, the fi nancial accounting sys- tem of government, or the extent of public ownership of for-profi t entities.

Nevertheless, the fact that the in- stitutional and economic structures of countries diff er greatly means that the various parts of this Manual will not be equally relevant.
The Evolution of International Statistical Guidelines on GFS History 1.6 Th e evolution of international statistical guidelines for compiling GFS started in the early 1970s, with a draft of A Manual on Government Fi- nance Statistics.

Th is draft was circulated in English, Spanish, and French to governments, central banks, central statistical offi ces, and international orga- nizations for comments, and was also discussed at several regional seminars.
Based on comments re- ceived and the application of the earlier draft in compiling data for the IMF’s Government Finance Statistics Yearbook, A Manual on Government Fi- nance Statistics, 1986 (GFSM 1986) was published.

Th e GFSM 1986 provided guidance to compile GFS but was not directly aligned with other macroeco- nomic statistics.
1.7 Th e Government Finance Statistics Manual 2001 (GFSM 2001) updated the internationally rec- ognized guidelines for compiling statistics required for fi scal analysis that were established by the GFSM 1986.

Th e revised guidelines were harmonized with the corresponding standards of other internation- ally recognized macroeconomic statistical guide- lines to the extent possible, consistent with the goal of supporting fi scal analysis.
Also, the revised guide- lines incorporated, for the fi rst time, an integrated balance sheet approach to compiling and presenting GFS.

The Update of the GFSM 2001 1.8 Th e GFSM 2014 updates the internationally recognized guidelines for compiling statistics re- quired for fi scal analysis that were established by the GFSM 2001.

Th e revised guidelines are harmonized with the updates in other macroeconomic statistical manuals and guides.
Th e other statistical manuals are the overarching System of National Accounts 2008 (2008 SNA)4 and two specialized manuals: the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6)5 and the Mon- etary and Financial Statistics Manual (MFSM).6 Th e updates to these manuals draw on the text of the 2008 SNA to avoid an inference that a diff erent meaning is intended.7 For debt-related issues, the GFSM 2014 is supplemented with the Public Sector Debt Statistics: A Guide for Compilers and Users (PSDS Guide) and the External Debt Statistics: Guide for Compilers and Users, 2013 (2013 EDS Guide).
1.9 Th e revised manuals and guides address impor- tant international economic developments in recent years and take into account improved recording and methodological treatments of various types of events.
Furthermore, the development of International Public Sector Accounting Standards and continued eff orts to harmonize statistical reporting and fi nancial report- ing have led to additional changes incorporated in the 4 Commission of the European Communities, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations, World Bank, System of National Accounts 2008 (Brussels/Luxembourg, New York, Paris, Washing- ton, 2009).
5 International Monetary Fund, Balance of Payments and Interna- tional Investment Manual, 6th ed.

(Washington, 2009).

6 Monetary and Financial Statistics Manual (Washington, 2000)— revision of the MFSM, 2000 edition, to also align with the 2008 SNA, is pending at the time of publication of GFSM 2014.

7 Th is manual also draws on United Nations, Classifi cations of Expenditure According to Purpose (New York, 2000) for the Clas- sifi cation of Functions of Government introduced in Chapter 6.
Introduction 3 GFSM 2014.

Th e changes incorporated in GFSM 2014 can broadly be summarized as8 positions, such as comparisons of ratios of taxes, ex- pense, or debt to gross domestic product.

• Methodological changes in the 2008 SNA • Clarifi cations of existing methodological guide- lines • Presentational changes • Editorial changes.
Uses of the GFS Framework 1.10 Th e GFS framework is designed to provide statistics that enable policymakers and analysts to study developments in the fi nancial operations and fi nancial position of government.

GFS also allow an assessment of the liquidity and sustainability of the fi - nances of the general government sector or the public sector in a consistent and systematic manner.
Th e GFS framework can be used to analyze the operations of a specifi c level of government, transactions between levels of government, and the public sector.

1.11 Th e GFS framework produces summary in- formation on the overall performance and fi nancial position of the general government or public sector through the use of balancing items, such as the net operating balance, net lending/net borrowing, and the change in net worth.
Th ese balancing items are defi ned and measured within the integrated and com- prehensive GFS reporting framework.

1.12 In contrast to summary measures, the detailed data of the GFS framework can be used to examine specifi c areas of government operations.

For example, one might want information about particular forms of taxation, the level of expense incurred on a type of social service, or the amount of government borrow- ing from deposit-taking corporations.
1.13 Th e harmonization of the GFS framework with other macroeconomic datasets means that data from GFS can be utilized as source data, or can be combined with data from other datasets to assess general government or public sector developments in relation to the rest of the economy.
Similarly, the establishment of internationally recognized statis- tical guidelines permits GFS to be used in cross- country analyses of government operations and stock 8 Th e major changes are described in more detail in Appendix 1.

Structure and Features of the GFS Framework 1.14 Th e GFS framework pertains to the gen- eral government and public sectors as defi ned in the 2008 SNA and Chapter 2 of this Manual.
Th ese sec- tors are defi ned in terms of institutional units, which are economic entities that are capable, in their own right, of owning assets, incurring liabilities, and en- gaging in economic activities and transactions with other entities.

1.15 Stock positions and economic fl ows are in- tegrated in the GFS framework and are presented in several statements, as described in Chapter 4.
Two types of economic fl ows are recorded in the GFS framework: transactions and other economic fl ows.9 For the most part, transactions are interactions be- tween two institutional units that take place by mutual agreement.

Th e Statement of Operations and the State- ment of Sources and Uses of Cash record the results of all transactions during a reporting period.
Th ey are classifi ed as revenue, expense, net investment in nonfi nancial assets, net acquisition of fi nancial as- sets, or net incurrence of liabilities.

Transactions that generate revenue or expense result in a change in net worth.

All other types of transactions result in equal changes to assets and/or liabilities and do not result in a change to net worth.
1.16 Other economic fl ows include price changes and a variety of other economic events that aff ect the holdings of assets and liabilities, such as debt write- off s and catastrophic losses.

Th e Statement of Other Economic Flows summarizes these changes in assets, liabilities, and net worth.
1.17 Th e Balance Sheet for the general government or public sector is a statement of the stock positions of nonfi nancial and fi nancial assets owned, the stock positions of claims of other units on the general gov- ernment or public sector in the form of liabilities, and the sector’s net worth, equal to the total value of all assets minus the total value of all liabilities.

9 Economic fl ows refl ect the creation, transformation, exchange, transfer, or extinction of economic value.
Transactions and other economic fl ows are defi ned and described in more detail in Chapter 3.

4 Government Finance Statistics Manual 2014 1.18 In addition to the core statements in the GFS framework, two supplementary statements are in- cluded due to their analytic usefulness.
To provide a clear statistical explanation of the factors causing changes in net worth, the Statement of Total Changes in Net Worth combines the results of the Statement of Operations and the Statement of Other Economic Flows in one statement.
1.19 Contingencies, such as loan guarantees and implicit guarantees to provide social benefi ts when various needs arise, can have important economic infl uences on the general economy but do not result in transactions or other economic fl ows recorded in the GFS framework until the event or condition re- ferred to actually occurs.
A second supplementary statement, the Summary Statement of Explicit Contin- gent Liabilities and Net Implicit Obligations for Future Social Security Benefi ts, summarizes the explicit and some implicit contingent liabilities.

1.20 Th e comprehensive treatment of transactions and other economic fl ows in the GFS framework pro- vides a full explanation of the changes between the opening and closing balance sheet stock positions.
Th at is, the stock position of a given type of asset or liability at the beginning of a reporting period plus the changes in that asset or liability indicated by transac- tions and other economic fl ows equals the stock po- sition at the end of the period.

Such an integrated statistical framework permits the eff ects of policies and specifi c economic events to be described and ana- lyzed fully.
1.21 Various classifi cations are applied to the eco- nomic fl ows and stock positions recorded in the GFS framework.
For example, each revenue transaction is classifi ed according to whether it is a tax or another type of revenue; expense transactions are classifi ed by purpose (functional classifi cation) and by economic type (economic classifi cation); assets are classifi ed according to whether they are fi nancial or nonfi nan- cial; and fi nancial assets and liabilities are classifi ed by type of instrument, maturity, and the sector of the unit that issued the asset or that holds the liability.
impact of economic events on government fi nances— taxing, spending, borrowing, and lending—while the 2008 SNA also focuses on the production and consumption of goods and services.

As a result, the treatment of government production activities in GFS diff ers from the treatment of those activities in the 2008 SNA.

Signifi cant diff erences relate to the treat- ment of own-account capital formation, and the de- gree of consolidation.
In addition, the recording of pension schemes for government employees may be diff erent from the 2008 SNA in some circumstances (see Appendix 7 for more details on the relationship between GFS and other macroeconomic statistics).

1.23 In many cases, compiling GFS will be the fi rst step in compiling statistics for the general gov- ernment sector of the national accounts.
For this rea- son, some data that normally would not appear in a standard GFS presentation should be maintained in underlying source data because they are needed for the national accounts.

For example, the detailed clas- sifi cation of subsidies in GFS is based on the nature of the recipient of the subsidy, while classifi cation in the 2008 SNA is based on whether the subsidy is on a product or production.
1.24 Defi nitions of concepts in the GFS framework are the same as in the 2008 SNA, but the coverage of a particular category of transactions may be slightly diff erent.

For example, compensation of employees recorded as an expense in GFS does not include the compensation of employees engaged in own-account capital formation, but can be reconciled with com- pensation of employees in the 2008 SNA that includes the compensation of all employees.
Th e defi nition and composition of compensation of employees, however, are identical in both frameworks.

To note where the coverage or some other aspect of a concept diff ers from the same concept in the 2008 SNA, the indicator “[GFS]” is added aft er the GFS title and an explana- tion of the diff erence is provided.
Methodological Differences with the GFSM 1986 1.22 Despite harmonization of the GFS framework with the 2008 SNA, there are diff erences between the two statistical frameworks because of the diff erent analytic purposes they serve.

Th e most important dif- ference is that the focus of the GFS framework is the 1.25 Th e methodology for compiling GFS de- scribed in this Manual diff ers substantially from the methodology of the GFSM 1986.

Th e following para- graphs summarize the major diff erences.
Details are provided in Appendix 1.

Introduction 5 Coverage Balance Sheets 1.26 Th e coverage of the GFS framework is the general government sector as defi ned in the 2008 SNA, which is defi ned on the basis of institutional units.

To capture the fi scal transactions and activities taking place outside the general government sector, the GFS framework should also be used to compile statistics for the public sector and its subsectors.
Th e coverage of the GFSM 1986 is defi ned on a functional basis under which general government data include all the relevant transactions of any unit carrying out a function of government.

Th erefore, some transac- tions of units of the broader public sector carrying out functions of government are included in general gov- ernment data, unlike GFSM 2014.

In addition, some transactions are excluded from general government data in GFSM 1986 as they relate to production or market trading activities.
Basis of Recording Economic Events 1.27 Th e GFS framework records economic fl ows on an accrual basis, which means that fl ows are re- corded at the time economic value is created, trans- formed, exchanged, transferred, or extinguished.

However, the framework also encompasses the tra- ditional cash-based reporting.

In the GFSM 1986, transactions are recorded only when cash is received or paid.
1.28 Using the accrual basis of recording also means that nonmonetary transactions are fully inte- grated in the GFS framework.

In the GFSM 1986, only selected nonmonetary transactions are recorded as memorandum items.

Valuation 1.29 Economic fl ows as well as assets, liabilities, and net worth are valued at current market prices in the GFS framework.
While current market prices are readily available for assets and liabilities that are traded in active markets, valuation according to mar- ket-value equivalents is used for valuing assets and li- abilities that are not traded in markets, or are traded only infrequently.

In the GFSM 1986, debt securities are valued at the amount the government is obligated to pay when the debt matures (face value), which may diff er from both the nominal value and the current market value.
1.30 Complete balance sheets, which include all stock positions of nonfi nancial and fi nancial assets, liabilities, and net worth, are included in the GFS framework.

Th e GFSM 1986 reports only on the stock positions of certain debt liabilities.
Integration of Flows and Stock Positions 1.31 Th e comprehensive recording of transactions and other economic fl ows permits a full integration of economic fl ows and stock positions and the reconcili- ation of diff erences between the opening and closing balance sheets.

In the GFSM 1986, such a reconcilia- tion of the stock positions of the debt liabilities is not possible without collecting additional information.

The Analytic Framework 1.32 In the GFS framework, several balancing items are introduced.
Th e multiple balancing items facilitate analysis of the general government sector or the public sector based on a variety of considerations rather than a single measure.

In the GFSM 1986, the emphasis of the analytic framework is focused on a single balancing item, the overall defi cit/surplus.

1.33 Th e GFS framework’s use of defi nitions of revenue and expense as transactions that bring about changes in net worth leads to a diff erent treatment of transactions in nonfi nancial assets.
Th e GFSM 1986 treats cash transactions in nonfi nancial assets as capital revenue and expenditure, which aff ected the overall defi cit/surplus.

In the GFS framework, the dif- ference between revenue and expense is a balancing item, the net operating balance, measuring the change in net worth resulting from transactions—it is a sus- tainability measure before considering the net invest- ment in nonfi nancial assets.
1.34 In the GFS framework, all transactions involv- ing the acquisition or disposal of fi nancial assets are treated as fi nancing transactions, and net lending (+) / net borrowing (−) is a balancing item calculated as the net operating balance minus the net investment in non- fi nancial assets.

Net lending/net borrowing is also equal to the net acquisition of all fi nancial assets minus the net incurrence of all liabilities from transactions.
In the GFSM 1986, the net acquisition of fi nancial assets for policy purposes is designated as lending minus repay- ments and treated like expenditure in deriving the over- all defi cit/surplus.
In the GFSM 2014 framework, the 6 Government Finance Statistics Manual 2014 supplementary fi scal indicators include the calculation of an overall fi scal balance that treats the net acquisition of selected fi nancial assets similarly to the net acquisi- tion of fi nancial assets for policy purposes in the GFSM 1986 (see the annex to Chapter 4).
Harmonization with Other Methodologies 1.35 Recognizing the important linkages between GFS and other macroeconomic datasets, this Manual is more closely harmonized with the 2008 SNA and BPM6 than was the case for the GFSM 1986.

Where diff erences exist due to the diff erent analytic purposes of various datasets, guidance is provided on the rec- onciliation between datasets to ensure consistency (see Appendix 7).
Also, recognizing the close rela- tionship that exists between GFS and accruals-based public sector accounting standards, the systematic documentation of similarities and diff erences be- tween statistical guidelines and accounting stan- dards has informed changes in both.

Th erefore, the GFSM 2014 is also more closely harmonized with ac- counting standards than was the case with the GFSM 1986 (see Appendix 6).
Implementation of the GFS Framework 1.36 Some countries may be able, at least initially, to compile only a part of the integrated GFS frame- work.

It is not feasible to lay down general priorities for data collection when economic circumstances may vary widely from one country to another.

In practice, priorities usually are best established by national au- thorities that are familiar with the situation, needs, and challenges of their countries.
1.37 It is recognized that the implementation of the fully integrated GFS framework presented in this Manual will take some time.
In particular, many coun- tries will need to revise their underlying accounting systems to accommodate the accrual basis of report- ing and fully refl ect the revised classifi cations of the GFS framework.10 1.38 Nonetheless, it is likely that many countries will follow a similar path as they implement the GFS 10 Although the GFS framework uses some accounting terms, it is important to remember that it is a statistical reporting framework that might diff er in important ways from the underlying fi nancial accounting system from which most of GFS will be derived (see Appendix 6).
framework.

For example, a possible fi rst step on the migration path could be that countries would adopt the classifi cation structure of the Statement of Operations or the Statement of Sources and Uses of Cash and adjust their cash-based statistics to address known defi cien- cies, such as by incorporating information on revenue or expense arrears.
Another step could be the assembly of balance sheet information on fi nancial assets and li- abilities that would allow estimates to be made of the other economic fl ows as they relate to these fi nancial instruments.

A more diffi cult step is likely to be the collection of a complete set of information about the stock positions of nonfi nancial assets held at a given time and their valuation at current market prices.
Fi- nally, a fully developed accrual accounting system could be introduced that provides for complete and fully integrated balance sheets to be prepared.

1.39 Good dissemination practices are essential in addition to good data compilation.

As well as provision of metadata, aspects of good dissemination practices include a predictable release schedule, readily acces- sible published data, and identifi cation of internal gov- ernment access to statistics before public release.
In recent years, international guidelines have been devel- oped on good data dissemination practices—namely, the IMF’s General Data Dissemination System, Special Data Dissemination Standard, and Special Data Dis- semination Standard Plus.11 Structure of the Manual 1.40 Th e remainder of this Manual can be divided into two general topics.
Chapters 2 through 4 develop the concepts used in the framework, and Chapters 5 through 10 describe the classifi cations used and the types of economic fl ows or stock positions included in each classifi cation category.

1.41 Chapter 2 describes the coverage of the general government and public sectors, and their subsectors.

Chapter 3 fi rst explains the concepts of transactions, other economic fl ows, and stock positions of as- sets and liabilities.
It then describes the accounting rules governing their recording, including timing, valuation, and consolidation.

Chapter 4 presents the analytic framework, which is the integrated presenta- tion of transactions, other economic fl ows, and stock 11 http://dsbb.imf.org.

Introduction 7 positions in a manner that permits the calculation of aggregates and balancing items as summary measures of the activities of the general government and public sectors.
1.42 Chapters 5 through 10 describe the classifi - cations of transactions, other economic fl ows, and stock positions of assets and liabilities.

Chapter 5 is devoted to revenue transactions, which increase net worth.

Chapter 6 is devoted to expense transactions, which decrease net worth.

Chapter 7 describes the balance sheet and the classifi cation of stock positions of assets and liabilities.
Chapter 8 provides a classi- fi cation of transactions in nonfi nancial assets, while Chapter 9 provides a classifi cation of transactions in fi nancial assets and liabilities.

Chapter 10 covers other economic fl ows.

1.43 An annex to Chapter 4 describes the use of GFS to build well-defi ned indicators for fi scal analy- sis, while an annex to Chapter 6 describes the Classifi - cation of the Functions of Government (COFOG).

1.44 Th is Manual includes nine appendixes.


Ap- pendix 1 lists the methodological changes from the GFSM 2001 to this Manual, and the diff erences of the GFSM 2014 framework from the GFSM 1986.

Appen- dix 2 describes the various organizational structures used to provide social protection and the associated sta- tistics compiled for the general government and public sectors.

Appendix 3 provides guidance on selected pub- lic sector debt issues.
Appendix 4 covers a description of cross-cutting issues such as the recording of leases, licenses, permits and other contracts, public-private partnerships, and insurance and standardized guaran- tee schemes.

Appendix 5 elaborates on the implications of regional arrangements for GFS compilation.
In Ap- pendix 6, a description of the relationship between GFS and International Public Sector Accounting Standards is provided, while Appendix 7 describes the relationship between GFS and other macroeconomic statistics.

Ap- pendix 8 provides the classifi cation codes used in the GFS framework.

Appendix 9 contains a glossary of terms used in the GFS framework.
2 Institutional Units and Sectors Th is chapter defi nes and describes the concepts of resi- dence, institutional units, and sectors, and then uses those concepts to delineate the general government and public sectors, and to discuss practical applications of sector classifi cation principles.

Introduction 2.1 In principle, GFS should cover all entities that materially aff ect fi scal policies.
Normally, fi s- cal policies are carried out by entities, established by political processes, wholly devoted to the economic functions of government (see paragraph 2.38), such as government ministries or municipal councils.

Th e term “government” is oft en used as a collec- tive noun for various combinations of entities in a country involved in the functions of government, or reference is made to the various individual gov- ernments of a country.
For example, a country may have one central government; several state, provin- cial, or regional governments; and many local gov- ernments.

Nonprofi t institutions under government control may also exist.

In addition to those entities, government-owned or controlled enterprises that engage in some commercial activities may be instru- ments of fi scal policy (see paragraphs 2.104–2.105).
Th ese government-owned enterprises, such as the central bank, post offi ce, or railroad, which are oft en referred to as public corporations, state-owned en- terprises, or parastatals in a legal sense, may be part of the general government or public sector, and sta- tistics should be compiled for all of them.

2.2 Determining the coverage of the entities in- cluded in GFS requires determining economic terri- tory, using the residence criteria (see paragraph 2.6), before considering two questions.
First, what is the statistical unit for which it is feasible and meaningful to collect statistics?

Second, which of those statistical units should be included in GFS?

2.3 Th e statistical unit employed in the insti- tutional sector classifi cation in GFS is the institu- tional unit, the same unit that is the foundation of the 2008 SNA and other macroeconomic datasets.1 Th is chapter therefore defi nes (see paragraph 2.22), and describes, types of institutional units (see para- graph 2.26).
2.4 Regarding the coverage of GFS, two principal constructs are used in macroeconomic datasets.

First, the general government sector, which is primarily engaged in nonmarket activities, is defi ned (see para- graph 2.58).

Second, the public sector is defi ned to also capture the market activities and the quasi-fi scal operations of public corporations (see paragraph 2.63) such as the central bank and other public cor- porations.
Quasi-fi scal operations are government operations carried out by institutional units other than general government units.

Th ese quasi-fi scal operations have the same fi scal policy impact on the economy as those of government units (see paragraph 2.38).

A number of subsectors of the general govern- ment and public sectors are also defi ned because of their analytical usefulness.
2.5 Th e remainder of this chapter defi nes the con- cept of residence to delineate an economy, and de- scribes institutional units and the types of institutional units that exist in macroeconomic statistics before defi ning the institutional sectors.

Th e chapter applies these concepts to delineate the general government sector and the public sector.
Finally, a decision tree to assist with the classifi cation of public sector entities and the application of sector classifi cation principles to some examples are discussed.

1 Maintaining a list or register of these units and their sector classifi cation will ensure consistent classifi cation in all macroeco- nomic datasets.

Residence 2.6 An economy consists of a set of resident insti- tutional units.
As is the case for other macroeconomic statistics, the concept of residence is important for determining the coverage of institutional units and the classifi cation of transactions.
Also, as described in later chapters (see paragraphs 5.101–5.103, 6.93, and 7.264–7.265), some types of fl ows and stock positions of assets and liabilities of general government and public sector units are classifi ed in GFS on the basis of the counterparty to a fi nancial instrument, where one of the classifi cation criteria is the residence of the counterparty.
2.7 Th e residence of each institutional unit is the economic territory with which it has the strongest connection (i.e., its center of predominant economic interest).2 According to international statistical guide- lines, residence is not based on nationality or legal criteria, although it may be similar to the concepts of residence used in many countries for exchange con- trol, taxes, or other purposes.
Nonresidents are units that are resident in any other economic territory, and for convenience they are referred to as the ‘‘rest of the world.’’ 2.8 Economic territory, in its broadest sense, can be any geographic area or jurisdiction for which sta- tistics are required.

Th e most commonly used concept of economic territory is the area under the eff ective economic control of a single government.

Th e concept of economic territory in GFS is the same as that used in other macroeconomic datasets.
Th e connection of entities to a particular economic territory is deter- mined from aspects such as physical presence and being subject to the jurisdiction of the government of the territory.

However, economic territory need not be identical to its physical or political borders, and may be larger or smaller than this, as in a currency or economic union, or as part of an economy, region, or the world as a whole.
2.9 Economic territory includes: • Th e land area • Airspace Institutional Units and Sectors 9 • Territorial waters, including areas over which jurisdiction is exercised over fi shing rights and rights to fuels or minerals • In a maritime territory, islands that belong to the territory • Territorial enclaves in the rest of the world (such as embassies, consulates, military bases, scientifi c stations, information or immigration offi ces, aid agencies, central bank representative offi ces with diplomatic status).
2.10 Territorial enclaves are physically located in other territories and used by governments that own or rent them for diplomatic, military, scientifi c, or other purposes with the formal agreement of governments of the territories where the land areas are physically located.

Th ese areas may be shared with other organi- zations, but the operations must have a high degree of exemption from local laws to be treated as an enclave.
Government operations that are fully subject to the laws of the host economy are not treated as enclaves, but as residents of the host economy.

Conversely, the economic territory of a country does not include the territorial enclaves that are physically located within the geographical boundaries of that country that are used by foreign governments or international orga- nizations and are not subject to the laws of that host country.
2.11 Sometimes a government has a separate physical or legal zone that is under its control, but for which, to some degree, separate laws are applied.

For example, a free trade zone or off shore fi nancial center may be exempt from certain taxation or other laws.
Because of the need to view the whole economy, to have comprehensive global data, and to be compat- ible with counterpart data, these special zones should always be included in the economic statistics of the economy that exercises control over the separate physical or legal zone.3 2.12 An institutional unit has a center of pre- dominant economic interest in an economic terri- tory when there exists, within the economic territory, some location, dwelling, place of production, or other premises on which, or from which, the unit engages 2 Residence is primarily defi ned in the BPM6, paragraphs 4.11 3– 4.144, and also discussed in the 2008 SNA, paragraphs 4.10–4.15, and Chapter 26.
3 Where analytically useful, data for these zones could be pre- sented separately, before they are consolidated with those of the remainder of the economy.

10 Government Finance Statistics Manual 2014 and intends to continue engaging, either indefi nitely or over a fi nite but long period of time, in economic activities and transactions on a signifi cant scale.

Th e location need not be fi xed so long as it remains within the economic territory.
Actual or intended location for one year or more is used as an operational defi ni- tion; while the choice of one year as a specifi c period is somewhat arbitrary, it is adopted to avoid uncer- tainty and facilitate international consistency.

2.13 A notional resident unit is a unit identifi ed for statistical purposes to be the resident owner of immovable assets legally owned by nonresidents.
Immovable assets, such as land, other natural re- sources, buildings, and structures, are always treated as being owned by resident units.

If the legal owner of these types of assets is a nonresident, a notional resident unit is created.

Th e notional resident unit is recorded as owning the asset and receiving the rent or rentals that accrue to the asset.
Th e legal owner is deemed to hold equivalent equity in the notional resident unit and then receives income from the no- tional resident unit in the form of property income paid abroad.

If a building or structure is owned in part by a resident unit and in part by one or sev- eral nonresidents, there is one notional resident unit established.

Each of the owners has a proportion- ate share of the equity of the notional resident unit.
Land and buildings in extraterritorial enclaves of foreign governments (such as embassies, consulates, and military bases) that are subject to the laws of the home territory and not those of the territory where they are physically situated are part of the economic territory of the home economy (home territory).

2.14 On the basis of the defi nition of residence, all general government units are considered to be resi- dents in their own country regardless of their physical location.
Public corporations, however, are considered to be residents of the economies in whose territories they operate.

Th us, a general government unit resi- dent in one country can own a corporation resident in a second country.

Corporations subject to the control of a government that is resident in a diff erent econ- omy are not classifi ed as public corporations; these are classifi ed as private corporations in the economy in which they are resident.
Th is is because they are not public corporations related to the government of their economy of residence.

2.15 Th e case of “special purpose entities” (SPEs), “brass plate companies,” or “shell companies” requires particular consideration.

Th ese entities may have lit- tle or no physical presence in the economy in which they are legally constituted or legally domiciled (e.g., registered or licensed), and any substantive work of the entity may be conducted in another economy.
In such circumstances, residence is attributed to the economy in which the entity is legally constituted, or in the absence of legal incorporation, is legally do- miciled.

However, the fi scal activities of nonresident government-controlled SPEs should be refl ected in GFS (see paragraphs 2.136–2.139).
2.16 Th e economic territory of an international orga- nization that has all the essential attributes of an institu- tional unit (see paragraph 2.22) consists of the territorial enclaves over which it has jurisdiction.
International organizations have the following special characteristics: • Th e members of an international organization are either national states or other international organizations whose members are national states; they thus derive their authority either directly from the national states that are their members or indirectly from them through other interna- tional organizations.
• Th ey are entities established by formal political agreements between their members that have the status of international treaties; their existence is recognized by law in their member countries.

• Because they are established by international agreement, they are accorded sovereign status— that is, international organizations are not sub- ject to the laws or regulations of the country, or countries, in which they are located.
• Th ey are created for various purposes, such as international fi nancial organizations (e.g., the International Monetary Fund, World Bank, and Bank for International Settlements) or to provide nonmarket services of a collective nature for the benefi t of their member states (e.g., peacekeep- ing, health, and governing certain aspects of the economic relationships or integration processes among the region’s economies).
As a result, international organizations are not con- sidered residents of any national economy, including the country in which they are located or conduct their aff airs.

2.17 International organizations may be global or regional.
Regional organizations arise from re- gional arrangements such as customs unions, eco- nomic unions, and monetary and currency unions.4 Regional organizations consist of those institutions whose members are governments or monetary au- thorities5 of economies that are located in a specifi c region of the world.

Th ey can be fi nancial, such as regional development banks, or nonfi nancial, such as entities involved in the governance of economic unions.
Regional organizations are not resident units of any country.

2.18 Some regional organizations have been en- dowed with the authority to raise taxes or other compulsory contributions within the territories of the countries that are members of the organization.

Th ese are sometimes described as “supranational au- thorities.” Despite the fact that they fulfi ll some of the functions of government within each member coun- try, they are not resident units of any country.
2.19 Financial positions between the regional or- ganization and resident institutional units outside the general government or public sectors are not included in the public sector statistics of a member country because these organizations are not residents of that country.
When GFS are compiled for regional organi- zations as if they constituted a separate government, this Manual recommends that fi nancial positions be classifi ed according to the member country that is the counterparty to allow individual countries to evaluate the impact of regional organizations on their economy.
2.20 In contrast to regional organizations, which perform governmental functions, there may be re- gional enterprises that are owned by two or more governments and that operate as market producers.

If the enterprise has legal entities or separate branches in each economy in which it operates, then identifi - cation of these units and determination of their resi- 4 Th e regional central decision-making body in a currency union is usually the currency union central bank (see paragraph 2.21).
For a discussion of currency unions and other regional arrange- ments, see Appendix 5, and the BPM6, Appendix 3.

5 Monetary authorities encompass the central bank (which subsumes other institutional units included in the central bank subsector, such as currency boards) and certain operations usually attributed to the central bank but sometimes carried out by other government institutions or commercial banks, such as government-owned commercial banks.
Institutional Units and Sectors 11 dence in the host economy of each of the branches are obvious.

However, if they operate as a seamless entity in several economies, then the enterprise’s operations are prorated between the economies, so that they are included in the public sector statistics in the national economies in which they operate.
Th e procedures should be applied consistently with the recording in other macroeconomic statistics.6 2.21 A currency union central bank is an interna- tional fi nancial organization that acts as a common central bank for a group of member countries.

A cur- rency union central bank is an institutional unit in its own right, owning assets and liabilities on own ac- count, and is nonresident of any currency union mem- ber economy but resident in the currency union.
Such a bank typically has the headquarters located in one country of the currency union and maintains national offi ces in each of the member countries to conduct some central bank functions.

Each national offi ce acts as the central bank for that country and is treated as a resident institutional unit in that country.

Th e head- quarters, however, is an international organization.
Institutional Units 7 Deﬁ nition of an Institutional Unit 2.22 An institutional unit is an economic entity that is capable, in its own right, of owning assets, in- curring liabilities, and engaging in economic activities and in transactions with other entities.
Some impor- tant features of institutional units are: • Th e ability of an institutional unit to own goods or assets in its own right means that it is also able to exchange the ownership of goods or assets in transactions with other institutional units.

• An institutional unit is able to take economic decisions and engage in economic activities for which it is itself held directly responsible and ac- countable by law.
• An institutional unit is able to incur liabilities on its own behalf, to take on other obligations or fu- ture commitments, and to enter into contracts.

6 See the 2008 SNA, paragraph 4.13, and the BPM6, paragraphs 4.41–4.44.

7 Th e defi nitions and descriptions of institutional units are fully consistent with the corresponding defi nitions and descriptions in the 2008 SNA, Chapter 4.

Hereaft er, “unit” is used as a short form for “institutional unit” in some instances.
12 Government Finance Statistics Manual 2014 • Either a complete set of accounts, including a balance sheet of assets, liabilities, and net worth, exists for an institutional unit, or it would be pos- sible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required.
2.23 Identifying the institutional unit is important for GFS compilation since it allows the sectorization of the economy, the identifi cation of the counterparty to transactions and stock positions, and consolida- tion.8 Th ere are several reasons for choosing the insti- tutional unit to work with: • Statistics for the general government or public sector can be harmonized with the national ac- counts, balance of payments, international in- vestment position, and monetary and fi nancial statistics because the institutional units and sec- tors for which statistics are compiled are defi ned identically (see Appendix 7).
• Th ese institutional units have legal responsibil- ity for their actions, and are centers of decision- making in their own right.

• Statistics can be based on information from enti- ties for which complete sets of accounts can be compiled, including balance sheets.

• Th e source data required for compiling statis- tics are usually readily available or can be made available.
2.24 An establishment is an enterprise, or part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out or in which the principal productive activity ac- counts for most of the value added.

Th ere is a hier- archical relationship between institutional units and establishments.

An institutional unit may contain one or more entire establishment(s), while an establish- ment can belong to only one institutional unit.
Th e defi nition of an establishment implies that, at a mini- mum, complete accounting records about its produc- tion activities are available, including the value of its output and the cost of producing that output.

An es- tablishment can be an institutional unit if it satisfi es 8 Consolidation is a method of presenting statistics for a set of institutional units (or entities) as if they constituted a single unit (see paragraphs 3.152–3.168).
the criteria as set out in paragraph 2.22.9 Identifying establishments may be of particular interest in deter- mining the market production of general government units (see paragraph 2.76).

2.25 An enterprise is the view of an institu- tional unit as a producer of goods and services.
Th e term enterprise may refer to a corporation, a quasi- corporation, a nonprofi t institution, or an unincorpo- rated enterprise.10 Types of Institutional Units 2.26 In compiling macroeconomic data the clas- sifi cation of an institutional unit is determined by its objectives and functions and cannot always be inferred from its legal status or name.

It is therefore necessary to closely examine the objectives and func- tions of the institutional unit before deciding which type of unit it is.
2.27 Th ere are two main types of institutional units: • Persons or groups of persons in the form of households • Legal or social entities.

Households 2.28 A household is a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth, and who consume cer- tain types of goods and services collectively, mainly housing and food.

A household can be an individual household, or an institutional household.
Th e latter comprises groups of persons staying for a very long or indefi nite period of time, or who may be expected to reside for a very long or indefi nite period of time in institutions such as hospitals, retirement homes, prisons, or religious communities such as convents, monasteries, and nunneries.

2.29 A household can have one member or could be a multiperson household.

In a multiperson house- hold, individual members are not treated as separate institutional units.
Many assets are owned, or liabilities incurred, jointly by two or more members of the same household, while some or all of the income received 9 If the establishment charges economically signifi cant prices and meets the criteria to be classifi ed as an institutional unit, it would be treated as a quasi-corporation (see paragraph 2.33).

10 See the 2008 SNA, paragraphs 5.1–5.2, for a detailed description of enterprises.
by individual members of the same household may be pooled for the benefi t of all members.

Moreover, many expenditure decisions, especially those relating to the consumption of food or housing, may be made collectively for the household as a whole.

It may be impossible, therefore, to draw up meaningful balance sheets or other accounts for individual members of a multiperson household.
For these reasons, the house- hold as a whole rather than the individual persons in it must be treated as the institutional unit.

Legal and social entities 2.30 A legal or social entity is one whose existence is recognized by law or society independently of the persons or other entities that may own or control it.
Th ree types of legal or social entities are recognized as institutional units: corporations and nonprofi t institu- tions are primarily created for purposes of production of goods or services; and government units are cre- ated by political processes.
Corporations 2.31 Corporations are defi ned as entities that are capable of generating a profi t or other fi nancial gain for their owners, are recognized by law as sepa- rate legal entities from their owners, and are set up for purposes of engaging in market production.

Th e key to classifying a unit as a corporation in macro- economic statistics is not its legal status but rather the economic substance of the nature of the entity.
Th e laws governing the creation, management, and op- erations of legally constituted corporations and other entities may vary from country to country, so that it is not feasible to provide a legal defi nition of a cor- poration that would be universally valid.
Th erefore, in macroeconomic statistics, the term corporation is not necessarily used in the same way as in the legal sense.11 2.32 Th e key to classifying a unit as a corporation in macroeconomic statistics is the notion of being a market producer (see paragraph 2.65).
Of particular importance are the characteristics to produce goods and services for the market at economically signifi - cant prices as explained in paragraph 2.66, and the potential to be a source of profi t or other fi nancial 11 For a full discussion on the features of corporations, also see the 2008 SNA, paragraphs 4.38–4.50.

Institutional Units and Sectors 13 gain to the owners.
Some nonprofi t institutions and government units have the legal status of a corpora- tion, but are not considered corporations for the pur- poses of macroeconomic statistics because they are not market producers.

Other nonprofi t institutions are legal corporations that produce for the market but they are not allowed to be a source of fi nancial gain to their owners.
Conversely, some entities with diff erent legal titles, such as partnerships or a joint- stock company, could be considered corporations for economic statistics when they satisfy the defi nition of corporations.
2.33 A quasi-corporation is either (i) an unincor- porated enterprise owned by a resident institutional unit that has suffi cient information to compile a com- plete set of accounts, that is operated as if it were a separate corporation, and whose relationship to its owner is eff ectively that of a corporation to its share- holders, or (ii) an unincorporated enterprise owned by a nonresident institutional unit that is deemed to be a resident institutional unit because it engages in a signifi cant amount of production in the economic territory over a long or indefi nite period of time.12 Th ese entities are not incorporated or otherwise le- gally constituted, but function as if they were corpo- rations.
Th ey are treated as corporations in GFS (see paragraphs 2.125–2.127).

2.34 An establishment or group of establishments engaged in the same kind of production activities should be treated as a quasi-corporation if the follow- ing criteria hold: • Th e establishment charges prices for its outputs that are economically signifi cant (see paragraph 2.66).

• Th e establishment is operated and managed in a similar way to a corporation.
• Th e establishment has a complete set of accounts, or is able to construct a complete set of accounts, that enable its stock positions and fl ows to be separately identifi ed and measured.

12 Unincorporated enterprises, such as some post offi ces or na- tional railways, may exist in government ministries.
When these unincorporated enterprises produce goods and services for the market at economically signifi cant prices, and have separate sets of accounts, they are quasi-corporations and classifi ed as part of public corporations.

If not, they may be market establishments as discussed in paragraph 2.75.
14 Government Finance Statistics Manual 2014 2.35 All corporations are part of the nonfi nancial corporations sector or the fi nancial corporations sec- tor, depending on the nature of their primary activ- ity.

Institutional units that qualify as corporations and are controlled by government units or other public corporations are classifi ed as public corporations (see paragraph 2.104).
Nonproﬁ t institutions (NPIs) 2.36 Nonprofi t institutions (NPIs) are legal or so- cial entities created for the purpose of producing or distributing goods and services, but they cannot be a source of income, profi t, or other fi nancial gain for the institutional units that establish, control, or fi nance them.

In practice, their productive activities gener- ate either surpluses or defi cits, but the surpluses can- not be appropriated by other institutional units.
Th e articles of association by which they are established are drawn up in such a way that the institutional units that control or manage them are not entitled to a share in any profi ts or other income they generate.

2.37 NPIs may engage in market or nonmarket production, and may be created by households, cor- porations, or governments (see paragraph 2.83).

• NPIs engaged in market production charge eco- nomically signifi cant prices for their services (see paragraph 2.66).
Schools, colleges, universi- ties, clinics, hospitals, etc.

constituted as NPIs are market producers when they charge fees that are based on the majority of their production costs and that are suffi ciently high to have a signifi cant infl uence on the demand for their services.

Th ere are no shareholders with a claim on the profi ts or equity of the NPI.
Because of their status as NPIs, they are also able to raise signifi cant additional funds through donations from persons, corpo- rations, or governments.

Nevertheless, NPIs en- gaged in market production and controlled by government units must be treated as public cor- porations so long as they produce goods and ser- vices for the market at economically signifi cant prices.

• Some market NPIs restrict their activities to serving a particular subset of other market pro- ducers.
Th ey consist of chambers of commerce, agricultural, manufacturing or trade associations, employers’ organizations, research or testing lab- oratories, or other organizations or institutions that engage in activities that are of common in- terest or benefi t to the group of enterprises that control and fi nance them.

Th ese NPIs are usually fi nanced by contributions or subscriptions from the group of enterprises concerned.
Such sub- scriptions are treated not as transfers but as pay- ments for services rendered, and these NPIs are, therefore, classifi ed as market producers.

Th ese market NPIs are, like corporations and quasi- corporations, members of either the nonfi nancial corporations sector or the fi nancial corporations sector.

• NPIs that are engaged in nonmarket production and are controlled by government are treated as government units (see paragraph 2.38 and Box 2.1).
Th erefore, schools, colleges, universities, clinics, hospitals, etc.

constituted as NPIs are nonmarket producers when they charge fees that are not eco- nomically signifi cant.

• Th e remaining NPIs, those that produce goods and services but do not sell them at economically signifi cant prices and are not controlled by gov- ernment, are classifi ed as a special group of units called NPIs serving households.
Government units 2.38 Government units are unique kinds of legal entities established by political processes that have legislative, judicial, or executive authority over other institutional units within a given area.
Th e principal economic functions of government units are to: • Assume responsibility for the provision of goods and services to the community or individual households primarily on a nonmarket basis • Redistribute income and wealth by means of transfers • Engage primarily in nonmarket production13 • Finance their activities primarily out of taxation or other compulsory transfers.14 13 Th e concepts of market and nonmarket producers are described in paragraph 2.65.
14 Th e requirement of fi nancing activities by compulsory transfers is necessary to diff erentiate a government from a nonprofi t insti- tution, which may carry out the same functions as a government but obtains its funds from voluntary transfers, property income, or sales.

Th e receipt of compulsory transfers may be indirect.

For example, a local government may fi nance its activities with grants receivable from the central government.
A government unit may also fi nance a portion of its activities in a specifi c period by borrowing or by ac- quiring funds from sources other than compulsory transfers—for example, interest revenue, incidental sales of goods and services, or the rent of subsoil as- sets.

All government units are part of the general gov- ernment sector.
Application of the Deﬁ nition of an Institutional Unit to Government 2.39 Depending on the complexity of a govern- ment’s organization, the identifi cation of government units may require careful consideration.

Ministries, departments, agencies, boards, commissions, judicial authorities, legislative bodies, and other entities that make up a government are not institutional units if they do not have the authority to own assets, incur li- abilities, or engage in transactions in their own right.
In general, all entities funded by appropriations made in accordance with a budget controlled by the legisla- ture are not separate institutional units and are treated as constituting a single institutional unit.

2.40 Th e geographic location of a government unit is not always limited to one location within the economic territory—for example, individual minis- tries or departments of a particular government may be deliberately dispersed throughout the area of the government’s jurisdiction.
Th ey remain, nevertheless, part of the same institutional unit.

Similarly, a given ministry or department may maintain branch offi ces or agencies in many diff erent locations to meet local needs.

Th ese offi ces and agencies are part of the same institutional unit.

2.41 Th ere may, however, be government entities with a separate legal identity and substantial auton- omy, including discretion over the volume and com- position of their expenditures and a direct source of revenue, such as earmarked taxes.
Such entities are oft en established to carry out specifi c functions, such as road construction or the nonmarket production of health or education services.

Th ese entities should be treated as separate government units (oft en referred to as extrabudgetary units) if they satisfy the criteria to be an institutional unit (see paragraphs 2.22 and 2.80).
Institutional Units and Sectors 15 is referred to as an artifi cial subsidiary and is not treated as a separate institutional unit, unless it is resident in an economy diff erent from that of its par- ent unit (see paragraphs 2.6–2.20).

Resident artifi cial subsidiary entities are classifi ed as components of the level of government that controls them (i.e., as part of their parent unit or extrabudgetary units of the parent unit).
2.43 Government resident artifi cial subsidiaries are sometimes set up as SPEs.

Although these resi- dent artifi cial subsidiaries are oft en legally consti- tuted corporations, to the extent that these entities are nonmarket producers and are controlled by another government unit, they should be classifi ed within the general government sector, either as an extrabudget- ary government unit, or with the parent government unit that controls the SPE.
Resident SPEs acting in- dependently, acquiring assets and incurring liabilities on their own behalf, and accepting the associated risk, are treated as separate institutional units and are clas- sifi ed by sector according to their principal activity.
All nonresident SPEs are treated as separate institu- tional units resident in the economy where they are established, but the fi scal activities they carry out are refl ected in the accounts of the government that con- trols them (see paragraphs 2.136–2.139).

2.44 Another example of a resident artifi cial sub- sidiary is where government establishes a central borrowing authority that appears to be a public fi - nancial corporation but is in fact part of a general government unit.
Th ese central borrowing authori- ties borrow on the market and then lend only to the parent unit or other general government units.

However, because such entities are not treated as separate institutional units, and merely facilitate government borrowing, they should be classifi ed in general government, either as an extrabudgetary unit, or with the government unit that controls the central borrowing authority.
Where such a central borrowing authority is created as a resident in an economy diff erent from that of its parent, it should be classifi ed as a captive fi nancial institution (see paragraphs 2.14 and 2.54) in the fi nancial corpora- tion sector of the host economy.

2.42 Sometimes governments establish legal enti- ties that cannot act independently and are simply a passive holder of assets and liabilities.
Such an entity 2.45 An ancillary activity is a supporting activ- ity providing services within an enterprise in order to create the conditions within which the principal 16 Government Finance Statistics Manual 2014 or secondary activities can be carried out.15 Th e type of services referred to include keeping records, man- aging and paying employees, cleaning, maintenance, transportation, and security.
An entity undertaking only ancillary activities will, in general, not satisfy the criteria to be an institutional unit.16 2.46 Many governments allocate substantial re- sources to social protection through the provision of social benefi ts (see paragraphs 6.96–6.105 and Ap- pendix 2), to protect the entire population or specifi c segments of it against certain social risks.
Social risks are events or circumstances that may adversely aff ect the welfare of the households concerned either by im- posing additional demands on their resources or by reducing their income.

Examples of social benefi ts are the provision of medical services, unemployment compensation, and social security pensions.
Because of the large scale of social protection programs in many countries and the various organizational struc- tures of such programs, Appendix 2 describes the in- stitutional units involved in these programs and their eff ects on statistics of the general government sector.

2.47 Government usually comprises two or more institutional units, and there normally is one unit that controls the other units.

Th e controlling unit most likely includes the legislature, head of state, and judiciary.
In contrast to corporations (see para- graph 2.107), one government unit controls another government unit by appointing its managers and/or determining the laws and regulations that provide its fi nance rather than through equity ownership.

Gen- erally, government units do not issue shares.


SPEs, wealth funds, or other entities of government that are legally constituted as corporations but do not satisfy the statistical defi nition of a corporation should be classifi ed as government units in one of the subsectors of the general government.
As a result, a liability for equity and investment fund shares could appear in the consolidated general government’s balance sheet (see paragraphs 2.137 and 2.152–2.155).17 15 Ancillary activities produce mainly services, but, as exceptions, goods that do not become a physical part of the marketable prod- ucts produced by an enterprise.

16 See the 2008 SNA, paragraphs 5.35–5.45, for more details.
17 Because of consolidation, GFS are not highly sensitive to the institutional unit borderline among the subsectors of the general government sector, as long as all general government units are fully covered.

2.48 Public corporations, in contrast to general government units, are institutional units that are potential sources of fi nancial gains or losses to the government units that own or control them.
In some cases, the corporation issues shares, and thus the fi - nancial gain or loss is clearly allocated to the share- holders.

In other cases, no shares are issued, but it is clear that a specifi c government unit controls the corporation’s activities and is fi nancially responsible for it.

In those cases, the responsible government unit also owns equity and investment fund shares (see paragraphs 7.164–7.177).
Institutional Sectors18 2.49 An economy can be divided into institutional sectors.19 It is therefore necessary to defi ne institu- tional sectors and identify the type of sectors that exist.

Deﬁ ning Institutional Sectors 2.50 An institutional sector groups together simi- lar kinds of institutional units according to their eco- nomic objectives, functions, and behavior.
Each sector consists of a number of institutional units that are resident in the economy and is intrinsically diff erent from the other sectors.

An economy is divided into fi ve mutually exclusive institutional sectors.

All resi- dent institutional units are allocated to one of these institutional sectors.
Th e fi ve institutional sectors are: • Nonfi nancial corporations sector • Financial corporations sector • General government sector • Households sector • Nonprofi t institutions serving households sector.

2.51 Th e relationship between these sectors of the economy and the types of institutional units (discussed in paragraphs 2.26–2.48) is depicted in Figure 2.1.
Nonﬁ nancial corporations sector 2.52 Th e nonfi nancial corporations sector con- sists of resident institutional units that are princi- pally engaged in the production of market goods or 18 Th e defi nitions and descriptions of institutional sectors are fully consistent with the corresponding defi nitions and descriptions in the 2008 SNA, Chapter 4.
19 Hereaft er, “sector” will oft en be used as a short form for “insti- tutional sector.” Institutional Units and Sectors 17 Figure 2.1 Types of Institutional Units and Their Relation to Sectors of the Economy Sector Nonfinancial corporations sector Financial corporations sector General government sector Households sector Type of unit Households Corporations Nonprofit institutions Government units √ Units included in sector Nonprofit institutions serving households sector nonfi nancial services.
Th e sector includes public and private corporations and is composed of: • All resident nonfi nancial corporations (as de- fi ned in paragraphs 2.31–2.32), regardless of the residence of their owners • Th e branches of nonresident enterprises that are engaged in nonfi nancial production in the eco- nomic territory on a long-term basis • All resident NPIs that are market producers of goods or nonfi nancial services.
Financial corporations sector 2.53 Th e fi nancial corporations sector consists of resident corporations that are principally engaged in providing fi nancial services, including insurance and pension fund services, to other institutional units.

Th e production of fi nancial services is the result of fi nan- cial intermediation, fi nancial risk management, liquid- ity transformation, or auxiliary fi nancial activities.
In addition, the sector includes NPIs engaged in market production of a fi nancial nature, such as those fi nanced by subscriptions from fi nancial enterprises whose role is to promote and serve the interest of those enterprises.

2.54 Financial corporations can be divided into three broad classes: fi nancial intermediaries, fi nan- cial auxiliaries, and captive fi nancial institutions and money lenders.
• Financial intermediaries are institutional units that incur liabilities on their own account for the purpose of acquiring fi nancial assets by engag- ing in fi nancial transactions on the market.

Th e assets and liabilities of fi nancial intermediaries are transformed or repackaged with respect to maturity, scale, risk, and the like, in the fi nancial intermediation process.
Th e fi nancial intermedia- tion process channels funds between third parties with a surplus of funds and those with a demand for funds.

A fi nancial intermediary not only acts as an agent for these other institutional units, but also places itself at risk by acquiring fi nancial as- sets and incurring liabilities on its own account.

Financial intermediation is limited to acquiring assets and incurring liabilities with the general public or specifi ed and relatively large groups thereof.
Where the activity is limited to small groups, no intermediation takes place.

Financial intermediaries include deposit-taking corpora- tions, insurance corporations, and pension funds.
• Financial auxiliaries consist of fi nancial corpo- rations that are principally engaged in activities associated with transactions in fi nancial assets and liabilities or with providing the regulatory context for these transactions but in circum- stances that do not involve the auxiliary taking ownership of the fi nancial assets and liabilities being transacted.

Th ey include brokers, manag- ers of pension funds, mutual funds, etc.
(but not the funds they manage), foreign exchange bu- reaus, and central supervisory authorities.

• Captive fi nancial institutions and money lend- ers are institutional units providing fi nancial ser- vices other than insurance, where most of their assets or liabilities are not available on open fi - nancial markets.
Th ese entities transact within only a limited group of units (such as with sub- sidiaries) or subsidiaries of the same holding 18 Government Finance Statistics Manual 2014 corporations or entities that provide loans from own funds provided by only one sponsor.

Cap- tive insurance is the exception and is classifi ed as an insurance corporation.

2.55 Financial intermediaries can be divided into seven subsectors according to the intermediary’s activ- ity in the market and the liquidity of its liabilities.
Th ese seven subsectors are: central bank; deposit-taking cor- porations except the central bank; money market funds; nonmoney market investment funds; other fi nancial intermediaries except insurance corporations and pen- sion funds; insurance corporations; and pension funds.
2.56 As indicated in Figure 2.3 and Table 7.11, in GFS the fi nancial corporations are presented as fol- lows for analytic purposes: • Th e central bank • Deposit-taking corporations except the central bank • Other fi nancial corporations—including all fi - nancial intermediaries except deposit-taking corporations, fi nancial auxiliaries, and captive fi nancial institutions and money lenders.
2.57 Th e fi nancial corporations sector includes public and private fi nancial corporations comprising: • All resident fi nancial corporations (as defi ned in paragraphs 2.31–2.35), regardless of the resi- dence of their shareholders • Th e branches of nonresident enterprises (see para- graph 2.20) that are engaged in fi nancial activity in the economic territory on a long-term basis • All resident NPIs that are market producers of fi nancial services (see paragraph 2.36 – 2.37).
General government sector 2.58 Th e general government sector consists of resident institutional units that fulfi ll the functions of government as their primary activity.

Th ese insti- tutional units perform the principal economic func- tions of government, as described in paragraph 2.38, in addition to fulfi lling their political responsibilities and their role of economic regulator.
Th e general gov- ernment sector comprises: • All government units of central, state, provincial, regional, and local government, and social secu- rity funds (see paragraphs 2.76–2.103) imposed and controlled by those units • All nonmarket NPIs that are controlled by gov- ernment units (see paragraph 2.83).
2.59 Th e general government sector does not include public corporations, even when all the equity of such corporations is owned by government units, nor quasi- corporations that are owned and controlled by gov- ernment units.

However, unincorporated enterprises owned by government units that are not quasi-corpora- tions remain integral parts of those units and, therefore, must be included in the general government sector.
Households sector 2.60 Th e households sector consists of all resident households (see paragraphs 2.28–2.29).

Households may be of any size and take a variety of diff erent forms in diff erent societies or cultures.

All physical persons in the economy must belong to one and only one household.

Households supply labor, undertake fi nal consumption, and, as entrepreneurs, produce market goods and non- fi nancial (and possibly fi nancial) services.
Nonproﬁ t institutions serving households (NPISHs) sector 2.61 Th e nonprofi t institutions serving house- holds (NPISHs) sector consists of resident non- market nonprofi t institutions (NPIs) that are not controlled by government.

Th ey provide goods and services to households for free or at prices that are not economically signifi cant.

One type of NPISHs is cre- ated by associations of persons to provide goods or, more oft en, services primarily for the benefi t of the members themselves.
For example, professional or learned societies, political parties, trades unions, con- sumers’ associations, churches or religious societies, and social, cultural, recreational, or sports clubs.

Th ey do not include bodies serving similar functions that are controlled by government units.

Religious institu- tions are usually excluded from general government and classifi ed as NPISHs even when mainly fi nanced by government units if this majority fi nancing is not seen as empowering control by government.
Political parties in countries with one-party political systems that are controlled by government units by means of providing the necessary fi nance are included in the general government sector.

A second type of NPISHs consists of charities, and relief or aid agencies that are created for philanthropic purposes, while a third type provides collective services, such as research institutions that make their results freely available, environmental groups, etc.
By convention, nonmarket NPIs controlled by foreign governments are classifi ed as NPISHs in the host economy.
Institutional Units and Sectors 19 Figure 2.2 The Public Sector and Its Relation to Other Institutional Sectors of the Economy General Government Sector Nonfinancial Corporations Sector Financial Corporations Sector Households Sector Nonprofit Institutions Serving House- holds Sector Public corporations Public corporations Private corporations Private corporations Private Private Central government State governments Local governments Public sector The Use of Subsectors 2.62 Each of the sectors of the economy may be di- vided into subsectors, and the subsectors can be com- bined in diff erent ways to form other sectors.
No single method of combining subsectors may be optimal for all purposes.

Dividing the total economy into sectors and subsectors enhances the usefulness of the data for purposes of economic analysis and enables targeted monitoring of particular groups of institutional units for policy purposes.
For example, the general govern- ment sector can be divided into central, state, and local government subsectors, while social security funds could be presented as a separate subsector or could be included in the subsector that organizes and manages them.
Th e nonfi nancial corporations sub- sector can be divided into public nonfi nancial corpo- rations, foreign-controlled nonfi nancial corporations, and national private nonfi nancial corporations.20 Th e division of sectors into subsectors depends upon the type of analysis to be undertaken, the needs of policy- makers, the availability of data, the economic circum- stances, and the institutional arrangements within a country.
Figure 2.2 shows the relationship between the general government sector, the public sector, and the other main sectors of the domestic economy.

Institutional Coverage and Sectorization of the Public Sector 2.63 Th e public sector consists of all resident in- stitutional units controlled directly, or indirectly, by resident government units—that is, all units of the general government sector and resident public corpo- rations.

Figure 2.3 illustrates the main components of the public sector.
Statistics should be compiled for the general government and public sectors, as well as for all the subsectors of the general government and the public corporations subsector.
Delineating General Government and Public Corporations 2.64 Th e general government sector consists of all government units and all resident nonmar- ket NPIs that are controlled by government units, while the public corporations subsector (see para- graph 2.104) consists of all corporations controlled by government units or other public corporations.
General government also includes public enter- prises, legally constituted as corporations, but that do not satisfy the statistical criteria to be treated as corporations (see paragraphs 2.31–2.35).21 To determine which public enterprises are treated as general government units and which as public cor- porations, it is necessary to delineate nonmarket and market producers .
2.65 A market producer is an institutional unit that provides all or most of its output to others at prices that are economically signifi cant.

A nonmar- ket producer provides all or most of its output to others for free or at prices that are not economically signifi cant.
2.66 Economically signifi cant prices are prices that have a signifi cant eff ect on the amounts that producers 20 Similarly, fi nancial corporations can be divided into public, foreign-controlled, and national private fi nancial corporations.

21 Public enterprises are oft en also referred to as state-owned enterprises or parastatals.
20 Government Finance Statistics Manual 2014 Figure 2.3 The Public Sector and Its Main Components Budgetary Central Government1 Extrabudgetary Social Security Funds General Government State Governments1 Subsectors3 Local Governments1 Subsectors3 Public Sector Public Corporations Social Security Funds2 Public Nonfinancial Corporations Public Financial Corporations Central Bank Public Deposit- Taking Corporations except the Central Bank Public Deposit- Taking Corporations Other Public Financial Corporations 1Includes social security funds.
2Alternatively, social security funds can be combined into a separate subsector, as shown in the box with dashed lines.

3Budgetary units, extrabudgetary units, and social security funds may also exist in state and local governments.

are willing to supply and on the amounts purchasers wish to buy.

Th ese prices normally result when: • Th e producer has an incentive to adjust supply ei- ther with the goal of making a profi t in the long run or, at a minimum, covering capital and other costs.
• Consumers have the freedom to purchase or not purchase and make the choice on the basis of the prices charged.

Th ese conditions usually mean that prices are eco- nomically signifi cant if sales cover the majority of the producer’s costs and consumers are free to choose whether to buy, and how much to buy, on the basis of the prices charged.

2.67 A price is not economically signifi cant when it has little or no infl uence on how much the pro- ducer is prepared to supply and on the quantities demanded.
Economically insignifi cant prices may be charged in order to raise some token revenue and/ or reduce, but not eliminate, excessive demand that may occur if goods and services are provided free of charge.

An economically insignifi cant price may be set on administrative, social, or political grounds for goods or services for which the amount to be sup- plied is fi xed.

2.68 It can be presumed that prices are economi- cally signifi cant when the producers are private cor- porations.
When there is public control, however, the unit’s prices may be modifi ed for public policy purposes.

Th is may cause diffi culties in determin- ing whether the prices charged are economically sig- nifi cant.

Public corporations are oft en established to provide goods and services in larger quantities than a private corporation would provide at the same selling price.
Even when the sales of public corporations may cover a large portion of their costs, one can expect that they respond to market forces quite diff erently than would private corporations.

2.69 Although there is no prescriptive numerical relationship between the value of sales (excluding both taxes and subsidies on products) and the pro- duction costs, one would expect the value of the sales by public corporations to average at least half of the production costs over a sustained multiyear period.
2.70 In principle, the distinction between mar- ket and nonmarket producers should be made on a case-by-case basis.

Th e classifi cation of a producer as a market or nonmarket producer should be consid- ered over a range of years.22 Once classifi ed, only if a change in pricing holds for several years or is ex- pected to hold for several years should a reclassifi ca- tion of the entity be considered.
2.71 It is likely that corporations receiving substan- tial government fi nancial support, or enjoying other Institutional Units and Sectors 21 risk-reducing factors such as substantial government guarantees, will respond to changes in the economic conditions diff erently from corporations without such advantages because their budget constraints are soft er, and so are more likely to be classifi ed as nonmarket producers.
2.72 Th e question arises whether government- owned entities supplying goods and services to gov- ernment should be treated as market or nonmarket producers.

Th e producer of these goods and services is not a market producer if it is a dedicated provider of ancillary services (see paragraph 2.45).

Th ese entities will, in general, not satisfy the criteria to be an institu- tional unit.
Similarly, it can oft en be assumed that the producer is not a market producer if the unit provides the goods and services in the absence of competition23 with private producers, and when the choice of sup- plier to government is not based on price.

Th is is true regardless of whether the supplier is the only supplier and whether the government is the only customer of the supplier.
2.73 To assess whether a producer is a market producer, it is necessary to carry out a comparison between the receipts from sales and the production costs of the goods and services sold.

Sales are mea- sured before any taxes applicable to the products are added.

Sales exclude all payments receivable from government unless they would be granted to any pro- ducer undertaking the same activity.
Production for own use, known as own-account production, does not generate receipts from sales, and so it is not consid- ered as part of sales in this context.

2.74 Production costs are calculated as the sum of compensation of employees, use of goods and services, consumption of fi xed capital, and other taxes on pro- duction.24 Th ese concepts used in the calculation of production costs exclude all costs associated with own- account capital formation.
Further, a return to capital is included in production costs if the unit is to be treated as a market producer.

Subsidies receivable on produc- tion are not deducted from the production costs.
2.75 As a nonmarket producer, a general govern- ment institutional unit will have mostly nonmarket establishments (see paragraph 2.24), but it may have 22 When a newly established unit needs to be classifi ed to a sector, the classifi cation as a market or nonmarket producer should be based on its intent regarding the prices it is to charge for its goods and services.

23 Prices determined in a competitive market are highly likely to be economically signifi cant prices.
24 For a detailed breakdown of other taxes on production, see paragraph A7.41 and Table A7.3.

22 Government Finance Statistics Manual 2014 one or more market establishments.25 A market es- tablishment is an establishment that charges econom- ically signifi cant prices.

Where a general government unit sells some of its output at prices that are econom- ically signifi cant, it may be possible to identify market producers.
Market establishments within government that satisfy the criteria to be separate institutional units are quasi-corporations (see paragraph 2.22), and are treated in the same way as corporations.

Th e remaining market establishments would remain an integral part of the general government sector.

The General Government Sector and Its Subsectors 2.76 Th e general government sector consists of resident institutional units that fulfi ll the functions of government as their primary activity.
Th is sector in- cludes all government units and all nonmarket NPIs that are controlled by government units.

For analytic purposes, it is oft en necessary or desirable to disaggre- gate the general government sector into subsectors.

2.77 Depending on the administrative and legal arrangements, there may be more than one level of government within a country, and statistics should be compiled for each level (also referred to as sub- sectors).
However, because of these diff erent arrange- ments, international comparison of data for each subsector of general government should be under- taken with some caution.

In macroeconomic statis- tics, provision is made for three subsectors of general government: central, state, and local.

Not all countries have all three levels; some may have only a central government or a central government and one level below.

Other countries may have more than three lev- els.


In that case, the various units should all be classi- fi ed as one of the three subsectors suggested here.

In addition to levels of government, the existence of so- cial security funds and their role in fi scal policy may require that statistics for all social security funds be compiled as a separate subsector of the general gov- ernment sector.
2.78 A full classifi cation of the subsectors of the general government would allow for both NPIs and social security funds to be distinguished for each of 25 Th e sales of goods and services (142) include sales of market establishments and sales by nonmarket establishments, and are identifi ed as specifi c categories of revenue (see paragraphs 5.136–5.141).

central, state, and local government subsectors.


In practice, though, it is usual to present social security funds in one of two alternative sets of subsectors, as illustrated in Figure 2.3.26 • All social security funds could be combined into a separate subsector and all other general gov- ernment units could be classifi ed according to their level.
In that case, the central, state, and local government subsectors would comprise all government units other than social security funds; or • Social security funds could be classifi ed accord- ing to the level of government that organizes and manages them and therefore be combined with the other general government units at the respec- tive subsectors.

Th us, the general government would consist of central, state, and local govern- ments, assuming that all three levels of govern- ment exist.
To facilitate analysis of social security funds as a whole, separate statistics for them may be provided within the statistics for each level of government.

Countries may choose either presentation.

2.79 Classifi cation problems may arise when gov- ernment operations are carried out by a general gov- ernment unit jointly accountable to two levels of government.27 Th is classifi cation decision may be espe- cially diffi cult if the agency has its own source of fund- ing, such as earmarked taxes.
In some cases, an NPI might be controlled by two or more government units at diff erent levels of government.

For example, a state government unit might have the right to appoint the majority of offi cers managing an NPI but the fi nancing might be provided mainly by the central government.

General government units subject to dual control should be classifi ed to the level of government that pre- dominates in terms of control in accordance with all the indicators of control (see Boxes 2.1 and 2.2).
2.80 Th e central, state, and local government sub- sectors of general government are each made up of 26 Th e alternative methods of subsector classifi cation are designed to accommodate diff erent analytic needs.

Th e decision as to which method is more appropriate in a given country depends on how signifi cant social security funds are and on the extent to which they are managed independently of the government units with which they are associated.
27 Also see the discussion on joint ventures in paragraphs 2.140–2.143.

Institutional Units and Sectors 23 Box 2.1 Government Control of Nonproﬁ t Institutions Control of an NPI is deﬁ ned as the ability to determine the general policy or program of the NPI.
To determine if an NPI is controlled by the government, the following ﬁ ve indicators of control would be the most important and likely factors to consider: • The appointment of ofﬁ cers—The government may have the right to appoint the ofﬁ cers managing the NPI under the NPI’s constitution, its articles of association, or other enabling instrument.
• Other provisions of the enabling instrument—The enabling instrument may contain provisions other than the appointment of ofﬁ cers that effectively allow the government to determine signiﬁ cant aspects of the general policy or program of the NPI.

For example, the enabling instrument may specify or limit the functions, objec- tives, and other operating aspects of the NPI, thus making the issue of managerial appointments less critical or even irrelevant.
The enabling instrument may also give the government the right to remove key personnel or veto proposed appointments, require prior approval of budgets or ﬁ nancial arrangements by the government, or prevent the NPI from changing its constitution, dissolving itself, or terminating its relationship with govern- ment without government approval.
• Contractual agreements—The existence of a contractual agreement between a government and an NPI may allow the government to determine key aspects of the NPI’s general policy or program.
As long as the NPI is ul- timately able to determine its policy or program to a signiﬁ cant extent, such as by being able to fail to comply with the contractual agreement and accept the consequences, to change its constitution, or to dissolve itself without requiring government approval other than that required under the general regulations, then it would not be considered controlled by government.
• Degree of ﬁ nancing by government— An NPI that is mainly ﬁ nanced by government may be controlled by that government.

Generally, if the NPI remains able to determine its policy or program to a signiﬁ cant extent along the lines mentioned in the previous indicator, then it would not be considered controlled by government.
• Risk exposure—If a government openly allows itself to be exposed to all, or a large proportion of, the ﬁ nancial risks associated with an NPI’s activities, then the arrangement constitutes control.

A single indicator could be sufﬁ cient to establish control in some cases, but in other cases, a number of separate indi- cators may collectively indicate control.
A decision based on the totality of all indicators will necessarily be judgmental in nature but clearly similar judgments must be made in similar cases.

institutional units.

For each of these subsectors, it is oft en analytically useful to group its entities ac- cording to administrative, legislative, or funding ar- rangements.

For example, governments may create specialized boards, commissions, or agencies either as part of their budgetary accounts or as separate units.
It may be possible to create subsectors at each level of government based on whether the units in the subsec- tor are fi nanced by the legislative budgets of that level of government or by extrabudgetary sources—that is, distinguishing between budgetary and extrabudgetary units (irrespective of the treatment of social security funds—see paragraph 2.78).
Th e budgetary compo- nent may comprise only the main (or general) bud- get, and the extrabudgetary component the remaining entities that constitute that level of government, ex- cluding social security funds.

Such a grouping of the subsectors allows for a more direct comparison be- tween budget data and GFS.

Whether units are clas- sifi ed as budgetary or extrabudgetary depends on country circumstances.
What is important, though, is full coverage of the general government sector—that is, the statistics compiled for each level of government should cover all units that constitute that subsector of government (central, state, or local).

2.81 In all countries, there is an institutional unit of the general government sector particularly important in terms of size and power, in particular the power to exercise control over many other units and entities.
Th e budgetary central government is oft en a single unit of the central government that encompasses the fundamental activities of the national executive, legislative, and judiciary powers.

Th is component of general government is usually covered by the main (or general) budget.
Th e budgetary central govern- ment’s revenue and expense are normally regulated and controlled by a ministry of fi nance, or its func- tional equivalent, by means of a budget approved by 24 Government Finance Statistics Manual 2014 the legislature.

Most of the ministries, departments, agencies, boards, commissions, judicial authorities, legislative bodies, and other entities that make up the budgetary central government are not separate insti- tutional units.
Th is is because they generally do not have the authority to own assets, incur liabilities, or engage in transactions in their own right (see para- graph 2.42).

Th e state or local government subsectors each have a budgetary state/local government compo- nent that includes the principal executive, legislative, and judicial powers for these levels of government.
2.82 General government entities with individual budgets not fully covered by the main (or general) budget are considered extrabudgetary.28 Th ese en- tities operate under the authority or control of a central, state, or local government.

Extrabudgetary entities may have their own revenue sources, which may be supplemented by grants (transfers) from the general budget or from other sources.
Even though their budgets may be subject to approval by the leg- islature, similar to that of budgetary accounts, they have discretion over the volume and composition of their spending.

Such entities may be established to carry out specifi c government functions, such as road construction, or the nonmarket production of health or education services.
Budgetary arrangements vary widely across countries, and various terms are used to describe these entities, but they are oft en referred to as “extrabudgetary funds” or “decentralized agencies.” 2.83 Nonmarket NPIs controlled by government are typically classifi ed as extrabudgetary units when they satisfy the criteria to be an institutional unit.

More specifi cally, they are classifi ed with the level of government that controls them—namely, central, state, or local governments.
Th e most important and likely factors to consider in determining government control of NPIs are discussed in Box 2.1.

All NPIs allo- cated to the general government sector should retain their identity as NPIs in statistical records, to facilitate the analysis of a complete set of NPIs.

2.84 Th e following sections further defi ne the subsectors of government.
Th ese defi nitions apply whether social security funds are included with the 28 Th ese entities are institutional units if they satisfy the criteria to be a separate institutional unit (see paragraph 2.22).

If an entity does not qualify as a unit, it is considered as part of the unit that controls it.

level of government that organizes and manages them, or as a separate subsector of general government.
Central government 2.85 Th e central government subsector consists of the institutional unit(s) of the central government plus those nonmarket NPIs that are controlled by the central government.

Th e political authority of the central government extends over the entire territory of the country.

Central government has, therefore, the authority to impose taxes on all resident institutional units and on nonresident units engaged in economic activities within the country.
Its political responsibili- ties include national defense, the maintenance of law and order, and relations with foreign governments.

It also seeks to ensure the effi cient working of the social and economic system by means of appropriate legisla- tion and/or regulation.

It is responsible for providing collective services for the benefi t of the community as a whole, and for this purpose incurs expenditure on defense, public administration, etc.
In addition, it may incur expenditure on the provision of services, such as education or health, primarily for the benefi t of individual households, and it may make transfers to other institutional units, including other levels of government.

2.86 Compiling statistics for the central govern- ment is particularly important because of the spe- cial impact it has on monetary policy and economic growth.
For example, it is mainly through central gov- ernment fi nances that fi scal policy impacts on infl a- tionary or defl ationary pressures within the economy.

It is generally at the central government level alone that a decision-making body can formulate and carry out public policies directed toward nationwide eco- nomic objectives.

Other levels of government have neither national economic policies as their objective nor the central government’s access to central bank credit.
2.87 In most countries, central government is a large and complex subsector.

Nonetheless, as de- scribed in paragraph 2.80, based on administrative ar- rangements in a country, it is generally composed of a budgetary central government, extrabudgetary units, and social security funds (unless a separate subsec- tor is used for social security funds, as described in paragraph 2.78).
2.88 While the central government may also control nonfi nancial or fi nancial corporations, these corpora- tions are classifi ed outside of the central (and general) government sector(s), but are part of the public sector.

However, if institutional units controlled by central government are legally constituted as corporations but are not market producers, they should be classifi ed as part of the central government sector, not the public corporations sector.
Similarly, unincorporated enter- prises controlled by central government units that do not satisfy the criteria to be quasi-corporations (see paragraph 2.34) should remain integral parts of those units and, therefore, would be included in the central government subsector.

2.89 In some countries, central government may include units that engage in fi nancial transactions that in other countries would be performed by central banks.
In particular, units of central government may be responsible for the issue of currency, the mainte- nance of international reserves, the operation of ex- change stabilization funds, and transactions with the International Monetary Fund.

When the units in ques- tion remain fi nancially integrated with central gov- ernment and under the direct control and supervision of central government, they cannot be treated as sepa- rate institutional units.
Accordingly, these monetary authority functions carried out by central government are recorded in the general government sector and not the fi nancial corporations sector.
However, because of the analytic importance of obtaining accounts cover- ing the monetary authorities as a whole, and in order to provide links with other macroeconomic statistics such as the 2008 SNA, the BPM6, and the MFSM, it is recommended that the transactions of central govern- ment agencies carrying out monetary authority and deposit-taking functions be separately identifi ed, so that they can be combined with those of the central bank and other deposit-taking corporations in special tabulations if desired.
State governments Institutional Units and Sectors 25 a whole may be divided for political or administra- tive purposes.

Th ey are institutional units whose fi s- cal, legislative, and executive authority extends only to individual “states” into which the country as a whole may be divided.

Th ese states may be described by dif- ferent names in diff erent countries and the subsector may consist of state, provincial, or regional govern- ments.
For ease of expression, this level of government will be referred to hereaft er as state governments.

In many countries, especially smaller countries, state governments may not exist.

However, in geographi- cally large countries, especially those that have federal constitutions, considerable powers and responsibili- ties may be assigned to state governments.
2.91 A state government may consist of many in- stitutional units and usually has the fi scal authority to levy taxes on institutional units that are resident in, or engage in economic activities or transactions within, its area of jurisdiction (but not other areas).
It must also be entitled to spend or allocate some, or possibly all, of the taxes or other revenue that it receives ac- cording to its own policies, within the general rules of law of the country, although some of the transfers it receives from central government may be tied to certain specifi ed purposes.

It should also be able to appoint its own offi cers, independently of external ad- ministrative control.
On the other hand, if a regional unit is entirely dependent on funds from central gov- ernment, and if the central government also deter- mines the ways in which these funds are to be spent at the regional level, it should be treated as an agency of central government for statistical purposes, rather than as a separate level of government.
2.92 In a few countries, more than one level of government exists between the central government and the smallest governmental institutional units at a local level; in such cases, for purposes of sector clas- sifi cation, these intermediate levels of government are grouped with the level of government—either state or local—with which they are most closely associated.
2.90 State governments consist of institutional units exercising some of the functions of government at a level below that of central government and above that of the government institutional units existing at a local level.
State governments are distinguished by the fact that their fi scal authority extends over the largest geographical areas into which the country as 2.93 If a state government exists, then its principal departments and ministries will generally constitute a single institutional unit in a manner similar to the budgetary unit of the central government.
In addi- tion, there may be extrabudgetary agencies operat- ing under the authority of a state government with a separate legal identity and enough autonomy to form 26 Government Finance Statistics Manual 2014 additional institutional units (see paragraph 2.39).

Th ere may also be institutional units whose authority extends over two or more states, but are responsible to the respective state governments.

Such units should also be included in the state government subsector.
2.94 State governments may control corporations in the same way as central government.

Th ey may also have unincorporated units that engage in mar- ket production.

Such institutional units should be treated as quasi-corporations in line with the princi- ples in paragraph 2.33.

Th ese corporations and quasi- corporations should be classifi ed outside of the state government subsector (and general government sec- tor) as part of public corporations.
Local governments 2.95 Local government units are institutional units whose fi scal, legislative, and executive author- ity extends over the smallest geographical areas dis- tinguished for administrative and political purposes.

Th e local government subsector consists of local governments that are separate institutional units plus those nonmarket NPIs that are controlled by local governments.
Th e scope of their authority is generally much less than that of central government or state governments, and they may, or may not, be entitled to levy taxes on institutional units resident in their areas.

Th ey are oft en heavily dependent on grants (transfers) from higher levels of government, and they may also act, to some extent, as agents of central or regional governments.

Th ey should also be able to appoint their own offi cers, independently of external administrative control.
Even when local governments act as agents of central or state govern- ments to some extent, they can be treated as a sepa- rate level of government, provided they are also able to raise and spend some funds on their own initiative and own responsibility.

2.96 Local governments are in closest contact with institutional units occupying their localities.
Th ey typi- cally provide a wide range of services to local residents, some of which may be fi nanced out of grants (trans- fers) from other levels of government.

Statistics for the local government subsector may cover a wide variety of governmental units, such as counties, municipalities, cities, towns, townships, boroughs, school districts, and water or sanitation districts.

Oft en, local govern- ment units with diff erent functional responsibilities have authority over the same geographic areas.
For ex- ample, separate government units representing a town, a county, and a school district may have authority over the same area.

In addition, two or more contiguous local governments may organize a government unit with regional authority that is accountable to the local governments.

Such units should also be included in the local government subsector.
2.97 Some of the most typical functions of local governments provide services for which users’ fees are small in relation to the main costs borne by the local government.
Local governments are typically in- volved in: • Educational establishments • Hospitals and social welfare establishments, such as kindergartens, nurseries, and welfare homes • Public sanitation and related entities, such as water purifi cation systems and plants, refuse col- lection and disposal agencies, cemeteries, and crematoria • Culture, leisure, and sports facilities, such as the- aters, concerts, music halls, museums, art galler- ies, libraries, parks, and open spaces.
2.98 Th e same rules governing the treatment of the production of goods and services by central and state government units are applied to local govern- ments.

If a market producer can be identifi ed within a local government unit that satisfi es the criteria to be a corporations or a quasi-corporation (see paragraph 2.34), it is classifi ed as a public corporation.

When market establishments29 do not satisfy the criteria to be a quasi-corporation, they are included within local government.
Units supplying services on a nonmarket basis, such as education or health, remain an integral part of the local government unit that controls them.

2.99 Government units serving both a state gov- ernment and one or more local governments should be included with the level of government that pre- dominates in its operations and fi nances.

In some countries, more than one level of government exists between the central government and the smallest gov- ernmental institutional units at a local level.
In such cases, these intermediate levels of government are grouped together with the level of government, either 29 See paragraph 2.75 for a defi nition of market establishments.

state or local, with which they are most closely associ- ated.

For some analyses, it may be useful to combine the statistics for state and local governments.
Social security funds 2.100 A social security fund is a particular kind of government unit that is devoted to the operation of one or more social security schemes.30 In macroeco- nomic statistics, a social security fund is recognized if it meets the criteria to be an institutional unit and if it: • Is organized and managed separately from the other activities of government units • Holds its assets and liabilities separately from other government units • Engages in fi nancial transactions on its own account.
2.101 Social security schemes are social insurance schemes covering the community as a whole, or large sections of the community, and are imposed and con- trolled by government units.

Social insurance schemes provide social protection and require formal participa- tion by the benefi ciaries, evidenced by the payment of contributions (actual or imputed).

Participation in social security schemes is therefore also evidenced by the payment of contributions (actual or imputed) by the benefi ciaries.
Th ese schemes cover a wide variety of programs, providing benefi ts in cash or in kind for old age, invalidity or death, survivors, sickness and mater- nity, work-related injury, unemployment, family allow- ance, health care, etc.

Th ere is not necessarily a direct link between the amount of the contributions payable by an individual and the benefi ts receivable.
2.102 However, not all social security schemes are organized and managed by social security funds; for example, a social security scheme for sickness may be operated by a national health ministry.
If there is an autonomous employment-related pension fund (i.e., a separate institutional unit) to provide govern- ment employee pensions, this fund should be ex- cluded from social security funds and be classifi ed as a public fi nancial corporation if under control of government, or otherwise as a private fi nancial corporation (see paragraphs A2.47–A2.53).
A non- autonomous employment-related pension scheme 30 Appendix 2 provides a detailed description of the nature of social protection, including social security.

Institutional Units and Sectors 27 for government employees that is administered by a social security fund remains part of social security funds.
However, if the conditions for participation and benefi ts payable, as determined by the employ- ment contract, diff er from those of the social security scheme for nongovernment employee participants, an employment-related pension scheme exists.

GFS recognizes liabilities for employment-related pension entitlements.

Th erefore, economic fl ows and stock positions related to this pension scheme should be distinguished within the social security fund (see paragraphs 6.25 and 7.194).
2.103 Consistent with the 2008 SNA, this Manual allows for social security funds to be accommodated in two alternative sets of subsectors of general govern- ment, as described in paragraph 2.78.

The Public Corporations Sector and Its Subsectors The public corporations subsector 2.104 Th e public corporations subsector consists of all resident corporations controlled by government units or by other public corporations.
It is possible that some entities that are legally constituted as cor- porations may not be classifi ed as corporations for statistical purposes if they do not charge economically signifi cant prices.

Public corporations may be involved in quasi-fi scal operations (i.e., they carry out govern- ment operations at the behest of the government units that control them—see paragraph 2.4).

As such, pub- lic corporations may exist to serve as an instrument of public (or fi scal) policy for government.
Most directly, a public corporation can engage in specifi c transac- tions to carry out a government operation, such as lending to particular parties at a lower-than-market interest rate or selling their product, such as electric power, to selected customers at reduced rates.
More generally, however, a public corporation can carry out fi scal policy by employing more staff than required, purchasing extra inputs, paying above-market prices for inputs, or selling a large share of its output for prices that are less than what the market price would be if only private producers were involved.
2.105 Public corporations may be created to: gen- erate profi ts for general government; protect key re- sources; provide competition where barriers to entry may be large; and provide basic services where costs are prohibitive.
Th ese public corporations are oft en 28 Government Finance Statistics Manual 2014 large and/or numerous, and may have a signifi cant economic impact—for example: • Public corporations may be of signifi cance to gov- ernment because of the eff ects their magnitude or strategic position may have on macroeconomic objectives, such as bank credit, aggregate demand, borrowing abroad, and the balance of payments.
• Many public corporations may represent a size- able investment of national resources, at consid- erable opportunity costs.

• Public corporations are a potential source of fi s- cal risk to the extent that their liabilities could be explicitly or implicitly guaranteed by government, or may hold reputational risks for government.
• Public corporations may over time become nonmarket units reclassifi ed to the general gov- ernment sector and vice versa; compilation of statistics on the public sector avoids the series breaks in general government data that may re- sult from changes in the way they operate.

2.106 Statistics on public corporations are also likely to be needed to compile comprehensive statis- tics for the general government sector.
GFS for the general government sector should refl ect all transac- tions with public corporations, and changes in the net worth of public corporations are refl ected in the value of the equity of those corporations owned by general government units.

Th e accounts of public corpora- tions will help explain the source of changes in these assets, and that information will be useful for an anal- ysis of sustainability and other aspects of fi scal policy.
Government control of corporations 2.107 A corporation is a public corporation if a government unit, another public corporation, or some combination of government units and public corporations controls the entity.

Control of a corpo- ration is defi ned as the ability to determine general corporate policy of the corporation.
Th e expression “general corporate policy” as used here is understood in a broad sense to mean the key fi nancial and op- erating policies relating to the corporation’s strategic objectives as a market producer.

2.108 Because the arrangements for the control of corporations can vary considerably, it is neither desir- able nor feasible to prescribe a defi nitive list of factors to be taken into account.
Although a single indicator could be suffi cient to establish control, in other cases, a number of separate indicators may collectively in- dicate control.

A decision based on the totality of all indicators must necessarily be judgmental in nature, but clearly similar judgments must be made in similar cases.

Box 2.2 presents the most important and likely factors to consider.
2.109 Because governments exercise sovereign powers through legislation, regulations, orders, and other arrangements, care needs to be applied in deter- mining whether the exercise of such powers amounts to a determination of the general corporate policy of a particular corporation, and therefore control of the corporation.

Laws and regulations applicable to all units as a class or to a particular industry should not be viewed as amounting to control of these units.
2.110 Th e ability to determine general corporate policy does not necessarily include the direct control of the day-to-day activities or operations of a particular corporation.

Th e offi cers of such corporations would normally be expected to manage these in a manner consistent with and in support of the overall objectives of the particular corporation.
Nor does the ability to determine the general corporate policy of a corpora- tion include the direct control over any professional, technical, or scientifi c judgments, as these would nor- mally be viewed as part of the core competence of the corporation itself.

For example, the professional or technical judgments exercised by a corporation set up to certify aircraft airworthiness would not be consid- ered controlled with respect to individual approvals and disapprovals.
However, its broader operating and fi nancial policies, including the airworthiness criteria, may well be determined by a government unit as part of the corporation’s corporate policy.
2.111 Corporations subject to the control of a non- resident government unit (or a nonresident public corporation) are not classifi ed as public corporations in the host economy, but would be part of the private corporations in that economy.31 2.112 Quasi-corporations and market NPIs (i.e., NPIs engaging in market production) under the con- trol of government are classifi ed as public corporations.
31 Also see the discussion of residence in paragraphs 2.6–2.21 of this chapter and defi nitions of corporations in paragraphs 2.31–2.32.

Box 2.2 Government Control of Corporations Control of corporations is deﬁ ned as the ability to determine the general corporate policy of the corporation.
To de- termine if a corporation is controlled by the government, the following eight indicators of control would be the most important and likely factors to consider: • Ownership of the majority of the voting interest—Owning a majority of shares will normally constitute control when decisions are made on a one-share, one-vote basis.

The shares may be held directly or indirectly, and the shares owned by all other public entities should be aggregated.
If decisions are not made on a one-share, one-vote basis, the classiﬁ cation should be based on whether the shares owned by other public entities provide a majority voice.

• Control of the board or other governing body—The ability to appoint or remove a majority of the board or other governing body as a result of existing legislation, regulation, contractual, or other arrangements will likely constitute control.
Even the right to veto proposed appointments can be seen as a form of control if it inﬂ uences the choices that can be made.

If another body is responsible for appointing the directors, it is necessary to examine its composi- tion for public inﬂ uence.

If a government appoints the ﬁ rst set of directors but does not control the appointment of replacement directors, the body would then be part of the public sector until the initial appointments had expired.
• Control of the appointment and removal of key personnel—If control of the board or other governing body is weak, the appointment of key executives, such as the chief executive, chairperson, and ﬁ nance director, may be decisive.

Nonexecutive directors may also be relevant if they sit on key committees, such as the remuneration committee determining the pay of senior staff.
• Control of key committees of the entity—Subcommittees of the board or other governing body could determine the key operating and ﬁ nancial policies of the entity.

Majority public sector membership on these subcommittees could constitute control.

Such membership can be established under the constitution or other enabling instru- ment of the corporation.

• Golden shares and options—A government may own a “golden share,” particularly in a corporation that has been privatized.
In some cases, this share gives the government some residual rights to protect the interests of the public by, for example, preventing the company selling off some categories of assets or appointing a special director who has strong powers in certain circumstances.

A golden share is not of itself indicative of control.
If, however, the powers covered by the golden share do confer on the government the ability to determine the general corporate policy of the entity in particular circumstances and those circumstances currently existed, then the entity should be in the public sector from the date in question.

The existence of a share purchase option available to a government unit or a public corporation in certain circumstances may also be similar in concept to the golden share arrangement discussed earlier.
It is necessary to consider whether, if the circumstance in which the option may be exercised exists, the volume of shares that may be purchased under the option and the con- sequences of such exercise mean that the government has “the ability to determine the general corporate policy of the entity” by exercising that option.
An entity’s status in general should be based on the government’s exist- ing ability to determine corporate policy exercised under normal conditions rather than in exceptional economic or other circumstances, such as wars, civil disorders, or natural disasters.

• Regulation and control—The borderline between regulation that applies to all entities within a class or industry group and the control of an individual corporation can be difﬁ cult to judge.
There are many examples of govern- ment involvement through regulation, particularly in areas such as monopolies and privatized utilities.

It is possible for regulatory involvement to exist in important areas, such as in price setting, without the entity ceding control of its general corporate policy.

Choosing to enter into or continue to operate in a highly regulated environment suggests that the entity is not subject to control.
When regulation is so tight as to effectively dictate how the entity performs its business, then it could be a form of control.

If an entity retains unilateral discretion as to whether it will take funding from, interact commercially with, or otherwise deal with a public sector entity, the entity has the ultimate ability to determine its own corporate policy and is not controlled by the public sector entity.
• Control by a dominant public sector customer or group of public sector customers—If all of the sales of a cor- poration are to a single public sector customer or a group of public sector customers, there is clear scope for dominant inﬂ uence.
The presence of a minority private sector customer and/or open competition from private producers to supply goods and services to the public sector usually implies an element of independent decision- making by the corporation so that the entity would not be considered controlled.

In general, if there is clear evidence that the corporation could not choose to deal with nonpublic sector clients because of the public sector inﬂ uence, then public control is implied.
• Control attached to borrowing from the government—Lenders often impose controls as conditions of making loans.

If the government imposed controls through lending or issuing guarantees that are more than would be typical when a healthy private sector entity borrows from a bank, control may be indicated.

Similarly, control may be implied if only the government was prepared to lend to the corporation.
Although a single indicator could be sufﬁ cient to establish control, in other cases, a number of separate indicators may collectively indicate control.

A decision based on the totality of all indicators must necessarily be judgmental in nature, but clearly similar judgments must be made in similar cases.
30 Government Finance Statistics Manual 2014 Types of public corporations 2.113 Public corporations are classifi ed as nonfi - nancial or fi nancial corporations, depending on the nature of their primary activity.

Public nonﬁ nancial corporations subsector 2.114 All resident nonfi nancial corporations con- trolled by general government units or other public corporations are part of the public nonfi nancial cor- porations subsector.
Nonfi nancial corporations are corporations whose principal activity is the produc- tion of market goods or nonfi nancial services.

Typical examples of public nonfi nancial corporations are na- tional airlines, national electricity companies, and na- tional railways, if those entities charge economically signifi cant prices.
Th is category could also include public nonprofi t institutions engaging in market pro- duction (such as hospitals, schools, or colleges) if they are separate institutional units and charge economi- cally signifi cant prices.

However, entities that receive fi nancial aid from government but are not controlled by government are not public corporations, but are classifi ed as private corporations or NPISHs.
Public ﬁ nancial corporations subsector 2.115 All resident fi nancial corporations con- trolled by general government units or other public corporations are part of the public fi nancial corpo- rations subsector.

Financial corporations are cor- porations that are principally engaged in providing fi nancial services, including insurance and pension fund services, to other institutional units (see para- graphs 2.53–2.57).
2.116 Th e fi nancial corporations subsector can further be divided into subsectors according to the fi nancial corporations’ activity in the market and the liquidity of its liabilities.32 However, for GFS purposes, the public fi nancial corporations subsector can broadly be grouped into public deposit-taking corporations (central bank and public deposit-taking corporations except the central bank) and other public fi nancial corporations.
Relative to other subsectors of the public sector, public fi nancial corporations may tend to have relatively large values of fi nancial assets and liabilities because of their role in fi nancial intermediation.

Ac- 32 See paragraphs 2.53–2.57, and in the 2008 SNA, paragraphs 4.98–4.116, for a detailed breakdown of these subsectors.

cordingly, separate data for public fi nancial corpora- tions may be useful in addition to the data consolidated with other components of the public sector.
Public deposit-taking corporations 2.117 Public deposit-taking corporations are fi nancial corporations controlled by general govern- ment units or other public corporations whose prin- cipal activity is fi nancial intermediation and who have liabilities in the form of deposits or fi nancial instru- ments that are close substitutes for deposits.

Two types of public deposit-taking corporations can be distinguished: the central bank and public deposit- taking corporations except the central bank.
The central bank 2.118 Th e central bank is the national fi nancial in- stitution that exercises control over key aspects of the fi nancial system.
In general, the following fi nancial intermediaries are classifi ed in this subsector: • Th e national central bank, including where it is part of a system of central banks33 • Currency boards or independent currency au- thorities that issue national currency that is fully backed by foreign exchange reserves • Central monetary agencies of essentially public origin (e.g., agencies managing foreign exchange or issuing banknotes and coins) that keep a com- plete set of accounts but are not classifi ed as part of central government.
2.119 As long as the central bank is a separate in- stitutional unit, it is always part of the fi nancial corpo- rations subsector, even if a case can be made that it is primarily a nonmarket producer.

While a central bank may have a high degree of operational independence, it is a public corporation.

Supervisory authorities that are mainly engaged in supervision of fi nancial units and are separate institutional units from the central bank are included with fi nancial auxiliaries.
Public deposit-taking corporations except the central bank 2.120 Public deposit-taking corporations except the central bank consist of all resident depository 33 In a currency union, in each member economy the monetary authority functions may be carried out by a national (resident) monetary authority (see paragraph 2.21).

corporations, except the central bank, that are con- trolled by general government units or other public cor- porations.
Examples are commercial banks, “universal” banks, “all purpose” banks, savings banks, post offi ce giro institutions,34 post banks, rural credit banks, agri- cultural credit banks, export-import banks, and special- ized banks if they take deposits or issue close substitutes for deposits.
Other public ﬁ nancial corporations 2.121 Other public fi nancial corporations com- prise all resident fi nancial corporations, except pub- lic deposit-taking corporations, controlled by general government units or other public corporations.

Th is subsector includes units that raise funds in fi nancial markets other than by deposits and use them to acquire fi nancial assets.
Examples of units in this subsector are money market funds, nonmoney market investment funds, insurance corporations, pension funds, and other fi nancial intermediaries (except insurance cor- porations and pension funds).

In addition, this subsec- tor includes fi nancial auxiliaries (including supervisory authorities that are separate institutional units), and captive fi nancial institutions and money lenders.
Other groupings of public sector units 2.122 When compiling statistics of public corpora- tions, various groupings—or subsectors of the public sector—may be desirable for analytical purposes.

Th e four groupings of public corporations as illustrated in Figure 2.2 will likely form the foundation from which other groupings can be created.
Other possible group- ings include: • Th e nonfi nancial public sector—Th e general government sector plus public nonfi nancial corporations • Th e general government sector plus the central bank • Th e central government public sector—Th e cen- tral government subsector plus public corpora- tions controlled by the central government.35 34 Giro institutions enable money to be transferred quickly and cheaply between accounts or between fi nancial institutions.
35 GFS for the central government public sector will be compara- ble to the consolidated fi nancial statements prepared in accor- dance with accounting standards for the central government in cases where central government does not control state and local governments.

Institutional Units and Sectors 31 2.123 Th e term “sovereign” is oft en used by fi nan- cial markets and fi scal analysts in the context of fi scal operations, borrowing, and debt.
Unlike groupings of the public sector described earlier, which are based on institutional units, “sovereign” is defi ned on a func- tional basis and may be used in varying ways.

To avoid confusion and, as a service to users, the presentation of “sovereign statistics” should indicate the institu- tional coverage of the statistics, and how this relates to the standard defi nitions of general government and/ or public sector statistics.
Decision Tree for Sector Classiﬁ cation of the Public Sector 2.124 Using the concepts of residence, institutional unit, control, and market versus nonmarket produc- ers, the decision tree presented in Figure 2.4 facili- tates the appropriate delineation of the public sector.

In order to determine which entities belong to the general government sector and which to the public corporations subsector, the decision tree should be followed, using sequential questions: • Is the entity a resident or a nonresident?
Data for nonresident entities are recorded in data for the rest of the world (see paragraph 2.7).

• Is the entity an institutional unit?

If it is resident but not an institutional unit, it is treated as an integral part of the institutional unit that controls it.

If it sat- isfi es the criteria to be an institutional unit, move on to the next decision point (see paragraph 2.22).

• Is the institutional unit controlled by gov- ernment or another public corporation?
The answer to this question will place the institu- tional unit in the public or private sector (see Boxes 2.1 and 2.2).

• Is the institutional unit a market or nonmarket producer?

Th e answer to this question will place the institutional unit in the general government sector or the public corporations subsector (see paragraphs 2.65–2.75).
• If the institutional unit is in the general govern- ment sector, could any market establishments that satisfy the criteria to be an institutional unit be identifi ed within the general government unit?

Such market establishments should be classifi ed as quasi-corporations in the public corporations subsector (see paragraphs 2.33–2.34).

32 Government Finance Statistics Manual 2014 Figure 2.4 Decision Tree for Sector Classiﬁ cation of Public Entities No No No No Is the entity a resident?
Yes Is the entity an institutional unit?

Yes Is the unit controlled by government?

Yes PUBLIC SECTOR UNIT Is the unit a market producer?

Yes REST OF THE WORLD But Is the entity a nonresident SPE of government?

Classify the entity as an integral part of the institutional unit that controls the entity.

HOUSEHOLDS, NPISH, or PRIVATE CORPORATION Classify the entity as a nonresident institutional unit and impute fiscal transactions of SPE in general government sector and rest of the world.
Is there a market establishment that meets the definition of an insti- tutional unit within the nonmarket producer?

No Is the unit a financial auxiliary?

Yes Yes No PUBLIC CORPORATION Classify the market Yes establishment as a quasi- corporation.

GENERAL GOVERNMENT No PUBLIC NONFINANCIAL CORPORATION Yes Does the unit produce financial services?
Yes PUBLIC FINANCIAL CORPORATION • Is the institutional unit providing fi nancial aux- iliary services, such as supervisory authorities of fi nancial intermediaries and fi nancial markets?

A positive answer to this question will place the institutional unit in the public fi nancial corpora- tions subsector (see paragraph 2.54).

• Is the public corporation involved in producing fi nancial services?
Th e answer to this question will place the institutional unit in the public fi - nancial or public nonfi nancial corporations sub- sector (see paragraphs 2.114–2.121).

Practical Application of Sector Classiﬁ cation Principles Identifying Quasi-corporations 2.125 Quasi-corporations (as defi ned in paragraph 2.33) satisfy the criteria to be separate institutional units and function as if they were corporations.
Th ey are treated in macroeconomic statistics as if they were corporations—that is, as institutional units separate from the units to which they legally belong.

Th us, quasi-corporations owned or controlled by govern- ment units are grouped with public corporations in the public nonfi nancial or public fi nancial corpora- tions sectors.
2.126 Th e existence of, or possibility to construct, a complete set of accounts, including balance sheets, for the enterprise is a necessary condition for the entity to be treated as a separate institutional unit.

Also, the government must grant management of the enterprise discretion to operate as if it were a separate corpora- tion.
In practice this should apply with respect to both the management of the production process and the use of funds, including maintaining their own work- ing balances and business credit, and being able to fi nance some or all of their capital formation out of their own saving, fi nancial assets, or borrowing.
Th e ability to distinguish fl ows of income and fi nance be- tween quasi-corporations and general government units implies that, in practice, their operating and fi nancing activities must be separable from govern- ment revenue or fi nancing statistics, despite the fact that they are not separate legal entities.
2.127 Entities such as national railways, port au- thorities, post offi ces, government publishing offi ces, public theaters, museums, swimming pools, hospi- tals, education centers, and other entities that provide Institutional Units and Sectors 33 goods and services on a market basis should be treated as public corporations if these units satisfy the criteria to be quasi-corporations.
Similar market producers that do not satisfy the requirements to be recognized as quasi-corporations are treated as market establish- ments integrated with the general government unit that controls them.

In cases where government pro- ducers of similar goods and services sell their prod- ucts at nonmarket prices, they remain a part of the nonmarket activities of general government.
Distinguishing Head Ofﬁ ces and Holding Companies 2.128 Large groups of corporations may be created whereby a parent corporation (or government in the case of public corporations) controls several subsid- iaries, some of which may control subsidiaries of their own.

Each individual corporation that satisfi es the criteria to be an institutional unit should be classifi ed as a separate institutional unit, regardless of whether it forms part of a group.
Th e parent corporation in such circumstances is oft en referred to as a holding company.

Th ere are two diff erent types of holding companies: • Th e fi rst type is the head offi ce that is actively en- gaged in production by exercising some aspects of managerial control over its subsidiaries.
Th is class of corporations includes overseeing and managing other units of the company or enter- prise; undertaking the strategic or organizational planning and decision-making role of the com- pany or enterprise; exercising operational con- trol; and managing the day-to-day operations of their related units.
Such units are allocated to the nonfi nancial corporations subsector un- less all or most of their subsidiaries are fi nancial corporations, in which case they are treated by convention as fi nancial auxiliaries in the fi nan- cial corporations sector.

• Th e second type is a unit that holds the assets of subsidiary corporations but does not under- take any management activities.
Th is class of corporations includes the activities of holding companies—that is, units that hold the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is to own the group.

Th e holding compa- nies in this case do not provide any other service to the enterprises in which the equity is held— 34 Government Finance Statistics Manual 2014 that is, they do not administer or manage other units.
Such units are allocated to the fi nancial corporations subsector and treated as captive fi nancial institutions even if all the subsidiary corporations are nonfi nancial.

However, these holding companies should be distinguished from artifi cial subsidiaries and restructuring agencies (see paragraphs 2.42 and 2.129, respectively).

Restructuring Agencies 2.129 Restructuring agencies are entities set up to sell corporations and other assets, and for the reor- ganization of companies.
Th ey may also serve for de- feasance of impaired assets or repayment of liabilities of insolvent entities, oft en in the context of a bank- ing crisis.

Th ese entities are known by various names, such as restructuring corporations, privatization ve- hicles, asset management companies, liquidation cor- porations, bridge banks, or bad banks.

2.130 Some institutional units specialize in the re- structuring of corporations, either nonfi nancial or fi nancial.
Th ese corporations may or may not be con- trolled by government.

Restructuring agencies may be long-standing or created for this special purpose.

Gov- ernments may fund the restructuring operations in various ways, either directly, through capital injections (capital transfer, loan, or acquisition of equity), or indi- rectly, through granting guarantees.

If the restructuring agency is controlled by government or another public corporation, it is classifi ed in the public sector (see Box 2.2).
Whether a restructuring unit is part of the general government sector or is a public corporation is determined by whether it is a market or nonmar- ket producer.

Given that the economically signifi cant price criteria may be insuffi cient for this purpose, the following general criteria should be considered:36 • A unit that serves only government, or primarily government, is more likely to be included as a non- market producer within the general government sector than one that serves other units as well.
• A unit that sells or buys fi nancial assets at a value other than market values is more likely to be in the general government sector than not.

• A unit that takes on low risks because it acts with strong public fi nancial support and, by law or ef- fectively, on behalf of the government, is likely to be included within the general government sector.
2.131 Th e following are two frequently observed examples that provide further guidance in the classifi - cation of restructuring agencies: • A restructuring agency may undertake the reor- ganization of public or private sector entities or the indirect management of privatization.
Two cases may be considered:  Th e restructuring unit is a genuine holding company controlling and managing a group of subsidiaries, and only a minor part of its activity is dedicated to channeling funds from one subsidiary to another on behalf of the gov- ernment and for public policy purposes.
Th is unit is more likely to be a market producer and classifi ed as a fi nancial corporation, and the transactions made on behalf of the government rerouted through the general government unit using the service provided.37  Th e restructuring unit, whatever its legal sta- tus, acts as a direct agent of the government and is not a market producer.

Its main function is to redistribute national income and wealth, channeling funds from one unit to the other.
Th e restructuring unit should be classifi ed in the general government sector.

• Another example of a restructuring agency is one mainly concerned with impaired assets, mainly in the context of a banking or other fi nancial cri- sis.

Such a restructuring agency must be analyzed according to the degree of risk it assumes, con- sidering the degree of fi nancing provided by the government.
Again, two cases may be considered:  Th e restructuring agency borrows on the mar- ket at its own risk to acquire fi nancial or non- fi nancial assets that it actively manages.

In this case the unit is more likely to be a market pro- ducer and classifi ed as a fi nancial corporation.

 Th e restructuring agency deliberately purchases assets at above-market prices with direct or indi- rect fi nancial support from the government.
It is primarily engaged in the redistribution of national income (and wealth), does not act independently 36 Th is is because restructuring units have, by nature, little output.

37 Rerouting is described in paragraph 3.28. of government or place itself at risk, and therefore is not a market producer and should be classifi ed in the general government sector.
Financial Protection Schemes 2.132 Th e fi nancial infrastructure of an economy may include fi nancial protection schemes to pro- tect the assets of fi nancial institutions’ clients.

Th ese schemes are oft en referred to as deposit guarantee schemes or deposit insurance schemes.

Th e main types of schemes provide protection of deposits or protect policyholders against failing life and nonlife insurance schemes.
Th ese entities are known by vari- ous names, but to determine their sector classifi cation, the nature of their activities should be considered on a case-by-case basis.

2.133 A fi nancial protection scheme is classifi ed as part of the general government, a public fi nancial corporation, or a private fi nancial corporation outside the public sector according to the same sectorization principles that apply to any other entity, as described earlier in this chapter (see paragraph 2.124).
2.134 A resident fi nancial protection scheme may or may not satisfy the criteria to be an institutional unit.

If it is not an institutional unit, it is treated as an integral part of the institutional unit that controls it.

2.135 If the fees are set by government, or when the government or a public corporation has control over the fi nancial protection scheme through other means, the scheme is to be included in the public sec- tor.
Th e following criteria should be considered in de- termining whether the scheme is part of the general government sector: • If fees payable to government for such a protec- tion scheme are compulsory—that is, if benefi cia- ries cannot opt out of the scheme—the scheme is to be included in general government sector (see paragraph 5.74).
• If fees payable to government are clearly out of proportion to the service provided (fees are not determined based on the associated risks cov- ered), the scheme is to be included in general government sector (see paragraph 5.74).

• If fees payable to government are not set aside in a fund, or can be used for other purposes, the scheme is to be included in general government sector.
Institutional Units and Sectors 35 • If the fees are proportional to the cost of the ser- vice provided, and the scheme is an institutional unit, it is classifi ed as an insurance corporation; operating a fund that functions on insurance rules may indicate proportionality and the exis- tence of a standardized guarantee scheme.
Special Purpose Entities 2.136 While there is no internationally agreed- upon defi nition of an SPE, some typical features are that it has little physical presence, is related to another corporation or government, and is oft en resident in a territory other than the territory of residence of its parent unit.38 2.137 Governments may set up SPEs for fi nan- cial convenience.

For example, the SPE may be in- volved in fi scal or quasi-fi scal activities (including securitization of assets, borrowing, etc.).
Resident39 SPEs that function only in a passive manner relative to general government and that carry out fi scal and quasi-fi scal activities do not satisfy the criteria to be institutional units and are therefore not treated as separate institutional units in macroeconomic statistics; they are treated as part of general govern- ment regardless of their legal status.
Resident SPEs acting independently, acquiring assets and incurring liabilities on their own behalf, accepting the associ- ated risk, are treated as separate institutional units and are classifi ed to a sector according to their prin- cipal activity.

2.138 SPEs that are resident in a diff erent country than their controlling government are always clas- sifi ed as separate institutional units in the economy where they are established.
When such entities exist, care must be taken to refl ect the fi scal activities of government accurately.

All fl ows and stock positions between the general government unit and the non- resident SPE should be recorded in the accounts for general government and the rest of the world when they occur.40 2.139 A government may create a nonresident SPE to undertake government borrowing or incur 38 SPEs are also discussed in the 2008 SNA, paragraphs 4.55–4.58.
39 For a defi nition of resident and nonresident units, see para- graphs 2.6–2.15.

40 Examples of these imputations are described in the PSDS Guide, Box 4.12.

36 Government Finance Statistics Manual 2014 government outlays abroad for fi scal purposes.
Even if there are no actual economic fl ows recorded be- tween the government and the SPE related to these fi scal activities, fl ows and stock positions should be imputed in the accounts of both the government and the rest of the world to refl ect the fi scal activities of the government undertaken by the SPE.
Joint Ventures 2.140 Many public sector units enter into arrange- ments with private entities (e.g., a public-private part- nership) or other public sector units to undertake a variety of activities jointly.

Th e joint venture could be a market or nonmarket producer.

Joint operations can be structured broadly as one of three types: jointly controlled units, referred to here as joint ventures; jointly controlled operations; and jointly controlled assets.
2.141 A joint venture involves the establishment of a corporation, partnership, or other institutional unit in which, legally, each party has joint control over the activities of the joint venture unit.

Th e joint venture unit operates in the same way as other units except that a legal arrangement between the parties establishes joint control over the unit.

As an institu- tional unit, the joint venture may enter into contracts in its own name and raise fi nance for its own pur- poses.
Such a joint venture maintains its own account- ing records.

2.142 Th e participants to a joint venture may be public sector and/or private sector units.

To properly decide the sector classifi cation of the joint venture in macroeconomic statistics, it must be determined which unit has economic control of the joint venture.
Given the nature of a joint venture (created legally with joint control), the principal question to be considered here is whether the eff ective economic control of the joint venture establishes a public or a private unit: • If a joint venture operates as a nonmarket pro- ducer, then government is in eff ective control and it is classifi ed as part of the general govern- ment sector.
• If the joint venture is a market producer, it is treated as a public or private corporation accord- ing to whether it is controlled by a government unit.

Normally, the percentage of ownership will be suffi cient to determine control.

If the public and private units own an equal percentage of the joint venture, the other indicators of control must be considered (see Box 2.2).

2.143 Joint operating arrangements can be in the form of jointly controlled operations or jointly con- trolled assets.
When public sector units enter into joint operating arrangements without establishing separate institutional units, there are no units requiring clas- sifi cation; however, the recording should refl ect the proper economic ownership of assets.

Also, any shar- ing arrangements of revenue and expense should be recorded in accordance with their economic nature as determined by the provisions of the governing con- tract.
For example, two units may agree to be responsi- ble for diff erent stages of a joint production process or one unit may own an asset or a complex of related as- sets, but both units agree to share revenue and expense.

Sinking Funds 2.144 A sinking fund is a separate account, which may, or may not be an institutional unit.

A sinking fund is made up of segregated contributions provided by the unit(s) that makes use of the fund (the “par- ent” unit) for the gradual redemption of the parent unit’s debt.
A sinking fund may also be established to provide for major repairs or replacements.

Aside from eventually extinguishing all government debt in a prudent and orderly manner, sinking funds may be meant to inspire confi dence, supporting the market for government securities.

2.145 Public sector sinking funds are classifi ed to sectors according to whether they are separate insti- tutional units41 and, if so, whether they provide their services at economically signifi cant prices.
• Sinking funds that are separate institutional units and provide services as market producers are classifi ed as public fi nancial corporations.

• Sinking funds that are separate institutional units and provide services as nonmarket producers are classifi ed as general government units.

In partic- ular, such sinking funds will be classifi ed as ex- trabudgetary units of the unit that controls them (e.g., central government).
• Sinking funds that are not separate institutional units are classifi ed with the unit that controls them (i.e., the “parent” unit).

41 An institutional unit is defi ned in paragraph 2.22.

2.146 A variety of practices exist among sinking funds as to both their operation and the degree of con- trol exercised by the “parent” unit (such as government): • Some sinking funds retire or purchase only the parent unit’s securities for which they are estab- lished.
Such sinking funds are normally not sepa- rate institutional units and are classifi ed with the unit that controls them.

• Some sinking funds may have been assigned other responsibilities, such as the conduct of government lending programs or even the col- lection of earmarked taxes.

Such sinking funds are normally not separate institutional units and are classifi ed with the unit that controls them.
• Other sinking funds may purchase and sell secu- rities of other governments or institutions—do- mestic or external debtors and creditors—usually seeking securities that have similar maturity dates.

Such sinking funds may well be institu- tional units providing services on a market basis and are classifi ed as public fi nancial corporations.

Pension Schemes 2.147 Th e means by which pensions are provided to persons in retirement varies from country to country.
Various types of pensions are provided by public sector units to individuals via social assistance, social security schemes, and employment-related schemes other than social security.

Due to the complexities involved in the classifi cation and sectorization of these arrangements, a detailed discussion is provided in Appendix 2.

Provident Funds 2.148 Provident funds are compulsory saving schemes that maintain the integrity of the contribu- tions for individual participants.
Some governments create provident funds rather than providing so- cial insurance benefi ts.

Under provident fund ar- rangements, the compulsory contributions of each participant and of their employer on behalf of each participant are kept in a separate account and could be withdrawn under specifi ed circumstances, such as retirement, unemployment, invalidity, and death.

Th ese contributions are then managed and invested to obtain a return for each participant.
2.149 Th e establishment of a provident fund raises the issue of whether this fund is classifi ed as a social security scheme elsewhere in the general government, Institutional Units and Sectors 37 as a public corporation, or outside the public sector.

Provident fund arrangements as defi ned in the pre- ceding paragraph are diff erent from social security schemes insofar as for each contributor segregated as- sets exist and it is not foreseen for government to be able to alter the benefi ts.
Th ese provident funds thus are excluded from social security schemes.

2.150 Th e classifi cation of a provident fund con- trolled by government in the general government sec- tor or fi nancial corporations subsector is determined by the same sectorization principles that apply to any other entity, as described earlier in this chapter: • A resident provident fund controlled by gov- ernment that satisfi es the defi nition of an in- stitutional unit is classifi ed as a public fi nancial corporation.
Individual contributions determine individual benefi ts, and the entity is involved in fi nancial intermediation by pooling the contri- butions from many households and investing them on their behalf similar to the case of invest- ment funds and defi ned-contribution pension funds (see paragraphs 2.53–2.54).

Th erefore, these units are classifi ed in the public fi nancial corporations subsector as market producers.
• A resident provident fund controlled by govern- ment that does not satisfy the criteria to be an in- stitutional unit is classifi ed with the government unit that controls it.

2.151 It is possible that a provident fund may be established in such a way that it includes aspects of a social security scheme (social insurance) as well as aspects of a compulsory saving scheme.
In such cases, the fund would be classifi ed according to the scheme that predominates while still applying the sectoriza- tion principles outlined in this chapter.
Sovereign Wealth Funds 2.152 Some governments create special purpose government funds, usually called sovereign wealth funds (SWFs).42 Created and owned by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve fi nan- cial objectives, and employ a set of investment strate- gies that include investing in foreign fi nancial assets.
Th e funds are commonly established out of balance of 42 While these funds may have various names, this section refers to them as “sovereign wealth funds” for ease of reference.

38 Government Finance Statistics Manual 2014 payments surpluses, offi cial foreign currency opera- tions, the proceeds of privatization, fi scal surpluses, and/or receipts resulting from commodity exports.
2.153 Th e establishment of an SWF raises the issue of whether this fund is classifi ed as part of the general government, as a public corporation, or outside the public sector.

Th e classifi cation of a sovereign wealth fund controlled by government in the general govern- ment sector or fi nancial corporations subsectors is determined by the same sectorization principles that apply to any other entity, as described earlier in this chapter (see paragraph 2.124).
2.154 A resident SWF controlled by government may, or may not satisfy the defi nition of an institu- tional unit: • If the SWF is not an institutional unit, it is classi- fi ed with the unit that controls it.
• If the resident SWF is an institutional unit, it is classifi ed as:  A public fi nancial corporation if it is providing fi nancial services on a market basis  A general government unit (an extrabudgetary fund or social security fund43) if it satisfi es the defi nition of a government unit (see paragraph 2.38) and is simply a passive holder of assets and liabilities (see paragraph 2.42).
2.155 If the SWF is an entity incorporated abroad or quasi-corporation located abroad, it is classifi ed as a separate institutional unit in the fi nancial corporations subsector of the economy in which the entity is legally constituted, or in the absence of legal incorporation, is legally domiciled.

In such circumstances, all general government transactions and stock positions with the SWF should be refl ected in the general government account with the rest of the world as the counterparty.
Market Regulatory Agencies 2.156 Market regulatory agencies act on behalf of a government (or a regional organization with govern- ments as its members), and infl uence the market for specifi c goods or services directly and/or indirectly.
Th ese agencies may infl uence the market directly by acting as buyers and sellers of the goods or services and may infl uence the market indirectly through 43 SWFs that hold and manage wealth designated to provide social benefi ts will be included in social security funds.

regulations, rulings, compliance laws, or standards, to impact the production, price, and marketing of spe- cifi c products.
Th e regulations may cover the terms and conditions of supplying the goods and services and in particular the price allowed to be charged and/ or to whom the goods and services are distributed.

It is most common for a regulatory agency to control ag- ricultural products, monopolistic markets, or, in some cases, natural resources.

2.157 Th e nature of these market regulatory agen- cies may diff er.
Th e nature of each agency should be investigated to decide the sector classifi cation ac- cording to sectorization principles.

At one end of the spectrum, some agencies are merely distributing subsidies, while others may have an administrative, advisory, standard or price setting, or collective ad- vertising function.

At the other end of the spectrum, the agency may have total control over all aspects of the production and distribution process, including being the only legal buyer/seller of the products.
2.158 Following the residence principle, those market regulatory agencies that meet the defi nition of an international or regional organization are not included in the statistics of the individual member countries, but their activities should be refl ected in regional data (see Appendix 5).

By convention, fi nan- cial regulatory (supervisory) bodies are considered as fi nancial corporations, specifi cally as fi nancial auxil- iaries when they are separate institutional units.
For those resident market regulatory agencies involved with nonfi nancial goods and services, the following guidance applies: • Th ose agencies that do not satisfy the criteria to be an institutional unit remain an integral part of the general government unit that con- trols them.

Th is would usually be the case for those agencies exclusively or principally in- volved in the distribution of subsidies on behalf of government.
• Th ose agencies that satisfy the criteria to be insti- tutional units, and that are mainly nonmarket pro- ducers, such as performing some administrative functions, setting standards, or overseeing and regulating the production process, should be clas- sifi ed in the general government sector.

Although the agency may have active participation of members from the market it serves, government control is established by the enabling instruments and nonmarket nature of these entities.
• Th ose agencies that satisfy the criteria to be an institutional unit and that are mainly a market producer should be classifi ed in the nonfi nancial corporations subsector.

Th ese market regulatory agencies’ sole or principal activity is to buy, hold, and sell the goods or services at economically signifi cant prices.
2.159 Where market regulatory agencies are in- volved in a mixture of activities, such as distributing subsidies and buying, holding, and selling goods and services, the sector classifi cation may require careful consideration.

If it is possible to separately identify a quasi-corporation that is undertaking market activi- ties, it should be classifi ed in the nonfi nancial corpo- rations subsector.

Th e nonmarket activities should be classifi ed in the general government sector.
If it is not possible to distinguish two institutional units, the ma- jority of the activities of the entity should determine the sector classifi cation.

Development Funds and/or Infrastructure Companies or Entities 2.160 Some governments create special entities/funds to fi nance and develop the economy in general, develop specifi c sectors of the economy, or upgrade specifi c fa- cilities, such as infrastructure.
Th ese types of agencies/ funds may be involved in various aspects of develop- ment, ranging from only providing the fi nances for de- velopment activities to being involved in all aspects of the actual development and construction of the infrastruc- ture or facilities.

Various terms, such as “development banks,” “investment funds,” “fi scal stabilization funds,” or “infrastructure companies,” are used to describe these agencies.
Whatever they are called, the sector classifi ca- tion should be based not on their description but rather on the economic nature of the entities.

2.161 Using the usual criteria (see paragraph 2.22), compilers should determine whether the en- tity is a separate institutional unit in the public sec- tor, or whether it is not an institutional unit and should be classifi ed as an integral part of the unit that controls it.
Institutional Units and Sectors 39 2.162 Th ese entities may be established in the legal form of a corporation, but it is necessary to decide whether to classify them as institutional units.

Th e fi - nancing arrangements of these entities usually involve the issuance of debt instruments, but could also in- clude some other sources of fi nancing.
Th e customers that they serve, the fi nancing arrangements, and the economic ownership of the assets created by these en- tities could oft en be indicative of the risks assumed by these entities, and could help to determine their status as an institutional unit.

Th e following guidance applies: • If the entity cannot act independently from its parent and is a passive holder of assets and liabili- ties, it is an artifi cial subsidiary.
If it is a resident unit, it is classifi ed as a component of the level of government that controls it (i.e., as part of the parent unit).

Th ese entities are not treated as sep- arate institutional units, unless they are resident in an economy diff erent from that of their parent unit (see paragraphs 2.6–2.15).
• If the entity borrows on the market and then lends only to general government units, it is not involved in fi nancial intermediation and should be regarded as a resident artifi cial subsidiary (see paragraphs 2.42–2.44).

• If government assumes economic ownership of the nonfi nancial assets created, it is an indication that the development fund is just a device to bor- row and acquire the assets, and the entity should be treated as a resident artifi cial subsidiary.
• If these entities meet the defi nition of an insti- tutional unit (see paragraph 2.22) and are gov- ernment-controlled market producers of goods or services, they should be classifi ed as a cor- poration.
More specifi cally, they will be a public fi nancial corporation only if they are involved in providing fi nancial services (see paragraph 2.53).44 Th ey will be public nonfi nancial corpora- tions only if they produce and sell the infrastruc- ture assets at economically signifi cant prices in market transactions.
44 Providing concessionary loans does not necessarily mean that an institutional unit is not a market producer (e.g., some develop- ment banks are providing concessionary loans but are still consid- ered fi nancial intermediaries).

3 Economic Flows, Stock Positions, and Accounting Rules Th is chapter describes the economic fl ows and stock po- sitions of the government fi nance statistics framework and the accounting rules used to determine all aspects of their recording.
Introduction 3.1 Entries recorded in GFS are either economic fl ows or stock positions.1 Flows are monetary expres- sions of economic actions and eff ects of events that re- sult in changes in economic value within a reporting period.

Stock positions measure economic value at a point in time.

More specifi cally, stock positions refer to a unit’s holdings of assets and liabilities at a specifi c time and the unit’s resulting net worth, equal to total assets minus total liabilities.
3.2 Th e fl ows and stock positions recorded in the GFS framework are integrated, which means that all changes in stock positions can be fully explained by the fl ows.

In other words, the following relationship is valid for each stock position: S0 + F = S1 where S0 and S1 represent the values of a specifi c stock position at the beginning and end of a reporting pe- riod, respectively, and F represents the net value of all fl ows during the period that aff ected that particular stock.
More generally, the value of any stock position held by a unit at a given time is the cumulative value of all fl ows aff ecting that stock position that have oc- curred since the unit fi rst acquired the particular type of asset or liability.

3.3 Th e GFS framework includes a great diversity of economic fl ows.

Th is chapter fi rst describes sev- eral important characteristics of economic fl ows that underlie their classifi cation and treatment.
It then de- scribes in a general way the accounting rules used for recording these fl ows and stock positions in GFS.

De- scriptions of specifi c categories of fl ows and stock po- sitions and the application of the general rules to their recording are discussed in Chapters 5 through 10.
Economic Flows 3.4 Economic fl ows refl ect the creation, transfor- mation, exchange, transfer, or extinction of economic value; they involve changes in the volume, compo- sition, or value of a unit’s assets, liabilities, and net worth.

A fl ow can be a single event, such as the pur- chase of goods, or the cumulative value of a set of events occurring during a reporting period, such as the continuous accrual of interest expense on a gov- ernment bond.
All fl ows are classifi ed as transactions or as other economic fl ows.

Th e following sections de- scribe these two types of economic fl ows.
Transactions 3.5 A transaction is an economic fl ow that is an in- teraction between institutional units by mutual agree- ment or through the operation of the law, or an action within an institutional unit that is analytically useful to treat like a transaction, oft en because the unit is operating in two diff erent capacities.2 Th is defi nition of a transaction stipulates that an interaction between institutional units occurs by mutual agreement.
Mu- tual agreement means that there was prior knowledge and consent by the units, but it does not mean that both units entered into the transaction voluntarily.

Some transactions, such as the payment of taxes, are imposed by force of law.
Although individual units are not free to determine the amount of taxes they pay, 1 In macroeconomic statistics, the term “fl ows” will oft en be used as a short form for “economic fl ows,” and “stocks” will oft en be used as a short form for “stock positions.” 2 For example, consumption of fi xed capital (23) and the use of inventories in the production of goods and services (22) (see para- graphs 6.27 and 6.53, respectively).
Economic Flows, Stock Positions, and Accounting Rules 41 there is collective recognition and acceptance by the community of the obligation to pay taxes.

Th us, pay- ments of taxes are considered transactions despite being compulsory.

Similarly, the actions necessary to comply with judicial or administrative decisions may not be undertaken voluntarily, but they are taken with prior knowledge and consent of the parties involved.
3.6 Th e treatment of some activities in GFS takes a diff erent perspective from the treatment of the same activities in the 2008 SNA.

GFS is focused on the impact of economic events on the fi nances of government.

In contrast, the 2008 SNA is focused on measuring production, consumption, distribution of income, and investment.

Appendix 7 contains a com- plete description of the implications of these diff erent perspectives.
Despite diff erent treatments of some ac- tivities, both frameworks include all fl ows that change stock positions so that all changes in the balance sheet can be explained by the fl ows.

3.7 Transactions may take on many diff erent forms.

In GFS, all transactions are classifi ed according to their economic nature, while transactions in expen- diture are also classifi ed according to their functions (see Chapters 5, 6, 8, and the annex to Chapter 6).
To give more precision to the classifi cation of transac- tions, the characteristics of transactions have to be systematically described.

Monetary transactions 3.8 A monetary transaction is one in which one institutional unit makes a payment (receives a pay- ment) or incurs a liability (acquires an asset) to (from) another institutional unit stated in units of currency.
In GFS, all fl ows are recorded in monetary terms, but the distinguishing characteristic of a monetary trans- action is that the parties to the transaction express their agreement in monetary terms.

For example, goods or services are usually purchased or sold at a given number of units of currency per unit of the good or service, social security benefi ts are oft en pay- able in fi xed amounts of currency, and taxes receiv- able are measured and payable in units of currency.
All monetary transactions are interactions between two institutional units, recorded as either an exchange or a transfer.

3.9 An exchange is a transaction in which one unit provides a good, service, asset, or labor to a second unit and receives a good, service, asset, or labor of the same value in return.3 Compensation of employees, purchases of goods and services, the incurrence of in- terest expense, and the sale of an offi ce building are all exchanges.
3.10 A transfer is a transaction in which one insti- tutional unit provides a good, service, or asset to an- other unit without receiving from the latter any good, service, or asset in return as a direct counterpart.

Th is kind of transaction is also referred to as being unre- quited, a “something for nothing” transaction, or a transaction without a quid pro quo.

Transfers can also arise where the value provided in return for an item is not economically signifi cant or is much below its value.
Typically, general government units engage in a large number of transfers, which may be compulsory or voluntary.

Taxes and most social security contri- butions are compulsory transfers imposed by gov- ernment units on other units.

Subsidies, grants, and social assistance benefi ts are transfers from general government units to other units.
Public corporations are, to a lesser extent, involved in transfers—they may receive subsidies or capital transfers from government and may also be involved in transfers payable result- ing from their quasi-fi scal activities.

3.11 Some transactions appear to be exchanges but are actually combinations of an exchange and a transfer.

In such cases, the actual transaction should be partitioned and recorded as two transactions, one that is only an exchange and one that is only a trans- fer.
For example, a general government unit might sell an asset at a price that is clearly less than the market value of the asset, or may buy an asset at a price that is clearly above the market value of the asset.
Th e trans- action should be divided into an exchange at the as- set’s market value and a transfer equal in value to the diff erence between the actual transaction value and the market value (see paragraph 3.107) of the asset.4 3.12 Exchange transactions do not include entitle- ments to collective services or benefi ts—these are 3 Th e term “provides a good, service, asset .

.
.

.” is meant to include one unit allowing a second unit to use an asset owned by the fi rst unit or a change in the ownership of an asset.

Interest and other property income transactions are exchanges because they are receivable by a unit in return for putting assets at the disposal of another unit.

4 See paragraph 3.29 for a general statement on partitioning of transactions.

42 Government Finance Statistics Manual 2014 considered transfers.
Th e amount of collective service or benefi t that may eventually be receivable by an indi- vidual unit is not proportional to the amount payable.

Taxes and nonlife insurance premiums are examples of such transactions classifi ed as transfers due to the collective nature of the benefi ts (see paragraphs 5.23 and 5.149, respectively).
3.13 Taxes are treated as transfers even though the units making these payments may receive some ben- efi ts from services provided by the government unit receiving the taxes.

For example, in principle, no one can be excluded from sharing in the benefi ts provided by collective services such as public safety.

In addi- tion, a taxpayer may even be able to consume certain individual services provided by government units.
However, it is usually not possible to identify a direct link between the tax payments and the benefi ts re- ceived by individual units.

Moreover, the value of the services received by a unit usually bears no relation to the amount of the taxes payable by the same unit.

3.14 Nonlife insurance premiums and claims are also treated as transfers in GFS.5 Th is type of premium entitles the units making the payment to benefi ts only if one of the events specifi ed in the insurance contract occurs.
Th at is, one unit pays a second unit for accept- ing the risk that a specifi ed event may occur to the fi rst unit.

Th ese transactions are considered transfers6 because in the nature of the insurance business, they distribute income between policyholders to those who claim, as opposed to all policyholders who contribute.
Th ere is uncertainty whether the contributing unit will receive any benefi ts and, if it does receive benefi ts, they may bear no relation to the amount of the premi- ums previously paid.

Nonlife insurance includes so- cial security schemes and employer social insurance schemes for government employees that do not pro- vide retirement benefi ts.
Th us, social security contri- butions receivable and social security benefi ts payable by government units, which are not for employment- related pensions, are treated as transfers in GFS.

3.15 Transfers may be either current or capital.

To distinguish current transfers from capital transfers, it 5 Th e prepayment of a premium is the acquisition of a fi nancial asset by the insured (see paragraph A4.76), which reduces as insurance coverage is provided.
6 In the 2008 SNA, nonlife insurance premiums are partitioned into a sale of a service and a transfer.

In GFS, the entire premium is considered a transfer (see paragraph 5.149).

is preferable to focus on the special characteristics of capital transfers.
3.16 Capital transfers are transfers in which the ownership of an asset (other than cash or invento- ries) changes from one party to another, or that oblige one or both parties to acquire or dispose of an asset (other than cash or inventories), or where a liability is forgiven by the creditor.

Cash transfers involving dis- posals of noncash assets (other than inventories) or acquisition of noncash assets (other than inventories) are also capital transfers.
A capital transfer results in a commensurate change in the stock position of as- sets of one or both parties to the transaction.

Capital transfers are typically large and infrequent, but capi- tal transfers cannot be defi ned in terms of size or fre- quency.
A transfer in kind without a charge is a capital transfer when it consists of: the transfer of ownership of a nonfi nancial asset (other than inventories); and the forgiveness of a liability by a creditor when no cor- responding value is received in return.

Major nonre- current payments in compensation for accumulated losses or extensive damages or serious injuries not covered by insurance policies are also capital transfers.
A transfer of cash is a capital transfer when it is linked to, or conditional on, the acquisition or disposal of an asset by one or both parties to the transaction.

3.17 Current transfers consist of all transfers that are not capital transfers.

Current transfers directly aff ect the level of disposable income and infl uence the con- sumption of goods or services.
Th at is, current transfers reduce the income and consumption possibilities of the donor and increase the income and consumption pos- sibilities of the recipient.

For example, social benefi ts, subsidies, and food aid are current transfers.

3.18 It is possible that some cash transfers may be regarded as capital by one party to the transaction and as current by the other party.
So that a donor and a re- cipient do not treat the same transaction diff erently, a transfer should be classifi ed as capital for both parties even if it involves the acquisition or disposal of an asset, or assets, by only one of the parties.

When there is doubt about whether a transfer should be treated as current or capital, it should be treated as a current transfer.

Nonmonetary transactions 3.19 Nonmonetary transactions are transactions that are not initially stated in units of currency.
Th ese Economic Flows, Stock Positions, and Accounting Rules 43 include all transactions that do not involve any cash fl ows, such as barter, in-kind transactions, and cer- tain internal transactions.

Th ey must be assigned a monetary value as GFS record fl ows and stock posi- tions expressed in monetary terms.

Th e entries there- fore represent values that are indirectly measured or otherwise estimated.
Th e values assigned to nonmon- etary transactions have a diff erent economic implica- tion than do monetary payments of the same amount, as they are not freely disposable sums of money.

Nev- ertheless, to have a comprehensive and integrated set of accounts, it is necessary to assign the best estimate of market values to the items involved in nonmon- etary transactions.
3.20 Nonmonetary transactions can be either two- party transactions or actions within an institutional unit that are used to construct an internal transaction.

Two-party nonmonetary transactions 3.21 Th ese nonmonetary transactions can be ex- changes or transfers.

Barter, remuneration in kind, and other payments in kind are nonmonetary ex- changes.

Transfers in kind are nonmonetary transfers.

3.22 In a barter transaction, two units exchange goods, services, or assets other than cash of equal value.
For example, a government unit may agree to trade a parcel of land in an industrial area to a private corporation for a diff erent parcel of land that the gov- ernment will use as a national park.

Between nations, governments may trade strategic natural resources for another kind of product or service.

3.23 Remuneration in kind occurs when an em- ployee is compensated with goods, services, or as- sets other than money.
Types of compensation that employers commonly provide without charge or at reduced prices to their employees include meals and drinks, uniforms, housing services, transporta- tion services, and child care services (see paragraph 6.17–6.18).

3.24 Payments in kind other than remuneration in kind occur when any of a wide variety of payments is made in the form of goods and services rather than money.
A payment to settle a liability can be made in the form of goods, services, or noncash assets rather than money.

For example, a government unit may agree to settle a claim for past-due taxes if the tax- payer transfers ownership of land or fi xed assets to the government, or inheritance taxes may be payable by making donations of paintings or other valuables to government.

3.25 Transfers in kind may be used to increase effi ciency, or to insure that the intended goods and services are consumed.
For example, aid aft er a natu- ral disaster may be delivered faster and be more ef- fective if it is provided in the form of medicine, food, and shelter instead of money.

Also, a general govern- ment unit might provide medical and educational services in kind to ensure that the need for those services is met.

Internal transactions 3.26 Internal or intra-unit transactions take place when a single unit acts in two diff erent capacities, and it is analytically useful to record this act as a transaction.
Th e choice of which internal actions to treat as transactions is subjective to the purpose of recording these actions.

GFS follows the 2008 SNA by treating consumption of fi xed capital as an internal transaction to allow the calculation of the operating costs of government.
Similarly, the transfer of materi- als and supplies from inventories to use of goods and services and other internal changes in inventories are treated as internal transactions (see paragraph 8.46–8.47).7 Rearrangements of some transactions 3.27 Some transactions are not recorded in the form in which they appear to take place.

Instead, they are modifi ed in macroeconomic statistics to bring out their underlying economic relationships more clearly.
Th ere are three kinds of rearrangements employed in GFS: rerouting, partitioning, and reassignment.

Rerouting 3.28 Rerouting records a transaction as taking place through channels that diff er from the actual ones, or as taking place in an economic sense when no actual transactions take place.

Rerouting is oft en re- quired when a unit that is a party to a transaction does not appear in the actual accounting records because of 7 Internal transactions are described in the 2008 SNA, para- graphs 3.85–3.90.
GFS does not record all the internal transac- tions that relate to production processes.

44 Government Finance Statistics Manual 2014 administrative arrangements.

Two kinds of rerouting occur: • In the fi rst kind of rerouting, a direct transaction be- tween unit A and unit C is recorded as taking place indirectly through a third unit B.
For example, if gov- ernment employees are enrolled in a social security or retirement scheme, accounting records may show the government unit making contributions directly to the social security fund or retirement scheme on behalf of its employees.

However, these contribu- tions are part of the compensation of employees and should be recorded as being paid to the employee.
In such a case, it is necessary to reroute the pay- ments so that the government is seen as paying the employees, who then are deemed to make payments of the same amount to the social security or retire- ment scheme (see paragraph 6.19).

As a result of the rerouting, these contributions are included as part of the labor cost of government.

Rerouting may also be necessary when recording the distribution of profi ts of fi scal monopolies (see paragraph 5.68).
• In the second kind of rerouting, a transaction of one kind from unit A to unit B is recorded with a matching transaction of a diff erent kind from unit B to unit A.
For example, when a nonresident spe- cial purpose entity (SPE) of government borrows abroad for fi scal purposes, transactions should be imputed in the accounts of both the government and the nonresident SPE as if the SPE has extended a loan to government and government has invested the corresponding amount in the SPE (see para- graphs 2.136–2.139).
Th is rearrangement of the transactions refl ects government’s involvement in the nonresident SPE, which would otherwise not be captured in government accounts.

Partitioning 3.29 Partitioning records a transaction that is a single transaction from the perspective of the parties involved as two or more diff erently classifi ed transac- tions.
For example, when a general government unit acquires an asset below or above its current market price, the division of the actual transaction into an exchange and a transfer is an example of partitioning (see paragraph 3.11).

Reassignment required when one unit arranges for a transaction to be carried out between two other units, generally in return for a fee from one or both parties to the transaction.

In this case, one unit acts as an agent for another unit.
In such a case, the transaction is recorded exclusively in the accounts of the two parties engaging in the transaction and not in the accounts of the third party facilitating the transaction.

Th e accounts of the agent show only the fee charged for the facilitation services rendered.

For exam- ple, reassignment may occur when one government unit collects taxes and then transfers some or all of the taxes to another government unit.
In some arrangements of this nature, the collecting unit retains a small portion of the tax collected in return for its collection eff orts.

Th e amount retained is treated as the sale of a service by the collecting unit, while the total amount of taxes collected is shown as revenue for the benefi ciary government unit.

For guidelines on the reassignment or attribution of taxes to collecting or benefi ciary governments, see paragraphs 5.33–5.38.
Other Economic Flows 3.31 Other economic fl ows are changes in the volume or value of assets or liabilities that do not re- sult from transactions.

Th ese other economic fl ows are not transactions because they do not meet one or more of the characteristics of transactions.

For example, the institutional units involved may not be acting by mutual agreement, as in the case of an uncompensated seizure of assets, or changes due to natural events, such as an earthquake or a fl ood.
Al- ternatively, the value of an asset expressed in foreign currency may change as a result of exchange rate changes, or the value of an asset may change due to the passing of time.
3.32 Th ere are two major categories of other eco- nomic fl ows, described as holding gains and losses, and other changes in the volume of assets and liabilities.8 Holding gains and losses 3.33 A holding gain or loss9 is a change in the monetary value of an asset or liability resulting from changes in the level and structure of prices, exclud- ing qualitative or quantitative changes in the asset or liability.
Holding gains and losses on assets and 3.30 Reassignment records a transaction arranged by a third party on behalf of others as taking place directly by the two principal parties involved.

Reassignment is 8 References to changes in the valuation or volume of assets also apply to liabilities.

9 Holding gains and losses are also referred to as revaluations in the 2008 SNA and in generally accepted accounting standards.
Economic Flows, Stock Positions, and Accounting Rules 45 li abilities include changes resulting from exchange rate movements.

In concept, holding gains and losses are continuously recorded as market prices change.

3.34 A holding gain or loss accrues continuously, purely as a result of holding an asset or liability over time without transforming it in any way.
Holding gains/losses can apply to virtually any type of asset or liability, and they may accrue on an asset held for any length of time during the reporting period.

(See para- graphs 10.05–10.45 for a complete discussion.)

Other changes in the volume of assets/ liabilities 3.35 Other changes in the volume of assets are any changes in the value of an asset or liability that do not result from a transaction or a holding gain/loss.
Other changes in the volume of assets cover a wide va- riety of specifi c events.

Th ese events are divided into three main categories:10 • Th e fi rst category consists of events that involve the appearance or disappearance of economic as- sets other than by transactions.

In other words, certain assets and liabilities enter and leave the GFS balance sheet through events other than by transactions.

(See paragraphs 10.48–10.58 for a complete discussion.)
• Th e second group consists of the eff ects of ex- ternal events—exceptional and unexpected—on the economic benefi ts derivable from assets and corresponding liabilities.

(See paragraphs 10.59– 10.75 for a complete discussion.)

• Th e fi nal group is made up of changes in classifi - cations.

(See paragraphs 10.76–10.84 for a com- plete discussion.)

Stock Positions 3.36 A stock position is the total holdings of assets and/or liabilities at a point in time.
Stock positions are recorded in the balance sheet of the GFS frame- work (see Chapter 7).

Th e integrated GFS framework shows stock positions at the beginning and end of a reporting period.

Stock positions at these two points in time are connected by fl ows during that period because changes in positions are caused by transac- tions and other economic fl ows.
In order to discuss 10 Th e distinctions made are only for purposes of description; the GFS framework and classifi cation system does not allow for this breakdown.

stock positions, it is necessary to determine the asset boundary in macroeconomic statistics from which the defi nition of assets and liabilities is derived.

Th e cover- age of assets in GFS is limited to economic assets from which economic benefi ts may fl ow to the owners.
Economic Beneﬁ ts 3.37 Economic benefi ts arise from owning and using economic assets.

Th e economic benefi ts of ownership usually include the right to use, rent out, or otherwise generate income, or to sell the asset.
Dif- ferent kinds of economic benefi ts that may be derived from an asset include: • Th e ability to use assets, such as buildings or ma- chinery, in production • Th e generation of services (e.g., renting out pro- duced assets to another entity) • Th e generation of property income (e.g., interest and dividends received by the owners of fi nancial assets) • Th e potential to sell and thus realize holding gains.
Ownership 3.38 Two types of ownership can be distinguished in macroeconomic statistics: legal ownership and eco- nomic ownership.

Th e legal owner of resources such as goods and services, natural resources, fi nancial as- sets, and liabilities is the institutional unit entitled by law and sustainable under the law to claim the benefi ts associated with the resource.

Sometimes government may claim legal ownership of a resource on behalf of the community at large.
To be recognized in the GFS framework, a resource must have a legal owner, on ei- ther an individual or a collective basis.

3.39 Th e economic owner of resources such as goods and services, natural resources, fi nancial assets, and liabilities is the institutional unit entitled to claim the benefi ts associated with the use of these resources by virtue of accepting the associated risks.

In most cases, the economic owner and the legal owner of a resource are the same.
Where they are not, the legal owner has passed responsibility for the risk involved in using the resource in an economic activity to the economic owner as well as associated benefi ts.

In re- turn, the legal owner accepts another package of risks and benefi ts from the economic owner.
In GFS, when the expression “ownership” or “owner” is used and the 46 Government Finance Statistics Manual 2014 legal and economic owners are diff erent, the reference should generally be understood to be to the economic owner.

Appendix 4 discusses a number of cases where legal and economic ownership are diff erent.

3.40 Sometimes government may claim legal own- ership of a resource on behalf of the community at large, such as territorial waters.
If so, the benefi ts also accrue to the government on behalf of the commu- nity at large.

Th us, government is both the legal and economic owner of these resources.

However, govern- ments may share the benefi ts with other entities but, by virtue of accepting the majority of the risks, be- come the economic owner of a resource.
For example, in the case of public-private partnerships, economic ownership can be vested with government when gov- ernment accepts the majority of the risks (see para- graphs A4.58–A4.65).

3.41 Th e benefi ts inherent in fi nancial assets and liabilities are seldom transferred from a legal owner to an economic owner in exactly the same state.
Th ey are usually transformed to new forms of fi nancial as- sets and liabilities by the intermediation of a fi nancial institution that assumes some of the risk and benefi ts while passing the fi nancial instrument on to other units.

Deﬁ nition of Assets and Liabilities 3.42 An asset is a store of value representing a benefi t or series of benefi ts accruing to the economic owner by holding or using the resource over a period of time.
It is a means of carrying forward value from one reporting period to another.

3.43 Only economic assets are recorded in the macroeconomic statistical systems (i.e., included within the asset boundary) and they appear in the bal- ance sheet of the unit that is the economic owner of the asset.

Economic assets are resources over which ownership rights are enforced and from which eco- nomic benefi ts may fl ow to the owners.
Personal attri- butes such as reputation or skill, which are sometimes described as an asset, are not recognized as such in GFS because they are not economic assets as defi ned earlier.

A distinction is made between nonfi nancial and fi nancial assets.

All fi nancial assets have liabili- ties as counterparts, except for gold bullion held as a reserve asset, which, by convention, is a fi nancial asset (7.128).
Financial assets and liabilities 3.44 A particularly important mechanism in the economy is the device whereby one economic unit exchanges a particular set of benefi ts with another economic unit for future payments.

From this a fi nan- cial claim, and hence a liability, can be defi ned.
Th ere are no nonfi nancial liabilities recognized in the GFS framework, and thus the term liability necessarily re- fers to a liability that is fi nancial in nature.11 3.45 A liability is established when one unit (the debtor) is obliged, under specifi c circumstances, to provide funds or other resources to another unit (the creditor).
Normally, a liability is established through a legally binding contract that specifi es the terms and conditions of the payment(s) to be made and payment according to the contract is unconditional.

Th ese are typically established through the provision of eco- nomic value by one institutional unit, the creditor, to another, the debtor, normally under a contractual arrangement.

Liabilities can also be created by the force of law, and by events that require future trans- fer payments.
In many cases, liabilities (and their cor- responding fi nancial claims) are explicitly identifi ed by formal documents expressing the debtor-creditor relationship.

In other cases, liabilities are imputed to refl ect the underlying economic reality of a transac- tion, such as the creation of a notional loan when an asset is acquired under a fi nancial lease.
3.46 Liabilities created by the force of law include those arising from taxes, penalties (including penal- ties arising from commercial contracts), and judicial awards at the time they are imposed.

Liabilities estab- lished by events that require future transfer payments include claims on nonlife insurance companies, claims for damages not involving nonlife insurance companies, and claims arising from winnings from lottery and gambling activities.
3.47 Whenever a liability exists, the creditor has a corresponding fi nancial claim on the debtor.

A fi nan- cial claim is an asset that typically entitles the owner of the asset (the creditor) to receive funds or other re- sources from another unit, under the terms of a liabil- ity.

Like liabilities, fi nancial claims are unconditional.
A fi nancial claim provides benefi ts to the creditor, such as by acting as a store of value, or by generating 11 In contrast, accounting standards recognize nonfi nancial liabili- ties under certain conditions.

Economic Flows, Stock Positions, and Accounting Rules 47 interest, other property income, or holding gains.
Fi- nancial claims consist of equity and investment fund shares, debt instruments, fi nancial derivatives and employee stock options, and monetary gold in the form of unallocated gold accounts (see paragraphs 7.15, 7.127, and 7.139).

3.48 Financial assets consist of fi nancial claims and gold bullion held by monetary authorities as a reserve asset.

For a complete discussion of fi nancial assets and liabilities, see paragraphs 7.118–7.227.
3.49 Th is Manual follows the 2008 SNA by not treating guarantees other than derivatives and the provision for calls under standardized guarantee schemes as fi nancial assets or liabilities.

However, it is recommended to report these guarantees as memo- randum items to the balance sheet.

(See paragraphs 4.48 and 7.251–7.261.)

Nonﬁ nancial assets 3.50 Nonfi nancial assets are economic assets other than fi nancial assets.
Nonfi nancial assets are further subdivided into those that are produced (fi xed assets, inventories, and valuables) and those that are nonpro- duced (land, mineral and energy resources, other nat- urally occurring assets, and intangible nonproduced assets).

For a complete description of the nature of nonfi nancial assets, see paragraphs 7.34–7.117.

Accounting Rules 3.51 All entries in GFS have to be measured in monetary terms.
In some cases, the amounts entered are the actual payments that form part of fl ows, and in other cases the amounts entered are estimated by reference to monetary values.

Money is thus the unit of account in which all stocks and fl ows are recorded.

3.52 In principle, a reporting period can cover any period of time.
Periods that are too short have the dis- advantage that statistical data are infl uenced by inci- dental factors, while long periods may not adequately portray changes in the economy in a timely manner.

Merely seasonal eff ects can be avoided by having the reporting period cover a whole cycle of regularly re- current economic phenomena.
In general, calendar years, fi nancial years, and quarters are well suited for drawing up a complete set of GFS for the consolidated general government or public sectors, while monthly data with the broadest institutional coverage possible provide a good high-frequency indicator of fi scal per- formance.

Country-specifi c circumstances will infl u- ence the coverage, frequency, and periodicity of fi scal reporting.
However, in deciding these, data reporting guidelines and standards, such as the General Data Dissemination System (GDDS), Special Data Dissemi- nation Standard (SDDS), SDDS Plus, and Code on Good Practices on Fiscal Transparency, should also be considered.12 3.53 Th e GFS framework is well suited to cover all economic activities in such a way that it is possible to compile GFS statements for individual units, groups of units, or all units in the general government or public sectors.
To permit this, the accounting rules for recording fl ows and stock positions in the GFS framework are designed to ensure consistency in the data generated, and to conform to accepted standards for compiling other macroeconomic statistics.

With the exception of consolidation, as noted later in this chapter, the accounting rules of the GFS framework are the same as those of the 2008 SNA (see Appen- dix 7).
Th ere are also many similarities between the rules used in the GFS framework and those applied by businesses and governments in their fi nancial state- ments.13 Th e following sections describe the type of accounting system used, the accounting rules govern- ing topics such as the time of recording, and the valu- ation of fl ows and stock positions.

Type of Accounting System 3.54 Th e recording of economic events underly- ing GFS derives from general bookkeeping prin- ciples.
Double-entry recording is used for recording all fl ows.

In a double-entry system, each transaction gives rise to at least two equal-value entries, tradition- ally referred to as a credit entry and a debit entry.

Th is principle ensures that the total of all credit entries and that of all debit entries for all transactions are equal, thus permitting a check on consistency of the GFS ac- counts for a unit, subsector, or sector.

Other economic fl ows also lead to debit and credit entries.
Th ese fl ows have their corresponding entries directly in changes in net worth.

As a result, double-entry recording en- sures the fundamental identity of a balance sheet—that 12 http://dsbb.imf.org.

13 Appendix 6 presents a broad description of linkages with fi nan- cial accounting standards.
It is recommended that the fi nancial statements of government entities compiled in accordance with international accounting standards for governments be harmo- nized to the extent possible, and where diff erences remain, be reconciled with the equivalent GFS statements.

48 Government Finance Statistics Manual 2014 is, the total value of assets equals the total value of li- abilities plus net worth.

3.55 A debit entry is an increase in an asset, a decrease in a liability, or a decrease in net worth.
A credit entry is a decrease in an asset, an increase in a liability, or an increase in net worth.

Revenue entries result in an increase in assets or decrease in liabilities, which ultimately increase net worth; therefore, rev- enue entries are recorded as credits.

Conversely, ex- pense entries result in a decrease in assets or increase in liabilities, which ultimately decrease net worth; therefore, expense entries are recorded as debits.
Other economic fl ows can increase or decrease assets and liabilities, thereby directly impacting net worth.

In the case of the reclassifi cation of assets or liabilities, a change occurs in the stock positions of two catego- ries of assets or liabilities with no impact on net worth (e.g., an increase in one category of asset is paired with a decrease in another category of asset).
3.56 A balance sheet is a statement of the values of the stock positions of assets owned and of the liabili- ties owed by an institutional unit or group of units, drawn up in respect of a particular point in time.

Th e fundamental identity of the balance sheet and of ac- counting in general is that the total value of the assets always equals the total value of the liabilities plus net worth.

Use of the double-entry recording ensures that this identity is maintained.
Th ere are several possible combinations of debits and credits aff ecting assets, lia- bilities, and net worth.

For example, the purchase of a service by a general government unit with payment to be made in 30 days would be recorded on an accrual basis as an expense (debit) and an increase in the lia- bility, other accounts payable (credit).

Th us, net worth, through the expense, decreases by the same amount that liabilities increase, and assets are not affected.
The subsequent payment at the end of the 30 days would be recorded on an accrual basis as a decrease in currency and deposits (credit) and a decrease in other accounts payable (debit).

In this case, both assets and liabilities decrease by the same amount and net worth is unaff ected.

Time of Recording Flows 3.57 Once a fl ow has been identifi ed, the time at which it occurred must be determined so that the re- sults of all fl ows within a given reporting period can be reported.
Although this section is concerned with the time assigned to fl ows, the integrated nature of the GFS framework means that the stock positions re- corded on the balance sheet are also infl uenced by the timing of fl ows.

3.58 One of the problems in determining the tim- ing of transactions is the frequent existence of a long period between the initiation of an action and its fi nal completion.
For instance, many purchases of goods commence with the signing of a contract between a seller and a buyer, followed by the initiation and completion of production of the item ordered, ship- ment from the seller’s location, arrival at the buyer’s location, preparation and mailing the invoice, receipt of the invoice, approval of payment, the beginning of interest accruing on a late payment or the expiration of a discount for prompt payment, signing a check for payment, mailing of the check by the buyer, re- ceipt of the check by the seller, deposit of the check in the seller’s bank, and fi nally the check is paid by the buyer’s bank.
Even then, the transaction may not be complete as there may be rights of return or warranty claims.

Each of these distinct moments is to some ex- tent economically relevant and may result in multiple transactions being recorded in GFS, but only one time can be attributed to each transaction.
3.59 Similarly, in analyzing government expense and acquisition of nonfi nancial assets, one can dis- tinguish the day that a budget is voted upon by the legislature, the day on which the ministry of fi nance authorized a department to pay out specifi ed funds, the day a particular commitment is entered into by the departments, the day deliveries take place, and fi - nally, the day payment orders are issued and checks are paid.
With regard to taxes, for example, important moments are the day or the period in which the liabil- ity arises, the moment the tax liability is defi nitively assessed, the day that it becomes due for payment without penalty, and the day the tax is paid or refunds are made.
3.60 In summary, when using the accrual basis of recording, transactions are recorded when economic ownership changes hands for goods, nonproduced nonfi nancial assets and fi nancial assets and liabilities, when services are provided, and for distributive trans- actions when the related claims arise.

On the other hand, when using the cash basis of recording, fl ows are recorded when cash is received and disbursed.
Economic Flows, Stock Positions, and Accounting Rules 49 Th ese alternative recording bases are discussed in more detail in paragraphs 3.61–3.68.

Alternative recording bases 3.61 While making entries for all successive stages discernible within the activities of institutional units may be possible, it could severely overburden compilers, so a choice has to be made.
Broadly, the time of record- ing could be determined on four bases: the accrual basis, the commitments basis, the due-for-payment basis, and the cash basis.

In practice though, many variations on these bases of recording may exist.

Accounting systems may use a mixed basis of recording; for example, tax revenue may be recorded on a cash basis while other transactions are recorded on an accrual basis.
3.62 In the accrual basis of recording, fl ows are recorded at the time economic value is created, trans- formed, exchanged, transferred, or extinguished.

In other words, the eff ects of economic events are re- corded in the period in which they occur, irrespective of whether cash was received or paid, or was due to be received or paid.

Nevertheless, the time at which the economic events occur is not always clear.
In general, the time attributed to events is the time at which eco- nomic ownership of goods changes, services are pro- vided, the obligation to pay taxes is created, the claim to a social benefi t payment is established, or other un- conditional claims are established.
3.63 If an economic event requires a subsequent cash fl ow, such as purchases of goods and services on an installment plan, then the length of time between the time attributed to an event with the accrual basis and the time of the cash fl ow is bridged by record- ing other accounts receivable/payable.
For example, when a general government unit purchases goods on credit, it records a debit to an inventory account and a credit to other accounts payable when ownership of the goods shift s. When the cash payment is made, the general government unit records a debit to other ac- counts payable and a credit to currency and deposits.
3.64 All events that result in the creation, transfor- mation, exchange, transfer, or extinguishment of eco- nomic value are recorded on an accrual basis in the GFS Statement of Operations or Statement of Other Eco- nomic Flows (see paragraphs 4.16–4.31 and 4.36–4.38).

Th us, all monetary and nonmonetary transactions are included in statistics compiled on the accrual basis.

3.65 In the commitments basis of recording, fl ows are recorded when an institutional unit has commit- ted itself to a transaction.
Th is basis oft en applies only to purchases of assets, goods, services, and to com- pensation of employees.

Th e time of recording gen- erally is when approval for the purchase was issued, which results in funds being earmarked for a specifi c transaction.

Flows for which the commitments basis is not applicable, such as revenue, must be recorded using one of the other three bases of recording.

In- kind transactions may or may not be recorded.


3.66 In the due-for-payment basis of recording, fl ows that give rise to cash payments are recorded at the latest times they can be paid without incurring ad- ditional charges or penalties or, if sooner, when the cash payment is made.14 Th e period of time (if any) between the moment a payment becomes due and the moment it is actually made is bridged by recording other accounts receivable/payable, just as with the ac- crual basis.
If a payment is made before it is due, then no receivable is necessary.

Although due-for-payment recording furnishes a more comprehensive descrip- tion of monetary fl ows than cash accounting, record- ing is limited to monetary fl ows and therefore does not capture all economic events.

3.67 In the cash basis of recording, fl ows are re- corded when cash is received or disbursed.
Th e cash basis of recording provides analytically useful infor- mation on the liquidity position of government, which allows for liquidity management.

All events resulting in a cash fl ow are recorded in the GFS Statement of Sources and Uses of Cash (see paragraphs 4.32–4.35).

Nonmonetary fl ows are not recorded, since no cash fl ows are involved in these transactions.

Th erefore, the cash basis of recording does not fully record all economic activity and resource fl ows.
3.68 Cash fl ows determine the government’s abil- ity to pay its bills and, by infl uencing the liquidity of the community, activate or validate the demand for goods and services in the rest of the economy.
Tra- ditionally, payments data form the basis for most government accounting systems and oft en represent the most readily available estimates generated by the 14 Another basis of recording is when fl ows are recorded at the time legal controls that are necessary to authorize a pay- ment have been completed.

Th is basis of recording is entitled “due-and-payable.” 50 Government Finance Statistics Manual 2014 administrative accounting system.
For instance, data on payments for the delivery of goods and services may frequently be more readily available than data on the time of delivery.

But while statistics based on cash fl ows are of analytical value in their own right they do not fully meet the government’s reporting needs.

Th erefore, the statistics on the accrual basis should be seen as necessary for the proper recording of all gov- ernments’ operations.
Using the accrual basis of recording in the Statements of Operations and Other Economic Flows, and Balance Sheet of the GFS framework 3.69 Using the accrual basis of reporting provides the most comprehensive information because all eco- nomic events and resource fl ows are recorded, in- cluding internal transactions, in-kind transactions, and other economic fl ows.
Moreover, it is only this comprehensive recording framework that permits the full integration of all fl ows with stock positions in the balance sheet.

In general, accounts using the commit- ment, due-for-payment, or cash basis are restricted to monetary transactions.

3.70 Th e integrated framework of GFS uses the accrual basis, primarily because the time of record- ing matches the time of the actual resource fl ows and economic events.
As a result, the accrual basis pro- vides the best estimate of the macroeconomic impact of government fi scal policy.

With the cash basis, the time of recording may diverge signifi cantly from the time of the economic activities and the transactions to which they relate.

For example, the interest accrued on a zero-coupon bond would not be recorded until the bond matures, which could be many years aft er the expense was incurred.
Th e due-for-payment basis will frequently record transactions aft er the resource fl ows have taken place, although the very long delays permitted by the cash basis would, in most cases, be reduced.

Th e timing of the commitments basis will precede the actual resource fl ow.

3.71 Th e accrual basis of recording also fully cap- tures all amounts receivable or payable in arrears.

Arrears are defi ned as amounts that are both unpaid and past the due date for payment.
Because the due- for-payment date is always the same or later than the date attributed to a fl ow under the accrual basis, all arrears will be included in statistics compiled using the accrual basis.

Without supplementary informa- tion, however, it may be diffi cult to estimate the share of total accounts payable that is in arrears as opposed to the share that exists because of normal payment delays.
By defi nition, the due-for-payment basis will clearly show the arrears arising from purchases on in- stallment plans, but arrears from the failure to repay debt obligations as scheduled, such as loans and debt securities, will not always be apparent without supple- mental information.

With the commitments basis, the availability of information on arrears will be the same as with the accrual basis.
With the cash basis, there is no impact on the accounts when a unit does not pay for purchases made or comply with the terms for the repayment of debt.

Th us, there will be no information on arrears unless special compilation eff ort is made.
3.72 In accrual accounting systems, provision is usually made for a separate statement of cash fl ows to be prepared as part of the comprehensive suite of statements—implementing accruals accounting sys- tems therefore usually maintains some information on cash fl ows.

Managing liquidity is crucial for the operation of any unit, and information on cash fl ows helps meet this need.
Moreover, it may be diffi cult to assess solvency and future cash fl ows without an accrual-based system because information on arrears and on other accounts payable/receivable, such as trade credits and advances, is missing.

3.73 Accounts using the due-for-payment, com- mitments, or cash basis normally do not diff erentiate between the time of payment, acquisition, and use of resources.
With the accrual basis, acquisitions of nonfi nancial assets are recorded separately and the expense of using those assets in operating activities is matched with the period of their use through the consumption of fi xed capital.

3.74 Additionally, the other major macroeconomic statistical frameworks (national accounts, balance of payments, and monetary and fi nancial statistics) use the accrual basis.
Th us, the consistency of statistics from the diff erent systems is facilitated greatly by sharing the use of the accrual basis for all the macro- economic frameworks.

3.75 Despite the advantages of the accrual basis of recording, its implementation is likely to be more complex than the other bases of recording and may require additional estimates.
For example, it may Economic Flows, Stock Positions, and Accounting Rules 51 be diffi cult for a government unit to know the full amount of tax revenue to which it is entitled because these amounts may depend on transactions and other events to which the government is not a party.

Application of the accrual principles 3.76 As a general rule, a fl ow is recorded under the accrual basis of recording when economic ownership changes or another economic event has occurred.
More specifi c guidelines for the application of the ac- crual recording basis are described in the following paragraphs.
Time of recording and measurement of taxes and other compulsory transfers 3.77 Th e general principle is that taxes and other compulsory transfers should be recorded when the un- derlying activities, transactions, or other events occur that give rise to the liability to pay (i.e., the moment when it creates the government’s unconditional claim to the taxes or other payments) (see paragraphs 5.10– 5.20).

Th is time is not necessarily the time at which the event being taxed occurred.
For example, the obliga- tion to pay tax on capital gains normally occurs when an asset is sold, not when the asset’s value appreciated.

3.78 Estimating the revenue from taxes and com- pulsory social insurance contributions must take many uncertainties into account.

Th e primary uncer- tainty is that the government unit receiving the rev- enue is usually not a party to the transaction or other event that creates the obligation to pay the taxes or social insurance contributions.
Consequently, many of these transactions and events permanently escape the attention of the tax authorities.

Th e amount of rev- enue from taxes and social insurance contributions should exclude the amounts that possibly could have been received from such unreported events, had the government learned about them.
In other words, only those taxes and social insurance contributions that are evidenced by tax assessments and declarations, cus- toms declarations, and similar documents are consid- ered to create revenue for government units.

3.79 In addition, it is typical that some of the taxes and social insurance contributions that have been assessed will never be collected.

Uncollectable taxes include amounts deemed uncollectable due to non- compliance with tax laws or insolvency of taxpayers.
Taxes should also exclude contested tax assessments, which are treated as contingencies.

It would be inap- propriate to accrue revenue for an amount that the government unit does not realistically expect to col- lect.

Th us, the diff erence between assessments and expected collections represents a claim that has no real value and should not be recorded as revenue (see paragraph 5.20).
Th e amount of taxes and social insurance contributions that is recorded as revenue should be the amount that is realistically expected to be collected.

Th e actual collection, however, may be in a later period, possibly much later.
3.80 To ensure that the amount of taxes and social contributions recorded on an accrual basis is equiva- lent to the corresponding amounts actually received over a reasonable amount of time, the following pos- sibilities for the accrual recording of taxes could be considered: • Amounts to be recorded are assessed amounts adjusted by coeffi cients refl ecting the assess- ments not likely to be collected.
Th e coeffi cients are estimated on the basis of past experience and current expectations in respect of assessed amounts never collected.

• Cash amounts are recorded in the accounts, but they are time-adjusted so that they are attributed to the period when the activity took place to gen- erate the liability.
3.81 If taxes are imposed on specifi c transactions or events, they are recorded at the time the underlying transaction or event occurs, even though these times may not coincide with the actual payment of the tax to the government.

Th is implies that taxes on products and imports are recorded at the time the products in question are produced, imported, or sold, depending on the basis of the taxation.

Examples include sales taxes, value-added taxes, import duties, and estate and gift taxes.
3.82 In principle, income taxes and social contri- butions based on income should be attributed to the period in which the income is earned, even though there may be a signifi cant delay between the end of the reporting period and the time at which it is fea- sible to determine the actual liability.

In practice, however, some fl exibility is permitted.
In particular, as a practical deviation from the general principle, income taxes deducted at source, such as pay-as-you- earn taxes and regular prepayments of income taxes, 52 Government Finance Statistics Manual 2014 may be recorded in the periods in which they are paid, and any fi nal tax liability on income may be recorded in the period in which it is determined.

3.83 Income taxes are normally imposed on the income earned during an entire year.
If monthly or quarterly statistics are compiled in the absence of monthly accrual administrative records, indicators of seasonal activity or other appropriate indicators may be utilized to allocate the annual totals.

3.84 Taxes on the ownership of specifi c types of property may be based on the value of the property at a particular time, but are deemed to accrue continu- ously over the entire year or the portion of the year that the property was owned, if less than the entire year.
Similarly, taxes on the use of goods or the per- mission to use goods or perform activities usually relate to a specifi c time period, such as a license to operate a business during a specifi c period.

3.85 Some compulsory transfers, such as fi nes, penalties, and property forfeitures, are determined at a specifi c time.
Th ese transfers are recorded when the government has an unconditional legal claim to the funds or property, which usually is when a court renders judgment or an administrative ruling is pub- lished.

If such judgment or ruling is subject to further appeal, then the time of recording is when the appeal is resolved.

3.86 Determining the time of recording for grants and other voluntary transfers is infl uenced by a wide variety of eligibility conditions that have varying legal powers.
In some cases, a potential grant recipient has a legal claim when it has satisfi ed certain conditions, such as the prior incurrence of expenses for a specifi c purpose or the passage of legislation.

Th ese transfers are recorded by recipient and donor when all condi- tions are satisfi ed.
In other cases, the grant recipi- ent never has a claim on the donor, and the transfer should be attributed to the time at which the cash payment is made, or when the goods or services are delivered (see paragraph 5.105).

Time of recording dividends 3.87 Dividends and withdrawals of income from quasi-corporations are distributive transactions for which the time of recording depends on the unit’s decision regarding when to distribute income (see paragraphs 5.111–5.119).
Th e level of dividends is not unambiguously attributable to earnings of a par- ticular period, and dividends are to be recorded as of the moment the associated share starts to be quoted “ex-dividend.” Withdrawals of income from quasi- corporations are recorded on the date the payment actually occurs.
Time of recording transactions in goods, services, and nonﬁ nancial assets 3.88 Th e time of recording transactions (including by barter, payment in kind, or transfer in kind)15 in goods and nonfi nancial assets is, in principle, when economic ownership changes, which depends on the provisions in the sales contract (see paragraphs 8.13– 8.17).
When change of ownership is not obvious, the time of recording by the transaction partners16 may be a good indication and, failing that, the moment when there is a change in physical possession or control.

For example, a change of ownership is imputed to have taken place under a fi nancial lease when the lessee takes control of the asset.

3.89 Transactions in services normally should be recorded when the services are provided.
If a service, such as transportation, is provided at a specifi c time, then the transaction is recorded at that time.

Some services are supplied or take place on a continuous basis.

For example, insurance, and rental of housing services are continuous fl ows and should be recorded continuously for as long as they are being provided.

More practically, the value of the services attributed to a reporting period is based on the quantity supplied during the period rather than the payments required.
3.90 Several other transactions also relate to fl ows that take place continuously or over extended peri- ods.

For example, operating leases and consumption of fi xed capital accrue continuously over the whole period a fi xed asset is used and interest17 accrues continuously over the period that the fi nancial claim exists.

Th ese fl ows are recorded as being provided 15 Th ese transactions are excluded from a pure cash basis of recording.
16 To maintain symmetry in the macroeconomic statistical system, the time of recording should be the same for both parties to the transaction.

17 Th e counterpart entry to accruing interest expense is a simul- taneous increase in the amount of liability outstanding.

Peri- odic payments reduce the liability that has accrued and are not expense transactions.

Economic Flows, Stock Positions, and Accounting Rules 53 continuously over the whole period the contract lasts or the asset is available for use.
3.91 Inventories may be materials and supplies held as input for producing goods and services, work- in-progress, or fi nished goods held for resale or dis- tribution.

Additions to inventories are recorded when products are purchased, produced, or otherwise ac- quired.

Withdrawals from inventories are recorded when products are sold, used up in production, or oth- erwise relinquished.

Additions to work-in-progress inventories are recorded continuously as work pro- ceeds.
When production is completed, the goods val- ued at costs accumulated to that point are transferred to inventories of fi nished goods.

3.92 Use of goods and services is recorded when the good or service enters the process of production, as distinct from the time it was acquired.

For goods, this time may be quite diff erent from the time they were acquired.

In the meantime, they are classifi ed as inventories.
Time of recording transactions in ﬁ nancial assets and liabilities 3.93 Transactions in many types of fi nancial assets and liabilities, such as debt securities, loans, currency, and deposits, are recorded when economic ownership changes (see paragraphs 9.13–9.16).

Th is date may be specifi ed according to a contract to ensure matching entries in the books of both parties.
If no precise date is fi xed, the date on which the creditor receives pay- ment, or some other fi nancial claim, is the determin- ing factor.

For example, loan drawings are entered in the accounts when actual disbursements are made and fi nancial claims are established, which is not nec- essarily when an agreement is signed.

On practical grounds, public sector liabilities may have to take ac- count of the time of recording from the viewpoint of the public sector unit.
3.94 In some cases, the parties to a transaction may perceive ownership to change on diff erent dates because they acquire the documents evidencing the transaction at diff erent times.

Th is variation usually is caused by the process of clearing, or the time checks are in the mail.

Th e amounts involved in such a “fl oat” may be substantial in the case of transferable depos- its and other accounts receivable or payable.
If there is disagreement on a transaction between two units, the date on which the transaction is fully completed, which is the day the creditor regards change of owner- ship to have taken place, is the date of record; this date could be when the creditor receives payment or some other fi nancial claim.
3.95 Some fi nancial claims or liabilities, in partic- ular the various types of other accounts payable and receivable, such as trade credit and advances, general accounts payable, and wages payable, are the result of a nonfi nancial transaction and are not otherwise evidenced.

In these cases, the fi nancial claim is cre- ated when the counterpart transaction (such as the purchase of a good on credit or provision of labor) occurs.
3.96 For securities, the transaction date (i.e., the time of the change in ownership of the securities) may precede the settlement date (i.e., the time of the deliv- ery of the securities).

Both parties should record the transactions at the time ownership changes, not when the underlying fi nancial asset is delivered.

Any signif- icant diff erence between transaction and settlement dates gives rise to other accounts payable or receivable.
In practice, when the delay between the transaction and settlement is short, the time of settlement may be considered an acceptable proxy.

3.97 According to the accrual basis of recording, repayments of debts are recorded when they are extin- guished (such as when they are paid, or rescheduled, or forgiven by the creditor).

When arrears occur, no transactions should be imputed, but the arrears should continue to be included in the same instrument until the liability is extinguished.
If the contract provided for a change in the characteristics of a fi nancial in- strument when it goes into arrears, this change should be recorded as a reclassifi cation in the other changes in volume of the fi nancial assets and liabilities ac- count.

Th e reclassifi cation applies to situations where the original contract remains, but the terms within it change (e.g., interest rates, repayment periods, etc.
).18 If a new contract is negotiated or the nature of the instrument changes from one instrument category to another (e.g., from bonds to equity), transactions should be recorded to refl ect the redemption of the old instrument and to create a new instrument.

18 Charging a penalty interest rate on arrears that was stipulated in the original contract is not in itself a reason to reclassify the debt.
54 Government Finance Statistics Manual 2014 Time of recording other economic ﬂ ows 3.98 Other changes in the volume of assets are usu- ally discrete events that occur or accrue at particular moments or within fairly short periods of time (see paragraphs 10.46–10.47).

For example, the destruc- tion of an asset by fi re happens at a specifi c time, and the impact of a natural disaster can be allocated to a specifi c period.
3.99 Changes in prices oft en have a more con- tinuous character, particularly in respect of assets for which active markets exist.

In practice, holding gains or losses will be computed between two points in time.

Th e starting point will be the moment at which: • Th e reporting period begins • Ownership is acquired from other units (through purchase or a transaction in kind) • An asset is produced.
Th e end point in time will be the moment at which: • Th e reporting period ends • Ownership of an asset is relinquished (through a sale or a transaction in kind) • An asset is consumed in the production process.

3.100 Holding gains and losses are not calculated over a period beginning the moment two units agree to a mutual exchange of assets.

Instead, the calcu- lation of the holding gains and losses starts when economic ownership of the assets is acquired.
Th e signing of the contract fi xes the market price for the transaction.

A unit can incur holding gains and losses only on the assets or liabilities over which it has economic ownership.
Th is implies that during the period between the signing of a contract and the date on which the fi rst party delivers, the second party cannot incur any price risks on this contract; the sec- ond party neither owns the assets to be delivered nor owns a claim on the fi rst party to be recorded in the fi nancial accounts.19 3.101 Other changes in volume, including reclas- sifi cations, are recorded as these changes occur.
An integrated stock-fl ow framework requires that both 19 For example, a sales contract to the value of 100 is agreed on day 1, when the market price of the transaction is 100, for delivery on day 5.

On day 5, the price of the item prevailing on the market is 102—the buyer records a transaction of 100 and immediately revalues the item.

the removal of an existing asset or liability from the original category and its inclusion in the new category are recorded at the same time.
3.102 Reclassifi cations should be recorded when the change in the nature of the asset, liability, or en- tity occurs.

Although one might be tempted to stock- pile major reclassifi cations for a number of years and enter them as one block at the end of this period, this procedure does not conform to the accrual principles of GFS, which aim for correct estimates at all times.
Keeping records of reclassifi cations makes it possible to reconstruct supplementary time series based on the situation before the reclassifi cation, if needed.

Using the cash basis of recording in the Statement of Sources and Uses of Cash 3.103 GFS includes a Statement of Sources and Uses of Cash.

For this statement, statistics on monetary fl ows should be based on transactions as close to the payment/receipt stage as possible.
Th ese statistics, based on cash payments/receipts, measure in aggre- gate the government’s impact on the liquidity condi- tions in the economy (see paragraph 3.67).

Although these cash-based data lack an integration of fl ows with stock positions, they are complementary to the accrual data and form an integral part of the complete GFS framework.
3.104 For expense and the acquisition of nonfi - nancial assets, data at the stage of payment by cash disbursed, or checks or warrants issued, represent the most desirable basis on which to record the cash- based data.20 For revenue, data representing the tax payments received by government, net of refunds paid out during the period covered should be reported.
Th ese data will include taxes paid aft er the original as- sessment, taxes paid or refunds deducted from taxes aft er subsequent assessments, and taxes paid or re- funds deducted aft er any subsequent reopening of the accounts.

In the reporting of tax revenue, the use of payment basis data is oft en the fi rst best estimate for a cash statement.
3.105 In the case of government borrowing, the cash basis of recording will report borrowing when funds are received by government, or when lenders 20 Cash accounting that allows back-dated transactions (known as complementary periods), may distort actual cash fl ows.

Record- ing of cash transactions in such a manner should be disclosed.

Economic Flows, Stock Positions, and Accounting Rules 55 pay government suppliers on behalf of government.
Government lending should be recorded when the government makes payment, or when funds are pro- vided to a borrower.

3.106 However, payments data must be adjusted to an accrual basis to permit the measurement of pro- duction, income, consumption, capital accumulation, and fi nance in the national accounts.
To reconcile data extracted from cash-based data and data maintained on an accrual basis, the cash fl ows must be adjusted for accrued revenue not yet received and accrued ex- pense not yet paid, respectively.

Valuation General rule 3.107 All fl ows and stock positions should be mea- sured at market prices.

Market prices refer to current exchange value—that is, the value at which goods, services, labor, or assets are exchanged or else could be exchanged for cash (currency or transferable de- posits).
Flows recorded in the Statement of Operations should be valued at the market prices at which these fl ows take place, while fl ows recorded in the State- ment of Sources and Uses of Cash should be valued at the monetary value of the cash fl ows.

Stock positions should be valued at the market prices prevailing on the balance sheet date.

Valuation of specifi c types of fl ows and stock positions are discussed in further de- tail in the remainder of this section.
Valuation of transactions 3.108 Market prices for transactions are defi ned as amounts of money that willing buyers pay to ac- quire something from willing sellers; the exchanges are made between independent parties and on the basis of commercial considerations only, sometimes called “at arm’s length.” Th us, according to this strict defi nition, a market price refers only to the price for one specifi c exchange under the stated conditions.
A second exchange of an identical unit, even under cir- cumstances that are almost exactly the same, could re- sult in a diff erent market price.

A market price defi ned in this way is to be clearly distinguished from a price quoted in the market, a world market price, a going price, a fair market price, or any price that is intended to express the generality of prices for a class of suppos- edly identical exchanges rather than the price actually applying to a specifi c exchange.
Furthermore, a market price should not necessarily be construed as equiva- lent to a free market price; that is, a market transaction should not be interpreted as occurring exclusively in a purely competitive market situation.

In fact, a mar- ket transaction could take place in a monopolistic, monopsonistic, or any other market structure.

Indeed, the market may be so narrow that it consists of a sole transaction of its kind between independent parties.
3.109 When a price is agreed to by both parties in advance of a transaction taking place, this agreed or contractual price is the market price for that trans- action regardless of the prices that prevail when the transaction takes place.

3.110 Actual exchange values, expressed in mon- etary terms, are presumed to be the market prices in most cases.

Paragraph 3.122 describes those cases where actual exchange values do not represent market prices.
Transactions that involve dumping and dis- counting represent market prices.

Transaction prices for goods and services are inclusive of appropriate taxes and subsidies.

A market price is the price pay- able by the buyer aft er taking into account any rebates, refunds, adjustments, etc., from the seller.

3.111 Transactions in fi nancial assets and liabilities are recorded at the prices at which they are acquired or disposed of.
Transactions in fi nancial assets and li- abilities should be recorded exclusive of any service charges, commissions, fees, taxes, and similar pay- ments for services that would be necessary to require the asset or incur the liability.

Th ese costs of owner- ship transfers are excluded regardless of whether these are charged explicitly, included in the purchaser’s price, or deducted from the seller’s proceeds.
Th is is because both debtors and creditors should record the same amount for the same fi nancial instrument.

Th e commissions, fees, and/or taxes should be recorded separately from the transaction in the fi nancial asset and liability, under appropriate categories of revenue or expense.

Th e valuation of fi nancial instruments, which excludes commission charges, diff ers from the valuation of nonfi nancial assets (excluding land), which includes any costs of ownership transfer.
Costs of ownership transfer on land are included in the value of land improvements (see paragraphs 8.6–8.8).

3.112 When market prices for transactions are not observable, such as for some barter or transfers- in-kind transactions, valuation according to market 56 Government Finance Statistics Manual 2014 price-equivalents provides an approximation to mar- ket prices.
In such cases, market prices of the same or similar items, when such prices exist, will provide a good basis for applying the principle of market prices.

Generally, market prices should be taken from the markets where the same or similar items are currently traded in suffi cient numbers and in similar circum- stances.
If there is no appropriate market in which a particular good or service is currently traded, the valuation of a transaction involving that good or ser- vice may be derived from the market prices of similar goods and services by making adjustments for quality and other diff erences.

Valuation of stock positions 3.113 Stock positions should be valued at mar- ket value—that is, as if they were acquired in market transactions on the balance sheet reporting date (ref- erence date).
Market prices are readily available for assets and liabilities that are traded in active markets, most commonly certain fi nancial assets and their cor- responding liabilities.

Market values of other assets and liabilities need to be estimated in a manner simi- lar to nonmonetary fl ows, as described in paragraphs 3.118–3.125 and 7.20–7.33.

3.114 Valuation according to market-value equiva- lent is needed for valuing assets and liabilities that are not traded in markets or are traded only infrequently.
For these assets and liabilities, it will be necessary to estimate values that, in eff ect, approximate market prices (see paragraph 3.125).21 3.115 It may also be analytically useful and ap- propriate, in some circumstances, to use alternative valuation methods and to compare these with market values.

Market values, fair values, and nominal values should be distinguished from such notions as am- ortized values, face values, book values, and historic cost.
• Fair value is a market-equivalent value defi ned as the amount for which an asset could be ex- 21 International statistical manuals consider that for nonnegotiable instruments, nominal value is an appropriate proxy for market value (see paragraph 7.30).

Nonetheless, the development of markets, such as for credit derivatives linked to the credit risk of individual entities, is increasing the likelihood that market prices can be estimated even for nonnegotiable instruments.
As these markets extend, consideration might be given to compiling ad- ditional information on market values of nonnegotiable debt.

changed, or a liability settled, between knowl- edgeable, willing parties in an arm’s-length transaction.

It thus represents an estimate of what could be obtained if the owner sold the asset or the debtor settled the liability.

• Nominal value at any moment in time is the amount that the debtor owes to the creditor.
It refl ects the value of the instrument at creation and subsequent economic fl ows, such as transac- tions, exchange rate and other valuation changes other than market price changes, and other vol- ume changes.

For fi nancial instruments other than debt securities, equity, and fi nancial deriva- tives, the lack of generally available market values means that these values are estimated by using the nominal value.
• Th e amortized value of a loan refl ects the grad- ual elimination of the liability by regular pay- ments over a specifi ed period of time.

On the date of each scheduled payment, the amortized value is the same as the nominal value, but it may diff er from the nominal value on other dates be- cause the nominal value includes interest that has accrued.
• Th e face value of a debt instrument is the undis- counted amount of principal to be repaid at (or before) maturity.22 Th e use of face value as a proxy for nominal value in measuring the gross debt position can result in an inconsistent approach across all instruments and is not recommended.

For example, the face value of deep-discounted bonds and zero-coupon bonds includes interest not yet accrued, which runs counter to accrual principles.
• Written-down replacement cost is the cur- rent acquisition price of an equivalent new asset minus the accumulated consumption of fi xed capital, amortization, or depletion.

• Book value generally refers to the value recorded in the entities’ records.

Book values may have diff erent meanings because their values are infl u- enced by accounting standards, rules, and poli- cies, as well as the timing of acquisition, company 22 In some statistical databases, face value is also called nomi- nal value.
However, in GFS, nominal value is understood to be diff erent from face value, except on the date of maturity of the instrument.

Economic Flows, Stock Positions, and Accounting Rules 57 takeovers, frequency of revaluations, and tax and other regulations.

• Historic cost, in its strict sense, refl ects the cost at the time of acquisition, but sometimes it may also refl ect occasional revaluations.
3.116 Th e valuation of assets and liabilities based on accounting standards may not fully refl ect the market prices of the assets and liabilities.
In such cases, the source data for GFS should be adjusted to refl ect, as closely as possible, the market value of the assets and liabilities.23 3.117 Some fi nancial assets and liabilities, such as bonds, have a nominal value, face value, and market value, and for some purposes, supplementary data on the nominal and face values of stock positions may be useful.24 However, transactions in these assets and liabilities should be valued at the prices actually paid.
Similarly, to attain integration between stock posi- tions and fl ows, the stock positions of debt securities should be valued at their market value when recorded on the balance sheet.
Valuation adjustments in special cases 3.118 When a unit sells an item and does not ex- pect to receive payment, or the corresponding pay- ment is not due for an unusually long time,25 the value of the principal (recorded in other accounts payable/ receivable) is reduced by an amount that refl ects the time to maturity using an appropriate discount rate, such as the contractual rate for similar debt instru- ments.
If payment is not due for an unusually long pe- riod of time, this reduction is by partitioning the market price of the item purchased, which equals the reduced principal amount, and accrued interest, the assumption being that the amount to be paid includes an allowance for interest.
If payment is not expected for an unusually long period of time, such as due to the circumstances of the debtor, a reduction in the principal to be paid is recorded through a valuation change in other accounts 23 More information on the valuation rules and numerical ex- amples are in the PSDS Guide, paragraphs 2.115–2.123, and the 2013 EDS Guide.

24 Th e PSDS Guide recommends that debt instruments should be valued at nominal value, while debt securities should be valued at market value as well.
25 What constitutes an unusually long time in this context will depend on the circumstances.

For example, for any given time pe- riod, the higher the level of interest rates or the longer the delay in payment, the greater is the opportunity cost of delayed payment.

payable/receivable, with interest accruing on the re- duced principal amount, refl ecting the time delay in payment.
In both the circumstances described in this paragraph, interest should accrue until payment is made, at the rate used to discount the principal.

3.119 Flows and stock positions expressed in a for- eign currency are converted to their value in the do- mestic currency at the rate prevailing at the moment they are entered in the accounts—that is, the moment the transactions or other fl ow takes place, and stock positions are converted at the rate prevailing on the balance sheet date.
Th e midpoint between the buy- ing and selling spot rates should be used so that any service charge is excluded.

When a multiple exchange rate system is in operation, the valuation should be based on the rate applicable to the type of asset in question.

Th e valuation in the domestic currency of a purchase or sale on credit expressed in a foreign cur- rency may diff er from the value in domestic currency of the subsequent cash payment because the exchange rate changed in the interim.
Both transactions should be valued at their market values as of the dates they actually occurred, and a holding gain or loss result- ing from the change in the exchange rate should be recorded for the period or periods in which it occurs.

3.120 For some transactions in goods, contracts establish a quotation period oft en months aft er the goods have changed hands.
In such cases, market value at the time of the change of ownership of the goods should be initially estimated, and revised with the actual market value, when known.

Market value is given by the contract price even if it is unknown at the time of change of ownership.

3.121 Transfers in kind should be valued at the market prices that would have been receivable if the resources had been sold in the market.
In the absence of a market price, the donor’s view of the imputed value of the transaction will oft en be quite diff er- ent from that of the recipient.

Th e suggested rule of thumb is to use the value assigned by the donor as the basis of recording.

3.122 In some cases, actual exchange values may not represent market prices.

Examples are transac- tions involving transfer prices between affi liated units, manipulative agreements with third parties, and cer- tain noncommercial transactions.
Prices may be under- or overinvoiced, in which case an assessment 58 Government Finance Statistics Manual 2014 of a market-equivalent price needs to be made.

Al- though, conceptually, adjustment should be made when actual exchange values do not represent mar- ket prices, this may not be practical in many cases.

In some cases, transfer pricing may be motivated by in- come distribution or equity buildups or withdrawals.
Replacing book values with market-value equivalents is desirable in principle, when the distortions are large and when the availability of data (such as adjustments by customs or tax offi cials or from partner economies) makes it feasible to do so.

Selection of the best market- value equivalents to replace book values is an exercise calling for cautious and informed judgment.
In many cases, compilers may have no choice other than to ac- cept valuations based on explicit costs incurred in production or any other values assigned by the unit.

3.123 While some nonmarket transactions, such as grants in kind, have no market price, other non- market transactions may take place at implied prices that include some element of grant or concession so that those prices also are not market prices (see para- graphs 3.10–3.11).
Examples of such transactions could include negotiated exchanges of goods between governments and governments’ concessional lending.

While there is no precise defi nition of concessional loans, it is generally accepted that they occur when units lend to other units and the contractual interest rate is intentionally set below the market interest rate that would otherwise apply.
Th e degree of concession- ality can be enhanced with grace periods (see para- graph 6.69), frequencies of payments, and a maturity period favorable to the debtor.

Since the terms of a concessional loan are more favorable to the debtor than market conditions would otherwise permit, con- cessional loans eff ectively include a transfer from the creditor to the debtor.
However, except for the case of concessional lending to government employees (see paragraph 6.17 and Chapter 6, footnote 11) and con- cessional lending by central banks (see Box 6.2), the means of incorporating the impact of concessional lending into GFS have not been fully developed.

Ac- cordingly, until the appropriate treatment of conces- sional debt is resolved, information on concessional debt should be provided as supplementary informa- tion (see paragraph 7.246).
3.124 Where a single amount payable/receivable refers to more than one transaction category, the indi- vidual fl ows should be partitioned and recorded sepa- rately (see paragraph 3.29).

In such a case, the total value of the individual transactions aft er partitioning must equal the market value of the exchange that ac- tually occurred.

3.125 Th e value of fl ows that are not already ex- pressed at their market value, such as barter transac- tions, must be estimated.
In addition, market values for many stock positions will not be readily available and must be estimated.

Th e following list suggests several estimation possibilities.

Th e choice of which method to use in a given circumstance depends on the information available.

• It may be possible to estimate the values of trans- actions based on values taken from markets in which similar transactions take place under similar conditions.
Th e value of certain stock positions, primarily fi nancial assets, may also be estimated using market transactions involving similar assets that take place at the end of the re- porting period.

• Flows and stock positions involving existing fi xed assets can be valued using the market price for similar new goods, properly adjusted for con- sumption of fi xed capital and other events that may have occurred since they were produced.
• If there is no appropriate market in which a par- ticular good or service is currently traded, the valuation of a fl ow involving that good or service may be derivable from the market prices of simi- lar goods and services by making adjustments for quality and other diff erences.
• Th e value of fl ows and stock positions of assets may be estimated on the basis of the historic or acquisition cost of the item, adjusted for all changes that have occurred since it was pur- chased or produced, such as consumption of fi xed capital, holding gains or losses, depletion, exhaustion, degradation, unforeseen obsoles- cence, and exceptional losses.26 • Goods and services can be valued by the amount that it would cost to produce them in the cur- rent reporting period.
For market producers, the market value of a nonfi nancial asset valued in this way should include a mark-up that re- fl ects the net operating surplus attributable to 26 Th is estimate is also referred to as the “written-down current acquisition” value.

Economic Flows, Stock Positions, and Accounting Rules 59 the producer.
For nonmarket goods and services produced by general government units or non- profi t institutions serving households (NPISHs), however, no allowance should be made for any net operating surplus in the calculation of the market price.

• Assets can be valued at the discounted pres- ent value of their expected future returns.

Th is method is particularly prominent for a number of fi nancial assets, natural assets, and intangible assets.
For some fi nancial assets, the present mar- ket value is established by discounting future pay- ments or receipts to the present, using the market interest rate.

In principle, therefore, if a reason- ably robust estimate of the stream of future earn- ings to come from an asset can be made, along with a suitable discount rate, this method allows an estimate of the present value.
However, it may be diffi cult to determine the future earnings with the appropriate degree of certainty, given that as- sumptions are also needed about the asset’s life span and the discount factor to be applied.

Be- cause of these uncertainties, the other possible sources of valuation described in the preceding paragraphs should be exhausted before resorting to this method.
Valuation of other economic ﬂ ows 3.126 Apart from transactions, the change in the value of assets and liabilities between two end-periods also results from holding gains and losses, and other changes in volume of assets and liabilities.

Th e valua- tion of these other economic fl ows is discussed in the remainder of this section.

Holding gains and losses 3.127 Holding gains and losses accrue continu- ously and apply to both nonfi nancial and fi nancial assets and liabilities.
Since all fi nancial assets, except gold bullion, are matched by liabilities either within the domestic economy or with the rest of the world, it is important that holding gains/losses are recorded symmetrically.

A holding gain occurs when an asset increases in value or a liability decreases in value; a holding loss occurs when an asset decreases in value or a liability increases in value.

Holding gains and losses during a reporting period are shown separately for assets and liabilities.
In practice, the value of hold- ing gains and losses is calculated for each asset and liability between two points in time: the beginning of the period or when the asset or liability is acquired or incurred, and the end of the period or when the asset or liability is sold or extinguished.
Other changes in the volume of assets 3.128 In order to determine the valuation of the other changes in the volume of nonfi nancial assets, it is usually necessary to determine the market value of the asset before and aft er the economic event, such as its appearance, disappearance, catastrophic loss, or re- classifi cation (see paragraphs 10.46–10.84).

Th e value of the other change in volume is calculated as the dif- ference in the market value of the asset immediately before and aft er the event.
3.129 Other changes in the volume of fi nancial assets and liabilities are recorded at the market or market-equivalent prices of similar instruments.

For writing-off of marketable fi nancial instruments that are valued at their market values, the value recorded in the other changes in the volume of asset account should correspond to their market values prior to being written off .
For nonmarketable fi nancial instru- ments that are recorded at nominal values, the value recorded in the other changes in the volume of assets account should correspond to their nominal value prior to being written off .

For all reclassifi cations of assets and liabilities, values of both the new and old instruments should be the same.
Currency Unit of account 3.130 Th e compilation of GFS, particularly trans- actions and stock positions with nonresidents, is com- plicated by the fact that the values may be expressed initially in a variety of currencies or perhaps in other standards of value, such as Special Drawing Rights (SDRs).
Th e conversion of these transactions and stock positions expressed in another currency, or a commodity into a reference unit of account, is a requi- site for the construction of consistent and analytically meaningful statistics.

If fi nancial assets or liabilities are in foreign currency units, data in a single currency unit are needed for compiling meaningful statistics.
3.131 From the perspective of the national com- piler, the domestic currency unit is the obvious choice for measuring transactions and stock positions.

De- nominating government finance transactions and 60 Government Finance Statistics Manual 2014 stock positions in such a way is compatible with the national accounts and most of the economy’s other economic statistics.
Where a foreign currency is used to settle domestic transactions, such as with “dollarized” economies, this foreign currency may be the relevant currency unit for the compilation of GFS.

Currency conversion 3.132 Th e most appropriate exchange rate to be used for conversion of transactions and stock posi- tions is the market (spot) rate prevailing on the trans- action or balance sheet date.

Th e midpoint between buying and selling rates should be used.
3.133 For debt transactions, in principle, the actual exchange rate applicable to each transaction should be used for currency conversion.

Th e use of a daily average exchange rate for transactions usually pro- vides a good approximation.

If daily rates cannot be applied, average rates for the shortest period should be used.

Some transactions occur on a continuous basis, such as the accrual of interest over a period of time.
For such fl ows, therefore, an average exchange rate for the period in which the fl ows occur should be used for currency conversion.

More details on cur- rency conversion are given in the BPM6, paragraphs 3.104–3.108.

Domestic and foreign currency 3.134 For an economy, a domestic currency is dis- tinguished from foreign currency.
Domestic currency is that which is legal tender in the economy and issued by the monetary authority for that economy—that is, either that of an individual economy or, in a currency union, that of the common currency area to which the economy belongs.

All other currencies are foreign currencies.


3.135 Under this defi nition, an economy that uses as its legal tender a currency issued by a monetary authority of another economy—such as U.S. dollars— or of a common currency area to which it does not belong should classify the currency as a foreign cur- rency, even if domestic transactions are settled in this currency.
Unallocated gold accounts and other unallocated accounts in precious metals giving title to claim the delivery of gold or precious metal are treated as denominated in foreign currency.

3.136 SDRs are considered to be foreign currency in all cases, including for the economies that issue the currencies in the SDR basket.

Any other currency units issued by an international organization, except in the context of a currency union, are considered for- eign currency.
Currency of denomination and currency of settlement 3.137 For debt statistics, a distinction should be made between the currency of denomination and the currency of settlement.

Th e currency of denomina- tion is determined by the currency in which the value of fl ows and stock positions is fi xed as specifi ed in the contract between the parties.
Accordingly, all cash fl ows are determined using the currency of denomi- nation and, if necessary, converted to the domestic currency or another unit of account for the purpose of settlement or compilation of accounts.

Th e cur- rency of denomination is important for distinguish- ing transaction values and holding gains and losses.

3.138 Th e currency of settlement may be diff erent from the currency of denomination.
Using a currency in settlement that is diff erent from the currency of de- nomination simply means that a currency conversion is involved each time a settlement occurs.

Th e currency of settlement is important for international liquidity and measurement of potential foreign exchange drains.

3.139 A fi nancial instrument may be settled in do- mestic currency with both the amount to be paid at maturity and all periodic payments (such as coupons) linked (or indexed) to a foreign currency.
In this in- stance, the currency of denomination is the foreign currency.

Some instruments are denominated in more than one currency.

However, if the amounts payable are linked to one specifi c currency, then the liability should be attributed to that currency.

Derived Measures 3.140 Derived measures consist of aggregates and balancing items.

Th ey are important analytic tools that summarize the values of selected fl ows or stock positions that have been individually recorded in the GFS framework.
Th ese derived measures are the sum or the balance of two or more fl ows or stock positions.

3.141 Aggregates are summations of individual entries and elements in a class of fl ows or stock posi- tions.

Th ey allow for these data to be arranged in a Economic Flows, Stock Positions, and Accounting Rules 61 manageable and analytically useful way.
For example, tax revenue is the sum of all fl ows that are classifi ed as taxes, and data for social security funds are the ag- gregations of the data for all institutional units in the economy that are classifi ed as social security funds.

Aggregates and classifi cations are closely linked in that classifi cations are designed to produce the aggregates thought to be most useful.

Conceptually, the value for each aggregate is the sum of the values for all items in the relevant category.
However, estimates of some ag- gregates may be needed due to defi ciencies in source data, such as missing information on individual trans- actions, other economic fl ows, and asset and liability positions that may be incomplete or even nonexistent.

3.142 Balancing items are economic constructs obtained by subtracting one aggregate from a second aggregate.

For example, the net operating balance is obtained by subtracting the total expense aggregate from the total revenue aggregate.
Net worth is the bal- ancing item equal to total assets minus total liabilities (see Chapter 4).

Netting of Flows and Stock Positions 3.143 It is feasible to present many categories of fl ows and stock positions on a gross or net basis.

An item presented on a net basis is calculated as the sum of one set of fl ows or stock positions minus the sum of a second set of a similar kind.
For example, total tax revenue could be presented on a gross basis as the total amount of all taxes accrued, or on a net basis as the gross amount minus tax refunds.

Similarly, interest can be presented on a gross basis as interest revenue and interest expense, respectively, while it is feasible to calculate the net interest.
Th e choice de- pends on the category of fl ows or stock positions, the nature of the items that might be subtracted to obtain the net value, and the analytic utility of the gross and net values.

Th e choices for gross and net presentations as used in the GFS framework are discussed in para- graphs 3.144–3.151.

3.144 In GFS, revenue categories are presented gross of expense categories for the same or related category and likewise for expense categories.
In par- ticular, interest revenue and interest expense are pre- sented gross rather than as net interest expense or net interest revenue.

Similarly, social benefi ts and social contributions, grant revenue and expense, and rent revenue and expense are presented gross.

Also, sales of goods and services are presented gross of the ex- penses incurred in their production.
3.145 In the case of the correction of erroneous or unauthorized transactions, revenue categories are pre- sented net of refunds of the relevant revenue, and ex- pense categories are presented net of infl ows from the recovery of the expense.

For example, refunds of income taxes may be paid when the amount of taxes withheld or otherwise paid in advance of the fi nal determination exceeds the actual tax due.

Such refunds are recorded as a reduction in tax revenue.
Similarly, if social benefi ts that were paid in error are recovered, then such recov- eries are recorded as a reduction in expense.

3.146 Acquisitions and disposals of nonfi nancial assets other than inventories are presented gross.

For example, acquisitions of land are presented separately from disposals of land.

For analytic presentations, the net acquisition of each category of nonfi nancial asset may be preferable and can be derived easily.
3.147 Netting is implicit in the presentation of some specifi c transactions categories in GFS—for ex- ample, changes in inventories.

Changes in each type of inventories are presented net rather than tracking daily additions and withdrawals.

Th at is, the change in materials and supplies is presented in the GFS framework as the net value of additions minus with- drawals.
Nonetheless, full inventory accounting could allow for the gross recording of all the movements in inventories in the underlying administrative records.

Similarly, tax revenue is presented net of nonpayable tax credits (see paragraphs 5.29–5.32).

3.148 Acquisitions and disposals of each category of fi nancial assets/liabilities are also presented net in the GFS framework, to refl ect the nature of the fi nancial fl ows.
For example, only the net change in the holding of assets related to currency and deposits is presented, not gross receipts and disbursements.

Similarly, additions to liabilities in the form of loans are presented net of repayments.

However, for ana- lytical and administrative reasons, it may be useful to develop source data on the gross acquisitions and the gross disposals of each fi nancial instrument as sepa- rate data categories.

3.149 Other economic fl ows are presented net.


Th at is, the net holding gain for each asset and lia- bility is presented, not gross holding gains and gross 62 Government Finance Statistics Manual 2014 holding losses.

Similarly, other changes in the volume of assets and liabilities are presented net, rather than recording increases and decreases in volume changes on a gross basis.
3.150 Stock positions held for the same type of fi - nancial instrument, both fi nancial assets or liabilities, are presented gross.

For example, a unit’s holding of debt securities as fi nancial assets is presented sepa- rately from its liabilities for debt securities issued.

3.151 In the GFS framework the terms “gross” and “net” are used in a very specifi c manner.
Apart from the balancing items net worth, net operating balance, and net lending/net borrowing, the GFS classifi ca- tions employ the word “gross” and “net” to indicate the value of the operating balance and investment in nonfi nancial assets before or aft er deduction of consumption of fi xed capital.
Th e framework also uses the term “net” to indicate that the net acquisi- tion of fi nancial assets represents both acquisition and disposal of assets, while the net incurrence of li- abilities represents both incurrence and repayment of liabilities.
Consolidation 3.152 A consolidated set of accounts for a group of units, subsectors, or sectors, is produced by, fi rst, an aggregation of all fl ows and stock positions within the GFS analytical framework, followed by the elimi- nation, in principle, of all fl ows and stock positions that represent relationships among the units or enti- ties being consolidated.
In other words, consolidation eliminates the double-count because a fl ow or stock position of one unit is paired with the corresponding fl ow or stock position recorded for the second unit with which it is being consolidated, and both fl ows and/or stock positions are eliminated.
For example, if one general government unit owns a bond issued by a second general government unit, and data for the two units are being consolidated, then the stock positions of bonds held as assets and liabilities of the consoli- dated unit are reported as zero (i.e., as if the bond po- sition between them did not exist).
At the same time, the interest related to this bond is consolidated, so that the interest revenue and expense of the consoli- dated account exclude the interest paid by the debtor general government unit to the creditor general gov- ernment unit.

Similarly, sales of goods and services between consolidated units are also eliminated.27 Deﬁ nitions 3.153 Consolidation is a method of presenting sta- tistics for a set of units (or entities) as if they consti- tuted a single unit.
In the GFS framework, the data presented for a group of units are consolidated.

In particular, statistics for the general government sec- tor and each of its subsectors are presented on a con- solidated basis.
When units of the public sector are included in a presentation, the data for public corpo- rations should be presented in two ways: as separate subsectors for the fi nancial public corporations and for the nonfi nancial public corporations; and together with general government units for the consolidated public sector.

In both cases, the statistics should be presented on a consolidated basis within each group.
3.154 When compiling general government or public sector statistics, two types of consolidation may be necessary—namely, intrasectoral consolida- tion and intersectoral consolidation.

3.155 Intrasectoral consolidation is consolidation within a particular subsector to produce consolidated statistics for that particular subsector—for example, within the central government subsector or within the public nonfi nancial corporations subsector.

Th is consolidation may be required at two stages.


A single institutional unit may require consolidation when the unit has multiple funds and accounts to carry out its operations and there are fl ows and stock positions among those funds.

For example, a country may have a core central government institutional unit that has one or more departmental accounts, as well as special funds and accounts established for specifi c purposes.
Th ere are oft en fl ows and stock positions held between these accounts and funds that are recorded on a gross basis in the respective accounts.

Failure to eliminate these transfers would yield aggregates that result from the accounting device, and not from interaction with units outside of the central government.
3.156 Intersectoral consolidation is consolidation between subsectors of the public sector to produce con- solidated statistics for a particular grouping of public 27 See PSDS Guide, Box 8.1 and Table 8.2, for examples of consolidation.

Economic Flows, Stock Positions, and Accounting Rules 63 sector units—for example, consolidation between cen- tral, state, and local governments, and between general government and public nonfi nancial corporations.
3.157 Intrasectoral consolidation is always done before intersectoral consolidation—for example, where more than one central government social se- curity fund exists, the data for all social security funds should be consolidated before the consolidated social security data is presented as a subsector of the central government.

Subsequently, data for all the subsectors of the central government will be subject to intersec- toral consolidation to produce data for the consoli- dated central government.
Reasons for consolidation 3.158 Th e main reason for consolidation lies in the analytical usefulness of the consolidated statistics: con- solidation eliminates the distorting eff ects on aggre- gates of diff ering administrative arrangements across countries or over time.

Th e main impact of consolida- tion on the statistics is on the magnitude of aggregates.
To relate government aggregates to the economy as a whole (e.g., revenue, expense, or debt to gross do- mestic product (GDP) ratios), it is better to eliminate the internal movement of economic value and include only those fl ows and stock positions that actually cross the boundaries with other sectors or nonresidents.

Th e same arguments apply to why public corporations and public sector statistics should be consolidated.
3.159 By eliminating all reciprocal fl ows and stock positions among the units being consolidated, con- solidation has the eff ect of measuring only fl ows or stocks of the consolidated units versus units outside the boundary.

Consolidation excludes the economic interaction within the grouping of institutional units, and presents only those fl ows or stocks that involve interactions with all other institutional units in the economy, and the rest of the world.
3.160 Consolidation avoids double-counting of fl ows or stock positions among a grouping of insti- tutional units, thus producing statistics that exclude these internal fl ows or stock positions.

It is the avoid- ance of double-counting that produces the increased analytical usefulness of consolidated statistics in cases where it makes sense to view the consolidated group as acting as if it were a single entity.
Conceptual guidelines 3.161 Conceptually, consolidation entails the elim- ination of all intra- and intergovernmental fl ows and all debtor-creditor relationships among the units or entities that are combined.

Consolidation requires a review of the accounts to be consolidated to identify inter- and intrasectoral fl ows and stock positions.

Th e goal is to eliminate, in a consistent manner, fl ows and stock positions that will have a signifi cant eff ect on the fi nal derived measures.
However, two types of trans- actions that appear to take place between two govern- ment units are never consolidated because they are rerouted in GFS (see paragraph 3.28): • Employer social contributions, whether paid to social security or government pension funds, are treated as being payable to the employee in the household sector as part of compensation and then payable by the employee to the social secu- rity scheme.
• Taxes withheld by government units from the compensation of their employees, such as pay- as-you-earn taxes, and paid to other government units should be treated as being paid directly by the employees.

Th e government employer is sim- ply the collecting agent for another government unit, and is acting on behalf of the employees in the household sector.

3.162 Consolidation covers a range of categories of fl ows that may vary greatly in importance.
Th e major transactions, in likely order of importance, cover: • Grants (current and capital) among general gov- ernment units or entities • Interest income/expense • Taxes paid by one government unit or entity to another (except those taxes withheld on behalf of the household sector) • Purchases/sales of goods and services • Acquisitions/disposals of nonfi nancial assets.
3.163 Th e following major transactions, other eco- nomic fl ows, and stock positions in fi nancial assets and liabilities, in likely order of importance, should be consolidated: • Loans • Debt securities • Other accounts receivable/payable.
64 Government Finance Statistics Manual 2014 3.164 For the public sector, in addition to the forego- ing fi nancial instruments, the following fl ows and stock positions should also be eliminated—in principle—in both intra- and intersectoral consolidation: • Equity and investment fund shares • Currency and deposits • Insurance, pension, and standardized guarantee schemes.
Implementing consolidation 3.165 Th is Manual recommends that, based on Table 3.1, counterparty fl ows and stock position in- formation be identifi ed that will be eliminated in con- solidation.

But practicality should be kept in mind: the resources devoted to consolidation and the level of detail applied in consolidation should be in direct proportion to their fi scal signifi cance.
Suggestions for the sequence of analysis are: • Begin all consolidation exercises with an analysis of the accounts involved to determine whether there are fl ows or stock positions internal to the unit(s) to be consolidated.

Th is will depend on knowledge of the relationships among the units in- volved.

Do some of the units incur expense or re- ceive revenue from the other units?

Do some units extend loans to the other units?

Do they buy debt securities issued by the other units?
Do they have currency and deposits held by the other units?

• Once these relationships are established, com- pilers must determine whether the intra- and/or intersectoral fl ows and stock positions can be mea- sured or estimated, and whether the amounts will be signifi cant in terms of analytical importance.

• If the amounts are likely to be signifi cant, are they large enough to justify the eff ort to collect the data and other information for consolida- tion purposes?
Th e eff ort and cost to identify an amount to be consolidated should be directly proportional to the expected amount and its im- pact on the aggregates.

• Th e “one-side” rule of thumb is commonly used.

Th at is, if there is convincing evidence from the one institutional unit that a fl ow or stock position exists, it should be imputed to the counterparty.

Th e imputation should be recorded even if there is no record of the fl ow or stock position in the counterparty’s accounts.
When such an adjust- Table 3.1 Detailed Classiﬁ cation of Counterparty Information Code Sector1 General government Central government State governments Local governments Social security funds2 Corporations Private corporations Private nonﬁ nancial corporations Private ﬁ nancial corporations Public corporations Public nonﬁ nancial corporations Public ﬁ nancial corporations 1Further breakdown/“of which” lines could allow for the identiﬁ cation of subsectors and individual units.
2Social security funds are presented as a subsector only if their data are excluded from the data of the government level at which they are organized (see paragraph 2.78).

ment is made in the data for a unit where the fl ow or stock position cannot be directly identifi ed, it will be necessary to ensure that the records for that unit are properly modifi ed.

• For fl ows and stock positions in fi nancial assets and liabilities, normally the creditor can be ex- pected to maintain the most reliable records.
For loans, the creditor unit usually maintains the most complete records, but, with the international em- phasis on proper debt recording, the debtor unit may be equally reliable.

For debt securities, espe- cially bearer instruments, only the creditor may have the information needed for consolidation.
For example, when a central government issues bearer securities, some of which are acquired by public corporations, the central government may have no direct information on who is holding the securities, especially if they can be acquired on secondary markets.

It is therefore necessary to rely on the creditor’s records.

• Sometimes discrepancies exist between data for two units that are being consolidated.
Th ere are many reasons for such discrepancies, such as cov- erage, time of recording, valuation, and classifi ca- tion.

Resolving these discrepancies will promote proper consolidation and improve the overall Economic Flows, Stock Positions, and Accounting Rules 65 quality of GFS compiled.

However, where a dis- crepancy cannot be resolved, decisions need to be made about which unit or group of units has the most reliable source data.
Generally, the higher level of government is considered to have more re- liable records than the lower levels of government.

• To create consistency with other macroeconomic datasets, components of the data for the public sector should be presented in such a way that they show the data before consolidation and aft er con- solidation.
Th is will allow for the unconsolidated data to be consistent with the data required in the national accounts and other datasets that are pre- sented before consolidation (see paragraph 3.168).

3.166 Consolidation does not aff ect balanc- ing items.

In other words, the balancing items that are produced by simple aggregation are the same as those produced by consolidation.
Th is is a result of the symmetry of the consolidation process, wherein the two sides of the consolidation adjustment fall within the same section of the analytical framework.

When consolidated data produce diff erent balancing items from the unconsolidated data, recording errors have been made.
Th erefore, when intra- or intersec- toral fl ows and stock positions to be consolidated are not measured in the same amount by the units or subsectors involved, a consolidation method must be chosen that does not aff ect balancing items (see paragraph 3.165).
Consolidation in other datasets 2008 System of National Accounts 3.167 Th e 2008 SNA recommends, as a matter of principle, that statistics of institutional units should not be consolidated in the national accounts, but that consolidated accounts may be compiled for comple- mentary presentations and analyses.

Even then, transactions appearing in diff erent accounts of the national accounts are never consolidated.
Th e diff er- ence between the 2008 SNA and this Manual refl ects the diff erent uses of the statistics.

Th e GFS framework is designed to produce statistics suitable for use in the analysis of the net relations between government and the rest of the economy.
In particular, assessing the overall impact of government operations on the total economy or the sustainability of government op- erations is more eff ective when the measure of gov- ernment operations is a set of consolidated statistics rather than unconsolidated statistics.

Th e GFS frame- work also is not intended to produce a measure of production.
Th e 2008 SNA, on the other hand, serves a range of other uses, including a comprehensive mea- sure of production and relations among all the sectors of the economy.

Financial statements 3.168 In fi nancial statements, compiled in accor- dance with accounting standards, accounting entries are oft en presented on a consolidated basis for the re- porting entity and all of its controlled entities.
Th is is done without regard to whether the controlled entities are general government units or public corporations, as those terms are used in this Manual, or whether the controlled entities are residents or nonresidents.

Th is use of consolidation attempts to portray the operations and fi nancial position of a parent and its subsidiaries as though the group of enterprises were a single unit.
For example, a fi nancial report for a state government unit would include all public corpora- tions controlled by that government unit but would not include the statistics of any other state govern- ments.

In contrast, the consolidated statistics of the state government subsector in the GFS framework would include all state government units of the coun- try, but would exclude all public corporations owned or controlled by those state governments.
4 The Government Finance Statistics Analytic Framework Th is chapter introduces the government fi nance statis- tics analytic framework1 and describes the relationships among its elements and use of government fi nance sta- tistics in fi scal analysis.

Introduction 4.1 Government units and public corporations carry out a multitude of activities.
To manage the internal operations of government and assess their impact on the economy, these activities—resulting in transactions and other economic fl ows—must be organized into a framework within which they can be summarized and analyzed.

For accountability purposes, these activities may be organized accord- ing to the government unit that carries them out.

For managerial or planning purposes, these activities may be organized by the kind of item purchased/sold or service provided/acquired.
For billing or control pur- poses, these activities may be organized by the par- ticular transactors with whom the government deals.

Th e GFS framework, on the other hand, is designed to facilitate fi scal analysis in a broader macroeconomic context.
While there is clearly a close link between ac- counting data and macroeconomic statistics, they do not serve the same objectives and may diff er in the treatment of particular items.2 4.2 Traditionally, governments have recorded their activities on a cash basis; this is refl ected in the ana- lytic framework of the GFSM 1986.
Including only cash revenue and expenditure has the advantage of focusing the government’s attention on its fi nancing/ 1 Th e GFS analytic framework refers to the structure of accounts and their relationships as a body of thought, while the term GFS framework more generally refers to the framework for the compi- lation and dissemination of GFS data.
2 See Appendix 6 for a detailed description of the linkages between GFS and international accounting standards, and see Appendix 7 for linkages between GFS and other macroeconomic statistics.

liquidity constraint, which has traditionally been viewed as its most binding priority.
However, gov- ernments have become less liquidity-constrained in carrying out fi scal policy and have become more adept at separating the time of a fi scal action from the time it is paid for, so that cash transactions do not adequately capture either the timing of activities or their economic impact.
In consequence, there has been increasing recognition worldwide of the need to adopt the accrual system of recording, which includes a cash-fl ow statement for assessing fi scal policy.3 4.3 Th e GFS analytic framework introduced in the GFSM 2001, and as updated in this Manual, refl ects these developments and is presented in the form of a set of interrelated accrual-based statements.
Th ese statements are harmonized with the 2008 SNA, that integrate fl ows and stock positions, and are supple- mented with a cash-fl ow statement.

Th e GFS analytic framework facilitates a more comprehensive assess- ment of the economic impact of government activity and the resulting changes on liquidity and the im- plications for the sustainability of fi scal policy.
More specifi cally, the use of accrual-based statements and the integration of balance sheets with fl ows are con- sistent with the need for government behavior to be determined in the context of its intertemporal bud- get constraint.

For example, a government’s policies will not be sustainable if they signifi cantly reduce its net worth.

Th e framework also provides an improved basis for monitoring effi ciency in the allocation and use of all government resources.
Th e analytic frame- work set out in this Manual encompasses the tradi- tional cash-based fi scal reporting, to support liquidity analysis.

3 For example, see Study 11, Part III of International Federation of Accountants, Government Financial Reporting: Accounting Issues and Practices (New York, 2000), and IFAC Recommendations to G-20 meeting, New York, 2010 and 2012.
The Government Finance Statistics Analytic Framework 67 Analytic Objectives 4.4 Th e GFS analytic framework is a quantitative tool that supports fi scal analysis.

To permit eff ective analysis of fi scal policy, the GFS framework must fa- cilitate the identifi cation, measurement, monitoring, and assessment of the impact of a government’s eco- nomic policies and other activities on the economy.
4.5 To achieve the analytic objectives, the GFS framework should generate data that: • Are suffi ciently detailed and eff ectively organized to allow an assessment of management and pol- icy decisions • Are closely linked to other macroeconomic sta- tistical frameworks (national accounts, balance of payments and international investment posi- tion, and monetary and fi nancial statistics) • Enable analysts to assess the fi nancial soundness of the general government and public sectors in ways commonly applied to other organizations in the economy4 • Enable assessment of sustainability over the long term • Enable assessment of liquidity constraints and fi - nancing needs.
Construction of the Analytic Framework: Relation to the GFSM 1986 4.6 Th e analytic framework of this Manual builds on the GFSM 1986 framework, and extends it by incor- porating additional elements that are useful in assess- ing fi scal policy.

Th ere are three types of modifi cations: • Th e defi nitions of individual statistical variables are closely aligned with economic concepts.
An important example is the treatment of nonfi nan- cial assets, where the sale of such assets is no lon- ger included in revenue and their purchase is no longer included in expense.

• Concepts are harmonized with the 2008 SNA.


Th ese include: the shift from a functional-based defi nition of general government and public sectors to one built on institutional units (see paragraphs 2.22–2.48); a switch from using only 4 Organizations in other sectors of the economy record their op- erations in the form of integrated accounting systems that include income statements, balance sheets, and cash-fl ow statements.
the cash basis of recording to a framework of accounts using the accrual basis of recording, while maintaining a cash-fl ow statement (see paragraphs 3.70–3.72); and the complete integra- tion of fl ows and stock positions (see paragraphs 3.2–3.3).

• Th e GFSM 1986 framework has been extended to include nonmonetary transactions, such as in- kind and imputed transactions (see paragraphs 3.19–3.20), fl ows other than transactions (see paragraphs 3.31–3.35), and a balance sheet (see paragraphs 3.36–3.50).
4.7 In principle, the coverage of GFS encompasses all institutional units that materially aff ect fi scal poli- cies.

Th erefore, two principal constructs are used for which GFS should be compiled.

Th e general govern- ment sector captures those institutional units primar- ily involved in nonmarket activities of government, while the public corporations sector captures all the activities of public corporations, including their mar- ket and quasi-fi scal activities (see Chapter 2).
Once an institutional unit has been classifi ed to a sector, all its fl ows and stock positions are recorded in that sector.

Th us, statistics for the general government sector as well as for the public sector should be compiled.

Th e analytic framework described in this chapter can be applied to both sectors, and their subsectors.

Components and Concepts of the Analytic Framework 4.8 Th e core of the analytic framework is a set of four fi nancial statements.
Th ree of the statements can be combined to show that all changes in stock posi- tions result from fl ows (see Figure 4.1 and paragraph 3.4).

Th ese are the: • Statement of Operations • Statement of Other Economic Flows • Balance Sheet.

In addition, the core framework includes a Statement of Sources and Uses of Cash to provide key informa- tion on liquidity.

4.9 Th e Statement of Operations is a summary of the transactions of a sector or subsector in a given reporting period.
In essence, transactions represent changes to stock positions that arise from mutually agreed interactions between institutional units, such 68 Government Finance Statistics Manual 2014 Figure 4.1 Structure of the GFS Analytic Framework Stock positions + Transactions Other economic flows Flows = Stock positions Statement of Statement of Operations Operations Revenue minus Expense Equals Equals Change in net worth due to transactions (net operating balance) Opening Opening Balance Sheet Balance Sheet Net worth + Equals Equals Equals Equals Nonfinancial assets Plus Plus Net financial worth + + Transactions in nonfinancial assets Plus Plus Change in net financial worth due to transactions (net lending (+) / net borrowing (–)) Equals Equals Equals Equals Financial assets + Transactions in financial assets Minus Minus Minus Minus Liabilities + Transactions in liabilities Statement of Other Economic Flows Closing Balance Sheet + + + + + Change in net worth due to other economic flows = Net worth Equals Equals Equals Equals Other economic flows in nonfinancial assets Plus Plus Change in net financial worth due to other economic flows = = Nonfinancial assets Plus Plus Net financial worth Equals Equals Equals Equals Other economic flows in financial assets = Financial assets Minus Minus Minus Minus Other economic flows in liabilities = Liabilities as the sale of a good or service by one unit and its purchase by another (see paragraph 3.5).
Th e frame- work also recognizes that a unit can act in two capaci- ties of economic interest and includes as transactions some items that do not involve another institutional unit.

For example, consumption of fi xed capital rec- ognizes that a unit is both the owner of a fi xed asset and the consumer of the services provided by the asset.

Taken together, transactions constitute the larg- est share of the fl ows associated with the implemen- tation of fi scal policy.
As described in the following section, transactions are classifi ed to demonstrate how general government and public sector units raise revenue and spend it, and to show the eff ects of fi scal The Government Finance Statistics Analytic Framework 69 policy decisions on the net worth of the sector, on its demand for credit, and on its ability to invest in assets.
4.10 Th e Statement of Other Economic Flows tabu- lates changes to stock positions of assets, liabilities, and net worth that come about for reasons other than transactions.
More specifi cally, holding gains and losses represent changes to stock positions that arise from price movements, including exchange rate movements.5 Other changes in the volume of as- sets represent changes to stock positions arising from events such as the discovery of new assets/liabilities (e.g., mineral deposits), depletion or destruction of assets, or reclassifi cation of assets/liabilities.
4.11 Th e Balance Sheet records the stock positions of assets, liabilities, and net worth of the sector or sub- sector at the end of each reporting period.

4.12 Th e Statement of Sources and Uses of Cash re- cords cash infl ows and outfl ows using a classifi cation similar to that of the Statement of Operations, but with a focus on the net change in cash fl ows arising from transactions during the reporting period.
4.13 In addition to the core statements of the GFS framework, two supplementary statements are in- cluded in the framework due to their analytic useful- ness.

Th ese statements are the: • Statement of Total Changes in Net Worth • Summary Statement of Explicit Contingent Liabil- ities and Net Implicit Obligations for Future Social Security Benefi ts.
4.14 Th e Statement of Total Changes in Net Worth combines the revenue and expense transactions from the Statement of Operations with the State- ment of Other Economic Flows in one statement.

In its summary format, this supplementary statement serves to highlight the total changes in net worth of government.

4.15 Th e Summary Statement of Explicit Contin- gent Liabilities and Net Implicit Obligations for Future Social Security Benefi ts summarizes the explicit and implicit guarantees outstanding.
Contingent liabilities create fi scal risks and may arise from deliberate public policy or from unforeseen events.

Th e stock positions of explicit and some implicit contingent liabilities are recorded as memorandum items to the GFS balance sheet (see paragraphs 7.251–7.261).

For details on 5 “Holding gains” is used as a short form of the more general term “holding gains and losses.” the recording of contingent liabilities, also see para- graphs 7.251–7.259 and the PSDS Guide, paragraphs 4.3–4.26.
The Statement of Operations 4.16 Th e Statement of Operations (see Table 4.1) presents details of transactions in revenue and ex- pense, as well as the net investment in nonfi nancial assets, the net acquisition of fi nancial assets, and the net incurrence of liabilities.6 Revenue is defi ned as the increase in net worth resulting from transactions, and expense as the decrease in net worth resulting from transactions.
Th e net investment in nonfi nan- cial assets equals the acquisitions minus disposals of fi xed assets, minus consumption of fi xed capital, plus changes in inventories, plus the net acquisition (ac- quisitions minus disposals) of valuables and nonpro- duced assets.

4.17 Two important analytic balances are derived in the Statement of Operations.

Revenue minus ex- pense equals the net operating balance, refl ecting the total change in net worth due to transactions.
Th e sub- sequent deduction of the net investment in nonfi nan- cial assets results in net lending (+) / net borrowing (–), which is also equal to the net result of transactions in fi nancial assets and liabilities.

In addition to these bal- ances, the annex to Chapter 4 describes a number of other important fi scal indicators that could be derived from GFS and that are used in fi scal analysis.
4.18 Th e net operating balance is a summary mea- sure of the sustainability of the reporting sector or subsector’s operations.

It is comparable to the national accounts concept of saving plus net capital transfers receivable.

Th e net operating balance as defi ned here excludes gains and losses resulting from changes in price levels and other changes in the volume of as- sets.
Th e component of the change in net worth that 6 As explained in paragraph 3.69, the Statement of Operations is intended to be compiled using the accrual basis of recording transactions.

It is recognized, however, that many governments may be able to compile statistics only on the cash or partial accrual basis for some time.

If only cash data are available, the classifi cation of cash fl ows shown in Table 4.2 should be used.
Otherwise, with accrual or partial accrual (noncash) source data, the classifi cation of transactions shown in Table 4.1 should be used.

With the exception of consumption of fi xed capital, in-kind and imputed transactions, and other accounts receivable/payable, all of the line items in Table 4.1 can be applied to both cash and accrual data.

However, the benefi ts of the fully integrated GFS framework can be derived only when using the accrual basis of recording.
70 Government Finance Statistics Manual 2014 is due to transactions can largely be attributed directly to government policies since governments have direct control over the decisions that lead to the interaction with other units by mutual agreement.

Th e same can- not always be said for the other components of the total change in net worth.

For example, changes in the market prices or events that impact on the volume of assets or liabilities are not in the direct control of government.
Still, these risks need to be monitored so that governments can manage them proactively to minimize their potential fi scal impact.

4.19 Net lending (+) / net borrowing (–) is a sum- mary measure indicating the extent to which gov- ernment is either putting fi nancial resources at the disposal of other sectors in the economy or abroad, or utilizing the fi nancial resources generated by other sectors in the economy or from abroad.
It may there- fore be viewed as an indicator of the fi nancial impact of government activity on the rest of the economy and the rest of the world.

While this balancing item is conceptually the same as in the 2008 SNA, amounts reported as net lending/net borrowing may diff er to the extent that a government maintains an unfunded pension scheme for its employees (see paragraphs 5.95, 7.192–7.193 and Appendixes 2 and 7).
4.20 Th e gross operating balance as presented in the Statement of Operations diff ers from the net operating balance in that it does not include consumption of fi xed capital as an expense.

Consumption of fi xed capital can be diffi cult to measure in practice and a satisfactory es- timate may not be available.
If so, the gross operating balance may be more practical for analysis than the net operating balance.7 Th e net operating balance is, how- ever, preferred in principle because it captures all costs of operations during the reporting period.

4.21 Expenditure is the sum of expense and the net investment in nonfi nancial assets and is presented as an additional aggregate in the Statement of Opera- tions.
Th is aggregate is not infl uenced by the level of consumption of fi xed capital and is therefore suitable for international comparisons between countries even if they cannot reliably measure consumption of fi xed capital.

7 Th e availability of data on consumption of fi xed capital has no infl uence on net lending/net borrowing.
Th e counterpart entry for the expense recorded for consumption of fi xed capital reduces the value of investment in fi xed assets—thereby neutralizing the impact on net lending/net borrowing.
Table 4.1 Statement of Operations Transactions Affecting Net Worth: 1 11 12 13 14 2 26 27 28 NOB/GOB Revenue Taxes Social contributions [GFS] Grants Other revenue Expense Compensation of employees [GFS] Use of goods and services Consumption of ﬁ xed capital [GFS] Interest [GFS] Subsidies Grants Social beneﬁ ts [GFS] Other expense Net/gross operating balance (1–2)1 Transactions in Nonﬁ nancial Assets: Net/gross investment in nonﬁ nancial assets2 Fixed assets Inventories Valuables Nonproduced assets 31 311 312 313 314 2M NLB Expenditure (2+31) Net lending (+) / Net borrowing (–) [GFS] (1–2–31 = 1–2M = 32–33) Transactions in Financial Assets and Liabilities (Financing): 32 321 322 33 331 332 Net acquisition of ﬁ nancial assets Domestic3 External3 Net incurrence of liabilities Domestic3 External3 1The net operating balance equals revenue minus expense.
The gross operating balance equals revenue minus expense other than consumption of ﬁ xed capital.

2The net investment in nonﬁ nancial assets equals acquisitions minus disposals minus consumption of ﬁ xed capital.

The gross investment in nonﬁ nancial assets equals acquisitions minus disposals.

3Classiﬁ ed by instrument and/or sector of the counterparty (see Tables 9.1 and 9.2).
4.22 As illustrated in Table 4.1, the Statement of Operations is divided into three sections that pres- ent: revenue and expense transactions; transactions in nonfi nancial assets; and transactions in fi nancial assets and liabilities.

Th e following paragraphs follow this structure in providing an overview of the vari- ous categories of transactions.

Th ese defi nitions and descriptions are not intended to be comprehensive.
The Government Finance Statistics Analytic Framework 71 In each section, reference is made to the chapter that contains more detailed information.

Revenue and Expense 4.23 Revenue is an increase in net worth resulting from a transaction.

8 Th e major types of revenue are taxes (11), social contributions (12), grants (13), and other revenue (14).9 Th e detailed classifi cation of rev- enue is described in Chapter 5.
Th e disposal of a non- fi nancial asset by sale or barter is not revenue because it has no eff ect on net worth.

Rather, it changes the composition of the balance sheet by exchanging one asset (the nonfi nancial asset) for another (the pro- ceeds of the sale).

Similarly, amounts receivable from loan repayments and loan disbursements are not rev- enue.

Th ese are transactions in assets or liabilities as described in Chapters 8 and 9.
4.24 Expense is a decrease in net worth result- ing from a transaction.10 Th e major types of expense are compensation of employees (21), use of goods and services (22), consumption of fi xed capital (23), interest (24), subsidies (25), grants (26), social ben- efi ts (27), and other expense (28).

In addition, ex- pense can be classifi ed according to the functions of government, such as health or social protection.

Th e economic and functional classifi cations of ex- pense are described in Chapter 6.
Th e acquisition of a nonfi nancial asset by purchase or barter is not an expense because it has no eff ect on net worth.

Rather, it changes the composition of the balance sheet by acquiring one asset (the nonfi nancial asset) against the disposal/reduction in another asset or by incurring a liability (the payable for the asset).

Similarly, amounts payable on loans extended and repayments on loans incurred are not classifi ed as expense.
Th ese are transactions in assets or liabili- ties as described in Chapter 8 and 9.

8 In general, transactions that increase net worth result from current operations.

Capital transfers are an exception.

Capital transfers are defi ned in paragraph 3.16.

In GFS, capital transfers receivable are classifi ed as revenue because they increase the recipient’s net worth and they are oft en indistinguishable from current transfers in their eff ect on government operations.
9 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.

Appendix 8 provides all classifi cation codes used in the GFS system.

10 As with revenue, transactions that decrease net worth result mainly from current operations.

Capital transfers payable or otherwise obligated are an exception.

See footnote 8.
See footnote 8.

Transactions in Nonﬁ nancial Assets11 4.25 Th e second section of the Statement of Opera- tions (see Table 4.1) records transactions that change a government’s net investment in nonfi nancial assets.

Nonfi nancial assets are economic assets other than fi nancial assets.

Nonfi nancial assets are stores of value and provide benefi ts either through their use in the production of goods and services or in the form of property income and holding gains.
Th ese assets are classifi ed as fi xed assets (311), inventories (312), valu- ables (313), and nonproduced assets (314).

Th e classifi - cation of nonfi nancial assets is described in Chapter 7 and transactions in nonfi nancial assets are discussed in Chapter 8.
Transactions in Financial Assets and Liabilities 4.26 Th e third section of the Statement of Opera- tions (see Table 4.1) records fi nancing transactions, which are transactions that change a government’s holdings of fi nancial assets and liabilities (fi nancial as- sets and liabilities are defi ned in paragraphs 3.48 and 3.45, respectively).
Th e classifi cation of fi nancial as- sets and liabilities is described in Chapter 7 and trans- actions in fi nancial assets and liabilities are discussed in Chapter 9.
4.27 Transactions in fi nancial assets can be clas- sifi ed in multiple ways; for ease of presentation, Table 4.1 indicates a classifi cation of fi nancial assets according to whether the counterpart liability was in- curred by a resident (indicated by “domestic” in the table) or a nonresident (indicated by “external”) and similarly for the classifi cation of liabilities.

4.28 Th ere are additional classifi cations of transac- tions in fi nancial assets and liabilities in GFS.
Th e fi rst classifi cation is based on the type of fi nancial instru- ments involved in the transactions.

Th e instruments are: monetary gold and SDRs; currency and depos- its; debt securities; loans; equity and investment fund shares or units; insurance, pension, and standardized 11 Th is section deals only with the net investment in nonfi nancial assets (acquisitions minus disposals of nonfi nancial assets, minus consumption of fi xed capital) by the reporting unit or sector.
Government or public sector institutional units may also facilitate public capital formation by transferring funds to other govern- ments or to public corporations with a requirement that the funds be used to acquire nonfi nancial assets.

Rather than being considered transactions in nonfi nancial assets, these transactions are included in capital transfers, either as capital grants or other expense, as relevant.
72 Government Finance Statistics Manual 2014 Box 4.1 Policy Lending Whether to consider the acquisition of a ﬁ nancial asset or assumption of a liability as being for public policy purposes, for liquidity management, or for other purposes rests largely on an assessment of the particular purpose for acquiring the instrument.1 Some ﬁ scal policies that may lead to the ownership of ﬁ nancial claims include fostering new industries, assisting ailing government corporations, or helping particular businesses that are experiencing economic adversity.
For example, a gov- ernment unit may provide loans at favorable rates to particular economic sectors, acquire shares in a corporation active in a particular geographical region or in a function that the government wishes to promote, or sell shares in a public corporation for less than their market value.
Liquidity management, on the other hand, refers to actions taken to ensure the availability of ﬁ nancial assets to fulﬁ ll requirements for short-term funds and to ensure that such funds earn the best available rate of return.

Prudent ﬁ nan- cial management requires that government units acquire and dispose of ﬁ nancial assets in the process of their ﬁ nancing operations.

The motive underlying these transactions is the effective management of ﬁ nances.
Other purposes for acquiring ﬁ nancial assets, and perhaps incurring related liabilities, include the need to make a long- term provision for society, such as acquiring ﬁ nancial assets derived from the sale of natural resource assets to hold in a special-purpose government fund.
Some factors that should be considered when identifying policy-related ﬁ nancial instruments are as follows: • Nonnegotiable ﬁ nancial assets are usually held for policy-related purposes, as are negotiable ﬁ nancial claims issued by a lower level of government and held by a higher level of government.

• Financial assets issued by a public corporation—for example, shares and other equity, debt securities, or loans—and held by government are typically held for public policy purposes.
• A government statement about the acquisition of a ﬁ nancial asset may indicate that the purpose is policy-related.

• Noncommercial terms favoring the borrower generally indicate a policy-related purpose, such as concessional interest rates on loans or arrangements for repayment that do not meet normal commercial standards.

• Assets acquired as a result of government units acting as guarantors are likely to be policy-related.

• Assets acquired through nationalization are policy-related.
• Holdings of monetary gold, SDRs, currency, and nonlife insurance technical reserves are always liquidity-related.

• Deposits may be acquired for policy or liquidity purposes.

1 As explained in paragraph 6.91 and Box 6.3, under some circumstances, “capital or equity injections” are considered to be expense (i.e., when they do not result in an effective ﬁ nancial claim on the debtor).
guarantee schemes; fi nancial derivatives and employee stock options; and other accounts receivable/payable (see Table 9.1).

Th e second classifi cation is based on the sector of the counterparty of the transactions in fi nancial instruments.
Th at is, transactions in liabili- ties are classifi ed according to the sector of the institu- tional unit conducting the counterpart transaction in fi nancial assets, such as fi nancial corporations, nonfi - nancial corporations, households, and nonprofi t insti- tutions serving households (see Table 9.2).

4.29 Another possible classifi cation of transactions in fi nancial assets and liabilities is whether they were acquired or disposed of for the purpose of public pol- icy or liquidity management.
Th is distinction is not included in the Statement of Operations, but is used to defi ne the overall fi scal balance, as described in the annex to Chapter 4, Table 4A.2.

4.30 Public policy-related assets or liabilities (also called policy lending—see Box 4.1) may be acquired for a variety of reasons, such as fostering new indus- tries, assisting ailing government corporations, or helping particular businesses suff ering economic ad- versity.
Such transactions can take a variety of forms, including loans, equity securities, and debt securi- ties.
Given that there is oft en a concessional element to such transactions, it is useful to identify them in a The Government Finance Statistics Analytic Framework 73 separate category so that for some analyses the fi scal impact of these policy-related transactions in assets could be assessed separately.12 4.31 All other transactions in fi nancial assets are assumed to be for liquidity management or other pur- poses.
Th at is, the assets are acquired to earn a mar- ket rate of return while keeping suffi cient funds on hand to fi nance day-to-day operations, or to meet the long-term needs of society, such as through a special- purpose government fund.

The Statement of Sources and Uses of Cash 4.32 Information on the sources and uses of cash is important for assessing the liquidity of the gen- eral government and public sectors.
Th e Statement of Sources and Uses of Cash (see Table 4.2) shows the total amount of cash generated or absorbed by cur- rent operating activities, transactions in nonfi nancial assets, and transactions involving fi nancial assets and liabilities other than the fi nancial asset currency and deposit (cash) itself.

Th e net change in the stock of cash is the sum of the net cash received from these three sources.
4.33 Th e net change in the stock of cash refers to the fi nancial asset currency and deposits (3202).

Cur- rency consists of notes and coins that are of fi xed nominal values and are issued or authorized by the central bank or government.

Deposits are all claims, represented by evidence of deposit, on the deposit- taking corporations (including the central bank) and, in some cases, general government or other institu- tional units.
Th e classifi cation of this fi nancial asset is described in Chapter 7 and transactions are discussed in Chapter 9.

4.34 Th e Statement of Sources and Uses of Cash (Table 4.2) refl ects transactions when using the cash basis of recording.

Th is, in eff ect, means that transac- tions are captured only when cash is received or when cash payments are made (see paragraphs 3.67 and 3.103–3.105).
Table 4.2 Statement of Sources and Uses of Cash Cash Flows from Operating Activities: C1 C11 C12 C13 C14 C2 C21 C22 C24 C25 C26 C27 C28 CIO Revenue cash ﬂ ows Taxes Social contributions Grants Other receipts Expense cash ﬂ ows Compensation of employees Purchases of goods and services Interest Subsidies Grants Social beneﬁ ts Other payments Net cash inﬂ ow from operating activities (C1–C2) Cash Flows from Transactions in Nonﬁ nancial Assets: C31 C311 C312 C313 C314 C2M CSD Net cash outﬂ ow from investment in nonﬁ nancial assets1 Fixed assets Inventories2 Valuables Nonproduced assets Expenditure cash ﬂ ows (C2+C31) Cash surplus (+) / Cash deﬁ cit (–) (C1–C2– C31 = C1–C2M = C32–C33) Cash Flows from Transactions in Financial Assets and Liabilities (Financing): C32x C321x C322x C33 C331 C332 NFB NCB Net acquisition of ﬁ nancial assets other than cash Domestic3 External3 Net incurrence of liabilities Domestic3 External3 Net cash inﬂ ow from ﬁ nancing activities (C33–C32x) Net change in the stock of cash (CSD+NFB = C3202 = C3212+C3222) 1The net cash outﬂ ow from investment in nonﬁ nancial assets equals purchases minus sales.
2On a cash basis, the category inventories (C312) is limited to changes in strategic stocks.

Other inventories are, by deﬁ nition of the cash basis of recording, considered an expense when acquired.

3Classiﬁ ed by instrument and/or sector of the counterparty (see Tables 9.1 and 9.2).
12 Th e net acquisition of fi nancial assets for policy purposes was called “lending minus repayments” in the GFSM 1986 and was oft en referred to as “net lending.” Th ese terms should not be confused with the term “net lending/net borrowing” used in this Manual.

4.35 Additional useful information for fi scal analy- sis is obtained from an analysis of the diff erences between amounts reported in the Statement of Opera- tions and the Statement of Sources and Uses of Cash.
74 Government Finance Statistics Manual 2014 Th ere are some broad types of transactions that are recorded in Table 4.1 but not in Table 4.2: Table 4.3 Statement of Other Economic Flows • Expense transactions that will be settled in cash in the future—With accrual recording, a pur- chase of goods and services is recognized when the ownership of goods changes hands or ser- vices are provided.
Th e associated cash payment may not take place until a subsequent reporting period, in which case it would not be included in Table 4.2 in the same period as it appears in Table 4.1.

Th e fi scal implication of such diff er- ences in amounts reported may indicate a larger need for liquidity in the future to provide for the payments of accrued expense.
• Revenue transactions that were settled in cash but will be earned in the future—Revenue can be received in cash before it is earned by the deliv- ery of goods or provision of services to the pur- chaser.

In addition, taxes and other compulsory revenue may be earned, but may be unpaid and will be settled in the future.

Th e fi scal implication of such diff erences may indicate a larger demand for service delivery in the future, or a need to as- sess the effi ciency of tax collection eff orts.
• Th ere may also be transactions in assets and li- abilities that will be settled in cash in future periods, such as the interest accruing from the amortization of the discount on a zero-coupon or other discounted bond.

Th ere may be fi scal implications for liquidity management.

• Th ere are transactions that are not in cash by their nature.
Consumption of fi xed capital, im- puted transactions, barter, other transactions in kind, and debt forgiveness and write-off are non- cash transactions and would therefore not be re- corded in a Statement of Sources and Uses of Cash.

Th e diff erence between the two statements in this case will be an indication of the size of economic activities not measured in cash.
The Statement of Other Economic Flows 9 4 41 411 412 413 414 42 43 5 51 511 512 513 514 52 53 Change in net worth due to other economic ﬂ ows (4+5)1 Change in net worth due to holding gains and losses Nonﬁ nancial assets Fixed assets Inventories Valuables Nonproduced assets Financial assets2 Liabilities2 Change in net worth due to other changes in the volume of assets and liabilities Nonﬁ nancial assets Fixed assets Inventories Valuables Nonproduced assets Financial assets2 Liabilities2 1See Table 10.2 for a detailed classiﬁ cation of other economic ﬂ ows.
2Classiﬁ ed by residence, instrument, and/or sector of the counter- party (see Tables 9.1 and 9.2).

change in net worth due to holding gains or losses and the change in net worth due to other changes in the volume of assets.

In line with the integrated approach, these other economic fl ows are classifi ed by the type of asset or liability aff ected.

Other economic fl ows are described in Chapter 10.


4.37 Change in net worth due to holding gains or losses is defi ned as the sum of the positive or nega- tive holding gains and holding losses on all assets and liabilities.

Th ese include all changes in the value of assets, liabilities, and net worth due solely to price eff ects.

Th ey can result from changes in the general price level or in relative prices.
Changes in the ex- change rate cause holding gains or losses in fi nancial assets and liabilities denominated in a foreign cur- rency (see paragraph 10.44).

4.36 Th e Statement of Other Economic Flows (see Table 4.3) presents changes in assets, liabilities, and net worth that are not the result of transactions.

Th ey are classifi ed as changes either in the value or volume of assets, liabilities, and net worth.
Th e balancing item of this statement, the change in net worth due to other economic fl ows, is defi ned as the sum of the 4.38 Change in net worth due to other changes in the volume of assets and liabilities is defi ned as the sum of the positive and negative other changes in the volume of assets and liabilities.

Th ese changes in the volume of assets and liabilities, other than from transactions and price eff ects, may arise for a variety of reasons.
Th ey can be described as resulting from The Government Finance Statistics Analytic Framework 75 the appearance or disappearance of existing resources as economic assets, eff ects of external events that are exceptional and unexpected, and changes in classifi - cation (see paragraphs 10.46–10.84).
The Balance Sheet 4.39 A balance sheet is a statement of the values of the stock positions of assets owned and of the liabili- ties owed by an institutional unit or group of units, drawn up in respect of a particular point in time.

Th e Balance Sheet, shown in Table 4.4, presents the stock positions of assets and liabilities at the end of the re- porting period in comparison to the stock positions at the beginning of the reporting period.13 Th e main bal- ancing item on the balance sheet is net worth.
Th e net worth of an institutional unit (or grouping of units) is the total value of its assets minus the total value of its liabilities.

Th e change in net worth (comprising the change in net worth due to transactions in revenue and expense and the change in net worth due to other economic fl ows) is a fi scal indicator for assessing the sustainability of fi scal activities.
4.40 For public corporations, using changes in net worth as a fi scal indicator for assessing sustainability should be approached with caution.

Because of the in- clusion of shareholders’ equity as a liability in the calcu- lation of net worth, the interpretation of net worth may be counterintuitive for public corporations.
In cases where the market value of a public corporation’s shares and equity is increasing by more than the market value of the recognized assets minus liabilities, the net worth of the public corporations will decrease in GFS (and in other macroeconomic statistics).

Th us, for public cor- porations’ own funds (including the value of shares and other equity and net worth) may provide a more useful fi scal indicator than net worth alone (see paragraphs 7.229–7.232 for more details on own funds).
4.41 Where market values of some nonfi nancial assets are not available or are unreliable, net fi nancial worth is another fi scal indicator of sustainability.

Th e net fi nancial worth of an institutional unit (or group- ing of units) is the total value of its fi nancial assets minus the total value of its liabilities.

4.42 Th e Balance Sheet shows the stock positions in assets and liabilities.

(Th e defi nitions and classifi cations of assets and liabilities are described in Chapter 7.)
13 Table 7.1 presents the balance sheet in another format.

Opening balance Closing balance Table 4.4 Balance Sheet 6 61 611 612 613 614 62 621 622 63 Net worth (61+62–63) Nonﬁ nancial assets Fixed assets Inventories Valuables Nonproduced assets Financial assets Domestic1 External1 Liabilities 631 Domestic1 External1 632 Memorandum items2 ... 1Classiﬁ ed by instrument and/or sector of the counterparty (see Tables 7.9 and 7.11).
2See Chapter 7 for a list of standard memorandum items that should be included on the balance sheet.

Assets 4.43 Th e assets included in the Balance Sheet are economic assets, defi ned as resources over which ownership rights are enforced and from which eco- nomic benefi ts may fl ow to the owners.

Economic benefi ts arise from owning and using economic as- sets over a period of time.

Assets not owned and con- trolled by a reporting unit or sector and assets that have no economic value are excluded.
4.44 As shown in Table 4.4, stock positions in as- sets are classifi ed in the same way that transactions and other economic fl ows in assets are classifi ed.

As- sets are either nonfi nancial or fi nancial.

Nonfi nancial assets are further classifi ed as fi xed assets, inventories, valuables, or nonproduced assets.

Financial assets are classifi ed by residence of the counterparty and by type of instrument.

Financial assets can also be classifi ed by sector of the counterparty and maturity.
Liabilities 4.45 A liability is established when one unit (the debtor) is obliged, under specifi c circumstances, to provide funds or other resources to another unit (the creditor).

Most classifi cations that apply to fi nancial assets also apply to liabilities.

Liabilities are classifi ed by the residence of the counterparty and by type of 76 Government Finance Statistics Manual 2014 instrument.

Liabilities can also be classifi ed by sector of the counterparty and maturity.
Table 4.5 Statement of Total Changes in Net Worth The Statement of Total Changes in Net Worth 4.46 Th e Statement of Total Changes in Net Worth (see Table 4.5) combines the results from the State- ment of Operations for revenue and expense transac- tions with the Statement of Other Economic Flows in one statement.

Th e statement provides a clear statisti- cal explanation of the factors causing the change in the net worth of government.
It explains the sources of changes in assets and liabilities from one report- ing period to another in terms of transactions in revenue and expense and other economic fl ows.
In its summary format, this supplementary statement serves to highlight the total change in net worth of government.14 The Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Beneﬁ ts 4.47 Th e Summary Statement of Explicit Contin- gent Liabilities and Net Implicit Obligations for Future Social Security Benefi ts records the explicit and some implicit contingent liabilities.
Contingent liabilities are obligations that do not arise unless a particular, discrete event(s) occurs in the future.

Th ese contin- gencies create fi scal risks and may arise from deliber- ate public policy or from unforeseen events.

Th e stock positions of contingent liabilities are recorded as a memorandum item to the balance sheet (see para- graph 7.255).
Some details on the nature and com- position of these contingencies are recorded in this statement (see Table 4.6).15 4.48 In GFS, the net implicit obligations for future social security benefi ts (other than employment-related retirement benefi ts) are not recognized as liabilities (see Appendix 2).16 Social security contributions are clas- 14 Th is format brings the statistical presentation closer to the presentation used in fi nancial statements compiled in accordance with International Public Sector Accounting Standards (see Ap- pendix 6).
15 For more details, see the PSDS Guide, paragraphs 4.3–4.26.

16 Th ese implicit obligations exclude amounts that become overdue aft er all criteria for benefi ts have been met—GFS include these as liabilities in other accounts payable.
Transactions Affecting Net Worth: 1 Revenue Expense Net operating balance (1–2)1 2 NOB Change in Net Worth due to Other Economic Flows:2 91 Nonﬁ nancial assets 41 51 92 42 52 93 43 53 9 CNW Holding gains Other changes in the volume of nonﬁ nancial assets Financial assets Holding gains Other changes in the volume of ﬁ nancial assets Liabilities Holding gains Other changes in the volume of liabilities Total other economic ﬂ ows (91+92–93) Total change in net worth (NOB+9) 1The net operating balance equals revenue minus expense.
2Classiﬁ ed by categories of assets and liabilities as needed.

sifi ed as revenue (and therefore as an increase in net worth), and social security benefi ts payable as expense (a decrease in net worth).

Th is treatment is in line with conventional fi scal analysis.

Alternatively, in a full inter- temporal framework, social security contributions may be seen more appropriately as akin to a buildup of assets (arising from contributions made) associated with fu- ture liabilities of the government.
Likewise, many social security benefi t payments may be seen as the extinction of previously incurred government liabilities.

Th is ap- proach is not taken in the main tables of GFS because it is considered that social security schemes, other than employment-related pension schemes, do not result in a contractual liability for the government—that is, there is no direct link between the contributions made and the benefi ts eventually payable.
4.49 Indeed, it is not uncommon for governments to change unilaterally the structure of benefi ts of so- cial security schemes (e.g., by changing the circum- stances under which the benefi ts become payable or the amount of the benefi t).

Moreover, in most cases, these benefi ts become payable only when certain con- tingent events occur, such as sickness or unemploy- ment.
Nonetheless, it is important for a government to be aware of the implicit contingent liability that The Government Finance Statistics Analytic Framework 77 arises from its social security programs.

Such a con- tingency recognizes the present value of future ben- efi ts that have already been earned according to the existing laws and regulations, net of the present value of future contributions to the scheme according to ex- isting laws and regulations.
As a result, a memoran- dum item is included in the Balance Sheet, with more details on these net obligations disclosed in this State- ment (see Table 4.6).

4.50 Th e implicit contingent liabilities related to so- cial security schemes exclude the liabilities associated with employment-related pension schemes, including in cases where the employment-related pensions are provided through the social security scheme.
In GFS, imputed obligations incurred for unfunded govern- ment employee retirement schemes are considered to involve a contractual liability for a government or public sector unit to its employees.

As a result, the actual or imputed contributions receivable to such employment-related schemes are considered to give rise to an incurrence of a liability, and the payment of retirement benefi ts is considered to be a reduction in the same liability (see paragraph 6.25).
Table 4.6 Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Beneﬁ ts 6M6 6M61 6M62 6M63 Total explicit contingent liabilities Publicly guaranteed debt1 Other one-off guarantees2 Explicit contingent liabilities not elsewhere classiﬁ ed Legal claims Indemnities Uncalled share capital … 6M7 Net implicit obligations for future social security beneﬁ ts Present value of implicit obligations for future social security beneﬁ ts Minus: Present value of future contributions to social security schemes 1It is recommended that details of publicly guaranteed debt (i.e., loan and other debt instrument guarantees) are shown by matu- rity and type of debt instrument, at nominal values.
2For example, credit guarantees and other similar contingent lia- bilities (such as lines of credit and loan commitments), contingent “credit availability” guarantees, and contingent credit facilities.

Annex: Using GFS for Fiscal Analysis Th is annex describes the use of GFS in creating fi scal indicators.
Introduction 4.51 Th is annex off ers an overview of the appli- cation of the GFS framework in creating commonly used fi scal indicators.1 Some of these indicators can be observed or derived directly from the GFS frame- work, while others can be derived using a combina- tion of GFS with other macroeconomic data.

4.52 Fiscal indicators may be produced for the gen- eral government and public sectors (see Chapter 2).
Fiscal indicators for the subsectors of general govern- ment and the public sector can also be produced to take account of the decentralized nature of fi scal re- sponsibilities in an economy.

Using data from the GFS framework enhances the comparability of data across countries (see paragraph 1.13), which is important in establishing robust analytical fi ndings.
Fiscal Indicators Available from the GFS Framework 4.53 Th e GFS framework produces fi scal indica- tors from the transactions, other economic fl ows, stock positions, aggregates, or balancing items.

For example, in the Statement of Operations, net lending/ net borrowing is the basic indicator of the fi scal bal- ance, measured from “above-the-line” as revenue minus expenditure (with expenditure comprising ex- pense plus the net investment in nonfi nancial assets).
Th is fi scal balance can alternatively be measured from “below-the-line” as the diff erence between transac- tions in fi nancial assets and liabilities, also referred to as fi nancing transactions.

From an above-the-line 1 Th e International Financial Statistics and the Government Finance Statistics Yearbook contain a large and comprehensive database of macroeconomic statistics, including GFS.

See also the IMF’s Fiscal Transparency Code at www.imf.org/external/ np/fad/trans/.
First published in 1998 and updated in 2007 and 2014, the IMF’s Code of Good Practices on Fiscal Transparency and accompanying Manual and Guide are centerpieces of the global architecture of fi scal transparency norms and standards.

perspective, GFS provide detailed information on revenue sources, and the composition of expenditure, while the “below-the-line” approach provides detailed information on how governments invest surpluses or fi nance defi cits.
4.54 Th e Balance Sheet off ers data on regularly used fi scal stock position indicators, such as the gross and net debt, and the stock position and composition of various categories of assets and liabilities (see para- graphs 7.14–7.19).

Additional aggregates, such as the stock position of cash and the maturity breakdown of other fi nancial instruments, are useful for an analysis of liquidity.

Balancing items such as net worth and net fi nancial worth allows for an analysis of the wealth of government.
4.55 An analysis of gross debt sustainability re- quires calculating a primary balance, which can be calculated by excluding interest expense from the cal- culation of net lending/net borrowing or cash surplus/ defi cit.

When net debt is considered in the analysis, the primary balance should be calculated excluding the impact of interest expense and interest revenue.
Similarly, the fi scal burden—an indicator of the com- pulsory contributions to the government—can be derived from transactions related to taxes and social contributions.

4.56 Table 4A.1 presents a list of some fi scal indica- tors that are directly available from GFS or that can be derived from GFS.

Fiscal Indicators Requiring Additional Data 4.57 Some fi scal indicators require additional information.
Th e overall fi scal balance, for example, refl ects the net lending/net borrowing aft er transac- tions in assets and liabilities are adjusted for trans- actions that are deemed to be for public policy purposes (also called “policy lending”).

Notably, all proceeds under privatization (including proceeds from the sale of fi xed assets) are included as fi nan- cial items, while policy lending is treated as if it is an expense rather than a transaction in fi nancial assets.
The Government Finance Statistics Analytic Framework 79 For example, privatization proceeds or the repay- ment of policy lending is treated as fi nancing while capital injections or loans to public corporations (policy lending) are added to expense in calculating the overall fi scal balance.
Calculating the overall fi s- cal balance requires therefore a distinction between transactions in fi nancial assets/liabilities undertaken for public policy purposes and those undertaken for liquidity management (see paragraph 4.29 and Box 4.1).

4.58 Cyclically adjusted and structural balances are other examples of fi scal indicators where infor- mation from various datasets must be assembled.
Th ese more complex fi scal balances attempt to mea- sure fi scal positions net of cyclical and other transi- tory eff ects by taking into consideration the eff ects of exogenous factors on the fi scal balance.

Examples of these more complex balances are also provided in Table 4A.2.

Cyclically adjusted balances are measures of the government’s fi scal position in an economy as if the economy was operating at potential gross do- mestic product (GDP).
Th ese balances can be calcu- lated by adjusting the GFS concept of net lending/net borrowing (or other fi scal balances in the GFS frame- work) for the eff ect on revenue and expense of the dif- ference between actual and potential GDP.

Structural balances are an extension of cyclically adjusted bal- ances, by adjusting for a broader range of factors, such as commodity prices, which may over- or understate fi scal performance.
4.59 In resource-rich countries, analysts oft en take into account the volatility of commodity prices (which aff ects fi scal balances but is outside of the di- rect control of government) when assessing fi scal per- formance.

Calculating nonresource balances requires removing from net lending/net borrowing (or other fi scal balances) net resource-related revenue a nd ex- penditure.
Th ese resource-related items are not avail- able in the core classifi cations of GFS, but could be provided in underlying source data.

4.60 Table 4A.2 presents a list of fi scal indicators that are built using GFS with additional data.

Th ese fi scal indicators are usefully expressed as a percentage change or as ratios of aggregates, such as GDP.
Table 4A.1 Fiscal Indicators Available from the GFS Framework Fiscal Indicator Equivalent Term in Statistical Methodologies GFS Codes Cash balance (also referred to as deﬁ cit/ surplus) Net operating balance (NOB) Gross operating balance (GOB) Net lending/net borrowing (NLB) Primary cash balance Fiscal balances Cash surplus (+) / Cash deﬁ cit (–) (CSD) equal to the net cash inﬂ ow from operating activities minus the net cash outﬂ ow from investment in nonﬁ nancial assets.
Cash surplus/cash deﬁ cit is also equal to total cash ﬂ ows from ﬁ nancing transactions.

Revenue minus expense.

Net operating balance is also equal to change in net worth due to transactions.

C1–C2–C31, or C1–C2M, or NFB+NCB 1–2 Revenue minus expense, excluding consumption of ﬁ xed capital.
1–2+23 Revenue minus expense minus net investment in nonﬁ nancial assets; or Revenue minus expenditure; or Net operating balance minus net investment in nonﬁ nancial assets; or Gross operating balance minus gross investment in nonﬁ nancial assets.

Net lending/net borrowing is also equal to total ﬁ nancing.

1–2–31, or 1–2M, or NOB–31, or GOB–31.1+31.2 32–33 Cash surplus/cash deﬁ cit excluding interest expense or net interest expense.
For gross debt sustainability analysis, use cash surplus/cash deﬁ cit excluding interest expense.

For net debt sustainability analysis, use cash surplus/cash deﬁ cit excluding net interest expense.
CSD+C24 CSD+C24–C1411 80 Government Finance Statistics Manual 2014 Table 4A.1 Fiscal Indicators Available from the GFS Framework (continued) Fiscal Indicator Equivalent Term in Statistical Methodologies GFS Codes Fiscal balances (continued) Primary operating balance Net operating balance excluding interest expense or net interest expense.

For gross debt sustainability analysis, use net operating balance excluding interest expense.
For net debt sustainability analysis, use net operating balance excluding net interest expense.

NOB+24 NOB+24–1411 Primary balance Net lending/net borrowing excluding interest expense or net interest Above-the-line transactions Below-the-line transactions Fiscal burden Tax burden Direct taxes Indirect taxes Capital taxes Government ﬁ nal consumption expenditure Gross saving expense.

For gross debt sustainability analysis use net lending/net borrowing excluding interest expense.
For net debt sustainability analysis use net lending/net borrowing excluding net interest expense.

Other Macroeconomic Fiscal Indicators All transactions in revenue, expense, and net investment in nonﬁ nancial assets.

(The main balancing items, such as cash surplus/cash deﬁ cit or net lending/ net borrowing, serve as the “line.”) All transactions in the net acquisition of ﬁ nancial assets, and the net incurrence of liabilities—also referred to as ﬁ nancing transactions.
(The main balancing items, such as cash surplus/cash deﬁ cit or net lending/ net borrowing, serve as the “line.”) NLB+24 NLB+24–1411 1, 2, and 31, or C1, C2, and C31 32 and 33, or NFB and NCB Revenue in the form of taxes plus social contributions.
(In principle, only compulsory social contributions should be included— where voluntary social contributions are signiﬁ cant, these need to be excluded to calculate the ﬁ scal burden, in which case this indicator becomes a ﬁ scal indicator requiring additional data.)

11+12, or 11+121+122 Revenue in the form of taxes.

Taxes that take into account individual circumstances of taxpayers (e.g., taxes on individual and corporate income).
11 111+1131+1132+1136 Taxes that do not take into account individual circumstances of taxpayers (e.g., taxes imposed on goods and services).

112+114+115+116 Capital taxes are taxes levied at irregular and infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts, or other transfers.
Approximated by compensation of employees, plus the use of goods and services, plus consumption of ﬁ xed capital, plus purchases of goods and services for direct transfer to households (mainly social beneﬁ ts in kind), minus the sales of goods and services.
Gross operating balance excluding net capital transfers receivable (capital transfers including net capital grants and capital taxes); or Net lending/net borrowing excluding gross investment in nonﬁ nancial assets,and excluding net capital transfers receivable (capital transfers including net capital grants and capital taxes).
1133+1135 21+22+23+282–142 GOB–(1133+1135+1312+ 1322+1332+1442+1452– 2612–2622–2632–2822– 2832), or NLB+31+23– (1133+1135+1312+ 1322+1332+1442+ 1452–2612–2622–2632– 2822–2832) The Government Finance Statistics Analytic Framework 81 (continued) Table 4A.1 Fiscal Indicators Available from the GFS Framework (concluded) Fiscal Indicator Equivalent Term in Statistical Methodologies GFS Codes Other Macroeconomic Fiscal Indicators (continued) Capital spending Net investment in nonﬁ nancial assets equals acquisition of nonﬁ nancial assets minus disposal of nonﬁ nancial assets minus consumption of ﬁ xed capital.
Gross investment in nonﬁ nancial assets Net acquisition of nonﬁ nancial assets equals acquisition of nonﬁ nancial assets minus disposal of nonﬁ nancial assets.

Net investment in nonﬁ nancial assets plus consumption of ﬁ xed capital.

31.1–31.2–31.3 31.1–31.2, or 31+23 311.1–311.2+312+313 Gross capital formation Gross ﬁ xed capital formation Net interest expense Acquisition minus disposals of produced nonﬁ nancial assets, which comprise ﬁ xed assets, inventories, and valuables.
Acquisitions minus disposals of ﬁ xed assets.

311.1–311.2 Interest expense minus interest revenue.

24–1411 Social spending Approximated by functional classiﬁ cation of expenditure on housing, health, education, and social protection.

706+707+709+710 Total expenditure or outlays Transfer payments excluding grants Expense plus net investment in nonﬁ nancial assets; or expenditure.
2+31, or 2M Transfers to corporations, households, and nonproﬁ t institutions serving households, which comprise subsidies, social beneﬁ ts, transfers not elsewhere classiﬁ ed, and premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes.

25+27+282+283 Financing Indicators Total ﬁ nancing Transactions in ﬁ nancial assets minus transactions in liabilities.
Domestic ﬁ nancing Foreign ﬁ nancing Transactions in ﬁ nancial assets minus transactions in liabilities, both with resident institutional units (domestic debtors/creditors).

Transactions in ﬁ nancial assets minus transactions in liabilities, both with nonresident institutional units (external debtors/creditors).

Domestic bank ﬁ nancing Transactions in ﬁ nancial assets and liabilities with the central bank and resident deposit-taking corporations other than the central bank.
Transactions in ﬁ nancial assets and liabilities with resident institutional units other than the central bank and resident deposit-taking corporations other than the central bank; or Transactions in ﬁ nancial assets and liabilities with general government units, and resident other ﬁ nancial corporations, nonﬁ nancial corporations, and households and nonproﬁ t institutions serving households.
Wealth and Debt Indicators 32–33, or 82–83 321–331, or 821–831 322–332, or 822–832 8212+8213–8312–8313 (821–8212–8213)–(831– 8312–8313), or 8211+8214+8215+8216– 8311–8314–8315–8316 Stock position in other accounts payable, which comprise trade credit and advances, and miscellaneous other items due to be paid.

Stock position in amounts unpaid and past the due date for payment.

Obligations that do not arise unless a particular, discrete event(s) occurs in the future.
6318 6M5 6M6 Stock position in insurance, pension, and standardized guarantee scheme liabilities plus net obligations for social security beneﬁ ts.

6306+6M7 Stock position in ﬁ nancial claims that require payment(s) of interest and/ or principal by the debtor to the creditor at a date, or dates, in the future.

Includes all liabilities held in debt instruments (i.e., total liabilities excluding equity and investment fund shares and ﬁ nancial derivatives and employee stock options).
63–6305–6307, or 6301+6302+6303+6304+ 6306+6308 Domestic nonbank ﬁ nancing Accounts payable Arrears Contingent liabilities Total pension and insurance liabilities Gross debt 82 Government Finance Statistics Manual 2014 Table 4A.1 Fiscal Indicators Available from the GFS Framework (concluded) Fiscal Indicator Equivalent Term in Statistical Methodologies GFS Codes Wealth and Debt Indicators (concluded) Net debt Gross debt minus stock position in ﬁ nancial assets corresponding to debt instruments.
Includes all ﬁ nancial assets/liabilities held in debt instruments (i.e., ﬁ nancial assets/liabilities excluding equity and investment fund shares and ﬁ nancial derivatives and employee stock options).

Gross debt, net of highly liquid assets Net ﬁ nancial wealth Net worth Total change in net worth Gross debt minus ﬁ nancial assets held in the most liquid ﬁ nancial instruments.

In most countries, liquid assets would primarily comprise currency and deposits.
(Where other ﬁ nancial assets are partly considered highly liquid ﬁ nancial assets, this indicator becomes a ﬁ scal indicator requiring additional data.)

Net ﬁ nancial worth equals the stock position in ﬁ nancial assets minus stock position in liabilities.

62–63, or 6M1 Stock position in assets minus stock position in liabilities at end of reference period.

61+62–63, or 6 Net worth at the end of the current reporting period minus net worth at the end of the previous reporting period.
(A split between change in net worth due to transactions [i.e., net operating balance] and change in net worth due to other economic ﬂ ows is also analytically useful.)
6t1–6t0, or (61+62–63)t1– (61+62–63)t0, or NOB+9 (63–6305–6307)–(62– 6205–6207), or 6301+6302+6303+6304+ 6306+6308–6201–6202– 6203–6204–6306–6308 63–6305–6307–6201, or 6301+6302+6303+6304+ 6306+6308–6201 The Government Finance Statistics Analytic Framework 83 Table 4A.2 Fiscal Indicators Requiring Additional Data Fiscal Indicator Resource revenue Resource expense Related Term in Statistical Methodologies Revenue receivable that is related to natural resources.
These receivables may be related to various types of taxes, subsidies, dividends, contracts, leases, and licenses, rent, or other transfers.

Expense payable that is related to natural resources.

These payables may be related to various types of expense such as subsidies, property expense, and transfers.

Nonresource operating balance Total revenue excluding natural resource-related revenue minus total expense excluding natural resource-related expense.
Nonresource primary operating balance Nonresource net lending/net borrowing Nonresource primary net lending/net borrowing Overall ﬁ scal balance Overall primary balance Cyclically adjusted balance Cyclically adjusted primary balance Nonresource operating balance excluding interest expense for gross debt sustainability analysis or excluding net interest expense for net debt sustainability analysis.

Nonresource operating balance minus net investment in nonresource related nonﬁ nancial assets.
Nonresource net lending/net borrowing excluding interest expense for gross debt sustainability analysis or excluding net interest expense for net debt sustainability analysis.

Net lending/net borrowing adjusted through the rearrangement of transactions in assets and liabilities that are deemed to be for public policy purposes (also called policy lending/borrowing).

Policy lending is added to expense.


Privatization proceeds from the sale of nonﬁ nancial assets and repayments on policy lending (see Box 4.1) are included as transactions in ﬁ nancial items in calculating the overall ﬁ scal balance.

Overall ﬁ scal balance excluding interest expense or net interest expense.

For gross debt sustainability analysis, use overall ﬁ scal balance excluding interest expense.

For net debt sustainability analysis, use overall ﬁ scal balance excluding net interest expense.
Trend balance through an economic cycle, which is the ﬁ scal balance, stripped of the impact of cyclical movements in revenue and expenditure (for government, usually only unemployment beneﬁ ts payable are eliminated).

Trend balance through an economic cycle, which is primary ﬁ scal balance, stripped of the impact of cyclical movements in revenue and expenditure (for government, usually only unemployment beneﬁ ts payable are eliminated).
Structural balance Underlying or permanent ﬁ scal balance, which is the ﬁ scal balance, stripped of the impact of cyclical movements in revenue, expenditure, and the effects of unusual or one-off events.
Structural primary balance Fiscal impulse Gross ﬁ nancing needs Concessional loans Development spending Quasi-ﬁ scal operations Underlying or permanent primary ﬁ scal balance, which is the primary ﬁ scal balance, after removing the impact of cyclical movements in revenue, expenditure, and the effects of unusual or one-off events.

Change in the structural primary balance between two reporting periods.
(Often also calculated using the [overall] structural balance, or the cyclically adjusted [primary] balance.)

Net lending/net borrowing during a particular reporting period plus debt maturing within that reporting period.

(This concept is a forward-looking indicator and should not be confused with total ﬁ nancing.)

Loans that provide to the borrower some concessional beneﬁ ts.
An estimate of the one-off beneﬁ t at the point of loan origination can be calculated as equal to the difference between the nominal value of the debt and its present value using a relevant market discount rate.

Represents government’s expenditure on national development and encompasses transactions in the acquisition of nonﬁ nancial assets, usually related to infrastructure.
Development spending is often ﬁ nanced from speciﬁ c designated sources (e.g., foreign loans, foreign grants, privatization proceeds, one-off tax levies).

Quasi-ﬁ scal operations are government operations carried out by institutional units other than government units (e.g., central banks and other public corporations).

Quasi-ﬁ scal operations encompass a broad array of activities that have the same ﬁ scal policy impact on the economy as government operations.
5 Revenue Th is chapter defi nes the concept of revenue and de- scribes the manner in which revenue is classifi ed.

Deﬁ ning Revenue 5.1 Revenue (1) is an increase in net worth re- sulting from a transaction.

Revenue transactions, as defi ned in GFS, have counterpart entries either in an increase in assets or in a decrease in liabilities— thereby increasing net worth.
General government units have four types of revenue: (i) compulsory lev- ies in the form of taxes and certain types of social contributions; (ii) property income derived from the ownership of assets; (iii) sales of goods and services; and (iv) other transfers receivable from other units.

Of these, compulsory levies and transfers are the main sources of revenue for most general government units.
Public corporations do not levy taxes, but derive their revenue from all the other sources—of these, prop- erty income and the sales of goods and services are the main sources of revenue.

5.2 Taxes (11)1 are compulsory, unrequited amounts receivable by government units from in- stitutional units.

Taxes can be receivable in cash2 or in kind.3 By its nature, only a government unit can receive revenue in the form of taxes.
When an institutional unit other than a government unit collects taxes, the tax should be attributed in ac- cordance with tax attribution guidelines (see para- graphs 5.33–5.40).

Tax revenue is considered to be unrequited because the government provides noth- ing directly to the individual unit in exchange for the payment.

Governments may use the tax revenue 1 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.
Appendix 8 provides all classifi cation codes used in the GFS framework.

2 Th e use of the term “cash” here does not refer to the cash basis of recording, but rather refers to the monetary nature of the settlement.

3 Revenue receivable in kind will not be recorded when using the cash basis of recording—no cash fl ows are involved (see paragraph 3.67).

to provide goods or services to other units, either individually or collectively, or to the community as a whole.
Certain compulsory receivables, such as fi nes, penalties, and most social security contribu- tions, are not considered taxes (see paragraph 5.23).

Th ese types of revenue have, under certain condi- tions, an element of exchange and are therefore not classifi ed as taxes.

5.3 All other types of revenue are frequently com- bined into a heterogeneous broad category: revenue other than taxes (also sometimes referred to as non- tax revenue).
In this manual, however, the various other types of revenue are separately identifi ed and classifi ed as social contributions, grants, and other revenue.

5.4 Social contributions [GFS]4 (12) are actual or imputed revenue receivable by social insurance schemes to make provision for social insurance benefi ts payable.5 Social contributions may be from employers on behalf of their employees, from em- ployees, or from self-employed or unemployed per- sons on their own behalf.
Th ese contributions secure entitlement to social benefi ts payable to the con- tributors, their dependents, or their survivors when certain social risks arise.

Th e contributions may be compulsory or voluntary (see paragraph 5.94 and Appendix 2).

5.5 Grants (13) are transfers receivable by gov- ernment units from other resident or nonresident government units or international organizations, and that do not meet the defi nition of a tax, sub- sidy, or social contribution.
When statistics are compiled for the general government sector, grants from other domestic government units would be 4 [GFS] indicates that an item has the same name but diff erent coverage in the 2008 SNA.

5 Social contributions [GFS](12) revenue excludes amounts receivable as employment-related pension and other retirement contributions that create a liability for future benefi ts payable (see paragraphs 4.50 and 5.95).
eliminated in consolidation so that only grants from foreign governments and international organizations would remain in the general government accounts.

Grants may be classifi ed as capital or current and can be receivable in cash or in kind (see paragraphs 5.103–5.105).

5.6 Other revenue (14) is all revenue receivable ex- cluding taxes, social contributions, and grants.
Other revenue comprises: (i) property income; (ii) sales of goods and services; (iii) fi nes, penalties, and forfeits; (iv) transfers not elsewhere classifi ed; and (v) pre- miums, fees, and claims related to nonlife insurance and standardized guarantee schemes (see paragraphs 5.106–5.151).

5.7 Refunds (see paragraph 5.27) and corrections of erroneously collected revenue are transactions that decrease the net worth of the recipient govern- ment unit.
More accurately, they are adjustments that allow the excessive increase in net worth previously recorded to be corrected.

Th ese refund transactions are recorded as a reduction in revenue, with a corre- sponding reduction in fi nancial assets or an increase in liabilities.6 5.8 Some transactions are exchanges in assets and/or liabilities and should not be recorded as rev- enue.
Th e disposal of a nonfi nancial asset, other than inventories,7 by sale or barter does not aff ect net worth and these transactions are not revenue.

Th ey are transactions in nonfi nancial assets as described in paragraphs 8.3–8.4.

However, when ownership of an asset is acquired without having to give up anything of commensurate value in return, the net worth of the unit increases.
Th is increase in assets has a counter- part entry in an increase in revenue and should be recorded as a type of capital transfer receivable, such as a capital grant.

Repayments on loans previously extended to other institutional units, and loan dis- bursements, are not revenue.

Th ese are transactions in fi nancial assets or liabilities as described in para- graphs 9.3–9.4.
5.9 For the purposes of fi scal analysis, additional aggregations of revenue could be calculated, such as the fi scal burden, direct versus indirect taxes, and Revenue 85 revenue related to natural resources.

A discussion of these supplementary fi scal indicators and their uses in fi scal analysis is presented in the annex to Chapter 4.

Time of Recording and Measurement of Revenue 5.10 In the Statement of Operations, revenue should be recorded according to the accrual basis of record- ing.
In the accrual basis of recording, transactions are recorded when the underlying activities, transactions, or other events occur that create the unconditional claims to receive the taxes or other types of revenue (see paragraphs 3.69–3.102).

Th e application of the general rule to various types of revenue is indicated in each section of the classifi cation as needed.
5.11 In the Statement of Sources and Uses of Cash, cash receipts from operating activities are recorded in accordance with the cash basis of recording.

In the cash basis of recording, transactions are recorded when cash payments for the respective revenue cat- egories are received (see paragraph 3.103–3.104).
5.12 According to the accrual principles of GFS, income taxes and social contributions based on in- come should be attributed to the period in which the income is earned, even though there may be a signifi - cant delay between the end of the reporting period and the time at which it is feasible to determine the actual liability of the taxpayer.
5.13 Conceptually, when using the accrual basis of recording, the time between the moment a revenue transaction accrues and the payment is received (or made in the case of refunds) is bridged by recording a transaction in fi nancial assets or liabilities (see para- graph 7.224).
In cases where a prepayment of revenue covering two or more reporting periods is made to government, government should record an increase in liabilities, usually recorded in other accounts pay- able (3308), for the revenue that falls due in future periods.

In eff ect, this is a fi nancial advance made to government by the payee.

It constitutes a liability of the government and an asset of the payee.

Th is liabil- ity is extinguished as the revenue falls due in future periods.
6 Similarly, refunds of expense are recorded as a reduction in expense, rather than revenue (see paragraph 6.4).

7 For a description of the treatment of inventories, see paragraphs 8.44–8.47.

5.14 In practice, however, some fl exibility is per- mitted as the accrual recording of revenue can be dif- fi cult to implement because government accounting 86 Government Finance Statistics Manual 2014 systems oft en record revenue only on a cash basis.

Th is is especially the case for taxes.


Further, even when ac- crued taxes are estimated from assessments of taxes due, there may be a risk of over- or understatement of tax revenue.

Th e remainder of this section provides additional practical guidance on the appropriate time of recording for taxes.
5.15 As a practical deviation from the general principle, income taxes deducted at source, such as pay-as-you-earn taxes, and regular prepayments of income taxes may be recorded in the periods in which they are paid and any fi nal tax liability on income may be recorded in the period in which the liability is determined.
5.16 It is also possible that governments receive cash amounts before having an unconditional claim on them.8 Such circumstances include advances for provision of goods and services to be delivered in the future, and grants for the construction of fi xed assets over several periods.

When using the accrual basis of recording, these cash receipts cannot be recognized as revenue until such time as the government ac- quires the unconditional claim on the amount.
How- ever, when using the cash basis of recording, the full amount of revenue will be recognized in the period in which the cash amounts were received, irrespective of whether the service, delivery, or compliance with the conditions were met in the past or will be met in the future.

5.17 With the exception of taxes and social contri- butions, the amount of revenue to be recorded on the accrual basis is the entire amount to which the general government unit has an unconditional claim.
In the case of taxes and social insurance contributions, only those amounts that are evidenced by assessments and declarations, customs declarations, and similar docu- ments are considered to constitute revenue for gov- ernment units.
5.18 As indicated in paragraph 3.78, the amount of taxes and social contributions recorded must take into account that the government unit receiving the rev- enue is usually not a party to the transaction or other event that creates the obligation to pay the taxes or social insurance contributions.

Consequently, many 8 Th ese receipts are also referred to as “deferred revenue” or “ad- vances” (see also paragraph 7.225).
of these transactions and events permanently escape the attention of the tax authorities.

Th e amount of rev- enue from taxes and social insurance contributions should exclude the amounts that possibly could have been received from such unreported events had the government learned about them, but instead perma- nently escape the attention of the tax authorities.
5.19 Furthermore, in some countries, and for some taxes, the amounts of taxes eventually paid may diverge substantially and systematically from the amounts due to be paid.

It would be inappropriate to accrue revenue for an amount that the government unit does not realistically expect to collect.

Th e amount that is realistically expected to be collected may sometimes be infl uenced by tax amnesties.
Governments use tax amnesties to capture some of the taxes accrued but unpaid, to speed up payment of taxes, and to capture revenue from transactions or events that have previ- ously escaped the attention of the tax authorities.

Th e time of recording and measurement of revenue aris- ing from such tax amnesties depends on the exact na- ture of the amnesty granted and whether the revenue has been previously accrued.
Th e case of adjusting for underestimation or overestimation of tax revenue is discussed later.

5.20 It is typical that some of the taxes and social insurance contributions that have been assessed and accrued will never be collected.

Th us, the diff erence between estimates based on these assessments and expected collections represents a claim that has no real value and should not be recorded as revenue.
If transactions are recorded for such taxes (and other revenue) that overestimate the amount of revenue re- ceivable, a correction should be recorded in the GFS framework.

Th is requires an adjustment that allows the excessive increase in net worth previously recorded to be corrected.9 In keeping with the accrual basis of recording (see paragraph 3.79), such an adjustment should occur in the period in which the overestima- tion of receivables occurred.
However, in cases where it is not possible to identify the time of the overes- timation, the adjustment is recorded when the need for the adjustment is identifi ed.

As such, a correction to reduce revenue, with a corresponding correction 9 Th ese corrections in transactions recorded for revenue receiv- ables should be distinguished from the case where a specifi c debtor is deemed bankrupt and amounts receivable are deemed to be uncollectable (see paragraph 10.57).
(reduction) in other accounts receivable (3208), should be recorded.

Th e amount of taxes and social insurance contributions that is recorded as revenue should be the amount that is realistically expected to be receiv- able.

Th e actual collection, however, may be in a later period, possibly much later.

The Classiﬁ cation of Revenue 5.21 Revenue comprises heterogeneous elements, classifi ed according to diff erent characteristics de- pending on the type of revenue.
For taxes, the clas- sifi cation scheme is determined mainly by the base on which the tax is levied.

Revenue other than taxes is classifi ed by the nature of the economic fl ow, and in some cases by the source from which the revenue is derived.

Th e summary classifi cation of revenue in the GFS framework is shown in Table 5.1, and the remainder of this chapter describes each category in detail.
5.22 While the summary GFS revenue classifi ca- tion structure provides guidance on the minimum requirements for internationally comparable classifi - cations of revenue, analytical needs may necessitate further detailed classifi cations to be added as sub items in national data presentations.
Additional subitems, presented either as a comprehensive breakdown of the standard item or as “of which” lines, could be used to identify items required: • To facilitate consolidation—for example, a break- down of items according to the subsectors and institutional units of general government (see paragraph 3.152) • As input into other macroeconomic datasets to enhance consistency with these data—for exam- ple, a breakdown of interest to identify recipients according to residence and sectors (see para- graph 7.264) • To facilitate the calculation of supplementary ag- gregates or balances used as fi scal indicators in fi scal analysis—for example, identifying all rev- enue related to a particular resource could allow the calculation of government balances without such resource revenue (see paragraph 4.59), or identifying all environment-related revenue and payments to government could facilitate the compilation of environmental accounts (see paragraph A7.107).
Revenue 87 T axes (11) 5.23 Taxes are compulsory, unrequited amounts receivable by government units from institutional units.

In GFS, taxes are classifi ed mainly according to the base on which the tax is levied.

Normally, des- ignating a tax for a particular use does not aff ect its classifi cation.

An exception is the distinction between taxes on payroll and workforce and social security contributions.
If a tax on payroll or workforce is desig- nated for use in a social security scheme, then it is clas- sifi ed as a social security contribution (see paragraphs 5.45 and 5.96).

Otherwise, it is classifi ed under taxes on payroll and workforce.

Taxes also exclude compul- sory payments receivable by government, as contribu- tions to employment-related pension schemes.
Since these compulsory contributions are associated with the expectation of future benefi ts payable, they are not tax revenue receivable, but rather recorded as the in- currence of a pension entitlement liability (see para- graphs 9.63–9.67).

5.24 In principle, interest charged on overdue taxes or fi nes and penalties imposed for the attempted eva- sion of taxes should be recorded as interest (1411), or fi nes, penalties, and forfeits (143) and not as taxes.
However, it may not be possible to separate receiv- ables of interest, fi nes, or other penalties from the taxes to which they relate, so in practice they are usu- ally grouped with the relevant tax receivable (see also paragraph 6.82).

GFS tax classiﬁ cations in comparison with other statistical databases 5.25 Th e coverage, timing, and valuation of tax rev- enue in GFS and the 2008 SNA are identical, but the classifi cation systems diff er.
Th e 2008 SNA classifi es taxes according to their role in economic activities— namely: (i) taxes on production and imports (D2); (ii) current taxes on income, wealth, etc.

(D5); and (iii) capital taxes (D91).


Th e result is that some cat- egories of taxes in GFS need to be allocated between two of the SNA tax categories according to whether they are payable by producers or fi nal consumers, or whether they are current or capital taxes.10 In GFS, taxes are classifi ed into six major categories: (i) taxes on income, profi ts, and capital gains; (ii) taxes on 10 For a detailed description of the linkages between the GFS and the 2008 SNA categories of taxes, see Appendix 7.
88 Government Finance Statistics Manual 2014 Table 5.1 Summary Classiﬁ cation of Revenue 1 11 111 1111 1112 1113 112 113 1131 1132 1133 1135 1136 114 1141 11411 11412 11413 11414 1142 1143 1144 1145 11451 11452 Revenue Taxes Taxes on income, proﬁ ts, and capital gains Payable by individuals Payable by corporations and other enterprises Other taxes on income, proﬁ ts, and capital gains1 Taxes on payroll and workforce Taxes on property Recurrent taxes on immovable property Recurrent taxes on net wealth Estate, inheritance, and gift taxes Capital levies Other recurrent taxes on property Taxes on goods and services General taxes on goods and services Value-added taxes Sales taxes Turnover and other general taxes on goods and services Taxes on ﬁ nancial and capital transactions Excise Proﬁ ts of ﬁ scal monopolies Taxes on speciﬁ c services Taxes on use of goods and on permission to use goods or perform activities Motor vehicle taxes Other taxes on use of goods and on permission to use goods or perform activities1 1146 Other taxes on goods and services 12 121 1211 1212 1213 1214 122 1221 1222 1223 13 131 1311 1312 132 1321 1322 133 1331 1332 14 141 1411 1412 1413 1414 1415 1416 Social contributions [GFS] Social security contributions [GFS] Employee contributions [GFS] Employer contributions [GFS] Self-employed or unemployed contributions [GFS] Unallocable contributions [GFS] Other social contributions [GFS] Employee contributions [GFS] Employer contributions [GFS] Imputed contributions [GFS] Grants From foreign
 governments Current Capital From international organizations Current Capital From other general government units1 Current Capital Other revenue Property income [GFS] Interest [GFS]1 Dividends1 Withdrawals of income from quasi-corporations Property income from investment income disbursements Rent Reinvested earnings on foreign direct investment 115 1151 1152 1153 1154 1155 1156 116 1161 1162 Taxes on international trade and transactions 142 Sales of goods and services Customs and other import duties Taxes on exports Proﬁ ts of export or import monopolies Exchange proﬁ ts Exchange taxes Other taxes on international trade and transactions Other taxes Payable solely by business Payable by other than business or unidentiﬁ able 1421 1422 1423 1424 143 144 1441 14411 14412 1442 145 1451 1452 Sales by market establishments Administrative fees Incidental sales by nonmarket establishments Imputed sales of goods and services Fines, penalties, and forfeits Transfers not elsewhere classiﬁ ed Current transfers not elsewhere classiﬁ ed Subsidies1 Other current transfers not elsewhere classiﬁ ed1 Capital transfers not elsewhere classiﬁ ed Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes1 Premiums, fees, and current claims1 Capital claims 1Indicates that a further breakdown may be analytically useful and is presented in detailed tables.
payroll and workforce; (iii) taxes on property; (iv) taxes on goods and services; (v) taxes on international trade and transactions; and (vi) other taxes.

Th ese catego- ries are described in the various sections on the re- spective tax categories.

5.26 Th e classifi cation of taxes in this manual is quite similar to the classifi cation employed in Revenue Statistics, which is published annually by the Organ- isation for Economic Co-operation and Develop- ment.
Th e two primary diff erences in the classifi cation structure are that in Revenue Statistics, compulsory social security contributions are treated as taxes and the categories of taxes on goods and services, and taxes on international trade and transactions are com- bined into a single category.
In addition, at a detailed classifi cation level, Revenue Statistics diff ers in the fol- lowing aspects: (i) payable tax credits are recorded as negative taxes to the extent that the payable tax credit off sets existing income tax receivable; (ii) imputed taxes or subsidies resulting from the central bank im- posing a rate of interest other than the market rate are excluded from Revenue Statistics; and (iii) imputed taxes or subsidies resulting from the operation of multiple exchange rate systems are excluded from Revenue Statistics.
Treatment of tax refunds and tax relief 5.27 Tax refunds are adjustments for overesti- mation of taxes payable or the return of amounts to taxpayers due to overpayments.

Tax refunds gener- ally are recorded as a reduction in the appropriate tax category.

When using the accrual basis of recording, refunds are attributed to the period in which the event occurred that generated the overassessments or over- payments.
However, in cases where it is not possible to identify the time of the overestimation, the adjust- ment is recorded at the time when the need for the adjustment is identifi ed.

When using the cash basis of recording, such refunds should be recorded at the time the payment occurs.

In the case of a value-added tax, taxpayers other than fi nal consumers normally are allowed a refund of taxes paid on purchases.
Even if this refund exceeds the taxes payable by an individ- ual taxpayer, the net refund is recorded as a reduction in that category of tax.

5.28 Tax relief measures are incentives that reduce the amount of tax owed by an institutional unit.

Tax relief can take the form of a tax allowance, an exemp- Revenue 89 tion, a deduction, or a tax credit.
Tax allowances, ex- emptions, and deductions are subtracted from the tax base before the tax liability is computed—it reduces the taxable amount before assessing the tax.

Th ese tax relief measures are also known as tax expenditures.

Tax expenditures are concessions or exemptions from a “normal” tax structure that reduce govern- ment revenue collection.

No tax expenditures are recorded as fl ows in the GFS.
However, because the government policy objectives could be achieved al- ternatively through a subsidy or other direct outlays, for fi scal transparency purposes, all tax expenditures should be reported in supplementary reports.

5.29 A tax credit is an amount subtracted directly from the tax liability due by the benefi ciary household or corporation aft er the liability has been computed.

Tax credits can be payable or nonpayable.


Tax credits can be payable, in the sense that any amount of the credit that exceeds the tax liability is paid to the ben- efi ciary.

Under a payable tax credit system, the credits payable can be awarded to nontaxpayer benefi ciaries, as well as taxpayers.

In contrast, tax credits that are nonpayable (sometimes called “wastable”) are limited at most to the size of the tax liability of the taxpayer.
5.30 Tax relief that is embedded in the tax system reduces the taxes receivable from the taxpayer and therefore reduces government tax revenue.

Th is is the case for tax allowances, exemptions, and deductions because they enter directly into the calculation of the tax liability.

Tax relief granted in this form of nonpay- able tax credits should also be recorded as a reduction in the relevant tax category.
5.31 However, when tax relief is granted in the form of payable tax credits, it should be recorded on a gross basis: the total amount of tax receivable should be recorded as tax revenue of government and the total amounts due as payable tax credits should be re- corded as expense.
Payable tax credits are oft en not connected with the assessment of the taxable event, and should be shown as a current transfer classifi ed according to the purpose of the credit and the nature of the recipient: • Th e transfer is a subsidy (25) if receivable by an enterprise on the basis of the level of its produc- tion activities or the quantities or values of the goods or services it produces, sells, exports, or imports (see paragraph 6.84).
90 Government Finance Statistics Manual 2014 • Th e transfer is an implicit social assistance ben- efi t (272) if receivable by households intended to provide for the needs that arise from certain events or circumstances (see paragraph 6.101), or • Th e transfer is classifi ed as transfers not elsewhere classifi ed (282) if receivable by individuals, pri- vate nonprofi t institutions, nongovernmental foundations, corporations, or government units, and the nature of the transfer is not such that it could be included in the other categories of transfers (see paragraph 6.122).
5.32 Payable tax credits should be recorded for the full amount when the tax claim is recognized by govern- ment regardless of the time when it is paid in cash by government or used to decrease the amount of taxes to be paid to government.

Gross recording of the payable tax credit allows GFS to refl ect the economic substance of government intervention in the economy.11 Th is treatment diff ers from the treatment of the imputation system of corporate income tax (see paragraph 5.44).
Tax attribution12 5.33 In some cases, one government unit collects taxes and then transfers some or all of them to an- other government unit or international organization.

Depending on the arrangement, the taxes passed on to the second government unit may be reassigned as tax revenue of that unit or they can be recorded as tax revenue of the collecting unit and a grant from that unit to the second government unit.
5.34 A tax is attributed to the government unit that: (i) exercises the authority to impose the tax (ei- ther as a principal or through the delegated author- ity of the principal); and (ii) has fi nal discretion to set and vary the rate of the tax.

5.35 Where an amount is collected by one govern- ment for and on behalf of another government, and the latter government has the authority to impose the tax, and to set and vary its rate, then the former is act- ing as an agent for the latter.
Th e full amount of tax raised is assigned as tax revenue to the government on whose behalf the collection was made.

Any amounts retained by the collecting government as a collection charge should be recorded as a payment for a service, classifi ed as the relevant category of sales of goods and services (142).

Th e same amount is recorded as an ex- pense for use of goods and services (22) by the counter- party.
Any other amounts retained by the collecting government, such as under a tax-sharing arrange- ment, should be recorded as current grants (1331) receivable while the counterparty will record current grants (2631) payable.

If the collecting government was delegated the authority to set and vary the rate, then the amount collected should be recorded as tax revenue of the collecting government.
5.36 Where diff erent governments jointly and equally set the rate of a tax, with no individual gov- ernment having ultimate overriding authority, then the tax revenues are attributed to each government according to its respective share of the proceeds.13 If an arrangement allows one government unit to exer- cise ultimate overriding authority, then all of the tax revenue is attributed to that unit.
5.37 Th ere may also be circumstances where a tax is imposed under the constitutional or other authority of a government unit or an international organization,14 but participating governments individually set the tax rate in their jurisdictions.

Th e proceeds of the tax generated in each respective government’s jurisdic- tion are attributed as tax revenues to the individual government units.
5.38 When taxes are collected by an institutional unit other than a government unit, the tax is always reassigned to the government unit that permitted the nongovernment unit to act as a collecting agent (see paragraph 5.2).

For example, a public corporation may act as an agent to collect a specifi c tax on behalf of government.
In this case, the taxes collected by the public corporations should be recorded as transac- tions in fi nancial assets and liabilities for the collect- ing agent, and the full amount collected should be 11 For example, when tax credits on customs and other import duties (1151) on raw materials are used to support producers of exports, the full amount of customs and other import duties (1151) should be refl ected, as well as the subsidy (25) to the producers of the exports.
12 Similar attribution principles could be applied to subsidies or social benefi ts.

13 Th ese respective shares of the proceeds should refl ect the underlying taxable economic event.

If, under the revenue shar- ing arrangement, these shares amount to more or less than the underlying taxable economic event, a transfer for the diff erence should be recognized.
14 For a discussion on the tax attribution in the case of suprana- tional authorities and regional cooperation, see Appendix 5. recorded as tax revenue receivable by the government unit.

Amounts retained by the collecting unit as a col- lection charge should be recorded as a payment for a service receivable by the collecting unit and payable by the government unit.

5.39 Th e attribution of church or “zakat” taxes requires some further consideration.
Th e treatment of these taxes depends on the sector classifi cation of the religious insti- tutional units (see paragraph 2.61).

In countries where some of the activities of the religious organizations are funded from earmarked taxes raised by general govern- ment, such as church or zakat taxes, these are included in the tax component of government revenue, provided they meet the defi nition of taxes set out in paragraphs 5.2 and 5.23.
Th e base on which such religious taxes are levied can vary from country to country (the most usual cases are income, property, or net wealth).

Th ese taxes should be classifi ed in the tax category that best describes the tax base on which they are levied.

5.40 When the religious organizations are not part of general government,15 historical and administra- tive reasons may still determine that contributions to religious organizations are collected through the tax authorities.
In this case, the contributions should be recorded as fi nancial transactions classifi ed in other accounts payable (3308).

Amounts retained by the tax authority as a collection charge should be recorded as sales of goods and services (142) receivable from the religious organizations.
Th e collected amounts are not taxes and are therefore not included in tax revenue if any of the following conditions apply: • Individuals may opt out of the “tax” payment by formally declaring to the tax authorities their wish to leave the religious organizations.

• Government is acting in a collection agency ca- pacity on behalf of the religious organizations.
• Government does not exercise the authority to impose a compulsory contribution, or • Government has limited or no discretion to set and vary the rate of the contributions.16 15 Th e authority to raise taxes is an exclusive right of government units.

As a result, when religious organizations are not part of general government, religious “taxes” are classifi ed as transfers from households to religious organizations when compiling national accounts.
16 If the individuals may not opt out of the liability for the pay- ment of the tax, or where the government imposes and sets the rates of such contributions, it may be a suffi cient indication that such contributions to the religious organizations are indeed a tax.

Revenue 91 Tax categories Taxes on income, proﬁ ts, and capital gains (111) 5.41 Taxes on income, profi ts, and capital gains (111) consist of taxes assessed on the actual or pre- sumed incomes of institutional units.
Th ey include taxes assessed on holdings of property, land, or real estate when these holdings are used as a basis for esti- mating the income of their owners.

Th ese taxes, oft en referred to as income taxes, include: • Taxes on individual or household income—Th ese consist of personal income taxes, including those deducted by employers (pay-as-you-earn taxes) and surtaxes.
Such taxes are usually levied on the total declared or presumed income from all sources of the person concerned: compensa- tion of employees (e.g., wages, salaries, tips, fees, commissions, fringe benefi ts), property income (e.g., interest, dividends, rent, royalty incomes), and pensions (taxable portions of social security, pension, annuity, life insurance, and other retire- ment benefi t distributions), etc., aft er deducting certain allowances in accordance with tax laws.
Taxes on the income of the owners of unincor- porated enterprises17 are included here.

Also included are income taxes on the income of fam- ily estates and trusts where the benefi ciaries are individuals.

• Taxes on the income of corporations—Th ese consist of corporate income taxes, corporate profi ts taxes, corporate surtaxes, etc.

Such taxes are usually assessed on the total incomes of corporations—with corporations understood as in macroeconomic statistics.
Th is item includes taxes on the income of units such as partner- ships, sole proprietorships, estates,18 and some trusts that are recognized as corporations.

Th is covers income from all sources and not simply profi ts generated by production.

Also included are income taxes on trusts where the benefi cia- ries are corporations.
• Taxes on capital gains—Th ese consist of taxes on the capital gains (including capital gains dis- tributions of investment funds) of persons or 17 For a defi nition and discussion of unincorporated enterprises, see paragraphs 2.32–2.33.

18 Th ese types of estates are recognized as quasi-corporations and generally classifi ed as captive fi nancial institutions.
92 Government Finance Statistics Manual 2014 corporations that become payable during the current reporting period, irrespective of the pe- riods over which the gains have accrued.

Th ey are usually payable on nominal, rather than real, capital gains and on realized, rather than unreal- ized, capital gains.

• Taxes on winnings from lotteries or gambling— Th ese are taxes payable on the amounts receiv- able by winners.
Th ey do not include taxes on the turnover of producers that organize gambling or lotteries, which are recorded as taxes on goods and services.

5.42 Taxes on income, profi ts, and capital gains are attributed as being payable by either individuals (1111) or corporations and other enterprises (1112).

Th ese individuals, corporations, and other enter- prises may be resident or nonresident institutional units.
Taxes on income, profi ts, and capital gains are classifi ed as other taxes on income, profi ts, and capital gains (1113) when these taxes are payable by general government units, or when informa- tion needed to determine whether taxes should be attributed to individuals, corporations, or general government units is not available.
In the event that general government units are subject to this tax cat- egory, these taxes should be classifi ed under this cat- egory, identifi able according to the subsector of the taxpayer to allow for consolidation (see paragraphs 6.122–6.123).

Similarly, taxes payable by public cor- porations are subject to consolidation and should be identifi ed as a subcategory of taxes payable by corporations (see Table 5.2).
Income taxes on trusts, Table 5.2 Detailed Classiﬁ cation of Taxes on Income, Proﬁ ts, and Capital Gains (111) 111 1111 1112 1113 11131 11132 Taxes on income, proﬁ ts, and capital gains Payable by individuals Payable by corporations and other enterprises1,2 Other taxes on income, proﬁ ts, and capital gains Payable by general government1,2 Unallocable taxes on income, proﬁ ts, and capital gains 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).
2Further breakdown/“of which” lines could allow for the iden- tiﬁ cation of those taxes related to speciﬁ c natural resources or environmental taxes.

estates, capital gains, or winnings from lotteries and gambling may fall under income taxes payable by in- dividuals (1111), payable by corporations and other enterprises (1112), or other taxes on income, profi ts, and capital gains (1113), depending on the insti- tutional unit that benefi ted from the income (see paragraph 5.41).
Income taxes payable by nonprofi t institutions serving households or corporations are recorded as taxes on corporations.

Th ese taxes may be levied on actual or presumed income and prof- its, and usually only on realized capital gains.

Th e amount of income subject to tax is usually less than gross income because various deductions are per- mitted.

A profi ts tax is levied on revenue minus al- lowable deductions.
5.43 When using the accrual basis of recording, income taxes are normally imposed on the income earned during an entire year.

In the absence of high- frequency source data, indicators of seasonal activity or other appropriate indicators may be used to al- locate the annual totals when monthly or quarterly statistics are compiled.

When using the cash basis of recording, income taxes are recorded when the tax payment is received.
5.44 Under imputation systems of corporate in- come tax, shareholders are wholly or partially re- lieved of their liability for an income tax on dividends paid by the corporation out of income or profi ts liable to corporate income tax.

Th e relief is usually called a tax credit, although it actually is a means of allo- cating a tax among taxpayers.

If the relief exceeds a shareholder’s total tax liability, the excess may be pay- able to the shareholder.
Because this “tax credit” is an integral part of the imputation system of corpo- rate income tax, any net payment to shareholders is recorded as a negative tax rather than expense.

Th is treatment diff ers from the general treatment of tax credits described in paragraph 5.29.

Th e total tax paid by the corporation is attributed to corporations and other enterprises (1112).

Th e associated tax credit is for the benefi t of the shareholders.
Taxes on payroll and workforce (112) 5.45 Taxes on payroll or workforce (112) are taxes payable by enterprises assessed either as a proportion of the wages and salaries paid or as a fi xed amount per person employed.

Th ey do not include: Revenue 93 • Payments earmarked for social security schemes, which are classifi ed as social security contribu- tions (121) ally defi ned as the value of a wide range of movable and immovable property minus liabilities incurred on that property.
• Taxes paid by the employees themselves out of their wages or salaries, which are classifi ed as taxes on income, profi ts, and capital gains, pay- able by individuals (1111).

Taxes on property (113) 5.46 Taxes on property (113) are taxes payable on the use, ownership, or transfer of wealth.

Th e taxes may be levied at regular intervals, one time only, or on a change in ownership.
5.47 Taxes on the ownership or use of specifi c types of property oft en are based on the value of the prop- erty at a particular time but, when using the accrual basis of recording, are deemed to accrue continuously over the entire year, or the portion of the year that the property was owned, if less than the entire year.19 Taxes on the transfer of wealth are recorded at the time of the transfer, and some taxes on the ownership or use of property are recorded at a specifi c time, such as a one-time tax on net wealth.
When using the cash basis of recording, these property taxes are recorded when the cash is received.

5.48 Taxes on property are divided into fi ve cat- egories: (i) recurrent taxes on immovable property; (ii) recurrent taxes on net wealth; (iii) estate, inheri- tance, and gift taxes; (iv) capital levies; and (v) other recurrent taxes on property.
5.49 Recurrent taxes on immovable property (1131) cover taxes levied regularly on the use or ownership of immovable property, which includes land, buildings, and other structures.

Th e taxes can be levied on pro- prietors, tenants, or both.

Th e amount of the taxes is usually a percentage of an assessed property value that is based on a notional rental income, sales price, capi- talized yield, or other characteristics, such as size or location.
Unlike recurrent taxes on net wealth (1132), liabilities incurred on the property are usually not taken into account in assessment of these taxes.

5.50 Recurrent taxes on net wealth (1132) cover taxes levied regularly on net wealth.

Net wealth is usu- 19 In compiling high-frequency GFS, the application of the accrual basis of recording would require the distribution of the tax receiv- able throughout the whole period of the taxable ownership (see paragraph 3.84).
5.51 Estate, inheritance, and gift taxes (1133) 20 cover taxes on transfers of property at death and on gift s, including gift s made between living members of the same family to avoid, or minimize, the payment of inheritance taxes.

Taxes on the transfer of property at death include estate taxes, which are usually based on the size of the total estate, and inheritance taxes, which may be determined by the amount received by benefi ciaries and/or their relationship to the deceased.
5.52 Capital levies (1135)21 cover taxes on the val- ues of the assets or net worth owned by institutional units levied at irregular and very infrequent intervals of time.

Capital levies are recorded as exceptional both by units concerned and by the government.

Th ey may be payable by households or enterprises.


Th ey in- clude taxes on net wealth levied to meet emergency expenditures or to eff ect a redistribution of wealth; taxes on property, such as betterment levies, that are taxes on the increase in the value of agricultural land due to planning permission being given by govern- ment units to develop the land for commercial or resi- dential purposes; taxes on the revaluation of capital; and any other exceptional taxes on particular items of property.
5.53 Other recurrent taxes on property (1136) include all recurrent taxes on property other than immovable property or net wealth.

Th is category includes recurrent gross taxes on personal property, jewelry, cattle, other livestock, other particular items of property, and external signs of wealth.

Taxes on the use of particular types of movable property, such as motor vehicles and guns, are classifi ed in taxes on use of goods and on permission to use goods or perform ac- tivities (1145).
20 Estate, inheritance, and gift taxes (1133) are one of the two categories of taxes that are considered to be capital taxes in the 2008 SNA.

Th e other category is capital levies (1135).

Capital taxes are taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gift s, or other transfers.
21 To maintain consistency with codes used in the GFSM 2001, this code does not follow directly the code of the previous cat- egory of taxes.

Taxes on capital and fi nancial transactions (1134 in the GFSM 2001) were reclassifi ed as 11414, one of the categories of taxes on goods and services (114), to improve consistency with the 2008 SNA.
94 Government Finance Statistics Manual 2014 5.54 While sharing certain characteristics with taxes on property, the following taxes are classifi ed elsewhere: • Taxes on immovable property that are levied on the basis of a presumed net income should be recorded as taxes on income, profi ts, and capital gains (111).
• Taxes on the use of property for residence, where the tax is payable by either proprietor or tenant and the amount payable is a function of the user’s personal circumstances, such as net income or the number of dependents, are recorded as taxes on income, profi ts, and capital gains (111).
• Taxes on construction, enlargement, or altera- tion of all buildings, or those whose value or use density exceeds a certain threshold, are included in taxes on use of goods and on permission to use goods or perform activities (1145).

• Taxes on use of one’s own property for special trading purposes, such as selling alcohol, to- bacco, or meat, should be recorded under taxes on use of goods and on permission to use goods or perform activities (1145).
• Taxes on exploitation of natural resources, such as land and subsoil assets not owned by government units, including taxes on extraction and exploita- tion of minerals and other resources, should be re- corded in other taxes on goods and services (1146).

Payments to a government unit as the owner of land and subsoil assets for the exploitation of such natural resources (oft en referred to as royalties) should be recorded in rent (1415).
Payments for licenses that allow the benefi ciary to carry out the business of exploitation of land and subsoil assets are classifi ed in taxes on use of goods and on per- mission to use goods or perform activities (1145).

• Taxes on capital gains resulting from the sale of property are included in taxes on income, profi ts, and capital gains (111).
Taxes on goods and services (114) 5.55 Taxes on goods and services (114) are taxes that become payable as a result of the production, sale, transfer, leasing, or delivery of goods and rendering of services, or as a result of their use for own consump- tion, or own capital formation.
Taxes on goods and services are divided into six categories, as described in paragraphs 5.57–5.82: • General taxes on goods and services (1141), whether levied at manufacturer/producer, whole- sale, or retail level—including single-stage taxes and cumulative multistage taxes, where “stage” refers to stage of production or distribution • Excises (1142) • Profi ts of fi scal monopolies (1143) • Taxes on specifi c services (1144) • Taxes on the use of goods and on permission to use goods or perform activities (1145), compris- ing various types of licenses to use motor vehicles and other goods, or to perform specifi c activities • Other taxes on goods and services (1146) that in- clude taxes levied on the extraction, processing, or production of minerals and other products.
5.56 Th is category does not include taxes levied on international trade and transactions (115) but does in- clude taxes levied upon importation, or at the border, if the tax liability does not result solely from the fact that the goods have crossed the border and is appli- cable to domestic goods or transactions as well.
General taxes on goods and services (1141) 5.57 General taxes on goods and services (1141) are levied on the production, leasing, delivery, sale, pur- chase, or other change of ownership of a wide range of goods and the rendering of a wide range of services (see Table 5.3).

General taxes on goods and services may be levied regardless of whether the goods or services are produced domestically or imported, and they may be imposed at any stage of production or distribution.
Adjustments made in connection with these taxes when goods cross a border are included Table 5.3 Detailed Classiﬁ cation of General Taxes on Goods and Services (1141) 1141 11411 11412 11413 11414 General taxes on goods and services Value-added taxes1,2 Sales taxes1,2 Turnover and other general taxes on goods and services1,2 Taxes on ﬁ nancial and capital transactions1,2 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).
2Further breakdown/“of which” lines could allow for the iden- tiﬁ cation of these taxes related to speciﬁ c natural resources or environmental taxes.

in this tax category.

Conversely, refunds of these taxes when goods are exported are recorded as a reduction of the taxes within this category.

Th is item excludes customs and other import duties (1151) and taxes on exports (1152).

When taxes are levied on a limited range of goods rather than a wide range, they are in- cluded in excises (1142).
Borderline cases are resolved on the basis of the predominant character of the tax.

Value-added taxes (11411) 5.58 Value-added taxes (VAT) (11411) are taxes on goods or services collected in stages by enterprises but that are ultimately charged in full to the fi nal pur- chasers.
Th is tax is described as a deductible tax be- cause producers are not usually required to pay the government the full amount of the tax they invoice to their customers, as they are permitted to deduct the amount of tax they have been invoiced on their own purchases of goods or services intended for interme- diate consumption or fi xed capital formation (i.e., only the net amount of VAT is recorded aft er deduct- ing refunds—see paragraph 5.27).
VAT is usually cal- culated on the price of the good or service, including any other tax on the product.

VAT may also be pay- able on imports of goods or services in addition to any import duties or other taxes on the imports.

Sales taxes (11412) 5.59 Sales taxes (11412) are all general taxes levied on sales at one stage only, whether at manufacturing or production stages or on wholesale or retail trade.
Turnover and other general taxes on goods and services (11413) 5.60 Turnover and other general taxes on goods and services (11413) are multistage cumulative taxes and taxes where elements of consumption taxes are combined with multistage taxes.

Th ese taxes are lev- ied each time a transaction takes place without deduc- tion for taxes paid on inputs.

Multistage taxes can be combined with elements of value-added or sales taxes.
Taxes on ﬁ nancial and capital transactions (11414)22 5.61 Taxes on fi nancial and capital transactions (11414) are taxes levied on the change in ownership of Revenue 95 property, except those classifi ed as gift s, inheritance, or estate transactions.

Th ese taxes are recorded as taxes on the services of the unit selling the asset.
Included are taxes on the purchase and sale of nonfi nancial or fi nancial assets (including foreign exchange or secu- rities), taxes on checks and other forms of payment, and taxes levied on specifi c legal transactions, such as the validation of contracts and the sale of immovable property.
Th is category does not include taxes on the use of goods (part of 1145); taxes on capital gains (part of 111); recurrent taxes on net wealth (1132); capital levies (1135); fees paid to cover court charges or for birth, marriage, or death certifi cates that are included in administrative fees (1422); sales taxes (11412); or general stamp taxes (part of 116).

Excises (1142) 5.62 Excises (1142) are taxes levied as a product- specifi c unit tax on a predefi ned limited range of goods.
Excises are usually levied at diff erentiated rates on nonessential or luxury goods, alcoholic bev- erages, tobacco, and energy.

Excises may be imposed at any stage of production or distribution and are usually assessed as a specifi c charge per unit based on characteristics by reference to the value, weight, strength, or quantity of the product.
Included are spe- cial taxes on individual products such as sugar, sugar beets, matches, and chocolates; taxes levied at vary- ing rates on a certain range of goods; and taxes lev- ied on tobacco goods, alcoholic drinks, motor fuels, and hydrocarbon oils.

If a tax collected principally on imported goods also applies, or would apply, under the same law to comparable domestically produced goods, then the revenue from this tax is classifi ed as arising from excises rather than from import duties.
Th is principle applies even if there is no comparable domestic production or no possibility of such pro- duction.

Taxes on the use of utilities such as water, electricity, gas, and energy are regarded as excises rather than taxes on specifi c services (1144).

Excises exclude those taxes that are levied as general taxes on goods and services (1141); profi ts of fi scal monopolies (1143); customs and other import duties (1151); or taxes on exports (1152).
Proﬁ ts of ﬁ scal monopolies (1143) 22 Th is item was classifi ed as 1134 in the GFSM 2001 (see footnote 21).

5.63 Profi ts of fi scal monopolies (1143) cover that part of the profi ts of fi scal monopolies that is 96 Government Finance Statistics Manual 2014 transferred to the government.
Fiscal monopolies are public corporations, public quasi-corporations, or government-owned unincorporated enterprises that have been granted a legal monopoly over the produc- tion or distribution of a particular kind of good or ser- vice in order to raise revenue and not in order to further the interests of public economic or social policy.
Such monopolies are typically engaged in the production of goods or services that may be heavily taxed in other countries—for example, alcoholic beverages, tobacco, matches, petroleum products, salt, playing cards, lot- teries, gambling, etc.

Th e exercise of monopoly powers is simply an alternative way for the government to raise revenue instead of the more overt procedure of taxing the private production of such products.
In such cases the sales prices of the monopolies are deemed to in- clude implicit taxes on the products sold.

5.64 In principle, only the excess of the monopoly profi ts over some notional “normal” profi ts should be recorded as taxes, while the “normal” profi ts are re- garded as dividends (1412) or withdrawals of income from quasi-corporations (1413).
However, it is recog- nized that it may be diffi cult to estimate this amount, and, in practice, the value of the taxes should be taken as equal to the amount of the profi ts actually payable from fi scal monopolies to government.

Any reserves retained by fi scal monopolies are excluded.

Th is tax is recorded when the payment takes place rather than when the profi ts were earned.
5.65 When a public enterprise is granted monopoly powers as a matter of deliberate economic or social policy because of the special nature of the good or ser- vice or the technology of production (e.g., public utili- ties, post offi ces and telecommunications, railways), it should not be treated as a fi scal monopoly.

Property income payable to government from such public en- terprises is recorded as dividends (1412) or withdrawals of income from quasi-corporations (1413).
Export and import monopoly profi ts receivable from marketing boards or other enterprises dealing with international trade are similar to fi scal monopoly profi ts, but are clas- sifi ed as profi ts of export or import monopolies (1153).

5.66 Th e treatment of lotteries and other gam- bling activities deserves special mention.
Th e con- cept of fi scal monopoly applies to state lotteries and other gambling to the extent that they are devices to raise revenue rather than further the interests of pub- lic economic or social policy, even though they may compete with other privately organized lotteries and other gambling.
As is the case with other fi scal mo- nopolies (see paragraph 5.64), in principle, the “nor- mal” profi ts should be regarded as dividends (1412) or withdrawals of income from quasi-corporations (1413), while the excess should be recorded as a tax classi- fi ed as profi ts on fi scal monopolies (1143).

However, in practice it may be diffi cult to estimate the “normal” profi ts, and the taxes should be taken as equal to the amount of profi ts actually payable to government.
5.67 Governments that have monopoly powers over lotteries and other gambling activities oft en del- egate the organization of these activities to nonprofi t institutions serving households, with a view to a fi nal distribution of the profi ts earned, through social transfers.

Th is delegation of functions normally re- quires the nonprofi t institution to organize those ac- tivities through a specialized department.
When such departments have the attributes of an institutional unit (as described in paragraph 2.22), they may be classifi ed as public corporations (see paragraph 2.104) that constitute a fi scal monopoly.
5.68 Depending on the administrative arrange- ments, the distribution of the profi ts earned may be done in two ways: (i) the fi scal monopoly transfers its profi ts to a government unit (classifi ed as a tax in prof- its of fi scal monopolies (1143)), and the government unit then transfers the profi ts to the population; or (ii) the fi scal monopoly transfers the profi ts directly to the population (normally through criteria deter- mined by law).
In the latter case, a rerouting treatment is required because the government does not appear as a party to the transaction in the actual accounting records.

Rerouting means the transaction is recorded as if the monopoly transferred its profi ts to govern- ment as described in (i) (see paragraph 3.28).

Taxes on speciﬁ c services (1144) 5.69 Taxes on specifi c services (1144) are levied on payments for specifi c services.
Th ese taxes are levied on services such as transportation (including airport and other passenger taxes),23 insurance, bank- ing, entertainment, restaurants, and advertising.

Also 23 If these taxes are based exclusively on international travel, they are classifi ed as other taxes on international trade and transactions (1156) (see paragraph 5.92).

included in this item are taxes levied on gambling and betting stakes for horse races, football pools, lotteries, and so forth.
Taxes on entry to casinos, races, etc.

are also classifi ed as taxes on specifi c services.

5.70 Th is category also includes the implicit taxes resulting from the central bank imposing a rate of in- terest other than the market rates.

Th e central bank’s main responsibility is to formulate and carry out mon- etary policy as part of economic policy.

It therefore oft en acts diff erently than other fi nancial corporations and generally has received the authority from govern- ment to impose its policies.
In cases where the central bank uses its special powers to set interest rates that are out of line with market rates, the diff erence gives rise to an implicit tax and subsidy (see paragraph 6.89 and Box 6.2 for an illustration of recording these im- plicit taxes and subsidies).
Th is procedure is analo- gous to and consistent with the practice of treating the diff erence between the market exchange rate and an alternative exchange rate imposed by the central bank as an implicit tax or subsidy (see paragraph 5.89).
5.71 Th is category does not include: • Taxes that are included in general taxes on goods and services (1141) • Taxes on individual gains from football pools or other gambling proceeds, classifi ed in taxes on income, profi ts, and capital gains (111) • Profi ts transferred to government from state lot- teries and other gambling enterprises regarded as profi ts of fi scal monopolies (1143), dividends (1412), or withdrawals of income from quasi-cor- porations (1413) • Taxes on checks and on the issue, transfer, or re- demption of securities, classifi ed as taxes on fi - nancial and capital transactions (11414) • Stamp tax revenues that cannot be assigned to taxes on services or other transactions, classifi ed as other taxes (116) • Taxes on the use of utilities, such as water, elec- tricity, gas, and energy, which are included under excises (1142).
Revenue 97 for the issuance of a license or permit that are not commensurate with the cost of the control function of government.

Th ere are cases where the government provides something to the individual unit directly in return for a payment in the form of the granting of a permit or authorization.

In such instances, the payment is part of a mandatory process that ensures proper recognition of ownership or ensures that activ- ities are performed under the authorization of the law.
Th e boundary between when such payments are to be recorded as a tax and when they are to be recorded as the sale of a service or as the sale of an asset by the government requires additional guidance.

Boundary with administrative fees 5.73 One of the regulatory functions of govern- ments is to prohibit the ownership or use of certain goods or the pursuit of certain activities, unless specifi c permission is granted by issuing a license or other cer- tifi cate for which a fee is demanded.
To decide whether such a fee constitutes this tax category or administra- tive fees (1422), the following recommendations apply: • Th e payment is recorded as a tax when a license or a permit is automatically granted by the gov- ernment as a mandatory condition to perform an activity or acquire an asset.
Th e government unit performs little or no work other than a minimum control of the legal capacity of the acquirer to re- ceive the permit (e.g., to confi rm the applicant has not been convicted of a crime).

Th e payment of the fee in such a case is not commensurate with the control function that the government exercises.
• Th e payment is recorded as the sale of a service when, for instance, issuing the license or permit involves a proper regulatory function of the gov- ernment by exercising control on the activity, checking the competence or qualifi cations of the persons concerned, etc.

In such a case, the pay- ment is taken to be proportional to the costs of producing the service for all or any of the enti- ties benefi ting from the services and is borne by those benefi ting.
Th e payment is recorded as a tax only if it is out of proportion to the costs of producing the services.
Taxes on use of goods and on permission to use goods or perform activities (1145) 5.72 Taxes on use of goods and on permission to use goods or perform activities (1145) are fees levied 5.74 More specifi cally, the following types of fees are considered taxes: • Fees where the payer of the levy is not the re- ceiver of the benefi t, such as a fee collected from 98 Government Finance Statistics Manual 2014 slaughterhouses to fi nance a service provided to farmers • Fees where government is not providing a spe- cifi c service commensurate with the levy even though a license may be issued to the payer, such as a hunting, fi shing, or shooting license that is not accompanied by the right to use specifi c government-owned natural resources • Fees where benefi ts are received only by those paying the fee but the benefi ts received by each individual are not necessarily in proportion to the payments, such as a milk marketing levy paid by dairy farmers and used to promote the con- sumption of milk • Fees paid to government for deposit insur- ance and other guarantee schemes if they are compulsory—that is, if benefi ciaries cannot opt out of the scheme, if the payment is clearly out of proportion to the service provided, if the pay- ment is not set aside in a fund, or if it can be used for other purposes.24 5.75 Although taxes in this category are levied on the use of goods rather than on the ownership or transactions in goods, registration of the ownership of goods may generate the tax claim.
For example, regis- tration of the ownership of animals or motor vehicles may be the event that causes a tax on the use of these items to be assessed.

Taxes on the use of goods may apply even to functionally unusable goods, such as an- tique motor vehicles or guns.

Boundary with taxes on business activities levied on different bases 5.76 Boundary cases arise with taxes on busi- ness activities, which are levied on a combined income, payroll, or turnover base.
If it is possible to estimate receipts related to each base, then the total should be allocated among the bases.

If sepa- 24 If the fees are proportional to the cost of the service provided, they constitute a payment for an insurance-type transaction, in which case it will be classifi ed as a premium in the category pre- miums, fees, and claims related to nonlife insurance and standard- ized guarantee schemes (145).
Th e criterion of proportionality between payments and provision of an insurance-type of service (including payments for the risk element) should be examined on a case-by-case basis.

Th e existence of an institutional unit with a full set of accounts operating a fund that functions on in- surance rules may indicate that the payment is for an insurance- type of service.
rate amounts cannot be estimated, but it is known that most of the receipts are derived from one base, then the whole of the receipts are classified accord- ing to that base.

Boundaries with other tax categories 5.77 Boundary cases arise with taxes on the owner- ship or use of property that could be classifi ed as re- current taxes on immovable property (1131), recurrent taxes on net wealth (1132), or other recurrent taxes on property (1136).
Unlike the taxes under this item (category 1145), category 1131 is confi ned to taxes on the ownership or tenancy of immovable property and such taxes are usually a percentage of the assessed property value.

Th e taxes included in categories 1132 and 1136 are confi ned to ownership rather than use of assets, apply to groups of assets rather than particular goods, and are based on the value of assets.
Boundary with the acquisition or use of an asset 5.78 Boundary cases arise with the payments for li- censes to make use of a natural resource.

If the natural resource qualifi es as an asset and the government con- trols it on behalf of the community, payments for the license could be recorded as the disposal of the asset when government surrenders economic control of the asset and the life span of the license and the life span of the asset are the same.
If the license agreement is re- corded as the sale of an asset in its own right, it should be recorded as the disposal of an asset in the category of contracts, leases, and licenses (31441).

A license for the use of the natural resource itself for a fi nite pe- riod does not refl ect a disposal of an asset and should be classifi ed as rent (see paragraph 5.124).
Licenses to permit the use of natural resources not under the control of government will be treated as a tax (clas- sifi ed under this item) in all other cases except if the license is legally and practically transferable to a third party, in which case it should be classifi ed as an asset in the category of contracts, leases, and licenses (see paragraphs A4.54–A4.55).
5.79 Taxes on use of goods and on permission to use goods or perform activities (1145) are subdivided into motor vehicle taxes (11451) and other taxes on the use of goods and on the permission to use goods or perform activities (11452), while several subcategories of taxes are identifi able in the latter (see Table 5.4).
Table 5.4 Detailed Classiﬁ cation of Taxes on Use of Goods and on Permission to Use Goods or Perform Activities (1145) 1145 11451 11452 114521 114522 114523 114524 114525 Taxes on use of goods and on permission to use goods or perform activities Motor vehicle taxes1 Other taxes on use of goods and on permission to use goods or perform activities1 Business and professional licenses1 Pollution taxes1 Radio and television licenses1 Licenses and permits for households1 Other taxes on the use of goods and on permission to use goods or perform activities not elsewhere classiﬁ ed1 1Further breakdown/“of which” lines could allow for the identi- ﬁ cation of speciﬁ c goods or activities, and how these taxes relate to speciﬁ c natural resources or environmental taxes.
5.80 Motor vehicle taxes (11451) include taxes on the use of motor vehicles or permission to use motor vehicles.

It does not include taxes on motor vehicles as property or net wealth or tolls for use of roads, bridges, and tunnels.
5.81 Other taxes on use of goods and on permis- sion to use goods or perform activities (11452) in- clude business and professional licenses that consist of taxes paid by enterprises in order to obtain a license to carry on a particular kind of business or profession and taxes payable by individuals to perform certain ac- tivities.
Included in this tax category are the following: • General business taxes or licenses levied in a fi xed amount, on a schedule according to the kind of business, or on the basis of various indi- cators such as fl oor space, installed horsepower, capital, or shipping tonnage would be included.

It would not cover business taxes levied on gross sales, which would be classifi ed under general taxes on goods and services (1141).
• Taxes or licenses for particular kinds of busi- nesses including permission to sell goods or pro- vide services may be levied at regular intervals, on a one-time basis, or each time goods are used.

Business licenses payable by enterprises are in- cluded, such as for taxi, casino, mining, exploita- tion of land and subsoil assets, or broadcasting.
Th is category also includes all cases where gov- ernment issues licenses to limit the number of units operating in a particular fi eld where the Revenue 99 limit is fi xed arbitrarily and is not dependent on qualifying criteria.

When government restricts the number of cars entitled to operate as taxis or limits the number of casinos permitted by issu- ing licenses, they are in eff ect creating monopoly profi ts for the approved operators and recover- ing some of the profi ts as the fee.
Th ese license fees should also be recorded as taxes in this cat- egory.

In principle, if the license is valid for sev- eral years, the payment should be recorded on an accrual basis with an entry in other accounts payable (3308) for the amount of the prepayment of license fees covering future years.

However, if government does not recognize a liability to repay the licensee in the case of a cancellation, the whole of the fee payable is recorded as a sin- gle tax payment at the time it is paid.
• Taxes on pollution levied on the emission or dis- charge into the environment of noxious gases, liquids, or other harmful substances are included.

On an accrual basis, the revenue receivable for emission permits, issued by governments under cap and trade schemes, should be recorded in this category at the time the emissions occur.

No revenue should be recorded for permits that government issues free of charge.
Th e timing diff erence between the cash received by govern- ment for the permits and the time the emission occurs constitutes a prepaid tax and gives rise to a fi nancial liability (other accounts payable) for government.

Th e diff erence between the prepaid tax value of the permit and the market value of the permit represents a marketable con- tract (nonproduced nonfi nancial asset) for the holder (see paragraphs A4.48–A4.49).
Amounts payable to government for the collection and disposal of waste or noxious substances are ex- cluded from this tax category as they constitute a sale of services, recorded as sales of goods and services (142).

• Taxes in this category other than business and professional licenses include taxes payable by per- sons or households for licenses for recreational hunting, shooting, or fi shing, and taxes on the ownership of pets when the amount payable is not commensurate with the administrative cost.
Th ey also include radio and television licenses payable by viewers, unless the public authorities provide general broadcasting services, in which case a service payment, rather than a tax, is recorded.
100 Government Finance Statistics Manual 2014 Other taxes on goods and services (1146) 5.82 Other taxes on goods and services (1146) include taxes on the extraction of minerals, fossil fuels, and other exhaustible resources from deposits owned privately or by another government and any other taxes on goods or services not included in cat- egories 1141 through 1145.

Taxes on the extraction of exhaustible resources usually are a fi xed amount per unit of quantity or weight, but can be a percentage of value.
Th e taxes are recorded when the resources are extracted.

Payments for timber felling and the extrac- tion of exhaustible natural resources from deposits owned by the government unit receiving the payment are classifi ed as rent (1415) (see paragraph 5.129).
Taxes on international trade and transactions (115) 5.83 Taxes on international trade and transac- tions (115) are taxes that become payable when goods cross the national or customs frontiers of the economic territory, or when transactions in services exchange between residents and nonresidents.

Th ese taxes are classifi ed into various subcategories accord- ing to the nature of the exchange and whether the ex- change is related to imports or exports (see Table 5.5).
5.84 Customs and other import duties (1151) cover revenue from all levies and duties payable on goods of a particular kind because they are entering the country or services because they are delivered by nonresidents to residents.

Th e levies may be im- posed with the intention to raise revenue or discour- age imports in order to protect resident producers of the same goods or services.
Th e duties may be deter- mined on a specifi c or ad valorem basis, but they must be restricted by law to imported products.

Included are duties levied under the customs tariff schedule and its annexes, including surtaxes that are based on the tariff schedule, consular fees, tonnage charges, statistical taxes, fi scal duties, and surtaxes not based on the customs tariff schedule.

Th is category covers taxes that fall on imports only.
Imports that fall into a wider category of goods that are subject to the tax should be recorded under general taxes on goods and services (1141) or excises (1142).

If excises are levied on imported goods under the same law to comparable domestically produced goods, then the revenue from the tax should be classifi ed as arising from excises rather than from import duties (see paragraph 5.62).
Table 5.5 Detailed Classiﬁ cation of Taxes on International Trade and Transactions (115) 115 1151 1152 1153 1154 1155 1156 Taxes on international trade and transactions1 Customs and other import duties Taxes on exports Proﬁ ts of export or import monopolies Exchange proﬁ ts Exchange taxes Other taxes on international trade and transactions 1Further breakdown/“of which” lines could allow for the identi- ﬁ cation of speciﬁ c goods or activities, and how these taxes relate to speciﬁ c natural resources or environmental taxes.
5.85 Taxes on exports (1152) include all levies that become payable on goods that are transported out of the country, or services that are provided to nonresi- dents by residents.

Rebates on exported goods that are repayments of previously paid general consumption taxes, excises, or import duties are deducted from the gross amounts receivable from the respective taxes, not from amounts receivable in this category.
5.86 Profi ts of export or import monopolies (1153) include the profi ts from government-established en- terprises with the domestic monopoly right to export or import particular goods and/or control services provided to or received from nonresidents.

Th e ex- ercise of the monopoly powers is an alternative way of raising revenue through taxes on exports, imports, or dealings in foreign exchange.
When such export or import monopolies exist, the profi ts remitted to government by the monopolistic enterprises or mar- keting boards are considered to be taxes, classifi ed as profi ts of export or import monopolies (1153).
While in principle only the excess of the monopoly profi ts over some notional “normal” profi ts should be treated as taxes, it is diffi cult to estimate this amount, and in practice the value of the taxes should be taken as equal to the amount of the profi ts actually payable from the export or import monopolies to government.
Th is tax is recorded when the payment to the government takes place rather than when the profi ts were earned and does not include the retained reserves of the en- terprises or marketing boards.25 25 If an enterprise of this type generates profi ts from its exports or imports of products, and a government unit provides a subsidy on other products, then the taxes and subsidies should be separately recorded to the extent possible rather than recording only the net value of taxes minus subsidies.
5.87 Property income receivable from export or import enterprises or marketing boards that do not represent monopoly profi ts should be recorded as dividends (1412) or withdrawals of income from quasi- corporations (1413).

Fiscal monopoly profi ts receiv- able from public enterprises or marketing boards dealing in commodities domestically, outside of in- ternational trade, should be recorded under profi ts of fi scal monopolies (1143).
5.88 Exchange profi ts (1154) include the profi ts generated when the monopoly powers of government or monetary authorities are exercised to extract a mar- gin between the purchase and sale prices of foreign exchange, other than to cover administrative costs.

Th e revenue derived constitutes a compulsory levy extracted from both purchaser and seller of foreign exchange.

Similarly, an implicit tax results from the operation of a multiple exchange rate regime by the central bank or other offi cial agency.
It is the common equivalent of an import duty and export duty levied in a single exchange rate system or of a tax on the sale or purchase of foreign exchange.

As in the case of the profi ts of export or import monopolies, the revenue represents the exercise of monopoly powers for tax purposes and is included in tax revenue when re- ceived by government.
5.89 Under a multiple exchange rate regime, two or more exchange rates are applicable to diff erent categories of transactions; the rates favor some cat- egories and discourage others.

Th e net proceeds as a result of these transactions are calculated as implicit taxes or subsidies (see paragraph 6.89).
Th e amount of the implicit tax or subsidy for each transaction can be calculated as the diff erence between the value of the transaction in domestic currency at the actual ex- change rate applicable and the value of the transaction at a unitary rate that is calculated as a weighted aver- age of all offi cial rates used for external transactions.

5.90 Exchange profi ts are oft en included in a lump- sum payment from the monetary authorities to gov- ernment.
Such a lump-sum payment should be dis- aggregated according to the economic nature of the components, and each component classifi ed accord- ing to its nature.

Th ese lump-sum payments may include components of dividends, exchange profi ts, interest, and/or equity withdrawals.

Th is category for exchange profi ts should not include any payments to Revenue 101 government of exchange profi ts realized other than as a result of maintenance of an exchange rate dif- ferential.
Also excluded from this category are any payments to government of unrealized revaluation profi ts, which are in the nature of a book entry re- sulting from revaluation of foreign exchange or gold holdings for the owner.

As discussed in paragraph 5.115, such payments to government based on hold- ing gains are classifi ed as a withdrawal of equity rather than a tax.

Any operational profi ts transferred to gov- ernment should be classifi ed as dividends (1412) (see paragraph 5.111).
5.91 Exchange taxes (1155) cover taxes that are levied upon the sale or purchase of foreign exchange, whether at a unifi ed exchange rate or at diff erent ex- change rates.

Included are taxes on remittances abroad if the taxes are levied on the purchase of foreign ex- change that is to be remitted.

Remittance taxes that are not levied on the purchase of foreign exchange should be recorded under other taxes on international trade and transactions (1156).
5.92 Other taxes on international trade and trans- actions (1156) include other taxes levied on various aspects of international trade and transactions, except those payable by producers.

Th is item includes taxes levied exclusively on international travel, taxes on in- surance or investment abroad, and taxes on foreign remittances, excluding taxes levied on the purchase of foreign exchange to be remitted abroad, which are included in exchange taxes (1155).
Other taxes (116) 5.93 Other taxes (116) cover revenue from taxes levied predominantly on a base or bases not elsewhere classifi ed, and unidentifi ed taxes.

Th e item is subdi- vided into other taxes payable solely by business (1161) and other taxes payable by other than business or un- identifi able (1162).

Th e item includes taxes on persons that are not based on income or presumed income, sometimes referred to as poll taxes, head taxes, or capitation taxes.
Personal taxes based on actual or pre- sumed income should be recorded as taxes on income, profi ts, and capital gains (111).

Also included are stamp taxes that do not fall exclusively or predominantly on a single class of transactions or activities covered by taxes on fi nancial and capital transactions (11414).

Examples would be revenues from the sale of stamps required to be affi xed to contracts.
Revenues from the sale of 102 Government Finance Statistics Manual 2014 stamps assignable to a single category, such as liquor and cigarettes, would be shown as taxes on those prod- ucts, either excises (1142) or taxes on specifi c services (1144).

Similarly, stamp duties on fi nancial transac- tions would be shown as taxes on fi nancial and capital transactions (11414).
Also included in other taxes (116) would be an expenditure tax that is levied on purchases but is personalized by the application of personal de- ductions and exemptions.

Revenue from taxes levied on a combination of several tax bases, or on multiple tax bases, where the revenue cannot be readily allo- cated to each tax base or to one predominant tax base is also reported in this category of taxes.
Social Contributions [GFS] (12) 5.94 Social contributions [GFS] (12) are actual or imputed revenue receivable by social insurance schemes to make provision for social insurance ben- efi ts payable.

Social contributions [GFS] (12) exclude contributions receivable under employment-related pension and other retirement schemes that create a liability for future benefi ts payable.
Social contribu- tions are further classifi ed according to the nature of the payee and the nature of the scheme that received these contributions (see Table 5.6).

Th ese receipts are from employers on behalf of their employees, from employees, or from self-employed or unemployed persons on their own behalf to secure entitlement to social benefi ts, payable in cash and in kind, to the contributors, their dependents, or their survivors.26 Th e contributions are usually compulsory, but may also be voluntary.
Voluntary contributions are usually made in arrangements where a means test determines whether contributors are exempted from compulsory contributions, but are eligible to participate by choice.

If any contributions are voluntary, a memorandum item of their total amount would be useful for com- puting the fi scal burden and other analytical uses.

Social contributions are classifi ed as social security contributions (121) or other social contributions (122) depending on the type of scheme receiving them.
5.95 Th e coverage of social contributions in GFS is more restricted than in the 2008 SNA.

In GFS, only amounts that constitute revenue are included in social contributions [GFS] (12)—that is, those transactions 26 Th e institutional units involved, classifi cation, and record- ing of fl ows and stock positions related to social protection are described in Appendix 2.
Table 5.6 Detailed Classiﬁ cation of Social Contributions [GFS] (12) 12 121 1211 1212 1213 1214 122 1221 1222 1223 Social contributions [GFS]1 Social security contributions [GFS] Employee contributions [GFS] Employer contributions [GFS] Self-employed or unemployed contributions [GFS] Unallocable contributions [GFS] Other social contributions [GFS] Employee contributions [GFS] Employer contributions [GFS] Imputed contributions [GFS] 1Further breakdown/“of which” lines could allow for the iden- tiﬁ cation of the contributions in cash and in kind, and make a distinction between compulsory and voluntary contributions.
that create a recognized liability are not part of rev- enue.

In GFS, social contributions exclude contribu- tions to autonomous and nonautonomous pension funds and to unfunded employment-related schemes that provide pension and other retirement benefi ts.

Th ese transactions should be recorded in GFS as in- currence of liabilities for future pension and other retirement benefi ts payable.
Th e 2008 SNA records them both as social contributions and incurrence of liabilities, with the double recording being neutral- ized by recording an adjustment in the use of income account for the change in pension entitlements.27 The boundary between social contributions and other categories of taxes 5.96 Compulsory transfers can be classifi ed as ei- ther a tax or a social contribution.
Social contribu- tions include payments made by insured persons, or their employers, to secure entitlement to social benefi ts.

Th e contributions are levied as a function of earnings, payroll, or the number of employees.

When income is used as a proxy for gross wages, as for the self-employed, the receipts are included as social contributions.
Compulsory payments levied as a tax 27 Th e 2008 SNA allows some fl exibility regarding the recording of pension entitlements of unfunded pension schemes sponsored by government for all employees.

Given the diff erent institutional arrangements in countries, and using this fl exibility, only some of these pension entitlements may be recorded in the main sequence of accounts (core accounts).
However, in such instances, a supple- mentary table is to be presented that discloses the proportion of pension provision covered in the core accounts with some approximate estimates of the liability arising from the remaining schemes (see the 2008 SNA, paragraph 17.193).

assessed on a diff erent base and earmarked for fund- ing social protection schemes are classifi ed in the re- spective tax category and not as social contributions.
In particular, receipts based on net income personal- ized by adjustments for personal deductions and ex- emptions are classifi ed as taxes on income, profi ts, and capital gains (111), even if earmarked for the pay- ment of social benefi ts.

Compulsory payments levied on enterprises as a function of earnings, payroll, or the number of employees that do not make provision for entitlement to social security benefi ts are classi- fi ed as taxes on payroll or workforce (112).
Similarly, compulsory levies on the use of fuel are classifi ed as excises (1142), even though some of it could be ear- marked to fi nance social benefi ts to victims of motor vehicle accidents.
In these cases, if the government unit that levies the tax and the unit providing the social benefi ts are not the same, a subsequent grant should be recorded to the unit providing the social benefi t. Social security contributions [GFS] (121) 5.97 Social security contributions [GFS] (121) are actual revenue receivable by social security schemes organized and operated by government units, for the benefi t of the contributors to the scheme.
Th ese con- tributions are classifi ed by the source of the contribu- tion, which may be the employers or the household sector (separated according to whether they are em- ployees, self-employed, or unemployed).

Employee contributions (1211) are either payable directly by em- ployees or deducted from employees’ wages and sala- ries and transferred on their behalf by the employer.

Employer contributions (1212) are payable directly by employers on behalf of their employees.
Self-employed or unemployed contributions (1213) are paid by con- tributors who are not employees.

Unallocable contri- butions (1214) are those contributions whose source cannot be determined.

Amounts payable by general government employers are not eliminated by con- solidation when the paying and receiving units are in the same sector or subsector because the contri- butions are considered to be rerouted as described in paragraph 3.28.
Other social contributions [GFS] (122) Revenue 103 insurance schemes operated by employers on behalf of their employees.

Unlike social security schemes, social insurance schemes for employees generally tie the level of benefi ts directly to the level of contribu- tions.

Such schemes usually are operated by general government units for their own employees, but they can be operated by one unit on behalf of the employ- ees of many government units or even public corpo- rations.
Th ese contributions can be receivable from employees or from employers.

5.99 Employee contributions (1221) include amounts payable directly by employees or deducted from wages and salaries and transferred by employers on behalf of employees.

Employer contributions (1222) include amounts payable by employers on behalf of their em- ployees.
As with employer contributions to social se- curity schemes, these contributions are not eliminated by consolidation when the paying and receiving gov- ernments are in the same sector or subsector.
5.100 Imputed contributions (1223) are revenue that arises when government employers provide non- pension benefi ts directly to their employees, former employees, or dependents out of their own resources without involving an insurance enterprise and with- out creating a special fund or segregated reserve for the purpose.28 As described in detail in paragraphs A2.64–2.66, in this situation, existing employees may be considered as being protected against various spec- ifi ed needs or circumstances, even though no reserves are built up to provide for future entitlement.
Com- pensation of employees (2122) is therefore imputed (see paragraph 6.22) equal to the amount of social contributions that would be needed to secure the de facto entitlements to the social benefi ts they accumu- late.

A simultaneous transaction is recorded between the household sector and government, for the house- hold imputed contributions (1223) receivable.
Grants (13) 5.101 Grants (13) are transfers receivable by gov- ernment units, from other resident or nonresident gov- ernment units or international organizations, that do not meet the defi nition of a tax, subsidy, or social con- tribution.
As indicated in paragraph 3.10, a transfer is a transaction in which one institutional unit provides a 5.98 Other social contributions [GFS] (122) are ac- tual and imputed contributions receivable by social 28 Revenue from imputed contributions excludes imputed contri- butions to employment-related pension and retirement schemes, which are recorded as the incurrence of a liability.
104 Government Finance Statistics Manual 2014 good, service, or asset to another unit without receiv- ing from the latter any good, service, or asset in return as a direct counterpart.

Grants are normally receivable in cash, but may also take the form of the receipt of goods or services (in kind).

Grants receivable are clas- sifi ed fi rst by the type of unit providing the grant and then by whether the grant is current or capital.
5.102 Th ree sources of grants are recognized in GFS: grants from foreign governments (131), grants from international organizations (132), and grants from other general government units (133).

For the general government sector, these transactions should be eliminated in consolidation.

Th erefore, grants from other general government units (133) will have a non- zero value only when statistics are compiled for a subsector of the general government sector.
To allow for consolidation, it may be useful to identify grants receivable from other general government units also according to the subsector of the counterparty (see Table 5.7).

5.103 Current grants (1311/1321/1331) are cur- rent transfers receivable by government units, from other resident or nonresident government units or international organizations, that do not meet the defi nition of a tax, subsidy, or a social contribution.
Current grants are those transfers (see paragraph 3.17) receivable that are not capital transfers.

Capi- tal grants (1312/1322/1332) are capital transfers re- ceivable by government units, from other resident or nonresident government units or international or- ganizations, that do not meet the defi nition of a tax, subsidy, or a social contribution (see paragraph 3.16).
If doubt exists regarding the character of a grant, it Table 5.7 Detailed Classiﬁ cation of Grants (13) 13 131 1311 1312 132 1321 1322 133 1331 1332 Grants From foreign governments Current Capital From international organizations Current Capital From other general government units1 Current Capital 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).

should be classifi ed consistently by both parties (see paragraph 3.18).
5.104 A grant in kind concerns a good or service provided free of charge or the change of ownership of an existing nonfi nancial asset in the accounts of the donor without receiving anything of commen- surate value in return.

Goods and services that are consumed, such as food contributions, blankets, and medical and rescue services and supplies, are classifi ed as current grants.
Aid of a capital nature receivable from resident and nonresident general governments and international organizations is clas- sifi ed as capital grants.

Grants in kind should be val- ued at current market prices.

If market prices are not available, then the value should be the explicit costs incurred in providing the resources or the amounts that would be received if the resources were sold.
A capital grant in kind necessarily concerns the change of ownership of a product previously recorded as a nonfi nancial asset in the accounts of the donor gov- ernment.

In this case, there is no eff ect in the net lending/net borrowing, because the counterpart entry for the positive eff ect in the net worth (the transfer of wealth implied by the grant revenue) is a transaction in nonfi nancial assets (the acquisi- tion of the asset being transferred by the donor).
In some cases, the donor and the recipient may view the value of the nonfi nancial asset quite diff erently.

To maintain consistency in the macroeconomic sta- tistical system, the valuation from the viewpoint of the donor should be used for recording transactions.

If the market value of the asset in the balance sheet of the recipient of the asset is diff erent, the recipient would then record a subsequent holding gain or loss on this asset (see paragraph 10.5).
5.105 When using the accrual basis for recording, the time at which a grant is recorded is dependent on whether the recipient has a claim on the donor.

In many cases, the grant recipient never has a claim on the donor and the grant should be attributed to the time at which the cash payment is made or the goods or services are delivered by the donor.
When a claim is involved, grants are recorded when all re- quirements and conditions for receiving them are satisfi ed and the receiving unit has an unconditional claim recorded under other accounts receivable (3208).

In some cases, a potential grant recipient has a legal claim when it has satisfi ed certain conditions, such as the prior incurrence of expenses for a spe- cifi c purpose or when a certain event has occurred, such as the passage of legislation.
Determining this time can be complex because there could be a wide variety of eligibility conditions that have varying legal powers, and so grants are most commonly re- corded when received.

When using the cash basis of recording, grants are recorded when cash is re- ceived.

Grants in kind will not be recorded in a cash system.

Other Revenue (14) 5.106 Other revenue (14) is all revenue receivable excluding taxes, social contributions, and grants.
Th is category of revenue includes property income, sales of goods and services, and miscellaneous other types of revenue.

Property income [GFS] (141) 5.107 Property income [GFS] (141) is the revenue receivable in return for putting fi nancial assets and natural resources at the disposal of another unit.29 Revenue in this category may take the form of inter- est, distributed income of corporations, investment income, and rent.
Distributed income of corpora- tions includes dividends, withdrawals of income from quasi-corporations, and reinvested earnings on foreign direct investment.

Investment income includes property income from investment income disbursements, and holders of investment fund shares.
Interest [GFS] (1411) 5.108 Interest [GFS] (1411) is a form of investment income that is receivable by the owners of certain kinds of fi nancial assets (SDRs, deposits, debt secu- rities, loans, and other accounts receivable) for put- ting these fi nancial assets and other resources at the disposal of another institutional unit .30 Th e fi nancial assets giving rise to interest are all claims of creditors over debtors.
Under the accrual basis of recording, 29 Property income [GFS] (141) diff ers due to the treatment of fi nancial intermediation services indirectly measured (FISIM) in interest [GFS] (1411).

30 Interest [GFS] (1411) diff ers due to the treatment of FISIM (see paragraph 6.81 and Appendix 7).
Revenue 105 the amount of outstanding debt increases as interest accrues continuously over the period that the fi nan- cial asset exists, and the amount due to the creditor declines as the payments are made on the debt by the debtor.

Th e amount that the debtor owes to the creditor is referred to as the principal amount.
Inter- est revenue also includes imputed interest that origi- nates from interest forgone by employers when they provide loans to employees at reduced or even zero rates of interest as part of the remuneration in kind of government and public sector employees (see para- graph 6.17).

5.109 Interest may be a predetermined sum of money or a fi xed or variable percentage of the prin- cipal outstanding.
If some or all of the interest ac- cruing to the creditor is not paid during the period in question, it should be added to the amount of the principal outstanding.

However, the interest may not necessarily be due for payment until a later date and sometimes not until the loan or other fi nancial instru- ment matures.

To the extent that interest has accrued without being paid, the debtor’s total liability to the creditor has increased.
On an accrual basis, any pe- riodic or other payments reduce the total liability but are not revenue transactions.

5.110 Many considerations must be taken into ac- count when determining the amount of interest rev- enue to record, or to eliminate, in consolidation.

To avoid repetition, interest is described in more detail in paragraphs 6.62–6.83.
Interest should also be re- corded according to the subsector of the counterparty, to allow for consolidation of the general government and public sectors (see Table 5.8).
Table 5.8 Detailed Classiﬁ cation of Interest [GFS] (1411) 1411 Interest [GFS] Interest [SNA] Minus: FISIM From nonresidents From residents other than general government1 From other general government units1 14111 14112 14113 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).
106 Government Finance Statistics Manual 2014 Dividends (1412) 5.111 Dividends (1412) are the distributed earn- ings allocated to government or public sector units, as the owners of equity, for placing funds at the disposal of corporations.31 Raising equity through the issue of shares is an alternative way of raising funds compared to borrowing.

Equity does not give rise to a liability that is fi xed in monetary terms and it does not en- title the holders to a fi xed or predetermined income.
Instead, the board of directors or other managers of the corporation must declare a dividend payable on their own volition.

Dividends exclude issues of bonus shares that simply represent a reclassifi cation between own funds, reserves, and undistributed profi ts.

5.112 Although dividends represent a part of in- come that has been generated over a substantial period of time, oft en 6 or 12 months, dividends are not re- corded in GFS at the time the economic value is gen- erated.
For public corporations where government or another public corporation is the only shareholder and the shares are not publicly traded, the dividends are re- corded at the time they are payable.

Quoted shares go “ex-dividend,” meaning that the dividend is payable to the owner at that date.

In other words, the owner of the equity at the ex-dividend date, and not the owner on the date dividends became payable, has the right to the dividend.
A share sold “ex-dividend” is therefore worth less than one sold without this constraint.

In this case, the time of recording of dividends is the point at which the share price starts to be quoted on an “ex-dividend” basis rather than at a price that includes the dividend.

5.113 General government units may receive divi- dends from resident or nonresident private or pub- lic corporations (see Table 5.9).
In exceptional cases, legally constituted corporations that are classifi ed as a general government unit may also distribute divi- dends, so that dividends may also be receivable from other general government units (though subject to consolidation).

Th e sector of the counterparty to dividends receivable should be identifi ed separately to allow for consolidation of the general government and public sectors.
5.114 Distributions of profi ts by public corpora- tions may take place irregularly and may not be ex- 31 Government or public sector units, in their capacity as share- holders, may in some cases also acquire equity by transferring nonfi nancial assets to a corporation.

Table 5.9 Detailed Classiﬁ cation of Dividends (1412) Dividends From nonresidents From residents1 1412 14121 14122 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).
plicitly labeled as dividends.

Nevertheless, dividends include all distributions of profi ts by corporations to their shareholders or owners, by whatever name they are called, including profi ts of central banks trans- ferred to government units, profi ts transferred or distributed from the operation of monetary authority functions outside the central bank, and profi ts trans- ferred by state lotteries that compete with other pri- vately organized lotteries.
Distributions of profi ts of fi scal monopolies (1143) and profi ts of export or import monopolies (1153), however, are classifi ed as taxes, as described in paragraphs 5.63 and 5.86.

5.115 Dividends are notionally paid out of the cur- rent period’s operating surplus.

However, corporations oft en smooth the payments of dividends, sometimes paying out rather less than their operating surplus but sometimes paying out a little more, especially when the operating surplus itself is very volatile.
For practical reasons, no attempt is made to align dividend payments with earnings except in one circumstance.

Th e excep- tion occurs when dividends are disproportionately large relative to the recent level of dividends and earn- ings.

Such disproportionally large and irregular pay- ments, oft en referred to as “super-dividends,” are oft en based on accumulated reserves, privatization receipts, other sales of assets, or holding gains.
Any dividends declared greatly in excess of the recent level of divi- dends and earnings should be recorded as a transaction in fi nancial assets, specifi cally the withdrawal of own- ers’ equity from the corporation (see paragraph 9.49).

5.116 To determine whether “super-dividends” are disproportionately large, it is helpful to introduce the concept of distributable income.
Distributable income of a corporation is equal to entrepreneurial income, plus all current transfers receivable, minus all current transfers payable, and minus the adjust- ment for the change in pension entitlements relating to the pension scheme of that corporation (see also 2008 SNA 7.131).

From this it is possible to look at the ratio of dividends to distributable income over the recent past and assess the plausibility that the current level of dividends declared is in line with past prac- tice.
In practice, a proxy for distributable income can be measured by the net operating balance (NOB), ex- cluding dividends payable and net capital transfers.

Determining whether dividends are in line with past practice is recommended for all corporations, includ- ing the central bank.

5.117 Interim dividends are dividend payments during a reporting period, before the fi nal operating result of a corporation is known.
If evidence exists that such dividends are not from the current period’s operating surplus, interim dividend payments should be recorded as a fi nancial advance to the shareholder in transactions in fi nancial assets and liabilities.

Withdrawals of income from quasi- corporations (1413) 5.118 Withdrawals of income from quasi-corporations (1413) consist of that part of distributable income32 that the owner withdraws from the quasi-corporation.
By defi nition, quasi-corporations33 cannot distribute income in the form of dividends, but the owner may choose to withdraw some or all of the distributable income.

Conceptually, the withdrawal of such in- come is equivalent to the distribution of corporate income through dividends and is recorded the same way.

Th e amount of income that the owner of a quasi- corporation chooses to withdraw will depend largely on the size of its disposable income before taxes.
All such withdrawals are recorded on the date the pay- ment actually occurs.

5.119 As with dividends, withdrawals of income from quasi-corporations do not include withdrawals of funds realized from the sale or other disposal of the quasi-corporation’s assets.

Withdrawals based on such sales should be recorded as disposals of nonfi - nancial assets in the accounts of the quasi-corporation and the reduction of the equity of quasi-corporations owned by government sector units.
Similarly, funds withdrawn by liquidating large amounts of accumu- lated retained earnings or other reserves of the quasi- corporation are recorded as withdrawals from equity.

32 See paragraph 5.116 for a discussion on distributable income.

33 Th e criteria to identify quasi-corporations are described in paragraph 2.33.
Revenue 107 Property income from investment income disbursements (1414) 5.120 Property income from investment income disbursements (1414) includes property income at- tributed to insurance policyholders and holders of investment fund shares.34 Insurance enterprises hold technical reserves in the form of prepayments of pre- miums, reserves against outstanding claims, and ac- tuarial reserves against outstanding risks with respect to life insurance policies.
Th ese reserves are liabilities toward the benefi ciaries, including any government or other public sector units that are policyholders.

Any income receivable from the investment of the corresponding assets should also be attributed as the property income of the policyholders or benefi ciaries.
However, for government sector units as the holder of policies, the revenue related to this item is likely to be unknown and would probably be calculated only in the context of the whole of the economy; therefore this revenue item is excluded from GFS and so is an adjustment item between GFS and national accounts (see Appendix 7).

Th is type of property income is de- scribed in greater detail in paragraphs 6.113–6.119 in the context of the corresponding expense.
5.121 Investment income attributed to holders of shares or units in investment funds includes two separate items.

Th e fi rst of these is the dividends dis- tributed to investment fund shareholders.

Th e second is retained earnings attributed to investment fund shareholders.

Th e increase in value of investment fund shares or units other than from holding gains and losses is recorded as distributed to the share- or unit holders and reinvested by them in the fi nancial instrument.
Rent (1415) 5.122 Rent (1415) is the revenue receivable by the owners of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of an- other institutional unit (a lessee or tenant) for use of the natural resource in production.

Rent receivable is typically related to a resource lease on land, subsoil resources, and other natural resources.
In terms of the 34 Investment income disbursements by defi nition also include investment income attributed to participants in pension schemes.

However, public sector institutional units are not entitled to pension benefi ts, and therefore this subcategory of investment income disbursement is not applicable as a GFS revenue category.

108 Government Finance Statistics Manual 2014 agreement, the owner can extend or withhold permis- sion for continued use of the asset from one year to the next.
It constitutes an agreement whereby the legal owner of a natural resource that is considered to have an infi nite life makes it available to a lessee in return for a regular payment recorded as property income and described as rent.35 5.123 On the accrual basis of recording, rent ac- crues continuously to the asset’s owner throughout the period of the contract.
Th e rent recorded for a particular reporting period is, therefore, equal to the value of the accumulated rent that becomes payable over the reporting period and may diff er from the amount of rent that becomes due for payment or is actually paid during the period.
5.124 Rent excludes payments receivable by the owners of natural resources if such payments permit the resource to be used to extinction—such activity is regarded as a sale (see paragraphs 8.54 and A4.19) and possibly depletion (see paragraph 10.52) of the non- produced asset.
Also excluded from rent are amounts receivable by owners of natural resources when they allow the resource to be used for an extended period of time in such a way that, in eff ect, the user controls the use of the resource during this time with little, if any, intervention from the legal owner.

Th is option leads to recording a transaction in an asset, classifi ed as contracts, leases, and licenses (31441), for the user, dis- tinct from the resource itself (see paragraphs 8.56 and A4.19).
5.125 Two types of resource rent are described ahead in detail: rent on land and rent on subsoil re- sources.

Resource rent on other natural resources follows the pattern laid out by these two types.

Th e boundary between resource rent and the rental of pro- duced assets is discussed in paragraphs 5.131–5.132.

Rent on land 5.126 Rent on land is recorded as accruing con- tinuously to the landowner throughout the period of the contract.

Rent may be paid in cash or in kind.


Under sharecropping or similar schemes, the value of the rent payable is not fi xed in advance in monetary terms and is measured by the value at basic prices36 of the crops that the tenants are obliged to provide to the landowner government unit under the contract between them.
5.127 Rent on land also includes the rent payable to general government sector units for the use of in- land waters and rivers (for the right to exploit such waters for recreational or other purposes, including fi shing) or noncultivated land (for the right to cut timber on such land).

In the case of permits that allow timber felling in a natural forest, it is common for these fellings to be allowed under strict limits with a fee payable per unit volume of timber felled (stump- age).
Th e limits are usually such that the harvest of timber is sustainable and so these payments should also be recorded as rent (1415).

However, if a unit is given permission to fell an area of natural forest, or to fell at its discretion without any restriction in perpe- tuity, the payments made to the owner constitute the sale of an asset.

For those forests that are produced assets, the extraction of timber is treated as the sale of a product.
5.128 A landowner may be liable to pay land taxes or incur certain maintenance expenses solely as a consequence of owning the land.

By convention, such taxes or expenses are recorded as payable by the ten- ant who is deemed to deduct them from the rent that he would otherwise be obliged to pay to the land- owner.
Rent reduced in this way by taxes or other ex- penses for which the landowner is liable is described as “aft er-tax rent.” Th e adoption of this convention refl ects the true economic nature of the transactions involved in the accounts of both parties.
Rent on subsoil assets 5.129 Th e ownership of subsoil assets in the form of deposits of minerals or fossil fuels (coal, oil, or natural gas) depends upon the way in which property rights are defi ned by law and also on international agreements in the case of deposits below interna- tional waters.

In some cases the assets may belong to the owner of the ground below which the deposits are located, but in other cases they may belong to a local or central government unit.
35 A more detailed discussion on the boundary between alterna- tive uses of natural resources is presented in the context of the discussion on leases, licenses, permits, and other contracts to use a natural resource in Appendix 4.

36 Basic prices are prices before taxes on products are added and subsidies on products are subtracted.
5.130 General government units may grant leases to other institutional units that permit them to extract these deposits over a specifi ed period of time in return for a payment or series of payments.

Th ese payments are oft en described as “royalties,” but they are essen- tially rent that accrues to owners of natural resources in return for putting these assets at the disposal of other units for specifi ed periods of time.
Th e rent may take the form of periodic payments of fi xed amounts, irrespective of the rate of extraction, or, more com- monly, they may be a function of the quantity, volume, or value of the asset extracted.

Enterprises engaged in exploration on government land may make payments to general government units in exchange for the right to undertake test drilling or otherwise investigate the existence and location of subsoil assets.
Such pay- ments are also recorded as rents even though no ex- traction may take place.

Boundary with rental of produced assets 5.131 Rent should not be confused with the rental of produced assets, which is recorded as sales of goods and services (142).37 Rentals are payments made under an operating lease to use a fi xed asset belonging to a unit where the owner maintains and replaces as nec- essary, and makes available the fi xed asset on demand to lessees.
Th e diff erence in treatment arises because lessors of produced assets are engaged in a production process whereby they provide services to the lessees, such as maintaining inventories of fi xed assets avail- able for lease at short notice and repairing and main- taining the leased assets.

In particular, the rentals payable by government units as tenants are recorded as payments for the provision of building or housing services.
Rent is revenue receivable by owners of natu- ral resources for placing these assets at the disposal of other units.

5.132 A single payment may cover both rent and rentals when an institutional unit rents land that con- sists of land improvements and land and buildings situated on the land in a single contract, or lease, in which the two kinds of payments are not diff erenti- ated from each other.
If there is no objective basis on which to split the payment between rent on land and rental on the produced assets, it is recommended to 37 Th e rentals paid by tenants of buildings are treated as payments for the provision of real estate activities or housing services.

Revenue 109 treat the whole amount as rent when the value of the land is believed to exceed the value of the buildings and other produced assets, and as a rental otherwise.
Boundary with taxes 5.133 Rent should also not be confused with sever- ance taxes, business licenses, or other taxes.

Severance taxes are imposed on the extraction of minerals and fossil fuels from reserves owned privately or by an- other government.

If the payment counts toward the taxes on profi ts, then it should be classifi ed as taxes on income, profi ts, and capital gains (111).

Payments related to the gross value of production should be classifi ed as other taxes on goods and services (1146).
Payments for a license or permit to conduct extrac- tion operations should be classifi ed as taxes on use of goods and on permission to use goods or perform activi- ties (1145).

Reinvested earnings on foreign direct investment (1416) 5.134 Reinvested earnings are the direct inves- tor’s share of the retained earnings of the direct in- vestment38 enterprise.
A general government unit or public corporation may have foreign direct invest- ment in nonresident special purpose entities (SPEs), or nonresident branches or subsidiaries of public cor- porations.

Actual distributions receivable from such nonresident units out of their distributable income should be recorded as dividends (1412) or withdrawals of income from quasi-corporations (1413).

In addition, these entities may have retained some of their earn- ings.
Retained earnings of a corporation or quasi-cor- poration are equal to the distributable income39 minus the dividends payable or withdrawal of income from the corporation or quasi-corporation, respectively.
5.135 Retained earnings of a foreign direct invest- ment enterprise are to be recorded as if they were distributed to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them.40 Th e imputed remittance 38 Direct investment is a category of cross-border investment associated with a resident in one economy having control or a sig- nifi cant degree of infl uence on the management of an enterprise that is resident in another economy (see the BPM6, paragraphs 6.8 and 11.40–11.47).
39 Distributable income is discussed in paragraph 5.116.

40 See paragraph 10.33 for the treatment of retained earnings of other corporations.

110 Government Finance Statistics Manual 2014 of these retained earnings should be recorded as re- invested earnings on foreign direct investment, while the counterpart entry for the imputed reinvestment should be recorded as the acquisitions of equity and investment fund shares (3205).
Th e rationale behind this treatment is that, because a direct investment en- terprise is, by defi nition, subject to control or infl u- ence by the direct investor or investors, the decision to retain some of its earnings within the enterprise represents an investment decision on the part of the investor(s) (see paragraph 6.120).41 Sales of goods and services (142) 5.136 Sales of goods and services (142) consist of the sales by market establishments, administrative fees charged for services, incidental sales by nonmar- ket establishments, and imputed sales of goods and services.
Sales of goods and services are recorded as revenue without deduction of the expenses incurred in generating that revenue.

Sales of goods and services are further classifi ed according to whether they relate to market or nonmarket production (see Table 5.10).
It is quite possible for general government sector units to sell their output at prices that are less than the cost of production (which is calculated as the sum of com- pensation of employees, use of goods and services, consumption of fi xed capital, and taxes (minus sub- sidies) on production).

Indeed, as nonmarket produc- ers, most general government units distribute their output without charge, or for prices that are not eco- nomically signifi cant.
Th ese prices defray some of the costs or may eliminate some of the excess demand that otherwise would exist.

In contrast, corporations sell their output at prices that are economically signifi cant.

5.137 Sales by market establishments (1421) are the sales of an establishment that is a part of an enter- prise (see paragraph 2.75) situated in a single location and at which only a single productive activity is car- ried out or the principal productive activity accounts for most of the value added.
A market establishment within a government unit is an establishment that sells or otherwise disposes of all or most of its output at prices that are economically signifi cant.

Th is category consists of the sales of all market establishments that are part of the units for which statistics are being com- piled.
Because public corporations comprise primarily 41 Th e 2008 SNA research agenda includes a proposal to extend the treatment of distributing retained earnings to the owners of other corporations, in particular of public corporations.
Table 5.10 Detailed Classiﬁ cation of Sales of Goods and Services (142) 142 1421 1422 1423 Sales of goods and services1 Sales by market establishments Administrative fees Incidental sales by nonmarket establishments 1424 Imputed sales of goods and services 1Detailed data about the sectors of the counterparty may not be available.

Where such data are available, further breakdown/“of which” lines could identify the subsectors to allow consolidation.
For analytical purposes, it may also be useful to separately iden- tify the nature of the respective goods or services that were sold.

market establishments, their sales are included in this category when compiling statistics for the public sec- tor, unless the sales are of a specifi c type that are to be recorded elsewhere, such as under insurance premi- ums and administrative fees.

Rentals of produced as- sets are recorded as sales of services and are included in this category.
Sales of nonfi nancial assets other than inventories are disposals of nonfi nancial assets (as de- scribed in Chapter 8) and are not sales of goods and services.

5.138 Administrative fees (1422) include fees for compulsory licenses and other administrative fees that are sales of services.

Examples are drivers’ li- censes, passports, visas, court fees, and radio and television licenses when public authorities provide general broadcasting services.
Also included are fees payable for voluntary participation in deposit insur- ance or other guarantee schemes that do not qualify to be a standardized guarantee scheme.

Th ese fees are considered a sale of a service when, for instance, issu- ing the license or permit implies a proper regulatory function of the government.

In this case, the payment is taken to be proportional to the cost of producing the service.
For a detailed description on the bound- ary between taxes and the purchases of services, see paragraph 5.74.

If a payment is clearly out of all pro- portion to such cost, then the fee is classifi ed as taxes on use of goods and on permission to use goods or per- form activities (1145).

5.139 Incidental sales by nonmarket establishments (1423) cover sales of goods and services by nonmar- ket establishments of general government units other than administrative fees.
Included are sales incidental to the usual social or community activities of gov- ernment departments and agencies, such as sales of products made at vocational schools, seeds from ex- perimental farms, postcards and art reproductions by museums, fees at government hospitals and clin- ics, tuition fees at government schools, and admission fees to government museums, parks, and cultural and recreational facilities that are not public corporations.
5.140 Imputed sales of goods and services (1424) are recorded when a unit produces goods and services for the purpose of using them as compensation of em- ployees in kind.

Th e unit is acting in two capacities: as an employer and as a general producer of goods and services.
In order to indicate the total amount paid as compensation of employees, it is necessary to treat the amount paid in kind as if it had been paid in cash as wages and salaries and then the employees had used this income to purchase the goods and services.

Th is category includes the total value of these imputed sales.

Wages and salaries in kind are explained in greater de- tail in paragraphs 6.17–6.18.
For a defi ned-contribution pension scheme, this category also includes an imputed sale for the services rendered if the employer operates the scheme itself.

In that case, the value of the costs of operating the scheme is recorded as an imputed con- tribution payable to the employee as part of compen- sation of employees.

Th e counterpart of this amount should be recorded as an imputed sale of a fi nancial service to the household sector (see paragraph 6.25).
5.141 On the accrual basis of recording, sales of goods are recorded when legal ownership changes.

If that time cannot be determined precisely, record- ing may take place when there is a change in physical ownership or control.

Transactions in services nor- mally are recorded when the services are provided.

Some services are supplied or take place on a continu- ous basis.

For example, rentals are continuous fl ows and, in concept, are recorded continuously as long as they are being provided.
Fines, penalties, and forfeits (143) 5.142 Fines and penalties are compulsory current transfers imposed on units by courts of law or quasi- judicial bodies for violations of laws or administra- tive rules.

Out-of-court agreements are also included.

Forfeits are amounts that were deposited with a gen- eral government unit pending a legal or administra- tive proceeding and that have been transferred to the general government unit as part of the resolution of that proceeding.
Revenue 111 5.143 In principle, fi nes and penalties charged on overdue taxes or penalties imposed for the evasion of taxes should be recorded in this category and not as taxes.

However, it may not be possible to separate payments of fi nes or other penalties from the taxes to which they relate.

In this case, the fi nes and penalties relating to a particular tax are recorded together with that tax, and fi nes and penalties related to unidentifi - able taxes are classifi ed as other taxes (116).
5.144 Most fi nes, penalties, and forfeits are deter- mined at a specifi c time.

Th ese transfers are recorded on an accrual basis when the general government unit has an unconditional claim to the funds, which may be when a court renders judgment or an administrative ruling is published, or it may be when a late payment or other in- fringement automatically causes a fi ne or penalty.

Fines also include bail set by courts, when bail conditions have been violated.
When bail is set, repayable amounts received should be recorded as other accounts payable (3308), and should be recorded as revenue only once the conditions for the bail were violated.

In cases where no actual payment is made when bail is set, government acquires a conditional claim.

Such a conditional claim is not recorded in GFS until the conditions are fulfi lled.
Transfers not elsewhere classiﬁ ed (144) 5.145 Transfers not elsewhere classifi ed (144) re- ceivable include subsidies, as well as gift s and transfers from individuals, private nonprofi t institutions, non- governmental foundations, corporations, or sources other than governments and international organiza- tions.

Th ese transfers could be classifi ed according to the sector of the counterparty and whether they are cur- rent or capital transfers (see Table 5.11).
If doubt exists regarding the character of a transfer, it should be clas- sifi ed consistently by both parties (see paragraph 3.18).

Transfers not elsewhere classifi ed (144) comprise current transfers not elsewhere classifi ed (1441) (comprising subsidies (14411) and other current transfers not else- where classifi ed (14412)), as well as capital transfers not elsewhere classifi ed (1442).
5.146 Subsidies (14411) are current unrequited transfers that government units make to enterprises on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import.

As revenue, these are amounts receivable, mainly by public corpo- rations.
In rare cases, general government units and 112 Government Finance Statistics Manual 2014 Table 5.11 Detailed Classiﬁ cation of Transfers Not Elsewhere Classiﬁ ed (144) 144 1441 14411 14412 Transfers not elsewhere classiﬁ ed Current transfers not elsewhere classiﬁ ed Subsidies1,2,3 Other current transfers not elsewhere classiﬁ ed1,3 1442 Capital transfers not elsewhere classiﬁ ed1,3 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).
2Further breakdown/“of which” lines could also identify whether these subsidies are subsidies on products or production.

3Further breakdown/“of which” lines could also identify whether these transfers are related to speciﬁ c natural resource or environ- mental revenue.

nonprofi t institutions serving households can receive subsidies when the transfer receivable depends on the general regulations of the subsidy scheme, applicable to all producers—that is, market and nonmarket pro- ducers.
Subsidies are explained in greater detail in paragraphs 6.84–6.91.

5.147 Other current transfers not elsewhere classi- fi ed (14412) are gift s and transfers of a current nature (other than grants or subsidies) from individuals, pri- vate nonprofi t institutions, nongovernmental foun- dations, or corporations.

Th ese transfers could be in cash or in kind—for example, contributions to gov- ernment of food, blankets, and medical supplies for relief purposes.
5.148 Capital transfers not elsewhere classifi ed (1442) are gift s and transfers of a capital nature (other than grants) from individuals, private nonprofi t institu- tions, nongovernmental foundations, or corporations.

Examples of transfers included in this category are: • Major nonrecurrent payments receivable in compensation for extensive damages or serious injuries not covered by insurance policies.

Th e payments may be awarded by courts of law or settled out of court.
Th ey include payments of compensation for damages caused by major ex- plosions, oil spillages, etc.

• International aid of a capital nature receivable aft er natural disasters from nonresidents other than international organizations and foreign governments42 42 International aid receivable from resident and nonresident gen- eral government units and international organizations is classifi ed as grants (see paragraph 5.101).
• Payments receivable for damage to property other than payments from an insurance settle- ment (insurance settlements are included in claims receivable (14513 or 1452)) • Transfers receivable by public corporations from government units, to cover large operating defi - cits accumulated over two or more years43 • Legacies or large gift s receivable by government or public sector units, including gift s of land, buildings, or research and development assets such as patents and copyrights • Exceptionally large donations receivable from households or enterprises to public sector units to fi nance gross fi xed capital formation: for ex- ample, transfers for the construction or purchase of hospitals, schools, museums, theaters, and cul- tural centers, or gift s to universities to cover the costs of building new residential colleges, librar- ies, laboratories, etc.
• Capital from corporations, quasi- transfers corporations, nonprofi t serving institutions households, households, and nonresidents other than governments and international organizations (see paragraph 5.103) for the cancelation or as- sumption of a debt by mutual agreement with the government without the government incurring an eff ective liability toward them44 • Amounts receivable in excess of the expected value of liabilities assumed for the provision of pension entitlements45 • Community-built assets where responsibility for maintenance is then assumed by a public sector unit.
Premiums, fees, and claims receivable related to nonlife insurance and standardized guarantee schemes (145) 5.149 Premiums, fees, and claims receivable re- lated to nonlife insurance and standardized guarantee schemes (145) comprise nonlife insurance premiums 43 Where a realistic expectation exists that such amounts will be repayable, as indicated by certain criteria (see Box 6.3), the transaction should be classifi ed as the acquisition of a fi nancial asset.
A regular transfer covering an operating defi cit is recorded as a subsidy.

44 Details on debt cancellation, debt assumption, and other gov- ernment debt operations can be found in Appendix 3, and in the PSDS Guide, Chapter 4.

45 Amounts receivable up to the expected value of the liabilities should be recorded as transactions in fi nancial assets and liabili- ties (i.e., the incurrence of a liability) (see paragraph 9.67).
Revenue 113 receivable46 by insurance schemes to provide entitle- ment to insurance against risks; claims receivable from insurance schemes by benefi ciaries; and fees receivable for the issuance of standardized guarantees.

While pre- miums and fees are always of a current nature, claims receivable could be of a capital or current nature.
Th e types of insurance and standardized guarantee schemes, terminology used in insurance, and the sta- tistical recording of fl ows and stock positions related to these are described in Appendix 4.
To allow for con- solidation of the general government and public sec- tors, this revenue should be classifi ed according to the sector of the counterparty (see Table 5.12).47 5.150 Premiums, fees, and current claims receiv- able (1451) comprise nonlife insurance premium revenue and fees receivable for the issuance of stan- dardized guarantees, as well as insurance settlement revenue that is not exceptional.
On an accrual basis, premiums and fees receivable should include only those that provide insurance coverage in the report- ing period.

Receipts of prepayment of premiums and fees should not be recognized as revenue, but should 46 In the 2008 SNA, nonlife insurance premiums receivable are partitioned into a sale of a service and a transfer.

In GFS, the entire premium is considered a transfer.

Fees receivable for one-off guarantees are recorded as administrative fees (see paragraph 5.138).
47 See Appendix 4 for an illustration of the recording of transac- tions and stock positions related to insurance, including stan- dardized guarantees.
Table 5.12 Detailed Classiﬁ cation of Premiums, Fees, and Claims Receivable Related to Nonlife Insurance and Standardized Guarantee Schemes (145) 145 1451 14511 14512 14513 1452 Premiums, fees, and claims receivable related to nonlife insurance and standardized guarantee schemes Premiums, fees, and current claims receivable Premiums receivable1 Fees receivable for standardized guarantee schemes1 Current claims receivable1 Capital claims receivable1 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).
be recorded as the incurrence of a liability in the form of insurance technical reserves (see paragraphs 7.183 and A4.79).

5.151 Capital claims receivable (1452) comprise exceptionally large insurance settlements receivable in the wake of a catastrophic event or disaster.
It may be diffi cult for the parties to identify these exception- ally large settlements consistently, so as a simplifying convention, all nonlife insurance claims are classifi ed as current transfers, unless it is necessary to record a capital transfer to be consistent with the national accounts.

6 Expense Th is chapter defi nes the concept of expense and de- scribes the manner in which expense is classifi ed.

Deﬁ ning Expense 6.1 Expense (1) is a decrease in net worth resulting from a transaction.
Expense transactions as defi ned in GFS have counterpart entries either in a decrease in assets or an increase in liabilities—thereby de- creasing net worth.

Th e general government sec- tor has two broad economic responsibilities: (i) to assume responsibility for the provision of selected goods and services to the community, primarily on a nonmarket basis; and (ii) to redistribute income and wealth by means of transfers (see paragraph 2.38).
Th ese responsibilities are largely fulfi lled through ex- pense transactions, which are classifi ed in two ways in GFS: an economic classifi cation and a functional classifi cation.

6.2 Th e economic classifi cation of expense identi- fi es the types of expense incurred according to the economic process involved.
When supplying goods and services to the community, a government unit may produce the goods and services itself and dis- tribute them, purchase them from a third party and distribute them, or transfer cash to households so they can purchase the goods and services directly.

For example, compensation of employees, use of goods and services, and consumption of fi xed capital all relate to the costs of producing nonmarket (and, in certain instances, market) goods and services by government.
Subsidies, grants, social benefi ts, and transfers other than grants relate to transfers in cash or in kind, and are aimed at redistributing income and wealth.

6.3 Th e functional classifi cation of expense pro- vides information on the purpose for which an expense was incurred.

Examples of functions are education, health, and environmental protection.
Th e functional classifi cation is described in the annex to this chapter.1 In addition, the economic and func- tional classifi cations can be cross-classifi ed to show the types of transactions engaged in to carry out a given function (see the annex to Chapter 6, para- graphs 6.126–6.148).

6.4 Refunds, recoveries of overpayments, receiv- ables on erroneous payments, and similar transac- tions are transactions that increase net worth.
More accurately, they are adjustments that correct the ex- cessive decrease in net worth previously recorded.

Th ese transactions are treated as a reduction in ex- pense, with a corresponding reduction in liabilities or an increase in fi nancial assets.

6.5 Some transactions are exchanges in assets and/ or liabilities and should not be recorded as expense.

Th e acquisition of a nonfi nancial asset by purchase or barter does not aff ect net worth, and such transactions are not an expense.
Th ey are transactions in nonfi - nancial assets, as described in paragraph 8.3.

How- ever, when ownership of an asset is given up without receiving anything of commensurate value in return, the net worth of the unit has decreased.

Th is reduc- tion in assets has a counterpart entry in an increase in expense and should be recorded as a type of capi- tal transfer payable, such as a capital grant.

Amounts payable on loans extended and repayments on loans incurred are also not an expense.
Th ese are transac- tions in fi nancial assets or liabilities as described in paragraph 9.3.

Time of Recording Expense 6.6 In the Statement of Operations, expense should be recorded according to the accrual basis of record- ing.
According to the accrual basis of recording, trans- actions are recorded when activities, transactions, or other events occur that create the unconditional 1 In GFS, the functional classifi cation is applied to expenditure— that is, the sum of expense transactions and net investment in nonfi nancial assets.

obligation to make payments or otherwise give up resources (see paragraph 3.62).
In the absence of a complete inventory accounting system (see paragraph 8.46), complications arise with the recording of the ac- quisition and subsequent use of goods.

Conceptually, the purchase of goods that are not immediately used in some manner is an addition to inventories rather than an expense.
When the goods are consumed in production or otherwise utilized, a decrease in inven- tories should be recorded, as well as an expense or an increase in some other category of asset, depend- ing on the manner in which these goods are used.2 However, in practice, as described in paragraphs 8.45–8.47, the change in inventories is oft en not re- corded for each transaction, but rather calculated as a residual from information on stock positions and fl ows in inventories.
Other applications of the accrual basis to specifi c categories of expense transactions are indicated in each section of the economic classifi ca- tion, as relevant.

6.7 In the Statement of Sources and Uses of Cash, expense transactions should be recorded according to the cash basis of recording, as close to the payment stage as possible (see paragraph 3.103).
The Economic Classiﬁ cation of Expense 6.8 Table 6.1 shows the summary economic classi- fi cation of expense, and the remainder of this chapter describes each category in detail.3 While the summary GFS expense classifi cation structure provides guid- ance on the minimum requirements for internation- ally comparable classifi cations of expense, analytical needs may necessitate further detailed classifi cations to be added as subitems in national data presentations.
Th ese additional subitems may be presented either as a comprehensive breakdown of the standard item, or presented as “of which” lines.

Th ese items usually relate to the need for consolidation of the general govern- ment or public sector, input into other macroeco- nomic datasets, or items that will allow the calculation of supplementary aggregates or balances (see para- graph 5.22).
2 Where these goods are used in own-account capital formation to create another asset, such as a fi xed asset or another category of inventories, they would be recorded as part of the cost of the ac- quisition of such assets.

However, where the goods are consumed during the process of providing a service, an expense is recorded.

3 See also Appendix 8, Table A8.2, for the detailed classifi cations.
Expense 115 Compensation of Employees [GFS]4 (21)5 6.9 Compensation of employees is the total remu- neration, in cash or in kind, payable to an individual in an employer-employee relationship in return for work performed by the latter during the reporting period.

Th ese amounts are payable as an exchange for manual and intellectual labor services of individuals used in the production process of the institutional unit.
Com- pensation of employees [GFS] (21)6 excludes amounts connected with own-account capital formation (see Table 6.2).

In GFS, compensation of employees pay- able to employees engaged in own-account capital for- mation, which is the production of nonfi nancial assets for own use, is directly recorded as a component of the cost of the acquisition of nonfi nancial assets.
Compen- sation of employees [GFS] (21) also excludes amounts payable when an employer-employee relationship does not exist, such as for contractors and self-employed outworkers.

Such amounts payable are classifi ed as use of goods and services (22).

For a description of this boundary between compensation of employees and use of goods and services, see paragraph 6.33.
6.10 When using the accrual basis of record- ing, compensation of employees is measured by the value of the remuneration in cash and/or in kind that an employee becomes entitled to receive from an employer for work performed during the relevant period, whether paid in advance, simultaneously, or in arrears of the work itself.
To the extent that payment has not been made for work performed, the unit should record an entry in other accounts payable (3308) (see paragraphs 7.224–7.227 and 9.83).7 On the other hand, to the extent that pay- ment has been made in advance of the work itself, an entry in other accounts receivable (3208) must be recorded until such time as the work is completed.
When using the cash basis of recording, compensa- tion of employees is recorded at the time the cash 4 [GFS] indicates that an item has the same name but diff erent coverage in the 2008 SNA.

5 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.

Appendix 8 provides all classifi cation codes used in the GFS framework.

6 Compensation of employees is described in the 2008 SNA, paragraphs 7.28–7.70.
7 To the extent that compensation of employees is not paid on the agreed due for payment date, these other accounts payable will be in arrears from the date they became due (see paragraphs 9.20 and 7.226).
116 Government Finance Statistics Manual 2014 Table 6.1 Summary Economic Classiﬁ cation of Expense 2 21 211 2111 2112 212 2121 2122 22 23 24 241 242 243 25 251 252 253 26 261 2611 2612 262 2621 2622 263 2631 2632 Expense Compensation of employees [GFS] 1 Wages and salaries [GFS] Wages and salaries in cash [GFS] Wages and salaries in kind [GFS] Employers’ social contributions [GFS] Actual employers’ social contributions [GFS] Imputed employers’ social contributions [GFS] Use of goods and services Consumption of ﬁ xed capital [GFS]1 Interest [GFS]1 To nonresidents [GFS] To residents other than general government [GFS] To other general government units [GFS] Subsidies1 To public corporations To private enterprises To other sectors Grants1 To foreign governments Current Capital To international organizations Current Capital To other general government units Current Capital 27 271 2711 2712 272 2721 2722 273 2731 2732 28 281 2811 2812 2813 2814 2815 282 2821 2822 283 2831 2832 Social beneﬁ ts [GFS]1 Social security beneﬁ ts [GFS] Social security beneﬁ ts in cash [GFS] Social security beneﬁ ts in kind [GFS] Social assistance beneﬁ ts [GFS] Social assistance beneﬁ ts in cash [GFS] Social assistance beneﬁ ts in kind [GFS] Employment-related social beneﬁ ts [GFS] Employment-related social beneﬁ ts in cash [GFS] Employment-related social beneﬁ ts in kind [GFS] Other expense Property expense other than interest Dividends1 Withdrawals of income from quasi-corporations Property expense for investment income disbursements
 Rent Reinvested earnings on foreign direct investment Transfers not elsewhere classiﬁ ed Current transfers not elsewhere classiﬁ ed Capital transfers not elsewhere classiﬁ ed Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes1 Premiums, fees, and current claims Capital claims 1Indicates that further breakdown may be analytically useful and is presented in detailed tables.
fl ow occurs, irrespective of when the labor exchange takes place.

Wages and salaries in kind are not re- corded in the cash basis of recording since no cash fl ows are involved.

6.11 Compensation of employees comprises wages and salaries (211) and employers’ social contributions (212) payable by employers on behalf of employees to social insurance schemes.
Wages and salaries [GFS] (211) 6.12 Wages and salaries are compensation of em- ployees payable in cash and/or in kind, except for social contributions payable by employers.

As indi- cated in Table 6.2, wages and salaries [GFS] (211) exclude amounts connected with own-account capi- tal formation.

Th ey include amounts withheld from wages and salaries by the employer for administra- tive convenience or other reasons, such as social contributions, income taxes, and other deductibles, payable by the employee.
Th ese deductibles are oft en paid directly to social insurance schemes, tax authorities, etc., on behalf of the employee.

Wages and salaries may be payable in various ways, in- cluding goods or services provided to employees as remuneration in kind instead of, or in addition to, remuneration in cash.

Including remuneration in kind allows GFS to measure the full cost of labor employed.
Table 6.2 Detailed Classiﬁ cation of Compensation of Employees [GFS] (21) 21 Compensation of employees [GFS]1 Compensation of employees [SNA] Minus: Related to own-account capital formation 211 Wages and salaries [GFS] Wages and salaries [SNA] Minus: Related to own-account capital formation 2111 Wages and salaries in cash [GFS] Wages and salaries in cash [SNA] Minus: Related to own-account capital formation 2112 Wages and salaries in kind [GFS] Wages and salaries in kind [SNA] Minus: Related to own-account capital formation 212 Employers’ social contributions [GFS] Employers’ social contributions [SNA] Minus: Related to own-account capital formation 2121 Actual employers’ social contributions [GFS] Actual employers’ social contributions [SNA] Minus: Related to own-account capital formation 2122 Imputed employers’ social contributions [GFS] Imputed employers’ social contributions [SNA] Minus: Related to own-account capital formation 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of the types of compensation of employees payable.
Wages and salaries in cash [GFS] (2111) 6.13 Wages and salaries in cash8 are the amounts payable in cash, or any other fi nancial instruments used as means of payments, to employees in return for work performed.

As indicated in Table 6.2, wages and salaries in cash [GFS] (2111) exclude amounts con- nected with own-account capital formation.
Included are the following kinds of remuneration: • Basic wages or salaries payable at regular weekly, monthly, or other intervals, including payments by results and piecework payments; enhanced Expense 117 payments or special allowances for working overtime, at nights, on weekends, or other ir- regular hours; allowances for working away from home or in disagreeable or hazardous cir- cumstances; expatriation allowances for working abroad, etc.
• Supplementary allowances payable regularly, such as housing allowances or allowances to cover the costs of travel to and from work, but excluding social benefi ts payable by the employ- ers (see paragraph 6.16) • Wages or salaries payable to employees away from work for short periods—for example, on vacation or as a result of a temporary halt to pro- duction, except during absences due to sickness, injury, etc.
(see paragraph 6.16) • Annual supplementary pay, such as bonuses and “13th month” pay • Ad hoc bonuses or other exceptional payments linked to the overall performance of the enter- prise made under incentive schemes • Commissions, gratuities, and tips received by employees: these should be included in payments for services rendered by the unit employing the worker, even when they are payable directly to the employee by a third party.
Th ey are thus regarded as being paid by the employer to the employee.9 6.14 In some instances, an employee benefi t, such as a car or extra pension contributions, may not be provided to the employee for free (i.e., not provided without an opportunity cost to the employee).

Th e benefi t may be “purchased” from the employer by forgoing some salary.

Th e attraction of such schemes oft en lies in the tax advantages that an employee may enjoy by restructuring salary packages.
In these cases, the full salary should include the employee benefi ts “purchased” and be recorded as payable in cash—the cost of acquiring the benefi t is regarded as an expen- diture of the employee.

6.15 Wages and salaries in cash do not include the reimbursement by the government of costs incurred 8 Th e use of the term “cash” should not be viewed as denot- ing the cash basis of recording, but rather denotes monetary remuneration.
9 Amounts directly paid to the employee should be rerouted to be included in revenue of the employer related to the service provided, and then expensed as wages and salaries.
118 Government Finance Statistics Manual 2014 by its employees in order to enable them to take up their jobs or to carry out their work—for example: • Th e reimbursement of travel, relocation, or re- lated expenses made by employees when they take up new jobs or are required by their employ- ers to move their homes to diff erent parts of the country or to another country • Th e reimbursement of costs incurred by employ- ees on tools, equipment, special clothing, or other items that are needed exclusively, or primarily, to enable them to carry out their work.
In these cases, the amounts reimbursed are recorded as use of goods and services (22).

To the extent that employees who are required by their contract of employment to purchase tools, equipment, spe- cial clothing, etc.

are not fully reimbursed, the re- maining expense they incur should be deducted from the amounts receivable in wages and sala- ries and the government’s use of goods and ser- vices increased accordingly.
6.16 Wages and salaries also exclude social benefi ts payable by governments to their employees in the form of: • Children’s, spouse’s , family, education, or other allowances in respect of dependents performed.

As indicated in Table 6.2, wages and salaries in kind [GFS] (2111) exclude amounts con- nected with own-account capital formation.

Th is cat- egory consists of goods and services provided without charge, or at reduced prices.
When provided at re- duced prices, the value of the wages and salaries in kind is given by the diff erence between the full value of the goods and services and the amount payable by the employees.

Th ese goods and services provided in kind by the government to its employees are not necessary to enable them to perform their work.

Th ey could be used by employees in their own time, and at their own discretion, for the satisfaction of their own needs or wants, or those of other members of their households.
Almost any kind of good or service may be provided as wages and salaries in kind.
Th e follow- ing are the most common types of goods and services provided without charge, or at reduced prices: • Meals and drinks provided on a regular basis, in- cluding any subsidy element of an offi ce canteen (for practical reasons, it is not necessary to make estimates for meals and drinks consumed as part of offi cial entertainment or during business travel) • Clothing or footwear that employees may choose to wear frequently outside of the workplace and while at work • Payments made at full, or reduced, wage or salary rates to workers absent from work because of ill- ness, accidental injury, maternity leave, etc.10 • Housing services or accommodation of a type that can be used by all members of the household to which the employee belongs • Severance payments to workers or their survi- vors who lose their jobs because of redundancy, incapacity, accidental death, etc.
Th ese social benefi ts are recorded as an imputed em- ployers’ social contributions (2122) payable to house- holds, and subsequent imputed social contributions (1223) payable by these households to the employer, before including it in employment-related social ben- efi ts (273) (see paragraph 6.104).
Wages and salaries in kind [GFS] (2112) 6.17 Wages and salaries in kind are amounts pay- able in the form of goods, services, interest forgone, and shares issued to employees in return for work • Th e services of vehicles or other durables pro- vided for the personal use of employees • Goods and services produced by the employer, such as free travel on government airplanes or trains • Sports, recreation, or holiday facilities for em- ployees and their families • Transportation to and from work, free or subsi- dized parking, when it would otherwise have to be paid for • Child care for the children of employees • Th e value of the interest forgone11 by employers when they provide loans to employees at reduced 10 If it is diffi cult to separate payments of wages and salaries to employees on short periods of absence due to sickness, accidents, etc., from other payments of wages and salaries, the payments during short periods of absence should remain included in wages and salaries.
11 Th is value may be estimated as the amount the employee would have to pay if the market equivalent interest rates were charged minus the amount of interest actually payable.

Th e sums involved could be large when nominal interest rates are very high, but otherwise they may be too small and too uncertain to be worth estimating.
or even zero rates of interest for purposes of buy- ing houses, vehicles, furniture, or other goods or services (these amounts are also recorded as in- terest receivable as explained in paragraph 5.108) • In the case of public corporations, wages and salaries in kind can also include bonus shares or stock options12 distributed to employees.
6.18 Some of these services, such as transportation to and from work, parking, and child care may have some of the characteristics of use of goods and ser- vices by the employee.

However, when governments are obliged to provide these benefi ts to attract and re- tain labor, they are similar to other forms of compen- sation of employees and should be recorded as such.
If the same types of benefi ts are provided because of the nature of the production process or the physical conditions under which employees have to work, they should be recorded as use of goods and services (22) expense of the employer.
Employers’ social contributions [GFS] (212) 6.19 Employers’ social contributions are social contributions payable by employers to social security funds, employment-related pension funds, or other employment-related social insurance schemes to ob- tain entitlement to social benefi ts for their employ- ees.

Employers’ social contributions are payable by employers for the benefi t of their employees, and are therefore recorded as a component of compensation of employees.
Employers’ social contributions [GFS] (212) exclude amounts connected with own-account capital formation (see Table 6.2).

Social protection is described in Appendix 2.

6.20 Some social contributions are payable directly by the government unit that is the employer to a second public sector unit, oft en a social security fund or a pub- lic fi nancial corporation.
It is administratively more effi - cient for the employer to pay the contributions on behalf of their employees, rather than each employee making individual payments.
Th e administrative arrangement should not obscure the underlying economic reality— namely, that the government unit incurs an expense for compensation of employees payable to households, while the employee contributes to the social insurance 12 Under a stock option agreement, the employer gives an em- ployee the option to buy stocks or shares at a specifi ed price at a future date (see paragraphs 9.77–9.81).
Expense 119 scheme.13 Th ese transactions are not eliminated in con- solidation because they are rerouted to better show the economic nature of the transaction, as described in paragraph 3.28, fi rst to the employees and then from the employees to the social insurance schemes.
Actual employers’ social contributions [GFS] (2121) 6.21 Actual employers’ social contributions con- sist of actual contributions payable to social secu- rity funds, employment-related pension funds, and other employment-related social insurance schemes to obtain entitlement to social benefi ts for their employees.
Th is category consists of actual contribu- tions payable to insurance enterprises, social security funds, or other institutional units responsible for the administration and management of social insurance schemes, or employment-related pension schemes.

As indicated in Table 6.2, actual employer’s social contri- butions [GFS] (2121) also exclude amounts connected with own-account capital formation.
Imputed employers’ social contributions [GFS] (2122) 6.22 Imputed employers’ social contributions are the amounts calculated and added to actual contribu- tions, suffi cient to exactly match the increases in em- ployees’ social benefi t entitlements.

Th ese imputed employers’ social contributions may relate to pension and to nonpension benefi ts.

Imputed employers’ social contributions [GFS] (2122) exclude amounts connected with own-account capital formation (see Table 6.2).
Imputed employers’ social contributions related to nonpension beneﬁ ts 6.23 Some government units provide employment- related nonpension social benefi ts directly to their employees, former employees, or dependents out of their own resources without involving an insurance enterprise (see paragraph 6.16 for examples of the types of benefi ts payable).
In this situation, employees 13 Th e situation is parallel to one in which income taxes payable by employees are deducted by employers from the wages or salaries and paid directly to the tax authorities.
Th e direct payment of social contributions, or income taxes, by government units as employers to other government units, such as social security schemes, other employment-related social insurance schemes, or tax authorities, is merely a shortcut taken on grounds of adminis- trative convenience and effi ciency.
120 Government Finance Statistics Manual 2014 may be considered as being protected against various specifi ed needs or circumstances, even though no re- serves are built up to provide for future entitlement to benefi ts.

Compensation of employees in the form of employers’ social contributions equal in value to the amount of social contributions that would be needed to secure the de facto entitlements should be imputed.
Th ese amounts take into account any actual contri- butions made by the employer or employee and de- pend not only on the levels of the benefi ts currently payable, but also on the ways in which employers’ li- abilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the number, age distribution, and life expectancies of their present and previous employees.
Th us, the values that should be imputed for the contributions ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises.

6.24 In practice, however, it may be diffi cult to decide how large such imputed contributions should be.
Th e government sector unit may make estimates, perhaps on the basis of the contributions payable into similar funded schemes, in order to calculate its likely liabili- ties in the future, and such estimates may be used when available.

Otherwise, the only practical alternative may be to use the unfunded nonpension benefi ts payable by the unit during the same reporting period as an esti- mate of the imputed expense that would be needed to cover the imputed contributions (see paragraph 6.104).
Imputed employers’ social contributions to employment-related pension beneﬁ ts 6.25 Th e imputation of employers’ social contribu- tions related to employment-related pension benefi ts is infl uenced by the type of pension scheme the gov- ernment unit operates: • In general, in the case of social security schemes, there are no imputed contributions recognized for social insurance.
However, in cases where employment-related pensions are administered by such a social security scheme, imputed con- tributions should be recorded for these pension obligations.

• For a defi ned-contribution pension scheme, there are no imputed contributions recognized unless the employing unit operates the scheme itself.

In that case, the value of the costs of operating the scheme is recorded as an imputed contribution payable to the employee as part of compensation of employees.
• For a defi ned-benefi t pension scheme, there is an imputed contribution recognized, equal to the increase in benefi ts payable due to current period employment, plus the costs of operating the scheme, minus the sum of the government’s actual contribution and the sum of any contribu- tions by the employees.14 6.26 Some schemes may be generally described as noncontributory because no actual contributions are ever made by the employee.
Nevertheless, in the case of employment-related schemes, an imputed contribution by the employer is calculated and should be imputed for GFS as just described.

Th e fact that the value of imputed contributions for a noncontributory scheme may be set equal to the value of benefi ts payable does not mean that the benefi ts themselves are recorded as part of compensation of employees.

Rather, the employee has a pension asset that is reduced when benefi ts are payable.
When a pension manager is a unit diff erent from the administrator, and the responsibility for any defi cits, or claims on any excess rests with the pension manager, the counterpart entry for such claims is included in im- puted social security contributions on a net basis (i.e., an expense to increase the liability and a reduction in the expense when the liability reduces or when govern- ment acquires an asset.

See paragraph 7.199).
Use of Goods and Services (22) 6.27 Use of goods and services (22) consists of the value of goods and services used for the production of market and nonmarket goods and services.15 Ex- cluded are: • Consumption of fi xed capital (23) • Th e use of goods and services in own-account capital formation, which should be recorded as the acquisition of nonfi nancial assets (see para- graph 8.3) 14 Some defi ned-benefi t pension schemes may have fi nancial as- sets that exceed the liabilities of the scheme to present and past employees.
It is possible that in this case, the government may take a “contribution holiday” and not make actual contributions for one or more periods.

Nonetheless, an imputed contribution by the gov- ernment should be calculated and recorded (see paragraph A2.46).

15 Use of goods and services is closely related to intermediate consumption in the 2008 SNA.

Th e relationship between the two concepts is explained in Appendix 7.

Intermediate consumption is described in the 2008 SNA, paragraphs 6.213–6.239.
• Goods purchased by government and distrib- uted without transformation, which should be recorded as some type of transfer in kind; these transfers are classifi ed as subsidies (25), grants (26), social benefi ts (27), or current transfers not elsewhere classifi ed (2821).

6.28 In the Statement of Operations, the value of use of goods or services is recorded when the goods or services are actually used rather than when they were acquired or paid for.
In practice, these events oft en coincide for inputs of services but not for goods, which may be acquired some time in advance of their use.

Th e value of goods purchased and held for resale is recorded as use of goods and services when they are sold.

6.29 In practice, government units do not usually record the actual use of goods in production directly.
Instead, they keep records of purchases of materi- als and supplies intended to be used as inputs and also of any changes in the amounts of such goods held in inventories.

An estimate of use of goods and services during a given reporting period can be de- rived through the indirect method by considering the purchases of goods and services and changes in inventories,16 as illustrated in Table 6.3.

6.30 Use of goods and services (22) is recorded on a gross basis.
Fees and charges collected for goods and services provided by general government units, such as for certain types of social benefi ts or admin- istrative services, such as the issuance of licenses and passports, should be shown as revenue rather than de- ducted from expense.

6.31 In the Statement of Sources and Uses of Cash, the purchases of goods and services are recorded as close to the payment stage as possible.
Th e value of these goods and services will include all cash pay- ments made for goods and services during the report- ing period, irrespective of whether the good or service was used during the reporting period.

Th is amount will not include the value of goods paid for in prior periods, but used in the current period.
6.32 Th e boundaries between use of goods and services and other expenditure items, such as com- 16 As described in paragraph 7.75, inventories may include ma- terials and supplies, work in progress, fi nished goods, goods for resale, and military inventories.

See paragraphs 8.44–8.47 for a discussion on transactions in inventories.
Expense 121 Table 6.3 Relationship between Inventories (612) and Use of Goods and Services (22) 612t0 Opening stock position of inventories Plus: Purchases of goods and services Minus: Used in own-account capital formation Minus: Goods distributed directly as transfers in kind Plus/Minus: Holding gains/losses Plus/Minus: Other volume changes Minus: Closing stock position of inventories Equals: Use of goods and services 412 512 612t1 22 pensation of employees, transfers, or acquisition of nonfi nancial assets, are explained in more detail in paragraphs 6.33–6.52.
The boundary between use of goods and services and compensation of employees 6.33 Compensation of employees excludes amo- unts payable to contractors, self-employed outwork- ers, and other workers who are not employees of general government or public sector units.

Any such amounts should be recorded under use of goods and services (22).
An employer-employee relationship ex- ists when there is a written or oral agreement, which may be formal or informal, between an entity and an individual, normally entered into voluntarily by both parties, whereby the person works for the enterprise in return for remuneration in cash or in kind.

Th e remuneration is normally based on either the time spent at work or another objective indicator of the amount of work performed.
If an individual is con- tracted to produce a single specifi c task, it suggests that no employer-employee relationship exists, but that a service contract relationship exists between the entity and a self-employed individual.

6.34 An indication of whether an employer- employee relationship exists is that of control.

Th e right to control or to direct work performed and how it shall be performed is a strong indication of an employer-employee relationship.
Th e method of mea- suring or arranging for the payment is not important as long as the employer has eff ective control over both the method and the result of the work undertaken by the individual.

However, certain control of the work being undertaken may also exist for the purchase of 122 Government Finance Statistics Manual 2014 a service—for example, when subcontracts are en- tered into.

Th erefore, other criteria should also be used to defi ne more clearly the employer-employee relationship.
Th e fact that the individual is solely re- sponsible for social contributions would suggest that the individual is a self-employed service provider.

By contrast, payment of social contributions by the employer is an indication of employer-employee re- lationship.

Entitlement by the individual to the same kinds of benefi ts (e.g., allowances, holidays, and sick leave) generally provided to an entity’s employees would also indicate an employer-employee relation- ship.
Payment of taxes on the provision of services (such as sales tax or value-added tax) by the indi- vidual is an indication that the individual is a self- employed service provider.

6.35 Certain goods and services used by gov- ernments do not enter directly into the process of production itself but are consumed by employees working on that process.
In general, when the goods or services are used by employees on their own time and at their own discretion for the direct satisfaction of their needs or wants, they constitute remuneration in kind (see paragraph 6.17).

However, when such use is mandatory in order to enable employees to carry out their work, it should be recorded as use of goods and services.
Examples of the latter are: • Tools or equipment used exclusively, or mainly, at work • Clothing or footwear of a kind that ordinary con- sumers do not choose to purchase or wear and that are worn exclusively, or mainly, at work—for example, protective clothing, overalls, or uniforms • Accommodation services at the place of work of a kind that cannot be used by the households to which the employees belong: barracks, cabins, dormitories, huts, etc.
• Special meals or drinks necessitated by excep- tional working conditions, while traveling for business reasons, or meals or drinks provided to employees while on active duty • Changing facilities, washrooms, showers, baths, etc.

necessitated by the nature of the work • First aid facilities, medical examinations, or other health checks required because of the na- ture of the work.
6.36 Employees may sometimes be responsible for purchasing the kinds of goods or services just listed and are subsequently reimbursed by the employer.

Such reimbursements are recorded as use of goods and services rather than as wages and salaries.
The boundary between use of goods and services and transfers 6.37 All transfers of goods and services to other institutional units other than goods and services pro- duced by the donor government unit are recorded as grants (26) or transfers not elsewhere classifi ed (282).
Such transfers may entail the transfer of government- owned fi xed assets, the transfer of goods held in inven- tories, the construction of fi xed assets, or the purchase and subsequent transfer of either fi xed assets or goods and services for current consumption.
Examples are transfers of food, clothing, blankets, and medicines as emergency aid aft er natural disasters; transfers of ma- chinery and other equipment; the direct provision of the construction of buildings or other structures; and transfers of military equipment of all types.

6.38 Goods and services used by a donor govern- ment unit to produce nonmarket goods and services consumed by other governments and international or- ganizations are included in use of goods and services.
An example would be the goods and services acquired so that government employees can conduct relief op- erations in a foreign country aft er a natural disaster.
Th e purpose of this treatment is to show in GFS the reduction in cash, or increase in other accounts pay- able, with an entry in the respective expense items that made up the cost of producing nonmarket goods and services provided by the government sector unit.17 6.39 Use of goods and services also includes all goods and services consumed by a general government unit to produce nonmarket goods and services that are distributed either as social benefi ts in kind or distrib- uted to households in particular circumstances, such as following a natural disaster.
Such social benefi ts can 17 Th e treatment in the 2008 SNA diff ers because national ac- counts have the purpose to calculate production, transfers, and consumption.

Th erefore, the SNA treatment is to record the cost of production and the imputed sale of the goods and services to the fi nal recipient as the user of the goods and services.

In addi- tion, the SNA also records a transfer that is deemed to be used by the recipient to pay for the imputed sale (see the 2008 SNA, paragraphs 8.43–8.51).
be distributed through social security schemes; so- cial insurance schemes operated for the benefi t of government employees, their dependents, or survi- vors; or social assistance.

A common type of social benefi t likely to be produced by general government units and distributed in kind is related to health care, such as medical or dental treatments, surgery, hospi- tal accommodation, home care, and similar services.
Benefi ts for government employees and dependents typically include general medical services not related to the employee’s work,18 convalescent and retirement homes, education services, and access to recreation or vacation facilities.

Any nominal payments made by the recipients to the government unit distribut- ing these goods and services should not be deducted from use of goods and services expense, but rather be recorded as the appropriate category of sales of goods and services (142), as relevant.
6.40 Goods and services that were not produced by the donor government unit, but are distributed as social benefi ts in kind or distributed to households in particular circumstances, are classifi ed as social benefi ts (27) rather than use of goods and services.
Such distri- butions include transfers of goods held in inventories, the purchase and simultaneous transfer of goods and services from market producers, and the reimburse- ment by a general government unit for purchases by households of specifi ed goods or services, such as food, education services, medicines, medical or dental treatments, hospital bills, and optometrists’ bills.
6.41 On occasion, government units transfer eco- nomic value by purchasing goods and services for prices that greatly exceed their market value.

As de- scribed in paragraph 3.29, when such transactions can be detected, they should be partitioned into a pur- chase of goods and services at their true market value and a transfer recorded under the relevant category.
6.42 Membership dues and subscription fees should be recorded as an expense in use of goods and services (22) if there is an exchange of a payment for some form of a service.

Th ese include payments by public corpo- rations of membership dues or subscriptions to mar- ket nonprofi t institutions (NPIs) serving businesses, such as chambers of commerce or trade associations, 18 Should these benefi ts be related to their employment contract, they will be included in compensation of employees (21).
Expense 123 since these are payments for services rendered and are not transfers.

In rare cases, market establishments included in the general government sector may have similar membership dues or subscriptions payable to market NPIs serving businesses.
Some membership dues and subscription fees are diff erent in nature and are not included in use of goods and services: • In some cases, membership dues and subscrip- tion fees payable to international organizations are recorded as the acquisition of equity (32051) when there is a possibility—even if unlikely—of repayment of the full amount.

In these cases, the payee is also entitled to a share of the assets upon windup of the international organization.
• Membership dues and subscription fees are recorded as transfers if the transaction is un- requited; if the recipient is an international orga- nization, foreign government, or another general government unit, the transfer is classifi ed as a grant (26), or otherwise as current transfers not elsewhere classifi ed (2821).
The boundary between use of goods and services and the acquisition of nonﬁ nancial assets 6.43 Goods acquired for use as fi xed assets or valu- ables, or for use in own-account capital formation, are classifi ed as acquisitions of fi xed assets or valuables.
Costs incurred on inexpensive durable goods, such as small/hand tools, are recorded as use of goods and services (22) when such expenses are incurred regu- larly and are small compared with the costs incurred for the acquisition of machinery and equipment (see paragraphs 7.40 and 7.52).

Th is exclusion of small/ hand tools is pragmatic rather than conceptual.
Some goods may be used repeatedly, or continuously, in production over many years but may nevertheless be small, inexpensive, and used to perform relatively simple operations.

Hand tools such as saws, spades, knives, axes, hammers, screwdrivers, and spanners or wrenches are examples.
If expense on such tools takes place at a fairly steady rate and if their value is small compared with amounts payable on more com- plex machinery and equipment, it may be appropriate to treat the tools as materials or supplies under use of goods and services (22).

Some fl exibility is needed, however, depending on the relative importance of 124 Government Finance Statistics Manual 2014 such tools.
In countries in which they account for a signifi cant part of the value of the total stock of ma- chinery and equipment, they may be regarded as fi xed assets and their acquisition and disposal by public sector units recorded under the net acquisition of nonfi nancial assets.
6.44 Goods and services acquired to increase in- ventories of materials and supplies, work in progress, fi nished goods, and goods for resale are included in changes in inventories (312), a type of nonfi nancial asset (see paragraph 7.75).

6.45 Goods and services consumed for the ordi- nary maintenance and repair of fi xed assets constitute use of goods and services.

However, major renova- tions, reconstructions, or enlargements of existing fi xed assets are recorded as acquisitions of fi xed as- sets.
See paragraphs 8.25–8.27 for more information on distinguishing these activities.

6.46 Goods and services used in research and de- velopment are recorded as acquisitions of fi xed assets in the category intellectual property products (31132), except in cases where it is clear that the activity does not create any future economic benefi t for its owner, in which case it is recorded as use of goods and ser- vices.
For a description of the recognition criteria for intellectual property products, see paragraphs 8.37–8.41.

6.47 Goods and services used in mineral explora- tion and evaluation are not recorded as use of goods and services.

Regardless of whether successful, they are needed to acquire new reserves and so are all clas- sifi ed as acquisitions of fi xed assets recorded as intel- lectual property products (31132).
6.48 Materials to produce coins or notes of the national currency or amounts payable to contractors to produce the currency are included in use of goods and services.

Th e issuance of the coins or notes is a fi nancial transaction that does not involve revenue or expense.

Commemorative coins that are not actually in circulation as legal tender are classifi ed as nonfi - nancial assets (see paragraph 7.135).
6.49 Expenditure on military equipment, includ- ing large military weapons systems and armored vehicles acquired by the police and internal security services, are recorded as acquisition of the respective categories of fi xed assets, namely weapons systems (3114) or machinery and equipment (3112).
Expen- diture on military goods, such as single-use weapons (ammunition, missiles, rockets, bombs, torpedoes) and spare parts, should be recorded as inventories until used, when they are recorded as use of goods and services and a withdrawal from inventories (see para- graphs 7.74 and 7.86).
Other boundaries related to use of goods and services 6.50 Th ere is a signifi cant conceptual diff erence between rentals of fi xed assets under an operating lease and the acquisition of an asset under a fi nan- cial lease.

Under an operating lease, (see paragraph A4.6) the lessor remains the economic owner of the fi xed asset and payments by the lessee are recorded as payments for a service, and therefore recorded as use of goods and services.
Under a fi nancial lease (see paragraphs 8.17 and A4.10), the lessee becomes the economic owner of the fi xed asset and payments are recorded as payments of interest and repayments of principal by the lessee to the lessor, and thus do not aff ect use of goods and services (also see paragraphs A4.6–A4.15).

6.51 Amounts payable for the use of nonproduced naturally occurring assets, such as land, are classifi ed as rent (2814) and not as use of goods and services (22).
See paragraphs 5.131–5.132 for a description of this boundary.

6.52 Explicit fees for fi nancial services should al- ways be classifi ed as use of goods and services.

How- ever, some transactions include an implicit fee for fi nancial services that is not recorded separately in GFS.

Th ese implicit fees can be calculated only in the context of an analysis of the whole of the economy or industry.
As indicated in paragraph 6.81, fi nancial intermediation services indirectly measured (FISIM) can usually be estimated only indirectly by compilers of the national accounts.

Similarly, the service fee im- plied by nonlife insurance premiums can be estimated only by looking at all the transactions and costs of the insurance industry (see paragraph 6.125).
Consumption of Fixed Capital [GFS] (23) 6.53 Consumption of fi xed capital is the de- cline, during the course of the reporting period, in the current value of the stock of fi xed assets owned and used by a government unit as a result of physical Table 6.4 Detailed Classiﬁ cation of Consumption of Fixed Capital [GFS] (23) 23 Consumption of ﬁ xed capital [GFS]1 Consumption of ﬁ xed capital [SNA]1 Minus: Related to own-account capital formation 1Further breakdown/“of which” lines could allow for the identiﬁ cation of the category of ﬁ xed assets that the consumption relates to.
Identifying the type of assets is required for the integration of stocks and ﬂ ows of each type of asset (see Table 7.2).

deterioration, normal obsolescence, or normal acci- dental damage.19 Th e concept of consumption of fi xed capital is identical to the concept used in the 2008 SNA.
However, the amount of consumption of fi xed capital [GFS] (23) expense recorded in GFS may diff er from the amount recorded in the production account of the 2008 SNA because of the GFS treatment of own-account capital formation (see Table 6.4).

When nonfi nancial assets are produced on own-account, the consumption of fi xed capital related to that produc- tion process is recorded in GFS as part of the cost of acquisitions of the fi xed assets rather than expense (see paragraph A7.25).
6.54 Consumption of fi xed capital may deviate considerably from depreciation as recorded in gov- ernment fi nancial records.

Consumption of fi xed cap- ital is a forward-looking measure that is determined by future rather than past events—it is determined by the benefi ts that institutional units expect to de- rive in the future from using the asset in production over the remainder of its service life.
Consumption of fi xed capital is therefore based on the current market value or replacement cost of the asset.

Depreciation is normally an allocation of the original costs of fi xed as- sets (historic cost) over subsequent reporting periods.

Consumption of fi xed capital is calculated on the basis of the estimated opportunity costs of using the assets at the time they are used, as distinct from the prices at which the assets were acquired.
Even when the fi xed assets used are not actually to be replaced, the amount of consumption of fi xed capital charged as a cost of production should be suffi cient to enable the assets to be replaced, if desired.

6.55 Consumption of fi xed capital is estimated with respect to all fi xed assets owned by government 19 Consumption of fi xed capital is described in the 2008 SNA in paragraphs 6.240–6.257.

Expense 125 units, but not for valuables (precious metals, precious stones, etc.)
that are acquired precisely because their value, in real terms, is not expected to decline over time.

Consumption of fi xed capital does not cover the depletion or degradation of natural assets, such as land, mineral or other deposits, coal, oil, or natural gas, or contracts, leases, and licenses, which are re- corded as other changes in the volume of assets (see paragraph 10.52).
6.56 Th e calculation of the consumption of fi xed capital refl ects assumptions about normal rates of physical deterioration, obsolescence, and accidental damage.

Although some fi xed assets, such as roads or railway tracks, may appear to have infi nite service lives if properly maintained, their value may never- theless decline because of a decrease in the demand for their services as a result of technical progress and the appearance of substitutes.
Many fi xed assets are scrapped or demolished only because they have be- come obsolete.

Consequently, consumption of fi xed capital must include an allowance for anticipated obsolescence.

Any diff erence between the normal expected rate of obsolescence and the actual rate of obsolescence within a given period should be re- corded as other changes in the volume of assets (see paragraph 10.66).
6.57 Losses of fi xed assets due to normal or ex- pected levels of accidental damage (i.e., damage caused to assets used in production resulting from their exposure to the risk of fi res, storms, accidents due to human error, etc.)

are also included under consumption of fi xed capital.

When these kinds of accidents occur with predictable regularity, they are taken into account in calculating the average service lives of the goods in question.
Any diff erence between the normal expected and the actual accidental dam- age within a given period should be recorded as other changes in the volume of assets (see paragraph 10.67).

6.58 Consumption of fi xed capital excludes the loss of value when fi xed assets are destroyed by acts of war, natural disasters, and other exceptional events that occur very infrequently.
Similarly, it excludes losses due to unexpected technological developments that may signifi cantly shorten the service life of an existing fi xed asset.

Th ese events are recorded as other economic fl ows and recorded as an other change in the volume of assets (see paragraph 10.66).
Holding gains and losses 126 Government Finance Statistics Manual 2014 Box 6.1 The Calculation of Consumption of Fixed Capital Consumption of ﬁ xed capital should reﬂ ect underlying resource costs and relative demands at the time the production takes place.

It should therefore be calculated using the actual or estimated prices and equivalent costs of the rentals of ﬁ xed assets prevailing at that time and not at the times the goods were originally acquired.
It is recommended that independent estimates of consumption of ﬁ xed capital should be compiled in conjunction with estimates of the capital stock.

These can be built up from data on the acquisition of ﬁ xed assets in the past combined with estimates of the rates at which the efﬁ ciency of ﬁ xed assets declines over their service lives.

Whenever possible, the initial value of a new ﬁ xed asset should be the value at which it was acquired.
If assets of all ages and speciﬁ cations were regularly traded on markets, these prices should be used to value every asset as it ages.

However, there is scarce information on the prices of secondhand assets, so a more theoretical approach to determining the price of an asset as it ages must be adopted.

Conceptually, market forces should ensure that the purchaser’s price of a new ﬁ xed asset is equivalent to the present value of the future beneﬁ ts that can be derived from it.
Therefore, given the initial market price and knowledge of the characteristics of the asset in question, it is possible to project the stream of future beneﬁ ts and continually update the remaining present value of these.

This method of building up estimates of the capital stock and changes in the capital stock over time is known as the perpetual inventory method, or PIM.

Estimates of consumption of ﬁ xed capital are obtained as a by-product of the PIM.
In the absence of an asset register with appropriate valuations of assets, the PIM requires an estimate to be made of the stock of ﬁ xed assets in existence and in the hands of general government or public corporations.

The ﬁ rst step is to estimate what proportion of the ﬁ xed assets acquired in previous years has survived to the current period.

Average service lives, or survival functions, based on observations or technical studies may be applied to past investments for this purpose.
Fixed assets purchased at different prices in the past have then to be revalued at the prices of the current period by utilizing appropriate price indices for ﬁ xed assets.

The construction of suitable price indices covering long pe- riods of time raises difﬁ cult conceptual and practical problems, but these technical problems of price measurement must be faced in any case in developing balance sheet values of assets.
The stock of ﬁ xed assets surviving from past invest- ment and revalued at the purchasers’ prices of the current period but before deduction of consumption of ﬁ xed capital is often also described as the gross capital stock.

The beneﬁ ts obtained from the use of a given ﬁ xed asset tend to diminish over time.

The rate at which the efﬁ ciency declines may vary from one type of asset to another.
The simplest case to consider is one where the efﬁ ciency of the asset remains constant until it disintegrates, like a lightbulb.

Other simple cases include the case where the efﬁ ciency declines linearly or exponentially over its life.

Other methods employ a hyperbolic rate of efﬁ ciency loss with relatively little decline in the initial years but increasingly steeper decline as time progresses.
However, in practice, calculations are usually not undertaken asset by asset, but for cohorts of assets of similar ages and characteristics.

Individual assets within the cohort will retire at different moments, but the age-efﬁ ciency proﬁ le for the cohort as a whole is typically convex to the origin.

The efﬁ ciency proﬁ les of ﬁ xed assets determine the proﬁ les of the beneﬁ ts they command over their service lives.
Once the proﬁ les of the beneﬁ ts over the service lives of the ﬁ xed asset have been determined, it becomes possible to calculate the consumption of ﬁ xed capital, period by period.

Consumption of ﬁ xed capital is derived as the reduction in the present value of the remaining beneﬁ ts, as explained earlier.

This reduction, and the rate at which it takes place over time, must be clearly distinguished from the decline in the efﬁ ciency of the capital assets themselves.
Although the efﬁ ciency, and hence the beneﬁ t, of an asset may remain constant from period to period until it disintegrates, the value of the asset declines over time.

It also follows that the consumption of ﬁ xed capital is not constant.

Consumption of ﬁ xed capital should not be estimated in isolation from the derivation of a set of data on stock posi- tions of ﬁ xed assets.
Such data are needed for the balance sheet, as shown in Chapter 7. due to changes in the price of the asset must also be ex- cluded from consumption of fi xed capital.

Th ese price changes should be recorded as holding gains or losses, as described in paragraphs 10.5 and 10.15.
6.59 To compute consumption of fi xed capital, the fi xed assets purchased in the past and still in use have to be revalued at the average prices of the reference period and assumptions have to be made regard- ing the remaining service lives of each asset and the rate at which their effi ciency is expected to diminish.

Consumption of fi xed capital should be calculated on the assumption of appropriately long service lives.
Linear or geometric patterns of decline, or some com- bination of them, are the patterns most commonly assumed.20 Box 6.1 provides a more comprehensive explanation of the calculation of consumption of fi xed capital.

6.60 Conceptually, costs of ownership transfer on the acquisition of nonfi nancial assets should be written off as consumption of fi xed capital over the period the asset is expected to be held by the purchaser rather than over the whole life of the asset.
Th is approach refl ects the assumption that the benefi ts provided by the asset must be suffi cient to cover both the cost of the asset and the costs of ownership transfer.

Cost of ownership transfer on the disposal of an asset is recorded similarly because it is assumed that the benefi t that the asset pro- duced during the time the asset is used in production should cover such costs.
Cost of ownership transfer on the disposal of a nonfi nancial asset is estimated at the time of the acquisition of the asset and is written off over the period that the owner expects to hold the asset), except for the terminal costs, which should be written off over the whole life of the asset.

If an asset is disposed of before the costs of ownership transfer are completely written off , the remainder of these costs should be recorded as an other change in the volume of assets (see paragraph 10.68).
6.61 In the Statement of Sources and Uses of Cash, expense transactions are recorded only when cash fl ows occurred.

Since no cash fl ows are associated with consumption of fi xed capital, no entry for this accrual concept is made in this statement (see para- graph 3.67).
Interest [GFS] (24) 6.62 Interest is a form of investment income that is receivable by the owners of certain kinds of fi nancial assets (SDRs, deposits, debt securities, loans, and other accounts receivable)21 for putting these fi nancial and other resources at the disposal of another institutional unit.

Interest [GFS] (24) is not adjusted for the service charge related to FISIM (see paragraph 6.81).

Th e li- abilities giving rise to interest expense are all claims of creditors upon debtors.
Th e liabilities generating the 20 Organisation for Economic Co-operation and Development, Measuring Capital—OECD Manual: Measurement of Capital Stocks, Consumption of Fixed Capital and Capital Services (Paris, 2009) contains an extensive discussion of the methods for esti- mating capital stock and consumption of fi xed capital.

21 Financial assets and their classifi cation are described in Chapter 7.
Expense 127 Table 6.5 Detailed Classiﬁ cation of Interest (24) 24 Interest [GFS]1 Interest [SNA] Plus: FISIM 241 242 243 To nonresidents To residents other than general government1 To other general government units1 1Further breakdown/“of which” lines could allow for the identiﬁ cation of subsectors and individual units (see Table 3.1).

interest may have arisen from the supply of fi nancial or nonfi nancial resources (as in the case of fi nancial leases).
As indicated in Table 6.5, interest should be recorded according to the subsector of the counter- party to allow for consolidation of the general govern- ment and public sectors.

Th e amount of the liability due to the creditor declines as payments are made on the debt by the debtor and increases as interest accrues.

6.63 Interest is payable by units that incur liabilities by borrowing funds from another unit.
Interest is the expense that the debtor unit incurs for the use of the principal outstanding, which represents the economic value that has been provided by the creditor.

Interest may be payable in various ways and may not always explicitly be described as interest (see paragraph 6.71).
On the other hand, net settlement payments under a swap or forward rate agreement contract (possibly described as “interest” in the contract) are not consid- ered as interest and are to be recorded as transactions in fi nancial derivatives (see paragraphs 6.79 and 9.71).

6.64 Interest is recorded as accruing continuously over time to the creditor on the amount outstanding.
Depending on the contractual arrangements, the rate at which interest accrues can be a percentage of the amount outstanding, a predetermined sum of money, a variable sum of money dependent on a defi ned indi- cator, or some combination of these.

Interest normally is not payable until the expense has accrued.

Th at is, if interest on a loan is payable monthly, the amount paid is usually the expense that has accrued during the pre- vious month.
Under the accrual basis of recording, as interest accrues, the debtor’s total liability to the credi- tor has increased by the amount of interest expense accrued but not yet paid.

Th at is, as interest accrues on a government bond, the value of the bond increases.
What are commonly referred to as interest payments, 128 Government Finance Statistics Manual 2014 therefore, from an accrual recording perspective, are reductions of the debtor’s existing liability, part of which was created by the accrued interest expense.

as interest expense is incurred.

Any periodic payment of the accrued interest reduces the principal to the amount originally borrowed.
6.65 From a cash recording perspective, periodic debt service payments, recorded in the Statement of Source and Uses of Cash, can be distinguished as in- terest payments (“coupons” or “coupon payments”) or principal payments.

When using the cash basis of re- cording, interest payments are recorded as an expense transaction when such cash fl ows occur.

In this case, only principal repayments will reduce the debtor’s li- ability.
Th e amount initially advanced or borrowed is also known as initial principal.

6.66 In macroeconomic statistics, interest is calcu- lated according to the debtor approach.22 According to this approach, interest is equal to the amounts the debtors will have to pay to their creditors over and above the repayments of the amounts advanced by the creditor.
For fi xed rate instruments, this approach assumes that interest expense is determined for the entire life of a fi nancial instrument by the conditions set at inception of the instrument.

Interest accrual is therefore determined by using the original yield- to-maturity.

A single eff ective yield, established at the time of security issuance, is used to calculate the amount of accrued interest in each period to matu- rity.
Th e accrual of interest should be calculated by the compound interest method.23 6.67 In the simplest case, a sum of money is bor- rowed, periodic payments are made equal to the inter- est expense incurred during the previous period, and at the end of the contract, a fi nal payment of inter- est is made together with a repayment of the original amount borrowed.

Th e amount of interest expense in- curred each period is equal to the interest rate stated in the contract multiplied by the amount borrowed.
6.68 When the end of the reporting period does not coincide with a periodic payment, the total liabil- ity at the end of the period will include some amount of interest incurred but not yet paid.

As each period passes, the amount of principal outstanding increases 22 Th ere are three approaches for defi ning and measuring interest for traded debt instruments: debtor approach, creditor ap- proach, and acquisition approach (see the BPM6, paragraphs 11.52–11.53).
23 Examples of the calculation of interest can be found in the PSDS Guide, Box 2.3, and 2013 EDS Guide, paragraphs 2.65–2.77.

6.69 Some debt instruments may have a grace period24 during which no interest payments are to be made.
For those debt instruments for which the contract requires the accrual of interest during the grace period (i.e., the relevant interest rate that applies during the grace period is greater than zero), the ac- crual of interest should be recorded as specifi ed in the contract, increasing the value of the principal.
On the other hand, if the debtor can repay the same amount of principal at the end of the grace period as at the beginning (i.e., the relevant interest rate applied to the grace period is zero), no interest costs accrue dur- ing the grace period.25 Th is remains true even if the rate of interest applied in a second and/or subsequent time period is adjusted (e.g., there is a step up), so that the fi nal yield is roughly similar to what it would have been under normal conditions over the total life of the instrument.
Th is treatment applies to loans and deposits but not to debt securities.

6.70 Loans with step-up interest should accrue at the contractual rate of interest for any period and not at the internal rate of return26 of the loan.
On the other hand, interest on debt securities with step-up interest should accrue at the original yield-to-maturity rate over the life of the security.27 6.71 Certain fi nancial instruments, such as short- term bills and zero-coupon bonds, do not require the debtor to make payments to the creditor until the liability matures.
In eff ect, the debtor’s liability is discharged by a single payment covering both the amount of the funds originally borrowed and the in- terest accrued and accumulated over the entire life of the liability.

Instruments of this type are said to be discounted because the amount initially borrowed is less than the amount to be repaid.

Th e diff erence 24 Th e grace period is the period from the disbursement of the loan until the fi rst payment due by the debtor.
25 If a prepayment fee or a penalty for prepayment is paid, it should be classifi ed as a service fee under use of goods and services (22), and not as interest.

26 See the 2013 EDS Guide, paragraph 2.98 and Box 2.4, for a discussion on internal rate of return.

27 Th e original yield-to-maturity rate is the rate at which the present value of future interest and principal payments equals the issue price of the bond—that is, the yield of the security at issuance.
between the amount to be repaid at the end of the contract and the amount originally borrowed is in- terest, which on the accrual basis of recording must be allocated over the reporting periods between the beginning and end of the contract.

Th e interest ac- cruing in each period is recorded as if being paid by the debtor and then borrowed as an additional amount of the same liability.

Th us, interest expense and an increase in the liability are recorded in each period.
When more than one reporting period is involved, there are a number of ways to allocate the total amount of interest among the periods involved.

Th e most common and simple method is to assume that the interest rate is constant throughout the con- tract period.
On the cash basis of recording, the full amount of the diff erence between the amount to be repaid at the end of the contract and the amount orig- inally borrowed is recorded as interest when the pay- ment is made—that is, at the end of the contract when the liability matures.

6.72 A slightly more complicated case is a deep- discount bond, which is a discounted instrument that also requires periodic payments.
In such cases, the accrued interest expense is the amount of the cou- pon payable periodically plus the amount of interest accruing each period attributable to the diff erence between the redemption price and the issue price.

Again, the most common assumption is that the inter- est rate is constant over the entire period of the con- tract.
Th is interest rate is the one that makes the sum of all future payments equal to the amount initially borrowed when the future payments are discounted by the interest rate.

6.73 In some cases, debt securities are issued at a premium rather than at a discount.
Th e method of determining the accrued interest expense is identi- cal to the case of a discounted instrument except that the premium (the diff erence between the redemp- tion price and the issue price—see paragraph 9.40) is amortized over the life of the instrument and re- duces (rather than increases) the amount of interest accruing in each period.
Th ese premiums are there- fore recorded as an increase in cash receipts with a corresponding entry in other accounts payable for the unearned portion of the premium.

A reduction in interest expense, with a corresponding reduction in the other accounts payable, is subsequently recorded Expense 129 over the period of the contract.

On the cash basis of recording, the full amount of premiums will be recog- nized as a reduction in interest expense at the time the debt instrument is issued.
6.74 Loans are oft en structured with periodic payments that incorporate both interest and prin- cipal payments.

Th e excess of the periodic payment over the interest accrued reduces the original prin- cipal.

Over time, the share of the payment allocated to the payment of accrued interest decreases and the share allocated to reducing the original principal increases.
6.75 Index-linked securities are instruments for which either the coupon payments (interest) or the principal or both are linked to another item, such as a price index, an interest rate, or the price of a com- modity (see paragraph 7.153).

Th e item is one that normally changes over time in response to market pressures.

Th e values of the indicators are not known in advance.
For debt securities with indexation of the amount to be paid at maturity, these amounts may be known only at the time of redemption.

As a result, total interest fl ows before redemption cannot be deter- mined with certainty.

To estimate interest accrued be- fore the values of the reference indicators are known, it is useful to distinguish various arrangements.
Indexation of the coupon payments only 6.76 When only coupon payments are index- linked, as with fl oating-rate notes, the full amount resulting from indexation is recorded as interest ac- cruing during the period covered by the coupon.

To the extent that data are compiled aft er the coupon payment date, the value of the index is known and can be used to estimate that payment.
If the data are compiled before the date for the coupon payment, the movement in the index during that part of the report- ing period covered by the coupon can be used to cal- culate the interest accrued.

Indexation of the amount to be paid at maturity 6.77 When the amount to be paid at maturity is also index-linked, the amount of interest accrued becomes uncertain because the redemption value is unknown; in some cases, the maturity time may be several years in the future.
Th ere are two approaches, 130 Government Finance Statistics Manual 2014 depending on whether the index is based on a broad or narrow reference item.

28 that apply to foreign-currency-denominated instru- ments (see paragraph 9.11) .
• When the amount to be paid at maturity and coupon payments are indexed to a broad-based index (e.g., the consumer price index), interest accruing in a reporting period may be calculated by summing two elements:  Th e amount resulting from the indexation of the coupon payment (as described in paragraph 6.76) that is attributable to the reporting period  Th e change in the value of the amount out- standing between the end and beginning of the reporting period due to the movement in the relevant index.
Th is approach works well when a broad-based index is used, as such indexation is expected to change relatively smoothly over time.

• When the amount to be paid at maturity or the coupon payments and the amount to be paid at maturity are indexed to a narrow index (e.g., a gold index) that includes a holding gain motive, interest accruing may be determined by fi xing the yield-to-maturity (rate of accrual) at the time of issue.
Accordingly, interest accrues over the life of the instrument at a rate that reconciles the diff erence between the issue price and the market expectation, at inception, of all payments that the debtor will have to make over the life of the in- strument.

Any deviation of the underlying index from the originally expected path leads to hold- ing gains or losses that will not necessarily cancel out over the life of the instrument.
Th is approach works well when the indexation of the amount to be paid at maturity combines mo- tives for both interest income and holding gains (e.g., a commodity price, stock prices, or gold prices).

Th e treatment of indexation of securities is also discussed in paragraph 9.41.

6.78 Debt instruments with both the amount to be paid at maturity and coupon payments indexed to foreign currency are recorded as though they are denominated in that foreign currency.
Interest, other economic fl ows, and stock positions for these instru- ments should be calculated using the same principles 6.79 For debt securities with embedded deriva- tives, the recording for accrued interest on the fi nan- cial instrument is the same as for securities that do not have such features.

No interest accrues on the de- rivative itself (see paragraph 9.43).
6.80 For arrears arising from a debt contract, inter- est should accrue at the same interest rate as on the original debt, unless a diff erent interest rate for arrears was stipulated in the original debt contract, in which case this stipulated interest rate should be used.

Th e stipulated rate may include a penalty rate in addition to the interest rate on the original debt.
If an item is purchased on credit and the debtor fails to pay within the period stated at the time the purchase was made, any extra charges incurred should be regarded as in- terest and accrue until the debt is extinguished.

6.81 Th e interest expense payable to fi nancial in- termediaries recorded in GFS diff ers from the amount recorded in the 2008 SNA.

Interest [GFS] (24) does not partition interest to separately record a service fee.
A fi nancial intermediary sets its interest rates for depositors and borrowers at levels that will provide a margin large enough to at least defray the costs of providing its services to its depositors and borrowers without explicit fees.

Interest could be partitioned to separately record the component payable in return for the resources that were put at the disposal of the bor- rower, as well as an implicit service charge.
In concept, the value of the services provided by fi nancial inter- mediaries to a borrowing unit should be recorded as a use of goods and services expense.

To accomplish this treatment, the actual interest expense payable to fi nancial intermediaries would need to be reduced by the value of the fee for the services.29 Th ese fees, known as FISIM, can be estimated only indirectly by compilers of the national accounts because data for all depositors and borrowers of fi nancial intermediaries are required.
6.82 In principle, interest payable on overdue taxes should be recorded as interest (24).

However, it may not be possible to separate payments of interest, fi nes, or other penalties from the taxes to which they relate, 28 Th ese approaches are discussed in more detail in the 2008 SNA, paragraphs 17.274–17.282, and the BPM6, paragraphs 11.59–11.65.
29 Similarly, any interest receivable from fi nancial intermediaries would need to be increased by the value of the implicit service fee that has reduced the interest receivable.

so that in practice they are usually grouped with the relevant tax payable (see also paragraph 5.24).
If this tax that includes the interest on late payment of taxes is payable by a general government or public sector unit, then it is classifi ed as a tax payable from one government unit to another and classifi ed as a com- ponent of transfers not elsewhere classifi ed (282) (see paragraph 6.122).

For purposes of consolidation, the relevant government units should be identifi ed as counterparty to the transaction.
6.83 Total interest payable is subdivided into inter- est payable to nonresidents (241), interest payable to residents other than general government (242), and in- terest payable to other general government units (243).

Interest payable to other general government units will have a nonzero value when statistics are com- piled for a subsector of the general government sector or public corporations.

For the general government sector, all such transactions are eliminated in con- solidation.
To allow for consolidation of the general government and public sectors, data could further identify a breakdown according to the recipient of the interest.

Subsidies (25)30 6.84 Subsidies (25) are current unrequited trans- fers that government units make to enterprises on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import.
Subsidies are re- ceivable by resident producers or importers, and in exceptional cases, nonresident producers of goods and services.

Subsidies may be designed to infl uence levels of production, the prices at which outputs are sold, or the profi ts of the enterprises.

Subsidies in- clude payable tax credits receivable by enterprises for these purposes (see paragraph 5.31).

By the nature of subsidies, only government units incur an expense in this form.
When an institutional unit, other than a government unit, incurs subsidy expense on behalf of a government unit, the subsidy should be attributed in accordance with attribution guidelines, similar to those for tax attribution (see paragraphs 5.32–5.39).

When an institutional unit acts on behalf of another unit to distribute subsidies, these should be reported as fi nancial transactions by the distributing agency.

30 Subsidies are described in the 2008 SNA, paragraphs 7.98–7.106.
Expense 131 Subsidies payable should be recorded only in the ac- count of the entity that has the control over the sub- sidy scheme.

6.85 Subsidies are payable to producers only, not to fi nal consumers, and are current transfers only, not capital transfers.
Transfers that government units make directly to households as consumers and most transfers to nonprofi t institutions serving households are recorded as either social benefi ts (27) or transfers not elsewhere classifi ed (282), depending on the rea- son for the payment.

Most transfers made to other general government units are included in grants (26).
6.86 In some cases, general government units, nonprofi t institutions serving households, and house- holds can receive subsidies in their capacity as pro- ducers.

To be classifi ed as subsidies, such payments must depend on general regulations of the subsidy scheme applicable to all producers, market and non- market.
For example, a general government unit may pay a subsidy to all employers (including general government units and/or nonprofi t institutions) that employ members of a specifi ed profession or people with a specifi ed disability.

Subsidies payable to house- holds include only amounts payable to households as producers—therefore, they will include only amounts payable to those unincorporated household enter- prises that do not qualify as a quasi-corporation.
In practice, many schemes called “subsidies” provide so- cial benefi ts to households.

6.87 As indicated in Table 6.6, subsidies may be classifi ed according to the institutional sector of the recipients.

Subsidies to public corporations (251) and to private enterprises (252) are further subdivided into nonfi nancial or fi nancial corporations and enterprises.
Table 6.6 Detailed Classiﬁ cation of Subsidies (25) 25 251 2511 2512 252 2521 2522 253 Subsidies1 To public corporations Public nonﬁ nancial corporations Public ﬁ nancial corporations To private enterprises Private nonﬁ nancial enterprises Private ﬁ nancial enterprises To other sectors2 1Further breakdown/“of which” lines could identify whether these subsidies are subsidies on products or production.
2Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).

132 Government Finance Statistics Manual 2014 Subsidies to other sectors (253) include subsidies pay- able to other general government units, to nonprofi t institutions serving households, and to households, in their capacity as producers.

To allow for consolidation of the general government and public sectors, identi- fying the subsectors of the counterparties is needed.
6.88 Although not specifi cally used in the GFS classifi cation structure, the 2008 SNA further identi- fi es subsidies according to whether they are payable on specifi c products or on production in general, de- pending on how the value of the subsidy is calculated.

Further breakdown of GFS codes could allow for this distinction.

6.89 A subsidy on products is a subsidy payable per unit of a good or service.
Th e subsidy may be a specifi c amount of money per unit of quantity of a good or service, or it may be calculated ad valorem as a specifi ed percentage of the price per unit.

A sub- sidy may also be calculated as the diff erence between a specifi ed target price and the market price actually paid by a buyer.
A subsidy on a product usually be- comes payable when the good or service is produced, sold, exported, or imported, but it may also be pay- able in other circumstances, such as when a good is transferred, leased, delivered, or used for own con- sumption or own-account capital formation.
Th ese subsidies include: • Direct foreign trade subsidies, such as subsidies on imported or exported goods and services that become payable when the goods cross the fron- tier of the economic territory or when the ser- vices are delivered to resident institutional units (e.g., import subsidies) or to nonresident units (e.g., export subsidies)31 • Implicit subsidies resulting from the operation of an offi cial system of multiple exchange rates (see paragraph 5.89), or resulting from payable tax credits (see paragraph 5.31) • Losses of government trading organizations whose function is to buy products and then sell them at lower prices to residents or nonresidents, 31 Export subsidies do not include the repayment at the customs frontier of taxes previously paid on goods or services while they were inside the economic territory.
Th ey also exclude the waiving of the taxes that would be due if the goods were to be sold or used inside the economic territory instead of being exported.

Th ese tax expenditures/credits are not recorded separately in GFS (see paragraph 5.86).
when they are incurred as a matter of deliberate government economic or social policy32 • Subsidies payable to resident producers in re- spect of their production that is used or con- sumed within the economic territory • Regular transfers payable to corporations and quasi-corporations that are intended to compen- sate for recurrent losses (i.e., negative operating surpluses) incurred on their productive activities as a result of charging prices that are lower than their average costs of production as a matter of de- liberate government economic and social policy33 • Subsidies resulting from the central bank accept- ing interest rates lower than the prevailing mar- ket rates (see Box 6.2).
6.90 Other subsidies on production are subsidies that enterprises receive as a consequence of engaging in production but that are not related to specifi c prod- ucts.
Included are: • Subsidies on payroll or workforce, which are pay- able on the total wage or salary bill, the size of the total workforce, or the employment of particular types of persons such as physically handicapped persons or persons who have been unemployed for long periods; the subsidies may also be in- tended to cover some or all of the costs of training schemes organized or fi nanced by enterprises.
• Subsidies to reduce pollution, which are trans- fers intended to cover some or all of the costs of additional processing undertaken to reduce or eliminate the discharge of pollutants into the environment.
6.91 Subsidies do not include: • Payment of interest or other debt service cost on behalf of other producer units without acquiring an eff ective claim on the original debtor—these payments are recorded as capital transfers, and ac- cording to the nature of the recipient, are recorded either as capital grants (26) or capital transfers not elsewhere classifi ed (2822).
• Transfers made by governments to other resident or nonresident units to fi nance all or part of the 32 In these cases, the subsidy is calculated as the diff erence be- tween the purchase and the selling price.

33 Transfers to corporations and quasi-corporations to cover large operating defi cits accumulated over two or more years are recorded as capital transfers not elsewhere classifi ed (2822).
Expense 133 Box 6.2 Implicit Subsidies of Central Banks The central bank’s main responsibility is to formulate and carry out monetary aspects of economic policy.

It therefore often acts differently from other ﬁ nancial corporations and generally has the authority from government to enforce its mandate.
In cases where the central bank makes payments that are clearly for policy rather than commercial purposes— for example, when it pays above-market rates in a situation where the external value of the currency is under pressure or when it acts as a development bank offering loans at below-market rates to priority industries—it may be argued that implicit subsidies are being provided.
This procedure is analogous to and consistent with the practice of treating the difference between the market exchange rate and an alternative exchange rate imposed by the central bank as an implicit subsidy (discussed in paragraph 5.89).
If the central bank interest rates are out of line with those of commercial banks, then the difference between ﬂ ows calculated using the reference rate and the actual rate set by the central bank should be recorded as implicit taxes re- ceivable (see paragraph 5.70) and subsidies payable by government.

These transactions are recorded as follows: • Below market rates on reserve deposits—Suppose the central bank pays only 3 percent to a commercial bank on reserve deposits when the market rate is 5 percent.
The following is recorded in GFS:  Although the commercial bank actually receives only 3 percent as interest, it is recorded as receiving 5 percent as interest from the central bank and paying 2 percent to government as taxes on speciﬁ c services (1144) (see paragraph 5.69).

 Government records a subsidy (25) to the central bank.
• Above market rates for currency support—Suppose the central bank pays 7 percent to a commercial bank for a limited period when the currency is under pressure at a time when the market rate is 5 percent.

The following is recorded:  Although the commercial bank actually receives 7 percent as interest, it is recorded as receiving 5 percent as interest and receiving another 2 percent from government as a subsidy (25).
 Government records a tax of 2 percent receivable from the central bank classiﬁ ed as taxes on speciﬁ c services (1144) (see paragraph 5.69).

• Below market rates to priority industries—Suppose the central bank charges only 3 percent to a priority indus- try when the market rate is 5 percent.

The following is recorded:  Although the priority industry actually pays only 3 percent as interest, it is recorded as paying 5 percent as inter- est but receiving 2 percent from government as a subsidy (25).
 Government records a tax of 2 percent receivable from the central bank classiﬁ ed as taxes on speciﬁ c services (1144) (see paragraph 5.69).

costs of their acquiring nonfi nancial assets other than inventories—these payments are recorded either as capital grants (26) or as capital transfers not elsewhere classifi ed (2822).
• Extraordinary payments into social insurance funds, in so far as these payments are designed to increase the actuarial reserves of these funds: Th ese payments are recorded either as capital grants to other general government units (2632) or as capital transfers not elsewhere classifi ed (2822).
• Transfers made by general government units to corporations and quasi-corporations to cover large operating defi cits accumulated over two or more years, or exceptional losses due to factors outside the control of the enterprise: Th ese pay- ments are recorded as capital transfers not else- where classifi ed (2822) (see Box 6.3).
• Th e cancellation of debts that institutional units have incurred to government units (resulting, for example, from loans advanced by a govern- ment unit to a nonfi nancial enterprise that does not have the ability to make repayments due to trading losses accumulated over several fi nancial years): Th ese transactions are recorded as capital grants to other general government units (2632) or as capital transfers not elsewhere classifi ed (2822) if the benefi ciary is a unit other than general government.
• Payments made by general government for dam- age to, or losses of, capital goods as a result of acts of war, other political events or natural disasters: 134 Government Finance Statistics Manual 2014 Box 6.3 Transactions with Public Corporations Owners may inject signiﬁ cant ﬁ nancial support to capitalize or recapitalize a corporation.

Such ﬁ nancial support may take various legal forms and its economic substance may also vary (see Figure A3.2).
These payments from a government unit, often referred to as “capital injections,” could be recorded as: • An expense, either as a subsidy or capital transfer, or • A transaction in ﬁ nancial assets/liabilities, either as an addition to equity or an issuance of a loan or securities other than shares.
Recorded as an expense If the enterprise is publicly controlled and runs a recurrent deﬁ cit each year as a matter of government economic or social policy objectives, and the deﬁ cit is covered by a regular transfer receivable from government to match this deﬁ cit, the payment is regarded as a subsidy (see paragraph 6.89).
If the payment from government is to cover large operating deﬁ cits accumulated over two or more years or exceptional losses due to factors outside the control of the enterprise, it is recorded as a capital transfer (see paragraph 6.124).

Similarly, if government makes an investment in a public corpora- tion without a reasonable expectation of a realistic rate of return on the investment, or without receiving anything of equal value in exchange, this is also recorded as a capital transfer.
The latter includes investments in quasi-corporations with negative imputed equity (see paragraph A3.53).

Recorded as transactions in ﬁ nancial assets/liabilities There may be cases where the owners agree to make new ﬁ nancing available to permit expansion, and where such ﬁ nancing establishes an effective claim on the public corporation.
Such ﬁ nancing could consist of funds for use by the enterprise according to its need, including purchasing ﬁ xed assets, accumulating inventories, acquiring ﬁ nancial assets, or redeeming liabilities.

Where evidence of a contractual ﬁ nancing agreement exists, these could constitute the issuance of a speciﬁ c ﬁ nancial asset, such as loans, for government and the incurrence of a corresponding debt instrument by the public corporations.
Without evidence of a speciﬁ c ﬁ nancing agreement, such payments are to be included as the acquisition of equity in the public corporation even if no new shares are issued in response to the ﬁ nancial contribution.
In such a case, government, acting in the same capacity as a private shareholder, provides funds while receiving contrac- tually something of equal value in exchange (i.e., increased value of its equity) and expecting to earn a sufﬁ cient rate of return on its investment, in the form of dividends (as a return on equity).

Treatment of these payments as the increase in equity depends on evidence of the corporation’s proﬁ tability and its ability to pay dividends in future.
Th ese payments are recorded as capital grants to other general government units (2632) or as capi- tal transfers not elsewhere classifi ed (2822).

• Transfers to households (oft en called “subsidies”) but intended to supplement household income or defray household expense: Th ese do not relate to production activities and should therefore be included in the relevant category of social ben- efi ts (27).
• Increases in equity in corporate enterprises of general government: Th ese are recorded as trans- actions in the fi nancial instrument equity and investment fund shares (3205) if an eff ective fi - nancial claim is acquired (see Box 6.3).

• Transfers made by a general government unit that has assumed responsibility for pension claims on public enterprises: Th ese payments are recorded as capital transfers not elsewhere classifi ed (2822).
• Payments made by general government to mar- ket producers to pay entirely, or in part, for goods and services that those market producers provide directly and individually to households in the context of social risks or needs and to which the households have a right: Th ese payments are re- corded as social benefi ts (27).
Grants (26) 6.92 Grants (26) are transfers payable by govern- ment units to other resident or nonresident govern- ment units or international organizations and that do not meet the defi nition of a tax, subsidy, or social con- tribution (see paragraph 3.10).

Grants are normally payable in cash, but may also take the form of provi- sion of goods or services (in kind).

Grants payable are classifi ed fi rst by the type of unit receiving the grant and then by whether the grant is current or capital.
6.93 Th ree types of recipients of grants are rec- ognized in GFS: grants to foreign governments (261), grants to international organizations (262), and grants to other general government units (263).

Th e category of grants payable by government units to other gen- eral government units has a nonzero value only in the case of statistics compiled for a subsector of the general government sector.

For the general government sector, these transactions are eliminated in consolidation.
To allow for consolidation, grants payable to other gen- eral government units should be identifi ed according to the subsector of the counterparty (see Table 6.7).

6.94 Grants payable distinguish current grants (2611/2621/2631) and capital grants (2612/2622/ 2632).

Th e distinction between current and capital grants is described in paragraph 5.103.

If doubt exists regarding the character of a grant, it should be classi- fi ed as current.
Th e nature of grants in kind, the time at which a grant is recorded, and the valuation are dis- cussed in paragraphs 5.104–5.105.

6.95 In the Statement of Sources and Uses of Cash, the value of grants will be limited to grants paid in cash.

Grants in kind will not be recognized in this statement since no cash fl ows related to the in-kind transaction are recorded.
However, any cash pay- ments incurred in the own production of the goods or services provided in kind will be included in the respective expense items (i.e., compensation of em- ployees and purchases of goods and services).

Social Beneﬁ ts [GFS] (27)34 6.96 Social benefi ts are current transfers receiv- able by households intended to provide for the needs that arise from social risks—for example, sickness, unemployment, retirement, housing, education, or family circumstances.
Th ese benefi ts are payable in cash or in kind to protect the entire population or spe- cifi c segments of it against certain social risks.

Social risks are events or circumstances that may adversely aff ect the welfare of the households concerned either by imposing additional demands on their resources or by reducing their income.

Examples of social ben- efi ts are the provision of medical services, unemploy- ment compensation, and social security pensions.
For 34 Th e institutional units involved, classifi cation, and record- ing of fl ows and stock positions related to social protection are described in Appendix 2.
Expense 135 Table 6.7 Detailed Classiﬁ cation of Grants (26) 26 261 2611 2612 262 2621 2622 263 2631 2632 Grants To foreign governments Current Capital To international organizations Current Capital To other general government units Current1 Capital1 1Further breakdown/“of which” lines could allow for the identiﬁ - cation of subsectors and individual units (see Table 3.1).

a complete discussion on social protection, see Ap- pendix 2.
6.97 Not all social benefi ts as defi ned in the 2008 SNA are classifi ed in this GFS expense item (see Table 6.8).

Social benefi ts [GFS] (27) exclude: • Th e payment of pensions and other retirement through employment-related social benefi ts schemes, which are recorded in GFS as reduc- tions in liabilities.35 • Goods and services produced by government and transferred to households are expense transac- tions not classifi ed as social benefi ts.
Instead, the expense transactions are recorded as production expenses as part of compensation of employees, use of goods and services, and consumption of fi xed capital, as appropriate.36 6.98 Social benefi ts are classifi ed fi rst according to the type of social protection arrangement governing their payment: social security, social assistance, or employment-related social insurance schemes, and 35 In the 2008 SNA, all payments of pension and other retirement benefi ts are recorded as transfer payments: those paid through social security schemes are solely transfer payments, whereas pay- ments through employment-related schemes, other than social security (defi ned contributions or defi ned benefi ts), are fi rst recorded as transfer payments to households in the use of income account, and then as a change in pension entitlements in the fi nancial account.
Subsequently, the reductions in liabilities are recorded as an adjustment entry made to remove any inconsis- tency between the benefi ts and the change in liabilities.

36 In the 2008 SNA, when a general government unit produces goods and services that are distributed as social benefi ts, the expense items related to the costs of producing them, such as compensation of employees, are the same as in this Manual.
How- ever, in the 2008 SNA, unlike this Manual, the value of the goods and services produced is also included as social benefi ts.
136 Government Finance Statistics Manual 2014 Table 6.8 Detailed Classiﬁ cation of Social Beneﬁ ts (27) 27 Social beneﬁ ts [GFS]1 Social beneﬁ ts [SNA]1 Minus: Social beneﬁ ts related to reductions in liabilities Minus: Cost associated with the own production of goods and services transferred to households Social security beneﬁ ts [GFS] Social security beneﬁ ts in cash [GFS] Social security beneﬁ ts in kind [GFS] Social assistance beneﬁ ts [GFS] Social assistance beneﬁ ts in cash [GFS] Social assistance beneﬁ ts in kind [GFS] Employment-related social beneﬁ ts [GFS] Employment-related social beneﬁ ts in cash [GFS] Employment-related social beneﬁ ts in kind [GFS] 271 2711 2712 272 2721 2722 273 2731 2732 1A similar breakdown could be applied to other subcategories of social beneﬁ ts, as relevant.
then by whether the payment was made in cash or in kind.

Th ese benefi ts are divided between pensions and nonpension benefi ts.

6.99 Social security benefi ts [GFS] (271) are so- cial benefi ts expense payable in cash or in kind to households by social security schemes (see paragraph A2.33).
Typical social security benefi ts in cash [GFS] (2711) include extended sickness and invalidity ben- efi ts, maternity allowances, children’s or family al- lowances, unemployment benefi ts, retirement and survivors’ pensions, and death benefi ts.
6.100 Social security benefi ts in kind [GFS] (2712) typically consist of goods and services purchased from a market producer on behalf of households and benefi ts related to the reimbursements of costs of goods and services purchased by households in accor- dance with the rules of the scheme.37 Th ese benefi ts are likely to consist of medical or dental treatments, surgery, hospital accommodation, spectacles or con- tact lenses, pharmaceutical products, home care, and similar goods or services.
37 Although these reimbursements (partial or in full) are normally paid in cash, they are recorded as social benefi ts in kind, because they are assumed to be incurred directly by the social security fund at the time the household makes the purchase.

6.101 Social assistance benefi ts [GFS] (272) are transfers payable in cash or in kind to households to meet the same needs as social insurance benefi ts but that are not made under a social insurance scheme.
Eligibility to receive such benefi ts is not dependent on having elected to participate as demonstrated by the payment of contributions.

Social assistance ben- efi ts therefore exclude all benefi ts payable by social security funds.

6.102 Social assistance benefi ts may include those benefi ts payable under any one of the following circumstances: • No social insurance scheme exists to cover the circumstances in question.
• Although a social insurance scheme, or schemes, may exist, the households in question do not par- ticipate and are not eligible for social insurance benefi ts.

• Contributions to social insurance schemes were made on behalf of households who cannot oth- erwise aff ord to participate in the scheme, in order to secure entitlement to the benefi ts of the scheme for them.
• Social insurance benefi ts are deemed to be inade- quate to cover the needs in question, so the social assistance benefi ts are being paid in addition.

• Implicit social assistance benefi ts were paid re- sulting from payable tax credits (see paragraph 5.31).

• As a matter of general social policy.

6.103 Social assistance benefi ts do not include transfers made in response to events or circumstances, such as natural disasters, which are not normally cov- ered by social insurance schemes.
Such transfers are recorded under transfers not elsewhere classifi ed (282).

6.104 Employment-related social benefi ts [GFS] (273) are social benefi ts payable in cash or in kind by government or public sector units to their employees or employees of other government or public sector units participating in the scheme (or to survivors and dependents of the employees who are eligible for such payments).
Th e kinds of benefi ts provided relate to nonpension benefi ts, and are similar to those listed for social security schemes, such as the continued payment of wages during periods of absence from work as a result of ill health, accidents, maternity, etc.

; family, education, or other allowances; sever- ance allowances in the event of redundancy, incapac- ity, or accidental death; general medical expenses not related to the employees’ work; and charges for con- valescent and retirement homes.
6.105 Th e payment of employer social benefi ts is oft en made out of the government’s own resources without involving an insurance enterprise or an au- tonomous or nonautonomous pension fund.
To refl ect the true economic nature of the operation and to ensure comparability with similar payments made through social security schemes, an imputation of employers’ social contributions [GFS] (2122) (see para- graph 6.22) is made in expense, recorded as compen- sation of employees (21), and in revenue, recorded as imputed social contributions (1223).

Th ese imputed values are equal to the value of the employment-re- lated social benefi ts payable in this item.
6.106 When using the accrual basis of record- ing, the payment of pensions and other retirement benefi ts through these employment-related pension schemes is recorded as reductions in liabilities (see paragraph 7.189).

However, when using the cash basis of recording, the liability did not accumulate through imputed contributions recorded in the past, and all payment of these employment-related pensions should be recorded as employment-related social ben- efi ts [GFS] (2731).
Other Expense (28) 6.107 Other expense comprises property expense other than interest (281), transfers not elsewhere clas- sifi ed (282), and amounts payable in respect of pre- miums, fees, and claims payable related to nonlife insurance and standardized guarantees (283).

Property expense other than interest (281) 6.108 Property expense (281) is the expense pay- able to the owners of fi nancial assets or natural re- sources when they put them at the disposal of another unit.
Property expense is the sum of investment ex- pense and rent.

One type of investment expense is interest [GFS] (24), which is classifi ed separately in GFS.
Property expense other than interest may take the form of dividends (2811); withdrawals of income from quasi-corporations (2812); property expense for investment income disbursements (2813); rent (2814); and reinvested earnings on direct foreign investments Expense 137 Table 6.9 Detailed Classiﬁ cation of Dividends (2811) Dividends To nonresidents To residents1 2811 28111 28112 1Further breakdown/“of which” lines could allow for the identiﬁ cation of subsectors and individual units (see Table 3.1).

(2815).
(2815).

Dividends and withdrawals of income from quasi-corporations as an expense will primarily apply to public corporations and foreign direct investment of the public sector.

Dividends (2811) 6.109 Dividends (2811) are the distributed earn- ings allocated to government or public sector units, as the owners of equity, for placing funds at the disposal of corporations.
As shown in Table 6.9, identifying the recipient of dividends from public corporations would allow for consolidation of statistics of the public sec- tor.

Dividend payments are not required; the board of directors or other managers of the corporation must declare a dividend payable on their own volition.

Dis- tributions of profi ts by public corporations may take place irregularly and may not be explicitly labeled as dividends.
Nevertheless, except for distributions by fi scal, export, or import monopolies, dividends in- clude all distributions of profi ts by public corpora- tions to their shareholders or owners.38 Th e time of recording of dividends is the point at which the share price starts to be quoted on an “ex-dividend” basis.

Dividends are described in more detail in paragraphs 5.111–5.117.
6.110 Dividends are notionally payable out of the current period’s operating surplus, although corpora- tions oft en smooth the payments of dividends, some- times paying out less than the operating surplus but sometimes paying out more, especially when the op- erating surplus itself is very low.

Dividends that are disproportionately large relative to the recent level of dividends and earnings, oft en referred to as “super- dividends,” require special consideration.
See para- graphs 5.115–5.116 for a description of the treatment 38 Distributions of profi ts by fi scal, export, and import monopolies are recorded as taxes payable (see paragraphs 5.63–5.68 and 5.86).

Th erefore, in expense, these amounts payable are classifi ed as transfers not elsewhere classifi ed (282).

138 Government Finance Statistics Manual 2014 of these “super-dividends” in the context of the cor- responding revenue item.
Withdrawals of income from quasi-corporations (2812) 6.111 Withdrawals of income from quasi-corporations (2812) consists of that part of distributable income that the owner withdraws from the quasi-corporation.

By defi nition, quasi-corporations cannot distribute income in the form of dividends, but the owner may choose to withdraw some or all of the income.
Con- ceptually, the withdrawal of such income is equivalent to the distribution of corporate income through divi- dends and is recorded in the same way.

Th e amount of income that the owner of a quasi-corporation chooses to withdraw will depend largely on the size of its net income.

All such withdrawals are recorded on the date the payment actually occurs.

See paragraphs 5.118–5.119 for a description of the recording of the corresponding revenue item.
6.112 As with dividends, withdrawals of income from quasi-corporations do not include withdraw- als of funds realized by the sale or other disposal of the quasi-corporation’s assets.

Funds withdrawn by liquidating large amounts of accumulated retained earnings or other reserves of the quasi-corporation are recorded as withdrawals from equity.
Th e sale of inventories, fi xed assets, land, or other nonproduced assets to withdraw funds would be recorded in the accounts of the quasi-corporation as disposals in the appropriate category of assets (see paragraphs 7.34– 7.117), with government recording a withdrawal from equity.
Property expense for investment income disbursements (2813) 6.113 Property expense for investment income disbursements (2813) includes property income at- tributed to insurance policyholders, pension entitle- ments, and holders of investment fund shares (see paragraphs 7.174 and 7.178).
Public corporations can be insurance enterprises or may operate pen- sion schemes, in which case they will hold technical reserves in the form of reserves against outstanding risks in respect of nonlife and life insurance policies, as well as reserves to provide for the entitlement on pension and nonpension benefi ts and calls under standardized guarantee schemes.

Th e reserves are li- abilities toward the policyholders or benefi ciaries.
Any income receivable from the investment of the corresponding assets should be attributed as the prop- erty income of the policyholders or benefi ciaries, and therefore a property expense is recorded to refl ect the increase in liabilities.

6.114 General government units are less likely to operate an insurance scheme, but if they do and if they maintain separate reserves, the property ex- pense attributed to insurance policyholders would be recorded in the same manner as for a public corpo- ration.
If the general government unit does not main- tain separate reserves, then no investment income is generated and so no property expense is attributed to the policyholders.39 6.115 For government units operating a standard- ized guarantee scheme against fees, there may also be investment income earned on the reserves of the scheme and this should be shown as a property ex- pense being distributed to the units paying the fees (which may not be the same units that stand to benefi t from the guarantees).
Appendix 4 describes the re- cording of transactions related to standardized guar- antee schemes.

6.116 As described in Appendix 2, pension en- titlements arise from one of two types of pension schemes: defi ned-contribution schemes and defi ned- benefi t schemes.

Under both schemes, the operator of the scheme records a property expense attributed to policyholders to refl ect changes in the liability out- standing for the pension entitlements.
Th ese changes may arise from investment income and the change in value due to the passage of time.

6.117 With a defi ned-benefi t scheme, the future pension benefi ts are defi ned by some formula nor- mally related to participants’ length of service and salary.

Th e nominal values of the pension benefi ts payable in the future are determined actuarially based on estimates of variables, such as expected retire- ment ages, mortality rates, expected infl ation, and expected salary increases.
Th e nominal values can then be converted to present values using an appro- priate discount rate.

Over time, the total liability of the pension scheme will change because of the receipt 39 For a description of fl ows and stock positions related to insurance and standardized guarantee schemes, see paragraphs A4.66–A4.80.

of additional contributions and property income, the payment of benefi ts, changes in the actuarial assump- tions, and the passage of time.
Th e property expense attributed to a pension fund’s policyholders is equal to the increase in the liability resulting from the prop- erty income accruing on the pension fund’s assets held on behalf of the benefi ciaries and the passage of time, which occurs because the future benefi ts are dis- counted over fewer reporting periods.

6.118 With defi ned-contribution schemes, the level of contributions to the fund, rather than the level of benefi ts, is guaranteed by the employer.
All defi ned- contribution schemes are funded (see paragraph A2.55), and the liability of a defi ned-contribution scheme is equal to the current market value of the fund’s assets.

Th erefore, the property expense attrib- uted to insurance policyholders is equal to the prop- erty income receivable from the investment of the scheme’s assets.

Any holding gains on the scheme’s assets are equally refl ected in holding losses on the scheme’s unit’s liability to the benefi ciaries.
6.119 Th e increase/decrease in the value of invest- ment fund shares (or units), other than from other economic fl ows, is recorded as property income, ei- ther distributed to the share- (or unit) holders or rein- vested by the holders in the shares (or units).
Rent (2814) 6.120 Rent (2814) is the expense payable to the owners of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of an- other institutional unit (a lessee or tenant) for use of the natural resource in production.

Rent payable is typically related to a resource lease on land, sub- soil resources, and on other natural resources.

Rent accrues continuously to the asset’s owner through- out the period of the contract and may be payable in cash or in kind.
Th e types of resource rent and the boundary between resource rent, rental of produced assets, and taxes are described in detail in paragraphs 5.124–5.132 in the context of the corresponding rev- enue item.

Expense 139 vestment enterprise.

Public corporations may have foreign direct investors.

Actual distributions to such nonresident foreign direct investors may be made out of their distributable income in the form of dividends or withdrawals of income from quasi- corporations.
However, macroeconomic statistics also require the retained earnings of a foreign direct investment enterprise to be recorded as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity in the enterprise and then reinvested by them by means of additions to equity.
Th e imputed remittance of these retained earnings is classifi ed as a form of distrib- uted income that is separate from, and additional to, any actual payments of dividends or withdrawals of income from quasi-corporations.

Th is treatment assumes that the decision to retain some earnings within the enterprise must represent a deliberate in- vestment decision on the part of the foreign direct investor.
Reinvested earnings are described in detail in paragraphs 5.134–5.135 in the context of the cor- responding revenue item.

Transfers not elsewhere classiﬁ ed (282) 6.122 Transfers not elsewhere classifi ed (282) payable include a number of gift s and transfers to in- dividuals, private nonprofi t institutions, nongovern- mental foundations, corporations, or government units that are not included in other categories of transfers and serve quite diff erent purposes.
Trans- fers not elsewhere classifi ed (282) are subdivided into current transfers not elsewhere classifi ed (2821) and capital transfers not elsewhere classifi ed (2822).

It may be of analytic interest to classify this group of transactions according to the recipients, such as residents and nonresidents.
Among residents, it may also be of interest to classify them according to whether these are households, nonprofi t institutions serving households, public nonfi nancial corpora- tions, public fi nancial corporations, or private cor- porations (see Table 6.10).
Current transfers not elsewhere classiﬁ ed (2821) Reinvested earnings on foreign direct investment (2815) 6.123 Th e most important types of current trans- fers included here are: 6.121 Reinvested earnings are the direct inves- tor’s share of the retained earnings of the direct in- • Current transfers to nonprofi t institutions serving households: Th ese transfers usually consist of cash 140 Government Finance Statistics Manual 2014 Table 6.10 Detailed Classiﬁ cation of Transfers Not Elsewhere Classiﬁ ed (282) 282 2821 2822 Transfers not elsewhere classiﬁ ed1 Current transfers not elsewhere classiﬁ ed Capital transfers not elsewhere classiﬁ ed 1Further breakdown/“of which” lines could allow for the identiﬁ cation of subsectors and individual units (see Table 3.1).
in the form of membership dues, subscriptions, and voluntary donations, whether made on a regular or occasional basis.40 Such transfers are intended to cover the costs of the production of nonprofi t institutions serving households or to provide the funds out of which current transfers may be made to households in the form of social assistance ben- efi ts.

Th is category also covers transfers in kind in the form of food, clothing, blankets, and medicines to charities for distribution to households.
• Current taxes, compulsory fees, and fi nes im- posed by one unit of general government or pub- lic corporations on another government unit or public corporation: Th ese transfers are subject to elimination by consolidation.
• Net nonpayable tax credits: When, due to tim- ing diff erences, the amount of a nonpayable tax credit exceeds the amount of tax otherwise re- ceivable from taxpayers in the reporting period, and the excess is paid to the taxpayer, the net payment should be recorded as expense rather than negative tax.
• Gross payable tax credits other than those classi- fi ed as subsidies or social benefi ts: Th ese amounts arise from tax credits payable irrespective of whether taxes are payable, and are recorded on a gross basis so that the total amount payable is recorded as expense (see paragraphs 5.29–5.32).

• Fines and penalties imposed by courts of law or quasi-judicial bodies.
• Payments of compensation for injury to persons or damage to property caused by general govern- ment or public sector units, excluding payments of nonlife insurance claims: Th ese payments can be either compulsory payments awarded by 40 Membership dues and subscription fees are recorded as an expense in use of goods and services (22) if there is an exchange of a payment for some form of a service (see paragraph 6.42).

courts of law or ex gratia payments agreed out of court.
• Scholarships and other educational benefi ts pay- able for households that are not related to social risks.

• Purchases of goods and services from market pro- ducers that are distributed directly to households for fi nal consumption other than social benefi ts.
Capital transfers not elsewhere classiﬁ ed (2822) 6.124 Th e most important types of capital transfers included here are: • Capital taxes (see paragraph 5.51) imposed by one unit of general government on another gov- ernment unit or public corporation: Th ese trans- fers are subject to elimination by consolidation.
• Major, nonrecurrent, exceptional payments in compensation for extensive damages or serious injuries such as those arising from catastrophes not covered by insurance policies are included as a capital transfer.
• Capital transfers to corporations, quasi- corporations, nonprofi t institutions serving households, households, and nonresidents in cash or in kind, to fi nance all or part of the costs of acquiring nonfi nancial assets, to cancel or as- sume a debt by mutual agreement with the debtor without acquiring an eff ective fi nancial claim on the original debtor (see Box 6.3).41 • Transfers payable to corporations and quasi- corporations to cover large operating defi cits ac- cumulated over two or more years.42 • Payment of interest or other debt service cost on behalf of other producer units without acquiring an eff ective claim on the original debtor.
• Amounts payable in excess of the value of liabili- ties for the provision of pension entitlements as- sumed by other units.43 41 Th is expense category excludes amounts payable for the acquisi- tion of equity (see paragraph 9.49).

42 Where a realistic expectation exists that such amounts will be repayable, as indicated by certain criteria (see Box 6.3), the transaction should be classifi ed as the acquisition of a fi nancial asset.
A regular transfer covering an operating defi cit is recorded as a subsidy.

43 Amounts payable up to the value of the liability assumed should be recorded as transactions in fi nancial assets and liabilities (i.e., the reduction in liabilities) (see paragraphs 9.66–9.67).
Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes (283) 6.125 Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes (283) include nonlife insurance premiums payable to insurance schemes/corporations to secure entitlement to insurance against risks, claims pay- able by insurance schemes to benefi ciaries, and fees payable to obtain standardized guarantees.
To allow for consolidation of the general government and public sectors, this expense should also be classi- fi ed according to the subsector of the counterparty (see Table 6.11).
A distinction is made between premi- ums, fees, and current claims payable (2831) and capital claims payable (2832): • Premiums, fees, and current claims payable (2831) comprise nonlife insurance premiums expense and fees payable for the issuance of standardized guarantees, as well as insurance settlement expense that are not exceptional.

Th e premiums and fees are payable to insur- ance schemes and corporations to obtain cov- erage against various events or accidents.
Such amounts are always recorded as current trans- fers.44 Also included are nonlife insurance claims payable by insurance schemes operated by a gen- eral government unit or public insurance corpo- ration in settlement of claims that become due during the current reporting period.

Claims be- 44 In the 2008 SNA, nonlife insurance premiums payable are partitioned into a purchase of a service and a transfer.
In GFS, the entire premium is considered a transfer because the policyholder is not able to partition the service and transfer components.
Expense 141 Table 6.11 Detailed Classiﬁ cation of Premiums, Fees, and Claims Payable Related to Nonlife Insurance and Standardized Guarantee Schemes (283) 283 2831 28311 28312 28313 2832 Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes Premiums, fees, and current claims payable Premiums payable1 Fees payable for standardized guarantee schemes Current claims payable1 Capital claims payable1 1Further breakdown/“of which” lines could allow for the identiﬁ cation of subsectors and individual units (see Table 3.1).
come payable when the eventuality occurs that gives rise to a valid claim, regardless of whether paid, settled, or reported during the reporting period.

Such insurance claims that are not excep- tional are recorded as current transfers (see also paragraph A4.79 for the recording of standard- ized guarantee schemes).

• Capital claims payable (2832) comprise excep- tionally large insurance settlements payable in the wake of a catastrophic event or disaster.
For these exceptional large claims payable, such as those following a catastrophe, some part of the claims may be recorded as capital transfers rather than as current transfers.

It may be diffi cult for the parties to identify these events consistently, so as a sim- plifying convention, all nonlife insurance claims are classifi ed as current transfers, unless it is nec- essary to record a capital transfer to be consistent with the national accounts.
Annex: Classiﬁ cation of the Functions of Government Th is annex describes the classifi cation of expenditure according to the functions of government.

Introduction 6.126 Th e Classifi cation of Functions of Gov- ernment (COFOG) is a detailed classifi cation of the functions, or socioeconomic objectives, that general government units aim to achieve through various kinds of expenditure.

COFOG is integral to the GFS presentation.


It is one of a family of four classifi cations referred to as classifi cations of expenditure according to purpose.45 COFOG provides a classifi cation of gov- ernment outlays by functions that experiences have shown to be of general interest and useful to a wider variety of analytic applications.
Statistics on health, education, social protection, and environmental pro- tection, for example, can be used to study the eff ec- tiveness of government programs in those areas.

In contrast, the Classifi cation of Environmental Activi- ties (CEA) is a functional classifi cation that covers a more limited but specialized activity.46 6.127 While the COFOG as used in this Manual fully agrees with the OECD/UN classifi cation, the concept is applied slightly diff erently in GFS.
Final outlays are referred to in a general sense by the OECD/ UN, and therefore include grants, loans, and/or subsi- dies.

In GFS, COFOG is applied only to expenditure, comprising expense and the net investment in non- fi nancial assets.
Transactions in fi nancial assets and 45 COFOG was produced by the Organisation for Economic Co- operation and Development (OECD) and was published together with the other three classifi cations in United Nations (UN), Clas- sifi cations of Expenditure according to Purpose (New York, 2000).
Th e other classifi cations are the Classifi cations of Individual Consumption According to Purpose (COICOP), the Classifi ca- tion of the Purpose of Nonprofi t Institutions Serving Households (COPNI), and the Classifi cation of the Outlays of Producers Ac- cording to Purpose (COPP).

46 CEA is one of the classifi cations and lists contained in the System of Environmental-Economic Accounting Central Framework (SEEA).

See Appendix 7 for a description of the linkages between GFS and the SEEA.
For more details on CEA, also see the Clas- sifi cation of Environmental Protection Activities and Expenditure (CEPA) (UN, 2000c).

liabilities, such as loans, are excluded when compil- ing COFOG data for GFS reporting purposes.

For the general government sector, transactions in fi nancial assets and liabilities are usually fungible, to such an extent that a functional classifi cation of these fi nanc- ing activities may be less useful.
Structure of COFOG Classiﬁ cations 6.128 Th e classifi cation codes of COFOG are somewhat diff erent from the structure of other GFS classifi cation codes.

Th e functions are classifi ed using a three-level scheme.

Th ere are 10 fi rst-level, or two-digit, categories, referred to as divisions.

Ex- amples are health (Division 07) and social protection (Division 10).
Within each division, there are sev- eral groups, or three-digit categories, such as hospi- tal services (Group 073) and sickness and disability (Group 101).

Within each group, there are one or more classes, or four-digit categories, such as nursing and convalescent home services (Class 0734) and dis- ability (Class 1012).

All three classifi cation levels and detailed descriptions of the contents of each class are reproduced in this annex.

Table 6A.1 lists the divi- sions and groups.


In the GFS framework, the prefi x “7” has been added to align the COFOG codes with other GFS classifi cation codes.

6.129 All expenditure on a particular function is aggregated in one category of COFOG regardless of the economic nature of the expenditure.
Th at is, transfers payable in cash designed to be used for a particular function, the purchase of goods and ser- vices from a market producer that are transferred to households for the same function, the production of goods and services by a general government unit, and/or the net investment in a nonfi nancial asset for that same function are all reported under the same function.
Uses of COFOG 6.130 COFOG permits trends in government ex- penditure on particular functions or policy purposes Expense 143 Table 6A.1 Classiﬁ cation of Expenditure by Functions of Government According to Divisions and Groups Total expenditure General public services Executive and legislative organs, ﬁ nancial and ﬁ scal affairs, external affairs Foreign economic aid General services Basic research R&D General public services General public services n.e.c.
Public debt transactions Transfers of a general character between different levels of government Defense Military defense Civil defense Foreign military aid R&D Defense Defense n.e.c.

Public order and safety Police services Fire protection services Law courts Prisons R&D Public order and safety Public order and safety n.e.c.
Economic affairs General economic, commercial, and labor affairs Agriculture, forestry, ﬁ shing, and hunting Fuel and energy Mining, manufacturing, and construction Transport Communication Other industries R&D Economic affairs Economic affairs n.e.c.

Environmental protection Waste management Waste water management Pollution abatement Protection of biodiversity and landscape R&D Environmental protection Environmental protection n.e.c.
Housing and community amenities Housing development Community development Water supply Street lighting R&D Housing and community amenities Housing and community amenities n.e.c.

Health Medical products, appliances, and equipment Outpatient services Hospital services Public health services R&D Health Health n.e.c.
Recreation, culture, and religion Recreational and sporting services Cultural services Broadcasting and publishing services Religious and other community services R&D Recreation, culture, and religion Recreation, culture, and religion n.e.c.

Education Pre-primary and primary education Secondary education Postsecondary nontertiary education Tertiary education Education not deﬁ nable by level Subsidiary services to education R&D Education Education n.e.c.
Social protection Sickness and disability Old age Survivors Family and children Unemployment Housing Social exclusion n.e.c.

R&D Social protection Social protection n.e.c.

Note: R&D = research and development; n.e.c.

= not elsewhere classiﬁ ed.

to be examined over time.

Conventional government accounts are not usually suitable for this purpose because they refl ect the organizational structures of governments.
Not only might time series be distorted by organizational changes, but at a specifi c time some organizations may be responsible for more than one function, and responsibility for one function might be divided among several organizations.
For exam- ple, if a government establishes a new department that brings together some of the functions previously 144 Government Finance Statistics Manual 2014 administered by several departments or at several lev- els of government, it will not usually be possible to use conventional government accounts to compare expenditure on these purposes over time.
6.131 COFOG is also used for making interna- tional comparisons of the extent to which govern- ments are involved in particular economic and social functions.

Just as COFOG avoids the problems of or- ganizational changes in a single government, so too does it avoid the problems of organizational diff er- ences among countries.
In one country, for example, all functions connected with water supply may be undertaken by a single government agency, while in another country, they may be distributed among de- partments dealing with the environment, housing, or industrial development.

6.132 For particular kinds of analyses, COFOG provides key aggregates that could be used as indica- tors or measures of results.
For example, in studies of social assistance, information on past expenditure on the social protection function could give an indication of changes in the support provided by government for the welfare of the population.

Similarly, analyzing the impact of economic growth on the environment may require information on the expenditure on environ- mental protection.

Individual versus Collective Goods and Services 6.133 Government services can benefi t the com- munity either individually or collectively.
COFOG is used to distinguish between individual and collective goods and services provided by general government units.

Th e COFOG functions are defi ned so that they represent individual or collective consumption, but not both.

6.134 A collective service is a service provided si- multaneously to all members of the community or to all members of a particular section of the community, such as all households living in a particular region.
Other characteristics of these collective services may be summarized as follows: • Th e use of such services is usually passive and does not require the explicit agreement or active participation of all the individuals concerned.

• Th e provision of a collective service to one indi- vidual does not reduce the amount available to others in the same community or section of the community.

Th ere is no rivalry in consuming these services.


6.135 An individual consumption good or ser- vice is one that is acquired by a household and used to satisfy the needs or wants of members of that house- hold.

Individual goods and services are essentially “private” as distinct from “public” goods and services.
Th ey have the following characteristics: • It must be possible to observe and record the ac- quisition of the good or service by an individual household or member thereof as well as the time at which it took place.

• Th e household must have agreed to accept the provision of the good or service and to take what- ever action is necessary to make it possible—for example, by attending a school or clinic.
• Th e good or service must be such that its acquisi- tion by one household or person, or possibly by a small, restricted group of persons, precludes its acquisition by other households or persons.

6.136 An important characteristic of an individual good or service is that its acquisition by one house- hold, person, or group of persons brings no (or very little) benefi t to the rest of the community.

Th e bor- derline between individual goods and services and collective services is not always clear.
While the provi- sion of certain individual health or education services (e.g., vaccination or immunization) may bring some external benefi ts to the rest of the community, in gen- eral, the individuals concerned derive the main ben- efi t. When a government unit incurs expenditure on the provision of individual goods or services, it must decide not only how much to spend in total but how to allocate, or distribute, the goods or services among individual members of the community.
In contrast, in the case of collective services, all members of the community benefi t from such services.

6.137 Expenditure incurred by governments in connection with individual services such as health and education are to be treated as collective services when they are concerned with the formulation and administration of government policy, the setting and enforcement of public standards, the regulation, li- censing, or supervision of producers, etc.
For exam- ple, the expenditure incurred by ministries of health or education at a national level are to be included in collective consumption expenditure as they are con- cerned with general matters of policy, standards, and regulation.

On the other hand, any overhead expenses connected with the administration or functioning of a group of hospitals, schools, colleges, or similar insti- tutions are to be included in individual expenditure.
For example, if a group of private hospitals has a cen- tral unit that provides certain common services such as purchasing, laboratories, ambulances, or other fa- cilities, the costs of these common services would be taken into account in the prices charged to patients.
Th e same principle must be followed when the hos- pitals are nonmarket producers: all the costs that are associated with the provision of services to particular individuals, including those of any central units pro- viding common services, should be included in the value of expenditure on individual services.
6.138 All of classes 701 to 706 are collective ser- vices, as are sections 7075 and 7076 of health; sections 7083 to 7086 of recreation, culture, and religion; sec- tions 7097 and 7098 of education; and sections 7108 and 7109 of social protection.

Th ese sections cover expenditure on general administration, regulation, research that is not recorded as investment in non- fi nancial assets, and so on.
Th e remaining sections of health, recreation, culture and religion, education, and social protection (which dominate each of the classes) are considered to be individual services.

6.139 In this annex, each class is marked “CS” or “IS” to designate it as collective services or individual services, respectively.
Th is distinction is used for the computation of fi nal consumption expenditure and actual fi nal consumption of the general government and household sectors in the national accounts, as described in paragraphs A7.53–A7.62.

Purchases of goods and services that are provided to individual households or persons are treated as social transfers in kind in the 2008 SNA so that the actual fi nal consump- tion of government and households, in addition to their fi nal consumption expenditure, can be computed.
Th erefore, statistics compiled for each economic type of expenditure by function are needed for compiling national accounts according to the 2008 SNA.

Units of Classiﬁ cation 6.140 Th e units of classifi cation are, in principle, individual transactions.

Each purchase of goods and Expense 145 services, wages payable, transfer, or other expendi- ture should be assigned a COFOG code according to the function that the transaction serves.
For most ex- penditure, however, it will generally not be possible to use transactions as the unit of classifi cation and institutional units may also not necessarily be per- forming a single function.

Instead, COFOG codes may best be done at the smallest level of entities, re- gardless of their status as institutional units.

Func- tions oft en have to be assigned to all transactions of agencies, offi ces, programs, bureaus, and similar smaller entities within government departments or ministries.
6.141 When these smaller government entities rather than transactions are used for classifi cation, it may happen that the smallest entity that can be iden- tifi ed in the government accounts may perform more than one COFOG function.

If possible, the expen- diture of multifunction entities should be allocated among COFOG functions using a relevant physical indicator, such as hours worked by employees.
It may be possible only to assign all expenditure by multi- function entities to whichever purpose appears to ac- count for the largest part of expenditure.

6.142 A single classifi cation cannot serve all ana- lytic purposes.

Th e selection of functions in COFOG is based on judgment.

Th e scope of each function could be broader or narrower, and completely dif- ferent functions could have been included.
For ex- ample, expenditure for medical schools is classifi ed in COFOG as education rather than health.

Also, research and development could be a function of its own, but in COFOG, research and development ex- penditure is shown separately, classifi ed according to the function the goal of the research and development most closely serves.

Th us, COFOG statistics must be used with care to be sure that the desired coverage is obtained for a specifi c analytic purpose.
Problems in Identifying Functions of Government Shared Expenditure 6.143 Government ministries generally are respon- sible for the formulation, administration, coordination, and monitoring of overall policies, plans, programs, and budgets; for the preparation (in some countries) and enforcement of legislation; and for the production and 146 Government Finance Statistics Manual 2014 dissemination of general information, technical docu- mentation, and statistics.
Consequently, the expenditure of these ministries has to be shared across the classes for which they are responsible.

For example, the expen- diture of a ministry of transport should be divided be- tween road transport (70451), water transport (70452), railway transport (70453), air transport (70454), and pipeline and other transport (70455).
Administrative Expenditure 6.144 Administrative expenditure on general ser- vices, such as personnel services, supply and purchas- ing services, accounting and auditing services, and computer and data processing services, undertaken by ministries or units within ministries should be classifi ed at the most detailed level possible.

If admin- istrative expenditure overlaps two or more classes, an attempt should be made to apportion expenditure be- tween the classes concerned.
If this approach is not feasible, the total should be allocated to that class that accounts for the largest part of the total expenditure.

Subsidies 6.145 Particular diffi culties may arise with regard to subsidies.
Th e main objective behind such govern- ment support may be, for example, to assure capac- ity to build naval vessels considered vital to national defense, to maintain living standards of important groups such as farmers or miners, or to provide em- ployment for workers in underutilized hospitals.

Th ese political objectives are not to be confused with functions as the term is used in COFOG.
Hence, a government subsidy to shipyards is classifi ed under manufacturing (70442), and grants to hospitals are classifi ed under hospital services (7073) regardless of the ultimate purposes.

Subsidies and grants designed chiefl y to increase employment opportunities in gen- eral are an exception to this rule.

Because such pro- grams do not focus on any single industry, they are classifi ed under general labor aff airs (70412).
Consumption of Fixed Capital 6.146 It is likely that consumption of fi xed capital will be diffi cult to allocate by function, especially if only aggregated fi gures for total government capital stock and consumption of fi xed capital are compiled.

In these circumstances, approximations will have to be used.

One possibility may be to distribute con- sumption of fi xed capital according to book value de- preciation, if it is available for detailed organizational units within government.
Another approach would be to distribute consumption of fi xed capital among functions in proportion to the net acquisition of fi xed assets over a number of earlier years.

6.147 Another caution regarding the use of COFOG statistics relates to net investment in non- fi nancial assets.
Because expenditure classifi ed by COFOG includes consumption of fi xed capital as an expense, and includes it in the calculation of net in- vestment in nonfi nancial assets (deducted from ac- quisition minus disposals), the consumption of fi xed capital will net out in COFOG data.

However, if a functional classifi cation is compiled for expense items only, this will include consumption of fi xed capital representing part of the resource cost of using previ- ously acquired fi xed assets.
Cross-Classiﬁ cation of Expenditure 6.148 Th e economic and functional classifi cations of expenditure can be cross-classifi ed as illustrated in Table 6A.2.

A cross-classifi cation of COFOG with each of the categories of the economic classifi cation of expense is analytically useful.
Th e cross-classifi cation allows an analysis of: • Th e inputs, which show how governments per- form their functions, and the outputs, which show what governments are doing • How governments carry out their public expen- diture policy functions to meet social objectives • Th e changes in the composition of expenditure over time to serve specifi c policy objectives • Comparison of how specifi c functions are car- ried out by diff erent governments.
6.149 Table 6A.2 includes a column for each major economic type of expense and for net investment in nonfi nancial assets.

As indicated earlier, this classifi - cation is needed to compile data on the actual fi nal consumption of the general government and house- holds (see paragraph 6.139).

Detailed Classiﬁ cation of the Functions of Government 6.150 As outlined earlier, the complete Classifi ca- tion of the Functions of Government (COFOG) has three levels of detail: Divisions, Groups, and Classes.
Expense 147 Table 6A.2 Cross-Classiﬁ cation of Expenditure by Functional and Economic Classiﬁ cations Compensation of employees [GFS] Use of goods and services Consumption of ﬁ xed capital [GFS] Interest [GFS] Subsidies Grants Social beneﬁ ts [GFS] Other expense Net Investment in nonﬁ nancial assets General public services Defense Public order and safety Economic affairs Environmental protection Housing and community amenities Health Recreation, culture, and religion Education Social protection 1Consumption of ﬁ xed capital is a cost (expense) for a general government unit and reduces the value of nonﬁ nancial assets.
The net effect of consumption of ﬁ xed capital on total expenditure is thus zero.

Th e Divisions could be seen as the broad objectives of government, while the Groups and Classes de- tail the means by which these broad objectives are achieved.

Th e classifi cation numbers have been modi- fi ed slightly to conform with the coding system of this Manual.

Th e numeral “7” is prefi xed to all codes and the punctuation separating Divisions, Groups, and Classes are deleted.
In addition, where appropriate, reference has been made to expenditure rather than outlays.

Otherwise, these descriptions are the same as those of the United Nations Statistical Division.47 47 See http://unstats.un.org/unsd/cr/registry/regcst.

asp?Cl=4&Top=1&Lg=1.


701 GENERAL PUBLIC SERVICES 7011 EXECUTIVE AND LEGISLATIVE ORGANS, FINANCIAL AND FISCAL AFFAIRS, EXTERNAL AFFAIRS 70111 Executive and legislative organs (CS) • Administration, operation, or support of execu- tive and legislative organs: Includes: offi ce of the chief executive at all levels of gov- ernment—offi ce of the monarch, governor-general, president, prime minister, governor, mayor, etc.
; legis- lative bodies at all levels of government—parliaments, chambers of deputies, senates, assemblies, town coun- cils, etc.
; advisory, administrative, and political staff s attached to chief executive offi ces and legislatures; 148 Government Finance Statistics Manual 2014 libraries and other reference services serving mainly executive and legislative organs; physical amenities provided to the chief executive, the legislature, and their aides; permanent or ad hoc commissions and committees created by or acting on behalf of the chief executive or legislature.
Excludes: ministerial offi ces, offi ces of heads of de- partments of local governments, interdepartmental committees, etc.

concerned with a specifi c function (classifi ed according to function).
70112 Financial and ﬁ scal affairs (CS) • Administration of fi nancial and fi scal aff airs and services; management of public funds and public debt; operation of taxation schemes • Operation of the treasury or ministry of fi nance, the budget offi ce, the inland revenue agency, the customs authorities, the accounting and auditing services • Production and dissemination of general infor- mation, technical documentation and statistics on fi nancial and fi scal aff airs and services.
Includes: fi nancial and fi scal aff airs and services at all levels of government.

Excludes: underwriting or fl otation charges and inter- est payments on government loans (70170); supervi- sion of the banking industry (70411).
70113 External affairs (CS) • Administration of external aff airs and services • Operation of the ministry of external aff airs and diplomatic and consular missions stationed abroad or at offi ces of international organizations; operation or support of information and cultural services for distribution beyond national bound- aries; operation or support of libraries, reading rooms, and reference services located abroad • Regular subscriptions and special contributions to meet general operating expenses of interna- tional organizations.
Excludes: economic aid to developing countries and countries in transition (70121); economic aid mis- sions accredited to foreign governments (70121); contributions to aid programs administered by in- ternational or regional organizations (70122); mili- tary units stationed abroad (70210); military aid to foreign countries (70230); general foreign economic and commercial aff airs (70411); tourism aff airs and services (70473).
7012 FOREIGN ECONOMIC AID 70121 Economic aid to developing countries and countries in transition (CS) • Administration of economic cooperation with developing countries and countries in transition • Operation of economic aid missions accred- ited to foreign governments; operation or sup- port of technical assistance programs, training programs, and fellowship and scholarship schemes • Economic aid in the form of grants (in cash or in kind) or loans (regardless of interest charged).
Excludes: contributions to economic development funds administered by international or regional or- ganizations (70122); military aid to foreign countries (70230).

70122 Economic aid routed through international organizations (CS) • Administration of economic aid routed through international organizations • Contributions in cash or in kind to economic de- velopment funds administered by international, regional, or other multinational organizations.
Excludes: aid to international peacekeeping opera- tions (70230).

7013 GENERAL SERVICES Th is group covers services that are not connected with a specifi c function and that are usually undertaken by central offi ces at the various levels of government.

It also covers those services connected with a particular function that are undertaken by such central offi ces.

For example, the compilation of industry, environ- ment, health, or education statistics by a central sta- tistical agency is included here.
70131 General personnel services (CS) • Administration and operation of general person- nel services, including development and imple- mentation of general personnel policies and procedures covering selection, promotion, rating methods, the description, evaluation and classifi - cation of jobs, the administration of civil service regulations, and similar matters.

Excludes: personnel administration and services connected with a specifi c function (classifi ed according to function).
70132 Overall planning and statistical services (CS) • Administration and operation of overall eco- nomic and social planning services and of overall statistical services, including formulation, coor- dination, and monitoring of overall economic and social plans and programs and of overall sta- tistical plans and programs.

Excludes: economic and social planning services and statistical services connected with a specifi c function (classifi ed according to function).
70133 Other general services (CS) • Administration and operation of other general services, such as centralized supply and pur- chasing services, maintenance and storage of government records and archives, operation of government-owned or -occupied buildings, cen- tral motor vehicle pools, government-operated printing offi ces, centralized computer and data processing services, etc.

Excludes: other general services connected with a spe- cifi c function (classifi ed according to function).
7014 BASIC RESEARCH Basic research is experimental or theoretical work un- dertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observ- able facts, without any particular application or use in view.

70140 Basic research (CS) • Administration and operation of government agencies engaged in basic research • Grants, loans, or subsidies to support basic re- search undertaken by nongovernment bodies such as research institutes and universities.
Expense 149 7015 R&D GENERAL PUBLIC SERVICES Applied research is original investigation under- taken in order to acquire new knowledge, but di- rected primarily toward a specifi c practical aim or objective.
Experimental development is systematic work, drawing on existing knowledge gained from re- search and practical experience that is directed to producing new materials, products, and devices; to installing new processes, systems, and services; or to improving substantially those already produced or installed.
70150 R&D General public services (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to general public services • Grants, loans, or subsidies to support applied re- search and experimental development related to general public services undertaken by nongov- ernment bodies, such as research institutes and universities.

Excludes: basic research (70140).

7016 GENERAL PUBLIC SERVICES N.E.C.

70160 General public services n.e.c.


(CS) • Administration, operation, or support of general public services, such as registration of voters, holding of elections and referendums, admin- istration of nonself-governing and trust territo- ries, etc.

Includes: general public services that cannot be as- signed to (7011), (7012), (7013), (7014), or (7015).

Excludes: public debt transactions (7017); transfers of a general character between diff erent levels of govern- ment (7018).
7017 PUBLIC DEBT TRANSACTIONS 70170 Public debt transactions (CS) • Interest payments and expense for underwriting and fl oating government loans.

Excludes: applied research and experimental develop- ment (classifi ed by function).

Excludes: administrative costs of public debt manage- ment (70112).
150 Government Finance Statistics Manual 2014 7018 TRANSFERS OF A GENERAL CHARACTER BETWEEN DIFFERENT LEVELS OF GOVERNMENT 70180 Transfers of a general character between different levels of government (CS) • Transfers between diff erent levels of government that are of a general character and not allocated to a particular function.
702 DEFENSE 7021 MILITARY DEFENSE 70210 Military defense (CS) • Administration of military defense aff airs and services • Operation of land, sea, air, and space defense forces; operation of engineering, transport, com- munication, intelligence, personnel, and other noncombat defense forces; operation or support of reserve and auxiliary forces of the defense establishment.

Includes: offi ces of military attachés stationed abroad; fi eld hospitals.
Excludes: military aid missions (70230); base hospitals (7073); military schools and colleges where curricula resemble those of civilian institutions even though attendance may be limited to military personnel and their families (7091), (7092), (7093), or (7094); pen- sion schemes for military personnel (7102).
7022 CIVIL DEFENSE 70220 Civil defense (CS) • Administration of civil defense aff airs and ser- vices; formulation of contingency plans; organi- zation of exercises involving civilian institutions and populations • Operation or support of civil defense forces.

Excludes: civil protection services (70320); purchase and storage of food, equipment, and other supplies for emer- gency use in the case of peacetime disasters (71090).
7023 FOREIGN MILITARY AID 70230 Foreign military aid (CS) • Administration of military aid and operation of military aid missions accredited to foreign gov- ernments or attached to international military organizations or alliances • Military aid in the form of grants (in cash or in kind), loans (regardless of interest charged), or loans of equipment; contributions to interna- tional peacekeeping forces, including the assign- ment of manpower.
7024 R&D DEFENSE Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).

70240 R&D Defense (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to defense • Grants, loans, or subsidies to support applied research and experimental development re- lated to defense undertaken by nongovern- ment bodies, such as research institutes and universities.
Excludes: basic research (70140).

7025 DEFENSE N.E.C.

70250 Defense n.e.c.

(CS) • Administration, operation, or support of activi- ties such as formulation, administration, coor- dination, and monitoring of overall policies, plans, programs, and budgets relating to defense; preparation and enforcement of legislation relat- ing to defense; production and dissemination of general information, technical documentation, and statistics on defense; etc.
Includes: defense aff airs and services that cannot be assigned to (7021), (7022), (7023), or (7024).

Excludes: administration of war veterans’ aff airs (7102).
703 PUBLIC ORDER AND SAFETY 7031 POLICE SERVICES 70310 Police services (CS) • Administration of police aff airs and services, including alien registration, issuing work and travel documents to immigrants, maintenance of arrest records and statistics related to police work, road traffi c regulation and control, preven- tion of smuggling, and control of off shore and ocean fi shing • Operation of regular and auxiliary police forces, of port, border, and coast guards, and of other special police forces maintained by public au- thorities; operation of police laboratories; opera- tion or support of police training programs.
Includes: traffi c wardens.

Excludes: police colleges off ering general education in addition to police training (7091), (7092), (7093), or (7094).
7032 FIRE PROTECTION SERVICES 70320 Fire protection services (CS) • Administration of fi re prevention and fi refi ght- ing aff airs and services • Operation of regular and auxiliary fi re brigades and of other fi re prevention and fi refi ghting ser- vices maintained by public authorities; operation or support of fi re prevention and fi refi ghting training programs.

Includes: civil protection services such as mountain res- cue, beach surveillance, evacuation of fl ooded areas, etc.
Excludes: civil defense (70220); forces especially trained and equipped for fi ghting or preventing forest fi res (70422).
7033 LAW COURTS 70330 Law courts (CS) • Administration, operation, or support of civil and criminal law courts and the judicial system, including enforcement of fi nes and legal settle- ments imposed by the courts and operation of parole and probation systems • Legal representation and advice on behalf of gov- ernment or on behalf of others provided by gov- ernment in cash or in services.

Includes: administrative tribunals, ombudsmen, and the like.

Excludes: prison administration (70340).


7034 PRISONS 70340 Prisons (CS) • Administration, operation, or support of prisons and other places for the detention or rehabilita- tion of criminals such as prison farms, work- houses, reformatories, borstals, asylums for the criminally insane, etc.

Expense 151 7035 R&D PUBLIC ORDER AND SAFETY Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
70350 R&D Public order and safety (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to public order and safety • Grants, loans, or subsidies to support applied re- search and experimental development related to public order and safety undertaken by nongov- ernment bodies, such as research institutes and universities.

Excludes: basic research (70140).

7036 PUBLIC ORDER AND SAFETY N.E.C.

70360 Public order and safety n.e.c.


(CS) • Administration, operation, or support of activi- ties such as formulation, administration, coordi- nation, and monitoring of overall policies, plans, programs, and budgets relating to public order and safety; preparation and enforcement of leg- islation and standards for the provision of public order and safety; production and dissemination of general information, technical documenta- tion, and statistics on public order and safety.
Includes: public order and safety aff airs and services that cannot be assigned to (7031), (7032), (7033), (7034), or (7035).
704 ECONOMIC AFFAIRS 7041 GENERAL ECONOMIC, COMMERCIAL, AND LABOR AFFAIRS 70411 General economic and commercial affairs (CS) • Administration of general economic and com- mercial aff airs and services, including general foreign commercial aff airs; formulation and im- plementation of general economic and commer- cial policies; liaison among diff erent branches of government and between government and business • Regulation or support of general economic and commercial activities such as export and import trade as a whole, commodity and equity markets, overall income controls, general trade promotion 152 Government Finance Statistics Manual 2014 activities, general regulation of monopolies and other restraints on trade and market entry, etc.
; supervision of the banking industry • Operation or support of institutions dealing with patents, trademarks, copyrights, company reg- istration, weather forecasting, standards, hydro- logic surveys, geodesic surveys, etc.

• Grants, loans, or subsidies to promote general economic and commercial policies and programs.

Includes: consumer education and protection.

Excludes: economic and commercial aff airs of a par- ticular industry (classifi ed to (7042) through (7047) as appropriate).
70412 General labor affairs (CS) • Administration of general labor aff airs and services; formulation and implementation of general labor policies; supervision and regu- lation of labor conditions (hours of work, wages, safety, etc.
); liaison among diff erent branches of government and between govern- ment and overall industrial, business, and labor organizations • Operation or support of general programs or schemes to facilitate labor mobility, to reduce sex, race, age, and other discrimination, to reduce the rate of unemployment in distressed or under- developed regions, to promote the employment of disadvantaged or other groups characterized by high unemployment rates, etc.
; operation of labor exchanges; operation or support of arbitra- tion and mediation services • Production and dissemination of general infor- mation, technical documentation, and statistics on general labor aff airs and services • Grants, loans, or subsidies to promote general labor policies and programs.
land; agrarian reform and land settlement; super- vision and regulation of the agricultural industry • Construction or operation of fl ood control, ir- rigation, and drainage systems, including grants, loans, or subsidies for such works • Operation or support of programs or schemes to stabilize or improve farm prices and farm incomes; operation or support of extension services or veterinary services to farmers, pest control services, crop inspection services, and crop grading services • Production and dissemination of general infor- mation, technical documentation, and statistics on agricultural aff airs and services • Compensation, grants, loans, or subsidies to farmers in connection with agricultural activi- ties, including payments for restricting or en- couraging output of a particular crop or for allowing land to remain noncultivated.
Excludes: multipurpose development projects (70474).
70422 Forestry (CS) • Administration of forestry aff airs and services; conservation, extension, and rationalized ex- ploitation of forest reserves; supervision and regulation of forest operations and issuance of tree-felling licenses • Operation or support of reforestation work, pest and disease control, forest fi refi ghting and fi re prevention services, and extension services to forest operators • Production and dissemination of general infor- mation, technical documentation, and statistics on forestry aff airs and services • Grants, loans, or subsidies to support commer- cial forest activities.
Excludes: labor aff airs of a particular industry (classifi ed to (7042) through (7047) as appropriate); provision of social protection in the form of cash benefi ts and ben- efi ts in kind to persons who are unemployed (71050).

7042 AGRICULTURE, FORESTRY, FISHING, AND HUNTING 70421 Agriculture (CS) • Administration of agricultural aff airs and services; conservation, reclamation, or expansion of arable Includes: forest crops in addition to timber.
70423 Fishing and hunting (CS) Th is class covers both commercial fi shing and hunt- ing, and fi shing and hunting for sport.

Th e fi shing and hunting aff airs and services listed here refer to activi- ties that take place outside natural parks and reserves.
• Administration of fi shing and hunting aff airs and services; protection, propagation, and ratio- nalized exploitation of fi sh and wildlife stocks; supervision and regulation of freshwater fi shing, coastal fi shing, ocean fi shing, fi sh farming, wild- life hunting, and issuance of fi shing and hunting licenses • Operation or support of fi sh hatcheries, exten- sion services, stocking or culling activities, etc.
• Production and dissemination of general infor- mation, technical documentation, and statistics on fi shing and hunting aff airs and services • Grants, loans, or subsidies to support commer- cial fi shing and hunting activities, including the construction or operation of fi sh hatcheries.

Excludes: control of off shore and ocean fi shing (70310); administration, operation, or support of nat- ural parks and reserves (70540).
7043 FUEL AND ENERGY 70431 Coal and other solid mineral fuels (CS) Th is class covers coal of all grades, lignite, and peat, irrespective of the method used in their extraction or benefi ciation, and the conversion of these fuels to other forms, such as coke or gas.
• Administration of solid mineral fuel aff airs and services; conservation, discovery, development, and rationalized exploitation of solid mineral fuel resources; supervision and regulation of the extraction, processing, distribution, and use of solid mineral fuels • Production and dissemination of general infor- mation, technical documentation, and statistics on solid mineral fuel aff airs and services • Grants, loans, or subsidies to support the solid mineral fuel industry and the coke, briquette, or manufactured gas industries.
Excludes: solid mineral fuel transportation aff airs (classifi ed to the appropriate class of group 7045).

70432 Petroleum and natural gas (CS) Th is class covers natural gas, liquefi ed petroleum gases and refi nery gases, oil from wells or other sources, such as shale or tar sands, and the distribution of town gas regardless of its composition.
• Administration of petroleum and natural gas aff airs and services; conservation, discovery, development, and rationalized exploitation of petroleum and natural gas resources; supervision Expense 153 and regulation of the extraction, processing, dis- tribution, and use of petroleum and natural gas • Production and dissemination of general infor- mation, technical documentation, and statistics on petroleum and natural gas aff airs and services • Grants, loans, or subsidies to support the pe- troleum extraction industry and the industry refi ning crude petroleum and related liquid and gaseous products.
Excludes: petroleum or gas transportation aff airs (classifi ed to the appropriate class of group 7045).
70433 Nuclear fuel (CS) • Administration of nuclear fuel aff airs and ser- vices; conservation, discovery, development, and rationalized exploitation of nuclear material resources; supervision and regulation of the ex- traction and processing of nuclear fuel materials and of the manufacture, distribution, and use of nuclear fuel elements • Production and dissemination of general infor- mation, technical documentation, and statistics on nuclear fuel aff airs and services • Grants, loans, or subsidies to support the nuclear materials mining industry and the industries processing such materials.
Excludes: nuclear fuel transportation aff airs (classifi ed to the appropriate class of group 7045); disposal of ra- dioactive wastes (70510).
70434 Other fuels (CS) • Administration of aff airs and services involving fuels, such as alcohol, wood and wood wastes, bagasse, and other noncommercial fuels • Production and dissemination of general infor- mation, technical documentation, and statistics on availability, production, and utilization of such fuels • Grants, loans, or subsidies to promote the use of such fuels for the production of energy.
Excludes: forest management (70422); wind and solar heat (70435) or (70436); geothermal resources (70436).

70435 Electricity (CS) Th is class covers both traditional sources of electricity, such as thermal or hydro supplies, and newer sources, such as wind or solar heat.
154 Government Finance Statistics Manual 2014 • Administration of electricity aff airs and services; conservation, development, and rationalized ex- ploitation of electricity supplies; supervision and regulation of the generation, transmission, and distribution of electricity • Construction or operation of nonenterprise-type electricity supply systems • Production and dissemination of general infor- mation, technical documentation, and statistics on electricity aff airs and services • Grants, loans, or subsidies to support the elec- tricity supply industry, including such expen- diture for the construction of dams and other works, designed chiefl y to provide electricity.
Excludes: nonelectric energy produced by wind or solar heat (70436).
70436 Nonelectric energy (CS) • Administration of nonelectric energy aff airs and services that chiefl y concern the production, dis- tribution, and utilization of heat in the form of steam, hot water, or hot air • Construction or operation of nonenterprise-type systems supplying nonelectric energy • Production and dissemination of general infor- mation, technical documentation, and statistics on availability, production, and utilization of nonelectric energy • Grants, loans, or subsidies to promote the use of nonelectric energy.
Includes: geothermal resources; nonelectric energy produced by wind or solar heat.

7044 MINING, MANUFACTURING, AND CONSTRUCTION 70441 Mining of mineral resources other than mineral fuels (CS) Th is class covers metal-bearing minerals, sand, clay, stone, chemical and fertilizer minerals, salt, gem- stones, asbestos, gypsum, etc.
• Administration of mining and mineral resource aff airs and services; conservation, discovery, development, and rationalized exploitation of mineral resources; supervision and regulation of prospecting, mining, marketing, and other as- pects of mineral production • Production and dissemination of general informa- tion, technical documentation, and statistics on mining and mineral resource aff airs and services • Grants, loans, or subsidies to support commer- cial mining activities.
Includes: issuance of licenses and leases, regulation of production rates, inspection of mines for conformity to safety regulations, etc.

Excludes: coal and other solid fuels (70431), petro- leum and natural gas (70432), and nuclear fuel mate- rials (70433).
70442 Manufacturing (CS) • Administration of manufacturing aff airs and ser- vices; development, expansion, or improvement of manufacturing; supervision and regulation of the establishment and operation of manu- facturing plants; liaison with manufacturers’ as- sociations and other organizations interested in manufacturing aff airs and services • Production and dissemination of general infor- mation, technical documentation, and statistics on manufacturing activities and manufactured products • Grants, loans, or subsidies to support manufac- turing enterprises.
Includes: inspection of manufacturing premises for conformity with safety regulations, protection of con- sumers against dangerous products, etc.

Excludes: aff airs and services concerning the coal pro- cessing industry (70431), the petroleum refi nery in- dustry (70432), or the nuclear fuel industry (70433).
70443 Construction (CS) • Administration of construction aff airs and ser- vices; supervision of the construction industry; development and regulation of construction standards • Production and dissemination of general infor- mation, technical documentation, and statistics on construction aff airs and services.

Includes: issuance of certifi cates permitting occu- pancy, inspection of construction sites for conformity with safety regulations, etc.
Excludes: grants, loans, and subsidies for the construc- tion of housing, industrial buildings, streets, public utilities, cultural facilities, etc.

(classifi ed according to function); development and regulation of housing standards (70610).

7045 TRANSPORT 70451 Road transport (CS) • Administration of aff airs and services concern- ing operation, use, construction, and mainte- nance of road transport systems and facilities (roads, bridges, tunnels, parking facilities, bus terminals, etc.)
• Supervision and regulation of road users (ve- hicle and driver licensing, vehicle safety inspec- tion, size and load specifi cations for passenger and freight road transport, regulation of hours of work of bus, coach and lorry drivers, etc.

), road transport system operations (granting of franchises, approval of freight tariff s and passenger fares, and of hours and frequency of service, etc.
), and road construction and maintenance • Construction or operation of nonenterprise-type road transport systems and facilities • Production and dissemination of general infor- mation, technical documentation, and statistics on road transport system operations and on road construction activities • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of road transport systems and facilities.

Includes: highways, urban roads, streets, bicycle paths, and footpaths.
Excludes: road traffi c control (70310); grants, loans, and subsidies to road vehicle manufacturers (70442); street cleaning (70510); construction of noise em- bankments, hedges, and other anti-noise facilities, in- cluding the resurfacing of sections of urban highways with noise reducing surfaces (70530); street lighting (70640).
70452 Water transport (CS) • Administration of aff airs and services concerning operation, use, construction, and maintenance of inland, coastal, and ocean water transport systems and facilities (harbors, docks, navigation aids and equipment, canals, bridges, tunnels, channels, breakwaters, piers, wharves, terminals, etc.)
Expense 155 • Supervision and regulation of water transport users (registration, licensing and inspection of vessels and crews, regulations concerning passen- ger safety and freight security, etc.

), water trans- port system operations (granting of franchises, approval of freight tariff s and passenger fares, and of hours and frequency of service, etc.
), and water transport facility construction and maintenance • Construction or operation of nonenterprise-type water transport systems and facilities (such as ferries) • Production and dissemination of general infor- mation, technical documentation, and statistics on water transport system operations and water transport facility construction activities • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of water transport systems and facilities.
Includes: radio and satellite navigation aids; emer- gency rescue and towing services.

Excludes: grants, loans, and subsidies to shipbuilders (70442).

70453 Railway transport (CS) • Administration of aff airs and services concern- ing operation, use, construction, or maintenance of railway transport systems and facilities (rail- way roadbeds, terminals, tunnels, bridges, em- bankments, cuttings, etc.)
• Supervision and regulation of railway users (roll- ing stock condition, roadbed stability, passenger safety, security of freight, etc.

), railway transport system operations (granting of franchises, ap- proval of freight tariff s and passenger fares, and of hours and frequency of service, etc.
), and rail- way construction and maintenance • Construction or operation of nonenterprise-type railway transport systems and facilities • Production and dissemination of general infor- mation, technical documentation, and statistics on railway transport system operations and rail- way construction activities • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of railway transport systems and facilities.
Includes: long-line and interurban railway transport systems, urban rapid transit railway transport systems, 156 Government Finance Statistics Manual 2014 and street railway transport systems; acquisition and maintenance of rolling stock.

Excludes: grants, loans, and subsidies to rolling stock manufacturers (70442); construction of noise em- bankments, hedges, and other anti-noise facilities, including the resurfacing of sections of railways with noise reducing surfaces (70530).
70454 Air transport (CS) • Administration of aff airs and services concerning operation, use, construction, and maintenance of air transport systems and facilities (airports, runways, terminals, hangars, navigation aids and equipment, air control amenities, etc.)

licensing, and • Supervision and regulation of air transport users (registration, inspec- tion of aircraft , pilots, crews, ground crews, regulations concerning passenger safety, in- vestigation of air transport accidents, etc.
), air transport system operations (allocation of routes, approval of freight tariff s and passen- ger fares, and of frequency and levels of service, etc.
), and air transport facility construction and maintenance • Construction or operation of nonenterprise-type public air transport services and facilities • Production and dissemination of general infor- mation, technical documentation, and statistics on air transport system operations and on air transport facility construction • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of air transport systems and facilities.
Includes: radio and satellite navigation aids; emer- gency rescue services; scheduled and nonscheduled freight and passenger services; regulation and control of fl ying by private individuals.

Excludes: grants, loans, and subsidies to aircraft man- ufacturers (70442).

70455 Pipeline and other transport (CS) • Administration of aff airs and services concerning operation, use, construction, and maintenance of pipeline and other transport systems (funiculars, cable cars, chairlift s, etc.)
• Supervision and regulation of users of pipeline and other transport systems (registration, licens- ing, inspection of equipment, operator skills and training, safety standards, etc.

); pipeline and other transport systems operations (granting of franchises, setting tariff s, frequency, and levels of service, etc.
), and pipeline and other transport systems construction and maintenance • Construction or operation of nonenterprise-type pipeline and other transport systems • Production and dissemination of general infor- mation, technical documentation, and statistics on the operation and construction of pipeline and other transport systems • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of pipeline and other transport systems.
7046 COMMUNICATION 70460 Communication (CS) • Administration of aff airs and services concern- ing construction, extension, improvement, op- eration, and maintenance of communication systems (postal, telephone, telegraph, wireless, and satellite communication systems) • Regulation of communication system operations (granting of franchises; assignment of frequen- cies, specifi cation of markets to be served and tariff s to be charged, etc.)
• Production and dissemination of general infor- mation, technical documentation, and statistics on communication aff airs and services • Grants, loans, or subsidies to support the con- struction, operation, maintenance, or upgrading of communication systems.

Excludes: radio and satellite navigation aids for water transport (70452) and air transport (70454); radio and television broadcasting systems (70830).
7047 OTHER INDUSTRIES 70471 Distributive trades, storage, and warehousing (CS) • Administration of aff airs and services concern- ing the distributive trade and the storage and warehousing industry • Supervision and regulation of wholesale and retail trade (licensing, sales practices, labeling of pack- aged food and other goods intended for house- hold consumption, inspection of scales and other Expense 157 weighing machines, etc.)
and the storage and warehousing industry (including licensing and control of government-bonded warehouses, etc.)
• Administration of price control and rationing schemes operating through retailers or wholesal- ers regardless of the type of goods involved or in- tended consumer; administration and provision of food and other such subsidies to the general public • Production and dissemination of information to the trade and to the public on prices, the avail- ability of goods, and other aspects of the dis- tributive trade and the storage and warehousing industry; compilation and publication of statis- tics on the distributive trade and the storage and warehousing industry • Grants, loans, or subsidies to support the distrib- utive trade and to the storage and warehousing industry.
Excludes: administration of price and other controls applied to the producer (classifi ed according to func- tion); food and other such subsidies applicable to par- ticular population groups or individuals (710).

cluding the production and dissemination of promotional literature and the like • Compilation and publication of statistics on tourism.
70474 Multipurpose development projects (CS) Multipurpose development projects typically consist of integrated facilities for generation of power, fl ood control, irrigation, navigation, and recreation.
• Administration of aff airs and services concern- ing construction, extension, improvement, oper- ation, and maintenance of multipurpose projects • Production and dissemination of general infor- mation, technical documentation, and statistics on multipurpose development project aff airs and services • Grants, loans, or subsidies to support the con- struction, operation, maintenance, or upgrading of multipurpose development projects.
Excludes: projects with one main function and other functions that are secondary (classifi ed according to main function).

70472 Hotels and restaurants (CS) 7048 R&D ECONOMIC AFFAIRS • Administration of aff airs and services concern- ing construction, extension, improvement, oper- ation, and maintenance of hotels and restaurants Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
• Supervision and regulation of hotel and restau- rant operations (regulations governing prices, cleanliness, and sales practices, hotel and restau- rant licensing, etc.)

• Production and dissemination of general infor- mation, technical documentation, and statistics on hotel and restaurant aff airs and services • Grants, loans, or subsidies to support the con- struction, operation, maintenance, or upgrading of hotels and restaurants.
70473 Tourism (CS) • Administration of tourism aff airs and services; promotion and development of tourism; liaison with the transport, hotel, and restaurant indus- tries and other industries benefi ting from the presence of tourists • Operation of tourist offi ces at home and abroad, etc.
; organization of advertising campaigns, in- 70481 R&D General economic, commercial, and labor affairs (CS) • Administration and operation of government agencies engaged in applied research and ex- perimental development related to general eco- nomic, commercial, and labor aff airs • Grants, loans, or subsidies to support applied re- search and experimental development related to general economic, commercial, and labor aff airs undertaken by nongovernment bodies, such as research institutes and universities.
Excludes: basic research (70140).
70482 R&D Agriculture, forestry, ﬁ shing, and hunting (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to agriculture, for- estry, fi shing, and hunting 158 Government Finance Statistics Manual 2014 • Grants, loans, or subsidies to support applied research and experimental development related to agriculture, forestry, fi shing, and hunting un- dertaken by nongovernment bodies, such as re- search institutes and universities.
Excludes: basic research (70140).

70483 R&D Fuel and energy (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to fuel and energy • Grants, loans, or subsidies to support applied re- search and experimental development related to fuel and energy undertaken by nongovernment bodies, such as research institutes and universities.

communication undertaken by nongovernment bodies such as research institutes and universities.
Excludes: basic research (70140).

70487 R&D Other industries (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to other sectors • Grants, loans, or subsidies to support applied re- search and experimental development related to other sectors undertaken by nongovernment bod- ies, such as research institutes and universities.
Includes: distributive trades, storage, and warehous- ing; hotels and restaurants; tourism and multipurpose development projects.

Excludes: basic research (70140).

Excludes: basic research (70140).

70484 R&D Mining, manufacturing, and construction (CS) 7049 ECONOMIC AFFAIRS N.E.C.

70490 Economic affairs n.e.c.


(CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to mining, manufac- turing, and construction • Grants, loans, or subsidies to support applied research and experimental development related to mining, manufacturing, and construction un- dertaken by nongovernment bodies, such as re- search institutes and universities.

Excludes: basic research (70140).


70485 R&D Transport (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to transport • Grants, loans, or subsidies to support applied re- search and experimental development related to transport undertaken by nongovernment bodies, such as research institutes and universities.

Excludes: basic research (70140).


70486 R&D Communication (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to communication • Grants, loans, or subsidies to support applied re- search and experimental development related to • Administration, operation, or support activities relating to general and sectoral economic aff airs that cannot be assigned to (7041), (7042), (7043), (7044), (7045), (7046), (7047), or (7048).
705 ENVIRONMENTAL PROTECTION Th e breakdown of environmental protection is based upon the Classifi cation of Environmental Protection Activities (CEPA) as elaborated in the European Sys- tem for the Collection of Economic Information on the Environment (SERIEE) of the Statistical Offi ce of the European Communities (Eurostat).

7051 WASTE MANAGEMENT Th is group covers collection, treatment, and disposal of waste.
Waste collection includes sweeping of streets, squares, paths, markets, public gardens, parks, etc.

; collection of all types of waste, whether selective by type of product or undiff erentiated covering all waste, and their transport to place of treatment or discharge.
Waste treatment includes any method or process designed to change the physical, chemical, or bio- logical character or composition of any waste so as to neutralize it, to render it nonhazardous, to make it safer for transport, to make it amenable for recovery or storage, or to reduce it in volume.

Waste disposal includes fi nal placement of waste for which no further use is foreseen by landfi ll, contain- ment, underground disposal, dumping at sea, or any other relevant disposal method.
70510 Waste management (CS) • Administration, supervision, inspection, opera- tion, or support of waste collection, treatment, and disposal systems • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of such systems.

Includes: collection, treatment, and disposal of nu- clear waste.

7052 WASTE WATER MANAGEMENT Th is group covers sewage system operation and waste water treatment.
Sewage system operation includes management and construction of the system of collectors, pipe- lines, conduits, and pumps to evacuate any waste water (rainwater, domestic, and other available waste water) from the points of generation to either a sew- age treatment plant or to a point where waste water is discharged to surface water.

Waste water treatment includes any mechanical, biological, or advanced process to render waste water fi t to meet applicable environment standards or other quality norms.
70520 Waste water management (CS) • Administration, supervision, inspection, op- eration, or support of sewage systems and waste water treatment • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of such systems.

7053 POLLUTION ABATEMENT Th is group covers activities relating to ambient air and climate protection, soil and groundwater protection, noise and vibration abatement, and protection against radiation.
Th ese activities include construction, maintenance, and operation of monitoring systems and stations (other than weather stations); construction of noise embankments, hedges, and other anti-noise facilities Expense 159 including the resurfacing of sections of urban high- ways or railways with noise reducing surfaces; mea- sures to clean pollution in water bodies; measures to control or prevent the emissions of greenhouse gases and pollutants that adversely aff ect the quality of the air; construction, maintenance, and operation of in- stallations for the decontamination of polluted soils and for the storage of pollutant products; transporta- tion of pollutant products.
70530 Pollution abatement (CS) • Administration, supervision, inspection, opera- tion, or support of activities relating to pollution abatement and control • Grants, loans, or subsidies to support activities relating to pollution abatement and control.
7054 PROTECTION OF BIODIVERSITY AND LANDSCAPE Th is group covers activities relating to the protection of fauna and fl ora species (including the reintroduc- tion of extinct species and the recovery of species menaced by extinction), the protection of habitats (including the management of natural parks and re- serves), and the protection of landscapes for their aesthetic values (including the reshaping of damaged landscapes for the purpose of strengthening their aesthetic value and the rehabilitation of abandoned mines and quarry sites).
70540 Protection of biodiversity and landscape (CS) • Administration, supervision, inspection, opera- tion, or support of activities relating to the pro- tection of biodiversity and landscape • Grants, loans, or subsidies to support activities relating to the protection of biodiversity and landscape.

7055 R&D ENVIRONMENTAL PROTECTION Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
70550 R&D Environmental protection (CS) • Administration and operation of govern- ment agencies engaged in applied research and 160 Government Finance Statistics Manual 2014 experimental development related to environ- mental protection in kind to help households meet the cost of housing (71060).

• Grants, loans, or subsidies to support applied research and experimental development related to environmental protection undertaken by non- government bodies, such as research institutes and universities.
Excludes: basic research (70140).

7056 ENVIRONMENTAL PROTECTION N.E.C.

70560 Environmental protection n.e.c.
(CS) • Administration, management, regulation, super- vision, operation, and support of activities such as formulation, administration, coordination, and monitoring of overall policies, plans, programs, and budgets for the promotion of environmental pro- tection; preparation and enforcement of legislation and standards for the provision of environmental protection services; production and dissemination of general information, technical documentation, and statistics on environmental protection.
Includes: environmental protection aff airs and ser- vices that cannot be assigned to (7051), (7052), (7053), (7054), or (7055).
706 HOUSING AND COMMUNITY AMENITIES 7061 HOUSING DEVELOPMENT 70610 Housing development (CS) • Administration of housing development af- fairs and services; promotion, monitoring, and evaluation of housing development activities re- gardless of whether the activities are under the auspices of public authorities; development and regulation of housing standards • Slum clearance related to provision of housing; acquisition of land needed for construction of dwellings; construction or purchase and remod- eling of dwelling units for the general public or for people with special needs • Production and dissemination of public infor- mation, technical documentation, and statistics on housing development aff airs and services • Grants, loans, or subsidies to support the expansion, improvement, or maintenance of the housing stock.
Excludes: development and regulation of construc- tion standards (70443); cash benefi ts and benefi ts 7062 COMMUNITY DEVELOPMENT 70620 Community development (CS) • Administration of community development af- fairs and services; administration of zoning laws and land-use and building regulations • Planning of new communities or of rehabili- tated communities; planning the improvement and development of facilities such as hous- ing, industry, public utilities, health, educa- tion, culture, recreation, etc.
for communities; preparation of schemes for fi nancing planned developments • Production and dissemination of general in- formation, technical documentation, and sta- tistics on community development aff airs and services.

Excludes: plan implementation—that is, the ac- tual construction of housing, industrial buildings, streets, public utilities, cultural facilities, etc.
(clas- sifi ed according to function); agrarian reform and land resettlement (70421); administration of con- struction standards (70443) and housing standards (70610).
7063 WATER SUPPLY 70630 Water supply (CS) • Administration of water supply aff airs; assess- ment of future needs and determination of avail- ability in terms of such assessment; supervision and regulation of all facets of potable water sup- ply including water purity, price, and quantity controls • Construction or operation of nonenterprise-type of water supply systems • Production and dissemination of general infor- mation, technical documentation, and statistics on water supply aff airs and services • Grants, loans, or subsidies to support the opera- tion, construction, maintenance, or upgrading of water supply systems.
Excludes: irrigation systems (70421); multipurpose projects (70474); collection and treatment of waste water (70520).

7064 STREET LIGHTING 70640 Street lighting (CS) • Administration of street lighting aff airs; de- velopment and regulation of street lighting standards • Installation, operation, maintenance, upgrading, etc.

of street lighting.

Excludes: lighting aff airs and services associated with the construction and operation of highways (70451).
7065 R&D HOUSING AND COMMUNITY AMENITIES Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
70650 R&D Housing and community amenities (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to housing and com- munity amenities • Grants, loans, or subsidies to support applied re- search and experimental development related to housing and community amenities undertaken by nongovernment bodies, such as research in- stitutes and universities.
Excludes: basic research (70140); applied research and experimental development into construction meth- ods or materials (70484).

7066 HOUSING AND COMMUNITY AMENITIES N.E.C.

70660 Housing and community amenities n.e.c.
(CS) • Administration, operation, or support of activi- ties such as formulation, administration, coordi- nation, and monitoring of overall policies, plans, programs, and budgets relating to housing and community amenities; preparation and enforce- ment of legislation and standards relating to housing and community amenities; production and dissemination of general information, tech- nical documentation, and statistics relating to housing and community amenities.
Expense 161 cannot be assigned to (7061), (7062), (7063), (7064), or (7065).

707 HEALTH Government expenditure on health includes ex- penditure on services provided to individual per- sons and services provided on a collective basis.

Expenditure on individual services is allocated to groups (7071) through (7074); expenditure on col- lective services is assigned to groups (7075) and (7076).
Collective health services are concerned with matters such as formulation and administration of government policy; setting and enforcement of standards for medical and paramedical personnel and for hospitals, clinics, surgeries, etc.

; regulation and licensing of providers of health services; and ap- plied research and experimental development into medical and health-related matters.
However, over- head expenditure connected with administration or functioning of a group of hospitals, clinics, surger- ies, etc.

is considered to be individual expenditure and is classifi ed to groups (7071) through (7074) as appropriate.
7071 MEDICAL PRODUCTS, APPLIANCES, AND EQUIPMENT Th is group covers medicaments, prostheses, medical appliances and equipment, and other health-related products obtained by individuals or households, either with or without a prescription, usually from dispensing chemists, pharmacists, or medical equip- ment suppliers.

Th ey are intended for consump- tion or use outside a health facility or institution.
Such products supplied directly to outpatients by medical, dental, and paramedical practitioners or to in-patients by hospitals and the like are included in outpatient services (7072) or hospital services (7073).
70711 Pharmaceutical products (IS) • Provision of pharmaceutical products such as medicinal preparations, medicinal drugs, patent medicines, serums and vaccines, vitamins and minerals, cod liver oil and halibut liver oil, oral contraceptives Includes: administration, operation, or support activi- ties relating to housing and community amenities that • Administration, operation, or support of the pro- vision of pharmaceutical products.
162 Government Finance Statistics Manual 2014 70712 Other medical products (IS) 70721 General medical services (IS) • Provision of medical products such as clinical thermometers, adhesive and nonadhesive ban- dages, hypodermic syringes, fi rst-aid kits, hot- water bottles and ice bags, medical hosiery items such as elasticized stockings and knee-pads, pregnancy tests, condoms, and other mechanical contraceptive devices • Administration, operation, or support of the pro- vision of prescribed other medical products.
70713 Therapeutic appliances and equipment (IS) • Provision of therapeutic appliances and equip- ment, such as corrective eyeglasses and contact lenses, hearing aids, glass eyes, artifi cial limbs and other prosthetic devices, orthopedic braces and supports, orthopedic footwear, surgical belts, trusses and supports, neck braces, medi- cal massage equipment and health lamps, pow- ered and unpowered wheelchairs and invalid carriages, “special” beds, crutches, electronic and other devices for monitoring blood pres- sure, etc.
• Administration, operation, or support of the pro- vision of prescribed therapeutic appliances and equipment.

Includes: dentures but not fi tting costs; repair of thera- peutic appliances and equipment.

Excludes: hire of therapeutic equipment (70724).

Th is class covers the services provided by general medical clinics and general medical practitioners.
General medical clinics are defi ned as institutions that chiefl y provide outpatient services that are not limited to a particular medical specialty and that are chiefl y delivered by qualifi ed medical doctors.

Gen- eral medical practitioners do not specialize in a par- ticular medical specialty.

• Provision of general medical services • Administration, inspection, operation, or sup- port of general medical services delivered by general medical clinics and general medical practitioners.
Excludes: services of medical analysis laboratories and x-ray centers (70724).

70722 Specialized medical services (IS) Th is class covers the services of specialized medical clinics and specialist medical practitioners.

Specialized medical clinics and specialist medical practitioners diff er from general medical clinics and general medical practitioners in that their services are limited to treatment of a particular condition, disease, medical procedure, or class of patient.
• Provision of specialized medical services • Administration, inspection, operation, or sup- port of specialized medical services delivered by specialized medical clinics and specialist medical practitioners.

7072 OUTPATIENT SERVICES Includes: services of orthodontic specialists.

Th is group covers medical, dental, and paramedical services delivered to outpatients by medical, dental, and paramedical practitioners and auxiliaries.
Th e services may be delivered at home, in individual or group consulting facilities, dispensaries, or the outpa- tient clinics of hospitals and the like.

Outpatient services include the medicaments, pros- theses, medical appliances and equipment, and other health-related products supplied directly to outpa- tients by medical, dental, and paramedical practitio- ners and auxiliaries.
Medical, dental, and paramedical services provided to in-patients by hospitals and the like are included in hospital services (7073).

Excludes: dental clinics and dentists (70723); services of medical analysis laboratories and x-ray centers (70724).

70723 Dental services (IS) Th is class covers the services of general or specialist dental clinics and dentists, oral hygienists, or other dental operating auxiliaries.

Dental clinics provide outpatient services.


Th ey are not necessarily supervised or staff ed by dentists; they may be supervised or staff ed by oral hygienists or by dental auxiliaries.

• Provision of dental services to outpatients • Administration, inspection, operation, and sup- port of dental services delivered by general or specialist dental clinics and by dentists, oral hy- gienists, or other dental auxiliaries.

Includes: fi tting costs of dentures.


Excludes: dentures (70713); services of orthodontic specialists (70722); services of medical analysis labo- ratories and x-ray centers (70724).
70724 Paramedical services (IS) • Provision of paramedical health services to outpatients • Administration, inspection, operation, or support of health services delivered by clinics supervised by nurses, midwives, physiotherapists, occu- pational therapists, speech therapists or other paramedical personnel and of health services delivered by nurses, midwives, and paramedi- cal personnel in nonconsulting rooms, patients’ homes, or other nonmedical institutions.
Includes: acupuncturists, chiropodists, chiropractors, optometrists, practitioners of traditional medicine, etc.

; medical analysis laboratories and x-ray centers; hire of therapeutic equipment; medically prescribed corrective- gymnastic therapy; outpatient thermal bath or sea-water treatments; ambulance services other than ambulance services operated by hospitals.

Excludes: public health service laboratories (70740); laboratories engaged in determining the causes of dis- ease (70750).
7073 HOSPITAL SERVICES Hospitalization is defi ned as occurring when a patient is accommodated in a hospital for the duration of the treatment.

Hospital day care and home-based hospital treatment are included, as are hospices for terminally ill persons.
Th is group covers the services of general and spe- cialist hospitals, the services of medical centers, ma- ternity centers, nursing homes, and convalescent homes that chiefl y provide in-patient services, the services of military base hospitals, the services of in- stitutions serving old people in which medical moni- toring is an essential component, and the services of rehabilitation centers providing in-patient health care and rehabilitative therapy where the objective is to treat the patient rather than to provide long-term support.
Expense 163 Hospitals are defi ned as institutions that off er in- patient care under direct supervision of qualifi ed medical doctors.

Medical centers, maternity centers, nursing homes, and convalescent homes also provide in-patient care, but their services are supervised and frequently delivered by staff of lower qualifi cation than medical doctors.
Th e group does not cover facilities such as mili- tary fi eld hospitals (7021), surgeries, clinics, and dispensaries devoted exclusively to outpatient care (7072), institutions for disabled persons and reha- bilitation centers providing primarily long-term support (71012), or retirement homes for elderly persons (71020).

Neither does it cover payments to patients for loss of income due to hospitalization (71011).
Hospital services include medicaments, prosthe- ses, medical appliances and equipment, and other health-related products supplied to hospital pa- tients.

It also includes nonmedical expenditure of hospitals on administration, nonmedical staff , food and drink, accommodation (including staff accom- modation), etc.
70731 General hospital services (IS) • Provision of general hospital services • Administration, inspection, operation, or sup- port of hospitals that do not limit their services to a particular medical specialty.

Excludes: medical centers not under the direct super- vision of a qualifi ed medical doctor (70733).
70732 Specialized hospital services (IS) Specialized hospitals diff er from general hospitals in that their services are limited to treatment of a par- ticular condition, disease, or class of patient—for ex- ample, diseases of the chest and tuberculosis, leprosy, cancer, otorhinolaryngology, psychiatry, obstetrics, pediatrics, and so forth.
• Provision of specialized hospital services • Administration, inspection, operation, or sup- port of hospitals that limit their services to a par- ticular medical specialty.

Excludes: maternity centers not under the direct su- pervision of a qualifi ed medical doctor (70733).
164 Government Finance Statistics Manual 2014 70733 Medical and maternity center services (IS) • Provision of medical and maternity center Excludes: medical analysis laboratories (70724); labo- ratories engaged in determining the causes of disease (70750).

services • Administration, inspection, operation, or sup- port of medical and maternity center services.
70734 Nursing and convalescent home services (IS) Nursing and convalescent homes provide in-patient services to persons recovering from surgery or a de- bilitating disease or condition that requires chiefl y monitoring and administering of medicaments, phys- iotherapy, and training to compensate for loss of func- tion or rest.
• Provision of nursing and convalescent home services 7075 R&D HEALTH Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
70750 R&D Health (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to health • Grants, loans, and subsidies to support ap- plied research and experimental development related to health undertaken by nongovern- ment bodies, such as research institutes and universities.

• Administration, inspection, operation, or sup- port of nursing and convalescent home services.

Includes: laboratories engaged in determining the causes of disease.
Includes: institutions serving old people in which medical monitoring is an essential component; re- habilitation centers providing in-patient health care and rehabilitative therapy where the objective is to treat the patient rather than to provide long-term support.
7074 PUBLIC HEALTH SERVICES 70740 Public health services (IS) • Provision of public health services • Administration, inspection, operation, or sup- port of public health services, such as blood- bank operation (collecting, processing, storing, shipping), disease detection (cancer, tuberculo- sis, venereal disease), prevention (immunization, inoculation), monitoring (infant nutrition, child health), epidemiological data collection, family planning services, and so forth • Preparation and dissemination of information on public health matters.
• Includes: public health services delivered by special teams to groups of clients, most of whom are in good health, at workplaces, schools, or other non- medical settings; public health services not con- nected with a hospital, clinic, or practitioner; public health services not delivered by medically qualifi ed doctors; public health service laboratories.

Excludes: basic research (70140).

7076 HEALTH N.E.C.

70760 Health n.e.c.
70760 Health n.e.c.

(CS) • Administration, operation, or support of activi- ties such as formulation, administration, coordi- nation, and monitoring of overall health policies, plans, programs, and budgets; preparation and enforcement of legislation and standards for the provision of health services, including the licens- ing of medical establishments and medical and paramedical personnel; production and dissemi- nation of general information, technical docu- mentation, and statistics on health.
Includes: health aff airs and services that cannot be as- signed to (7071), (7072), (7073), (7074), or (7075).

708 RECREATION, CULTURE, AND RELIGION Government expenditure on recreation, culture, and religion includes expenditure on services provided to individual persons and households and expendi- ture on services provided on a collective basis.

Indi- vidual expenditure is allocated to groups (7081) and (7082); expenditure on collective services is assigned to groups (7083) to (7086).
Collective services are provided to the community as a whole.

Th ey include activities such as formulation and administration of government policy; formula- tion and enforcement of legislation and standards for providing recreational and cultural services; and applied research and experimental development into recreational, cultural, and religious aff airs and services.
7081 RECREATIONAL AND SPORTING SERVICES 70810 Recreational and sporting services (IS) • Provision of sporting and recreational services; administration of sporting and recreational af- fairs; supervision and regulation of sporting facilities • Operation or support of facilities for active sporting pursuits or events (playing fi elds, ten- nis courts, squash courts, running tracks, golf courses, boxing rings, skating rinks, gymnasia, etc.
); operation or support of facilities for pas- sive sporting pursuits or events (chiefl y spe- cially equipped venues for playing cards, board games, etc.

); operation or support of facilities for recreational pursuits (parks, beaches, camping grounds and associated lodging places furnished on a noncommercial basis, swimming pools, public baths for washing, etc.)

• Grants, loans, or subsidies to support teams or individual competitors or players.
Includes: facilities for spectator accommodation; na- tional, regional, or local team representation in sport- ing events.

Excludes: zoological or botanical gardens, aquaria, arboreta, and similar institutions (70820); sporting and recreational facilities associated with educational institutions (classifi ed to the appropriate class of Divi- sion 709).
7082 CULTURAL SERVICES 70820 Cultural services (IS) • Provision of cultural services; administration of cultural aff airs; supervision and regulation of cultural facilities • Operation or support of facilities for cultural pur- suits (libraries, museums, art galleries, theatres, exhibition halls, monuments, historic houses and sites, zoological and botanical gardens, aquaria, arboreta, etc.
); production, operation, or support Expense 165 of cultural events (concerts, stage and fi lm pro- ductions, art shows, etc.)

• Grants, loans, or subsidies to support individual artists, writers, designers, composers, and others working in the arts or to organizations engaged in promoting cultural activities.

Includes: national, regional, or local celebrations provided they are not intended chiefl y to attract tourists.
Excludes: cultural events intended for presentation be- yond national boundaries (70113); national, regional, or local celebrations intended chiefl y to attract tour- ists (70473); production of cultural material intended for distribution by broadcasting (70830).
7083 BROADCASTING AND PUBLISHING SERVICES 70830 Broadcasting and publishing services (CS) • Administration of broadcasting and publishing aff airs; supervision and regulation of broadcast- ing and publishing services • Operation or support of broadcasting and pub- lishing services • Grants, loans, or subsidies to support the con- struction or acquisition of facilities for televi- sion or radio broadcasting; the construction or acquisition of plant, equipment, or materials for newspaper, magazine, or book publishing; the production of material for, and its presentation by, broadcasting; the gathering of news or other information; the distribution of published works.
Excludes: government printing offi ces and plants (70133); provision of education by radio or television broadcasting (709).
7084 RELIGIOUS AND OTHER COMMUNITY SERVICES 70840 Religious and other community services (CS) • Administration of religious and other commu- nity aff airs • Provision of facilities for religious and other community services, including support for their operation, maintenance, and repair • Payment of clergy or other offi cers of religious institutions; support for the holding of religious 166 Government Finance Statistics Manual 2014 services; grants, loans, or subsidies to support fraternal, civic, youth, and social organizations or labor unions, and political parties.
7085 R&D RECREATION, CULTURE, AND RELIGION Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
70850 R&D Recreation, culture, and religion (CS) • Administration and operation of government agen- cies engaged in applied research and experimental development related to recreation, culture, and religion • Grants, loans, and subsidies to support applied research and experimental development related to recreation, culture, and religion undertaken by nongovernment bodies, such as research in- stitutes and universities.

Excludes: basic research (70140).

7086 RECREATION, CULTURE, AND RELIGION N.E.C.


70860 Recreation, culture, and religion n.e.c.
(CS) • Administration, operation, or support of activi- ties such as formulation, administration, coordi- nation, and monitoring of overall policies, plans, programs, and budgets for the promotion of sport, recreation, culture, and religion; prepara- tion and enforcement of legislation and standards for the provision of recreational and cultural ser- vices; production and dissemination of general information, technical documentation, and sta- tistics on recreation, culture, and religion.
Includes: aff airs and services relating to recreation, culture, and religion that cannot be assigned to (7081), (7082), (7083), (7084), or (7085).

709 EDUCATION Government expenditure on education includes ex- penditure on services provided to individual pupils and students and expenditure on services provided on a collective basis.

Expenditure on individual services is allocated to groups (7091) through (7096); expendi- ture on collective services is assigned to groups (7097) and (7098).
Collective educational services are concerned with matters such as formulation and administration of government policy; setting and enforcement of stan- dards; regulation, licensing, and supervision of edu- cational establishments; and applied research and experimental development into education aff airs and services.

However, overhead expenditure connected with administration or functioning of a group of schools, colleges, etc.
is considered to be individual expenditure and is classifi ed to groups (7091) through (7096) as appropriate.

Th e breakdown of education is based upon the level categories of the 1997 International Standard Classifi cation of Education (ISCED-97) of the United Nations Educational, Scientifi c and Cultural Organi- zation (UNESCO).
Th is division includes military schools and col- leges where curricula resemble those of civilian in- stitutions, police colleges off ering general education in addition to police training, and the provision of education by radio or television broadcasting.

Ex- penditure so incurred is classifi ed to groups (7091) to (7095) as appropriate.
7091 PRE-PRIMARY AND PRIMARY EDUCATION 70911 Pre-primary education (IS) • Provision of pre-primary education at ISCED-97 level 0 • Administration, inspection, operation, or sup- port of schools and other institutions providing pre-primary education at ISCED-97 level 0.

Excludes: subsidiary services to education (70960).
70912 Primary education (IS) • Provision of primary education at ISCED-97 level 1 • Administration, inspection, operation, or sup- port of schools and other institutions providing primary education at ISCED-97 level 1.

Includes: literacy programs for students too old for primary school.

Excludes: subsidiary services to education (70960).
7092 SECONDARY EDUCATION 70921 Lower-secondary education (IS) • Provision of lower-secondary education at ISCED-97 level 2 Expense 167 • Administration, inspection, operation, or sup- port of schools and other institutions providing lower-secondary education at ISCED-97 level 2 • Scholarships, grants, loans, and allowances to support students pursuing tertiary education at ISCED-97 level 5.
• Scholarships, grants, loans, and allowances to support pupils pursuing lower-secondary educa- tion at ISCED-97 level 2.

Includes: out-of-school lower-secondary education for adults and young people.

Excludes: subsidiary services to education (70960).
70922 Upper-secondary education (IS) • Provision of upper-secondary education at ISCED-97 level 3 • Administration, inspection, operation, or sup- port of schools and other institutions providing upper-secondary education at ISCED-97 level 3 • Scholarships, grants, loans, and allowances to support pupils pursuing upper-secondary educa- tion at ISCED-97 level 3.

Includes: out-of-school upper-secondary education for adults and young people.

Excludes: subsidiary services to education (70960).
7093 POST-SECONDARY NONTERTIARY EDUCATION 70930 Post-secondary nontertiary education (IS) • Provision of post-secondary nontertiary educa- tion at ISCED-97 level 4 • Administration, inspection, operation, or sup- port of institutions providing post-secondary nontertiary education at ISCED-97 level 4 • Scholarships, grants, loans, and allowances to support students pursuing post-secondary non- tertiary education at ISCED-97 level 4.
Includes: out-of-school post-secondary nontertiary education for adults and young people.

Excludes: subsidiary services to education (70960).

7094 TERTIARY EDUCATION 70941 First stage of tertiary education (IS) Excludes: subsidiary services to education (70960).
70942 Second stage of tertiary education (IS) • Provision of tertiary education at ISCED-97 level 6 • Administration, inspection, operation, or sup- port of universities and other institutions provid- ing tertiary education at ISCED-97 level 6 • Scholarships, grants, loans, and allowances to support students pursuing tertiary education at ISCED-97 level 6.

Excludes: subsidiary services to education (70960).
7095 EDUCATION NOT DEFINABLE BY LEVEL 70950 Education not deﬁ nable by level (IS) • Provision of education not defi nable by level (i.e., educational programs, generally for adults, that do not require any special prior instruction, in particular, vocational training and cultural development) • Administration, inspection, operation, or sup- port of institutions providing education not de- fi nable by level • Scholarships, grants, loans, and allowances to support students pursuing education programs not defi nable by level.
7096 SUBSIDIARY SERVICES TO EDUCATION 70960 Subsidiary services to education (IS) • Provision of subsidiary services to education • Administration, inspection, operation, or sup- port of transportation, food, lodging, medical and dental care, and related subsidiary services chiefl y for students regardless of level.
Excludes: school health monitoring and prevention services (70740); scholarships, grants, loans, and al- lowances in cash to defray the costs of subsidiary ser- vices (7091), (7092), (7093), (7094), or (7095).
• Provision of tertiary education at ISCED-97 level 5 7097 R&D EDUCATION • Administration, inspection, operation, or sup- port of universities and other institutions provid- ing tertiary education at ISCED-97 level 5 Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
168 Government Finance Statistics Manual 2014 70970 R&D Education (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to education • Grants, loans, and subsidies to support applied research and experimental development related to education undertaken by nongovernment bod- ies, such as research institutes and universities.

Excludes: basic research (70140).

7098 EDUCATION N.E.C.

70980 Education n.e.c.


(CS) • Administration, operation, or support of activi- ties such as formulation, administration, coor- dination, and monitoring of overall educational policies, plans, programs, and budgets; prepara- tion and enforcement of legislation and standards for the provision of education, including licens- ing of educational establishments; production and dissemination of general information, tech- nical documentation, and statistics on education.
Includes: education aff airs and services that cannot be assigned to (7091), (7092), (7093), (7094), (7095), (7096), or (7097).

710 SOCIAL PROTECTION Government expenditure on social protection in- cludes expenditure on services and transfers provided to individual persons and households and expenditure on services provided on a collective basis.
Expenditure on individual services and transfers are allocated to groups (7101) through (7107); expenditure on collec- tive services is assigned to groups (7108) and (7109).

Collective social protection services are concerned with matters such as formulation and administration of government policy; formulation and enforcement of legislation and standards for providing social pro- tection; and applied research and experimental devel- opment into social protection aff airs and services.
Th e social protection functions and their defi nitions are based on the 2008 European System of Integrated Social Protection Statistics (ESSPROS) of the Statisti- cal Offi ce of the European Communities (Eurostat).

In ESSPROS, social protection includes health care, but this division does not include health care.

Health care is covered by Division 707.


Hence, medical goods and services provided to persons who receive the cash benefi ts and benefi ts in kind specifi ed in groups (7101) through (7107) are classifi ed under (7071), (7072), or (7073) as appropriate.
7101 SICKNESS AND DISABILITY 71011 Sickness (IS) • Provision of social protection in the form of cash benefi ts or benefi ts in kind that replace in whole or in part loss of earnings during a temporary in- ability to work due to sickness or injury • Administration, operation, or support of such social protection schemes • Cash benefi ts, such as fl at-rate or earnings- related sick leave payments and miscellaneous payments provided to help persons temporarily unable to work due to sickness or injury • Benefi ts in kind, such as assistance with daily tasks provided to persons temporarily unable to work due to sickness or injury (home help, trans- port facilities, etc.).
71012 Disability (IS) • Provision of social protection in the form of cash benefi ts or benefi ts in kind to persons who are fully or partially unable to engage in economic activity or lead a normal life due to a physical or mental impairment that is either permanent or likely to persist beyond a minimum prescribed period • Administration, operation, or support of such social protection schemes • Cash benefi ts, such as disability pensions paid to persons below the standard retirement age who encounter a disability that impairs their ability to work, early retirement benefi ts paid to older workers who retire before reaching the standard retirement age due to reduced capacity to work, care allowances, allowances paid to disabled per- sons undertaking work adapted to their condi- tion or undergoing vocational training, and other periodic or lump-sum payments paid to disabled persons for social protection reasons • Benefi ts in kind, such as lodging and possibly board provided to disabled persons in appropriate establishments, assistance provided to disabled persons to help them with daily tasks (home help, transport facilities, etc.
), allowances paid to the person who looks aft er the disabled person, voca- tional and other training provided to further the occupational and social rehabilitation of disabled persons, and miscellaneous services and goods provided to disabled persons to enable them to Expense 169 participate in leisure and cultural activities or to travel or to participate in community life.
son’s spouse, ex-spouse, children, grandchildren, parents, or other relatives) Excludes: cash benefi ts and benefi ts in kind paid to disabled persons on reaching the standard retirement age (71020).

7102 OLD AGE 71020 Old age (IS) • Provision of social protection in the form of cash benefi ts and benefi ts in kind against the risks linked to old age (loss of income, inadequate in- come, lack of independence in carrying out daily tasks, reduced participation in social and com- munity life, etc.)
• Administration, operation, or support of such social protection schemes • Cash benefi ts, such as old-age pensions paid to persons on reaching the standard retirement age, anticipated old-age pensions paid to older work- ers who retire before the standard retirement age, partial retirement pensions paid either before or aft er the standard retirement age to older work- ers who continue working but reduce their work- ing hours, care allowances, and other periodic or lump-sum payments paid upon retirement or on account of old age • Benefi ts in kind, such as lodging and sometimes board provided to elderly persons either in spe- cialized institutions or staying with families in appropriate establishments, assistance provided to elderly persons to help them with daily tasks (home help, transport facilities etc.
), allowances paid to the person who looks aft er an elderly person, and miscellaneous services and goods provided to elderly persons to enable them to participate in leisure and cultural activities or to travel or to participate in community life.

Includes: pension schemes for military personnel and for government employees.

Excludes: early retirement benefi ts paid to older work- ers who retire before reaching standard retirement age due to disability (71012) or unemployment (71050).
7103 SURVIVORS 71030 Survivors (IS) • Provision of social protection in the form of cash benefi ts and benefi ts in kind to persons who are survivors of a deceased person (such as the per- • Administration, operation, or support of such social protection schemes • Cash benefi ts, such as survivors’ pensions, death grants, and other periodic or lump-sum pay- ments to survivors • Benefi ts in kind, such as payments toward fu- neral expenditure and miscellaneous services and goods provided to survivors to enable them to participate in community life.
7104 FAMILY AND CHILDREN 71040 Family and children (IS) • Provision of social protection in the form of cash benefi ts and benefi ts in kind to households with dependent children • Administration, operation, or support of such social protection schemes • Cash benefi ts, such as maternity allowances, birth grants, parental leave benefi ts, family or child allowances, and other periodic or lump- sum payments to support households and help them meet the costs of specifi c needs (e.g., those of the lone parent families or families with hand- icapped children) • Benefi ts in kind, such as shelter and board pro- vided to preschool children during the day or part of the day, fi nancial assistance toward pay- ment of a nurse to look aft er children during the day, shelter and board provided to children and families on a permanent basis (orphanages, fos- ter families, etc.
), goods and services provided at home to children or to those who care for them, and miscellaneous services and goods provided to families, young people, or children (holiday and leisure centers).

Excludes: family planning services (70740).
7105 UNEMPLOYMENT 71050 Unemployment (IS) • Provision of social protection in the form of cash benefi ts and benefi ts in kind to persons who are capable of work and available for work but are unable to fi nd suitable employment • Administration, operation, or support of such social protection schemes • Cash benefi ts, such as full and partial unemploy- ment benefi ts, early retirement benefi ts paid to 170 Government Finance Statistics Manual 2014 older workers who retire before reaching the standard retirement age due to unemployment or job reduction caused by economic measures, allowances to targeted groups in the labor force who take part in training schemes intended to develop their potential for employment, re- dundancy compensation, and other periodic or lump-sum payments to the unemployed, partic- ularly the long-term unemployed • Benefi ts in kind, such as mobility and resettle- ment payments, vocational training provided to persons without a job or retraining provided to persons at risk of losing their job, and accommo- dation, food, or clothes provided to unemployed persons and their families.
Excludes: general programs or schemes directed to- ward increasing labor mobility, reducing the rate of unemployment or promoting the employment of disadvantaged or other groups characterized by high unemployment (70412); cash benefi ts and benefi ts in kind paid to unemployed persons on reaching the standard retirement age (71020).
7106 HOUSING 71060 Housing (IS) • Provision of social protection in the form of benefi ts in kind to help households meet the cost of hous- ing (recipients of these benefi ts are means-tested) • Administration, operation, or support of such social protection schemes • Benefi ts in kind, such as payments made on a temporary or long-term basis to help tenants with rent costs, payments to alleviate the current housing costs of owner-occupiers (i.e., to help with paying mortgages or interest), and provi- sion of low-cost or social housing.
7107 SOCIAL EXCLUSION N.E.C.

71070 Social exclusion n.e.c.

(IS) • Provision of social protection in the form of cash benefi ts and benefi ts in kind to persons who are socially excluded or at risk of social exclusion (such as persons who are destitute, low-income earners, immigrants, indigenous people, refu- gees, alcohol and substance abusers, victims of criminal violence, etc.)
• Administration and operation of such social pro- tection schemes • Cash benefi ts, such as income support and other cash payments to the destitute and vulnerable persons to help alleviate poverty or assist in dif- fi cult situations • Benefi ts in kind, such as short-term and long- term shelter and board provided to destitute and vulnerable persons, rehabilitation of alcohol and substance abusers, and services and goods to help vulnerable persons, such as counseling, day shelter, help with carrying out daily tasks, food, clothing, fuel, etc.
7108 R&D SOCIAL PROTECTION Defi nitions of basic research, applied research, and experimental development are given under (7014) and (7015).
71080 R&D Social protection (CS) • Administration and operation of government agencies engaged in applied research and experi- mental development related to social protection • Grants, loans, and subsidies to support applied research and experimental development related to social protection undertaken by nongovern- ment bodies, such as research institutes and universities.

Excludes: basic research (70140).

7109 SOCIAL PROTECTION N.E.C.

71090 Social protection n.e.c.


(CS) • Administration, operation, or support of ac- tivities such as formulation, administration, coordination, and monitoring of overall social protection policies, plans, programs, and bud- gets; preparation and enforcement of legislation and standards for the provision of social protec- tion; production and dissemination of general information, technical documentation, and sta- tistics on social protection.
Includes: provision of social protection in the form of cash benefi ts and benefi ts in kind to victims of fi res, fl oods, earthquakes, and other peacetime disasters; purchase and storage of food, equipment, and other supplies for emergency use in the case of peacetime disasters; other social protection aff airs and services that cannot be assigned to (7101), (7102), (7103), (7104), (7105), (7106), (7107), or (7108).
7 The Balance Sheet Th is chapter and the following three chapters are con- cerned with the stock position and fl ows of assets and liabilities.

Th is chapter defi nes assets, liabilities, and net worth, and describes their classifi cation and the various balance sheet memorandum items.
Introduction 7.1 A balance sheet is a statement of the values of the stock positions of assets owned and of the liabilities owed by an institutional unit or group of units, drawn up in respect of a particular point in time.1 A balance sheet is typically compiled at the end of each report- ing period, which is also the beginning of the next re- porting period.

In a macroeconomic statistics balance sheet, a distinction is made between nonfi nancial as- sets, fi nancial assets, liabilities, and net worth.
Th e net worth of an institutional unit (or grouping of units) is the total value of its assets minus the total value of its liabilities.

As for all other balance sheet items, net worth can also be viewed as a stock position resulting from the transactions and other economic fl ows of all previous periods.
A highly abbreviated version of a balance sheet is shown in Table 7.1.2 7.2 Th e existence of a set of balance sheets inte- grated with the fl ows enables analysts to take a com- prehensive view when monitoring and assessing economic and fi nancial conditions and the behavior of public sector units.

Balance sheet information on fi nancial assets held by, and liabilities owed to, other entities supports the analysis of the fi nancial risks and vulnerabilities of the general government or public sector.
Similarly, with regard to claims and li- 1 A balance sheet can be compiled for an individual unit or any collection of units, such as the general government or public sec- tor, or their subsectors.

It is oft en convenient to describe a balance sheet in reference to a single institutional unit, but any such state- ment applies equally to the balance sheet of a sector or subsector.

2 Table 4.4 shows a presentation of a balance sheet that displays the same information presented in an alternative format.
abilities on nonresidents, balance sheets support the assessment of the general government’s share in the external debtor and creditor position of a country.

For public corporations, balance sheets permit the computation of widely used fi nancial ratios, while data on the stock position of fi xed assets are useful in studies of their investment behavior and needs for fi nancing.
7.3 Th is chapter fi rst defi nes assets and liabilities in general and the two major types of assets, fi nan- cial and nonfi nancial assets.

Th e following section describes the principles used to value assets and lia- bilities.

Th e chapter then describes the detailed classi- fi cation of assets and liabilities and the types of assets and liabilities included in each category of the clas- sifi cation.
Th e fi nal sections describe net worth, rec- ommended memorandum items, and a supplemental cross-classifi cation of fi nancial assets or liabilities by sector of the counterparty.

Deﬁ ning Assets and Liabilities 7.4 Th is section describes economic and legal own- ership of an asset, as well as the asset boundary used in GFS and other macroeconomic statistics.

Th ese concepts are then used to defi ne liabilities, fi nancial assets, and nonfi nancial assets.
Ownership and the Asset Boundary 7.5 Two types of ownership can be distinguished in macroeconomic statistics: legal ownership and eco- nomic ownership (see paragraphs 3.38–3.41).

Legal and economic ownership are usually the same but dif- fer in a few cases (e.g., fi nancial leases discussed in paragraph 7.158).
• Th e legal owner of resources, such as goods and services, natural resources, fi nancial assets, and liabilities, is the institutional unit entitled by law and sustainable under the law to claim the 172 Government Finance Statistics Manual 2014 Table 7.1 Balance Sheet Assets Nonﬁ nancial assets1 Financial assets1 Total assets1 Memorandum items Opening balance Closing balance Liabilities and net worth Opening balance Closing balance Liabilities1 Net worth Total liabilities and net worth 1Classiﬁ ed by categories of assets and liabilities as needed.
benefi ts associated with the resources.

Only if such resources have a legal owner, either on an individual or collective basis, are they recognized in macroeconomic statistics.

• Th e economic owner of resources, such as goods and services, natural resources, fi nancial assets, and liabilities, is the institutional unit entitled to claim the benefi ts associated with the use of these resources by virtue of accepting the associated risks.
7.6 As defi ned in paragraph 3.42, an asset is a store of value representing a benefi t or series of benefi ts ac- cruing to the economic owner by holding or using the resource over a period of time.

It is a means of carrying forward value from one reporting period to another.

Only economic assets are recorded in the macroeconomic statistical systems (i.e., included within the asset boundary), and they appear in the balance sheet of the unit that is the economic owner of the asset.
Economic assets are those resources (i) over which economic ownership rights are enforced by institutional units, individually or collectively, and (ii) from which economic benefi ts may be derived by their owners by holding them or using them over a period of time (see paragraph 4.43).

7.7 Every economic asset provides benefi ts by functioning as a store of value.

In addition: • Some benefi ts are derived by using assets, such as buildings or machinery, in the production of goods and services.
• Some benefi ts consist of property income, such as interest, dividends, and rent receivable by the owners of fi nancial assets, land, and other non- produced assets.

7.8 When ownership rights are established and en- forced, the resource is an economic asset regardless of who receives the benefi ts.

For example, a government may own land in a national park with the intention that its benefi ts accrue directly to the community at large.
7.9 To be an economic asset, a resource must also be able to supply economic benefi ts given the technol- ogy, scientifi c knowledge, economic infrastructure, available resources, and relative prices existing at a given time or expected in the foreseeable future.

Th us, a known deposit of minerals is an economic asset only if it is already commercially exploitable or is expected to become commercially exploitable in the foreseeable future.
7.10 Some resources are not economic assets if ownership rights over them have not been established or are not enforced.

For example, it may not be feasi- ble to establish ownership rights over the atmosphere and certain other naturally occurring assets.
In other cases, ownership rights may be established, but it may not be feasible to enforce them, such as government- owned land that is so remote or inaccessible that the government cannot exercise eff ective control over it or the government chooses not to enforce its ownership rights.

In such cases, it can be a matter of judgment as to whether the degree of control exercised by the government is suffi cient for the land to be classifi ed as an economic asset.
Nonetheless, even if ownership rights can be enforced, if the assets are not capable of bringing any economic benefi ts to their owners, they should be excluded.

7.11 Governments use assets to produce goods and services much like corporations.

For example, offi ce buildings, together with the services of government employees, offi ce equipment, and other goods and services, are used to produce collective or individual services, such as general administrative services.
In addition, however, governments oft en own assets whose services are consumed directly by the general public and assets that need to be preserved because of their historic or cultural importance.

Th us, when the asset boundary is applied to the general govern- ment sector, it oft en incorporates a wider range of as- sets than is normally owned by a private organization.
Th at is, government units frequently own: • General-purpose assets, which are assets that other units would be likely to possess and use in similar ways, such as schools, road-building equipment, fi re engines, offi ce buildings, furni- ture, and computers • Infrastructure assets, which are immovable non- fi nancial assets that generally do not have al- ternative uses and whose benefi ts accrue to the community at large; examples are streets, high- ways, lighting systems, bridges, communication networks, canals, and dikes • Heritage assets, which are assets that a govern- ment intends to preserve indefi nitely because they have unique historic, cultural, educational, artistic, or architectural signifi cance.
7.12 In some cases, governments can create eco- nomic assets by exercising their sovereign powers or other powers delegated to them.
For example, a gov- ernment may have the authority to assert ownership rights over naturally occurring assets that otherwise would not be subject to ownership, such as the elec- tromagnetic spectrum and natural resources in inter- national waters subject to designation as an exclusive economic zone.3 Th ese assets are economic assets only if the government uses its authority to establish and enforce ownership rights.
7.13 Only actual (outstanding) liabilities (and their corresponding assets) are included in the bal- ance sheet.

Contingent assets and liabilities are not recognized as fi nancial assets and liabilities prior to the condition(s) being fulfi lled.

Explicit contingent li- abilities are discussed in paragraphs 7.251–7.260.
• Amounts set aside in business accounting as pro- visions to provide for a unit’s future liabilities, either certain or contingent, or for a unit’s future expenditures, are not recognized in the macro- economic statistical systems.

However, amounts accrued and not yet due for payment (such as 3 Exclusive economic zones are the area of sea and seabed extend- ing from the shore of a country claiming exclusive rights to them.

The Balance Sheet 173 employment-related pension “provisions”) are liabilities.
• No liability is recognized on the balance sheet for government’s implicit obligations to pay so- cial security benefi ts, such as unemployment, old age pensions, and health care, in the future (see Appendix 2).

However, it is recommended to in- clude net implicit obligations for social security benefi ts as a memorandum item to the balance sheet (see paragraph 7.261).
• Lines of credit, letters of credit, and loan com- mitments assure funds will be made available in the future, but no fi nancial asset (and liability) in the form of a loan is created until funds are actu- ally advanced.

• Uncalled share capital is contingent until there is an obligation to pay the amount.
• Environmental liabilities, which are probable and measurable estimates of future environmen- tal cleanup, closure, and disposal costs other than those included in costs of ownership transfer (see paragraphs 8.6–8.8), are not recognized.4 Deriving Deﬁ nitions for Assets and Liabilities 7.14 Th is section defi nes liabilities and fi nancial claims, from which it then derives the defi nitions of fi nancial and nonfi nancial assets.
7.15 As defi ned in paragraph 3.45, a liability is established when one unit (the debtor) is obliged, under specifi c circumstances, to provide funds or other resources to another unit (the creditor).

Nor- mally, a liability is established through a legally bind- ing contract that specifi es the terms and conditions of the payment(s) to be made, and payment according to the contract is unconditional.

Whenever a liabil- ity exists, the creditor has a corresponding fi nancial claim on the debtor.
A fi nancial claim is an asset that typically entitles the owner of the asset (the creditor) to receive funds or other resources from another unit, under the terms of a liability.

Like liabilities, fi nancial claims are unconditional.

Financial claims consist of 4 An example is an agreement to perform cleanup (i.e., removal, containment, and disposal) of hazardous waste that resulted from government operations.
Where terminal costs are part of costs of ownership transfer, these costs are written off through consump- tion of fi xed capital over the whole life of the asset.

Terminal costs are discussed in paragraphs 6.60 and 8.6.

174 Government Finance Statistics Manual 2014 debt instruments (see paragraph 7.236), fi nancial de- rivatives and employee stock options, and equity and investment fund shares.
• Debt instruments are fi nancial instruments that typically are created when one unit provides funds or other resources (e.g., goods in the case of trade credit) to a second unit and the second unit agrees to provide a return in the future.

Debt liabilities can also be created by the force of law,5 and by events that require future transfer of pay- ments.6 For a liability to be considered debt it must exist and be outstanding.
• In contrast, fi nancial derivatives are fi nancial instruments of which the underlying contracts involve risk transfer.

Th us, rather than supplying funds or other resources, a derivative contract shift s the exposure to the eff ect of a change in the value of an item between the parties, with- out a change in ownership of that item.

Employee stock options share some of the risk elements of fi nancial derivatives, but are also designed to be a form of remuneration.
• Equity and investment fund shares issued by cor- porations and similar legal forms of organization are treated as liabilities of the issuing units even though the holders of the claims do not have a fi xed or predetermined monetary claim on the corporation.

Equity and investment fund shares do, however, entitle their owners to benefi ts in the form of dividends and other ownership distribu- tions, and they oft en are held with the expectation of receiving holding gains.
In the event the issu- ing unit is liquidated, shares and other equities be- come claims on the residual value of the unit aft er the claims of all creditors have been met.

If a public corporation has formally issued shares or another form of equity, then the shares are a liability of that corporation and an asset of the government or other unit that owns them.

If a public corporation has not issued any type of share, then the value of other equity is estimated (see paragraph 7.173).
• Monetary gold in the form of bullion is not a fi - nancial claim, because it is not the liability of any 5 Th ese liabilities could include those arising from taxes, penalties (including penalties arising from commercial contracts), and judicial awards at the time they are imposed.

6 Th ese include claims on nonlife insurance companies, claims for damages not involving nonlife insurance companies, and claims arising from lottery and gambling activity.

other unit.
other unit.

Monetary gold does, however, provide economic benefi ts by serving as a store of value and a means of international payment to settle fi nancial claims and fi nance other types of trans- actions.

As a result, monetary gold in the form of bullion is, by convention, treated as a fi nancial asset.

Monetary gold in the form of unallocated gold accounts is a fi nancial claim and, therefore, a liability of another unit in the form of currency and deposits (see paragraph 7.139).
7.16 Financial assets consist of fi nancial claims plus gold bullion held by monetary authorities7 as a reserve asset.

7.17 Nonfi nancial assets are economic assets other than fi nancial assets.

Th e main categories of nonfi - nancial assets are: produced assets (such as fi xed as- sets, inventories, and valuables) and nonproduced assets (such as natural resources, contracts, leases, and licenses, and goodwill and marketing assets).
Nonfi nancial assets are stores of value and provide benefi ts either through their use in the production of goods and services or in the form of property income.

Unlike fi nancial claims, nonfi nancial assets have no counterpart liability—that is, the owner of the non- fi nancial asset does not have a claim on another in- stitutional unit.

Nonfi nancial assets may come into existence as the output from a production process, or in other ways, such as natural occurrences.
7.18 Produced assets are classifi ed as fi xed assets, inventories, or valuables: • Fixed assets are produced assets that are used re- peatedly or continuously in production processes for more than one year.

Fixed assets are discussed in paragraphs 7.35–7.74.

• Inventories are produced assets consisting of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production, or other use at a later date.
Inventories are discussed in paragraphs 7.75–7.86.

• Valuables are produced assets of considerable value that are not used primarily for purposes of production or consumption, but are held primarily 7 Government units typically do not fulfi ll functions of monetary authorities and thus would not hold fi nancial assets in the form of gold bullion.

as stores of value over time.

Valuables are discussed in paragraphs 7.87–7.89.


7.19 Naturally occurring assets and constructs of society are both referred to as nonproduced assets (see paragraph 7.90).

Naturally occurring assets in- clude land, subsoil mineral deposits, fi sh in open but territorial waters, and the radio spectrum when own- ership rights are enforced.

Constructs of society that are assets include some contracts, leases, and licenses, as well as goodwill and marketing assets.
Valuation of Assets and Liabilities 7.20 As discussed in paragraph 3.113, stock posi- tions of assets and liabilities should be valued at mar- ket value—that is, as if they were acquired in market transactions on the balance sheet reporting date (refer- ence date).

Th erefore, the value of an asset at any given time is its current market value, which is the amount that would have to be paid to acquire the asset on the reporting date, taking into account its age, condition, and other relevant factors.
Th is amount depends on the economic benefi ts that the owner of the asset can derive by holding or using it.

Th e remaining benefi ts expected to be received from most assets diminish with the passage of time, which will reduce the value of the asset.

Th e remaining benefi ts of some assets, such as valuables, may increase with the passage of time.

Th e value of the remaining benefi ts may also increase or decrease because of changes in economic conditions.
7.21 In addition to current market value, the nom- inal value (see paragraph 3.115) of fi nancial instru- ments is also useful for some purposes.

Th is value is typically established by reference to the terms of a contract between the debtor and creditor.
Th e nomi- nal value of a debt instrument refl ects the value of the debt at creation plus any subsequent economic fl ows, such as transactions (e.g., accrual of interest or repay- ment of principal), exchange rate and other valuation changes other than market price changes,8 and other volume changes.

7.22 Th e current market value for nonfi nancial assets (except land) includes all costs of ownership transfer and for fi nancial assets excludes these costs.

For more details, see paragraphs 8.6–8.8.


8 Accumulated revaluations arising from market price changes reconcile nominal value with market value.

The Balance Sheet 175 7.23 Th e value of fi nancial assets and liabilities denominated in foreign currencies should be con- verted to the domestic currency as discussed in paragraph 3.119.

7.24 Ideally, observable market prices should be used to value all assets and liabilities in a balance sheet.
However, in estimating the current market price for balance sheet valuation, a price averaged over all trans- actions in a market can be used if the market is one on which the items in question are regularly, actively, and freely traded.
When there are no observable prices be- cause the items in question have not been purchased or sold on the market in the recent past, an attempt has to be made to estimate what the prices would be were the assets to be acquired on the market on the date to which the balance sheet relates.

Such estimates may be ob- tained by (i) accumulating and revaluing transactions, or (ii) estimating the present value of future returns.
Th ese two methods, together with values observed in markets, are discussed in paragraphs 7.26–7.33.

7.25 Th e following paragraphs describe possible methods of estimating current market prices.

Addi- tional guidance on the valuation of specifi c types of assets and liabilities is included in the relevant parts of the section that describes the classifi cation of assets and liabilities.
Because the valuation of liabilities is the same as the valuation of the corresponding fi nancial assets, in most cases, the remainder of this chapter will refer only to fi nancial assets, but such references should be read as including liabilities equally.

GFS compilers are typically not expected to independently derive the market values of assets and liabilities; they should evaluate what is available and how that infor- mation could be used in the GFS balance sheet.
Value Observed in Markets 7.26 Th e ideal source of price observations for valuing balance sheet items is a market, like the stock exchange, in which each asset traded is completely homogeneous, is oft en traded in considerable volume, and has its market price listed at regular intervals.
Such markets yield data on prices that can be multi- plied by indicators of quantity in order to compute the total market value of diff erent classes of assets held by sectors and of diff erent classes of their liabilities.
7.27 For securities quoted on a stock exchange, for example, it is feasible to gather the prices of individual assets and of broad classes of assets and, in addition, 176 Government Finance Statistics Manual 2014 to determine the global valuation of all the existing securities of a given type.
Debt securities traded (or tradable) in organized and other fi nancial markets— such as bills, bonds, debentures, negotiable certifi - cates of deposits, asset-backed securities, etc.—should be valued at market value and, in the case of liabilities, at nominal value as well.9 In some countries, another example of a market in which assets may be traded in suffi cient numbers to provide useful price informa- tion is the market for existing dwellings.
7.28 If assets of the same kind are being produced and sold on the market, an existing asset may be val- ued at the current market price of a newly produced asset adjusted for consumption of fi xed capital in the case of fi xed assets, and any other diff erences between the existing asset and a newly produced asset.
Th is ad- justment for consumption of fi xed capital should be calculated on the basis of the asset prices prevailing on the balance sheet reference date rather than the actual amounts previously recorded as an expense.10 7.29 In addition to providing direct observations on the prices of assets actually traded there, information from such markets may also be used to price similar assets that are not traded.
For example, information from the stock exchange also may be used to price unlisted shares by analogy with similar, listed shares, making some allowance for the inferior marketability of the unlisted shares.

Similarly, independent apprais- als of assets for insurance or other purposes generally are based on observed prices for items that are close substitutes, although not identical, and this approach can be used for balance sheet valuation.
7.30 Debt instruments other than debt securities (as well as the corresponding fi nancial assets in the form of debt instruments) are normally not traded and, therefore, lack generally observable market val- ues.
Th is means that these values have to be estimated by using the nominal value as a proxy (see paragraph 7.122).11 • Nontraded debt instruments: Debt instruments (as well as the corresponding fi nancial assets in the form of debt instruments) not generally traded 9 Nominal and market valuation are discussed in paragraphs 3.113–3.117.

For a numerical examples on the calculation of interest and nominal value, see Boxes 2.3–2.5 in the PSDS Guide.
10 Amounts previously recorded as expense are based on the aver- age prices of the asset over the reporting period.

11 See the PSDS Guide, Chapter 2.

(or tradable) in organized or other fi nancial markets—namely, loans, currency and deposits, and other accounts payable/receivable—should be valued at nominal value.
Th e nominal value of a debt instrument could be less than the originally advanced amount if there have been repayments of principal, debt forgiveness, or other economic fl ows (such as arising from indexation) that aff ect the value of the amount outstanding.

Th e nomi- nal value of a debt instrument could be more than originally advanced because of, for example, the accrual of interest or other economic fl ows.
• Debt instruments that do not accrue interest: For debt instruments (as well as the corresponding fi nancial assets in the form of debt instruments) that do not accrue interest—for example, most trade credit and advances—the nominal value is the amount owed by the debtor to the creditor at the balance sheet date.
If there is an unusually long time before payment is due on an outstand- ing debt liability on which no interest accrues, the value of the principal should be reduced by an amount that refl ects the time to maturity and an appropriate existing contractual rate, such as for similar debt instruments (see also paragraph 3.118).
• Repayment specifi ed in terms of commodities or other goods: For some instruments, such as a loan, repayment may be specifi ed in a contract in terms of commodities or other goods deliverable in installments over a period of time.

At incep- tion, the value of the debt (as well as the cor- responding fi nancial assets in the form of debt instruments) is equal to the principal advanced.
When payments are made in the form of the good or commodity, the value of the principal outstanding will be reduced by the market value of the good or commodity at the time the pay- ment is made.
• Extinguishing a trade credit under barter ar- rangements: Th e value of the commodities, other goods, or services to be provided for extinguish- ing a trade credit liability (and the correspond- ing fi nancial asset) under barter arrangements is established at the creation of the debt—that is, when the exchange of value occurred.
However, as noted earlier, if there is an unusually long time before payment, the value of the principal should be reduced by an amount that refl ects the time to The Balance Sheet 177 maturity and an appropriate existing contractual rate, and interest should accrue until actual pay- ment is made.

costs (appropriately revalued using a relevant specifi c or commodity price index) minus an al- lowance for depletion.
• Nontraded debt instruments with uncertain nominal values: For nontraded debt instruments (as well as the corresponding fi nancial assets in the form of debt instruments) where the nomi- nal value is uncertain, the nominal value can be calculated by discounting future interest and principal payments at an appropriate existing contractual rate of interest.
Value Obtained by Accumulating and Revaluing Transactions 7.31 In the absence of observable market prices, the balance sheet value of an asset may be obtained by accumulating and revaluing transactions.

Th e values of most nonfi nancial assets change, refl ecting changes in market prices.
At the same time, initial acquisition costs are reduced by consumption of fi xed capital12 (in the case of fi xed assets) or amortization or deple- tion13 (in the case of other nonfi nancial assets) over the expected life of the asset.

In principle, the value of such a nonfi nancial asset at a given point in its life is given by the current acquisition price of an equiva- lent new asset minus the accumulated consumption of fi xed capital, amortization, or depletion.
Th is valu- ation is referred to as the written-down replacement cost.

When reliable, directly observed market prices for used assets are not available, applying this method gives a reasonable approximation of what the market price would be, were the asset off ered for sale.

For ex- ample, the principle could be applied as follows for these assets: • In the absence of observed market values, most fi xed assets are recorded in the balance sheet at their written-down replacement cost.
• Intangible nonproduced assets, such as goodwill and marketing assets, are typically valued at their initial acquisition costs minus an allowance for amortization.

For this method, a pattern of de- cline must be chosen, which may be based on tax laws and accounting conventions.

• It may be possible to value subsoil and other nat- urally occurring assets at their initial acquisition 12 See Box 6.1 for guidance on the calculation of consumption of fi xed capital.

13 See paragraph 10.52.


7.32 Th e perpetual inventory method (PIM) is commonly used to estimate the written-down replace- ment cost of a category of assets, especially tangible fi xed assets.

With this method, the value of the stock is based on estimates of acquisitions and disposals that have been accumulated (aft er deduction of the accu- mulated consumption of fi xed capital, amortization, or depletion) and revalued over a long enough period to cover the acquisition of all assets in the category.
Th e PIM may be viewed as the macro equivalence of an asset register: the PIM does these calculations for large groups of assets, while an asset register does them for individual assets or asset types.14 Present Value of Future Returns 7.33 In some cases, current market prices may be approximated by the present value15 of the future economic benefi ts expected from a given asset.

Th is method may be feasible for a number of fi nancial assets, naturally occurring assets, and intangible as- sets.
For example, timber and subsoil assets are assets whose benefi ts are normally receivable well in the fu- ture and/or spread over several years.

Current prices can also be approximated by net present value when there are costs of bringing assets to the market.

Th e economic benefi t and costs can be discounted to esti- mate the net present value of the asset.
Classiﬁ cation of Assets and Liabilities Nonﬁ nancial Assets (61)16 7.34 At the fi rst level of classifi cation, there are four categories of nonfi nancial assets.

Th e fi rst three categories are produced assets—fi xed assets (611), in- ventories (612), and valuables (613)—and the fourth consists of all nonproduced assets (614).
Th e summary 14 For details on the PIM, see Organisation for Economic and Co- operation and Development, Measuring Capital—OECD Manual: Measurement of Capital Stocks, Consumption of Fixed Capital and Capital Services (Paris, 2009).

15 Present value is the value today of a future payment or stream of payments discounted at some appropriate compounded interest rate.
It is also referred to as the “time value of money” or “dis- counted cash fl ow.” 16 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.

Appendix 8 provides all classifi - cation codes used in GFS.
178 Government Finance Statistics Manual 2014 Table 7.2 Summary Classiﬁ cation of Nonﬁ nancial Assets 61 611 6111 61111 61112 61113 61114 6112 61121 61122 6113 61131 61132 6114 612 613 614 6141 6142 6143 61431 61432 61433 6144 61441 61442 Nonﬁ nancial assets Fixed assets Buildings and structures Dwellings Buildings other than dwellings Other structures Land improvements Machinery and equipment Transport equipment Machinery and equipment other than transport equipment Other ﬁ xed assets Cultivated biological resources Intellectual property products Weapons systems Inventories Valuables Nonproduced assets Land Mineral and energy resources Other naturally occurring assets Noncultivated biological resources Water resources Other natural resources Intangible nonproduced assets Contracts, leases, and licenses Goodwill and marketing assets classifi cation of nonfi nancial assets is shown in Table 7.2; more detailed classifi cations of these cat- egories are provided in the discussions of the various types of fi xed assets, where relevant.17 Fixed assets (611) 7.35 Fixed assets (611) are produced assets that are used repeatedly or continuously in production processes for more than one year.
Th e distinguishing feature of a fi xed asset is not that it is durable in some physical sense, but that it may be used repeatedly or continuously in production over a long period of time, which is taken to be more than one year (by con- vention).
Some goods, such as coal used as fuel, may be highly durable physically but cannot be fi xed assets 17 Th e classifi cation of assets and liabilities in this chapter is supplemented by description of transactions in Chapters 8 and 9, while other economic fl ows related to these assets and liabilities are described in Chapter 10. because they can be used only once.
Fixed assets are further classifi ed as buildings and structures (6111), machinery and equipment (6112), other fi xed as- sets (6113), and weapons systems (6114).

7.36 In general, in the absence of observable mar- ket prices for used assets, the written-down replace- ment cost is used as a proxy for the current market value of fi xed assets.

In the remainder of this section, it is noted when a particular type of fi xed asset is likely to be more accurately valued by another method.
7.37 Th e production of some fi xed assets may span two or more reporting periods.

Th ese nonfi nan- cial assets should be refl ected on the balance sheet, in principle, when economic ownership changes, as evidenced by the transfer of risks and benefi ts associ- ated with the asset.
For high-value fi xed assets such as ships, heavy machinery, and other equipment, owner- ship changes are recorded at the time agreed between the parties; for example, it could be a progressive change in line with stage payments, or in full on de- livery.
When a contract of sale is agreed in advance for the construction of buildings and structures, in- complete structures are being acquired in each period through progress payments and classifi ed as fi xed assets on the purchaser unit’s balance sheet (i.e., the structure is being sold by the construction contrac- tor to the purchaser in stages as the latter takes legal possession of the structure).
When progress payments exceed the value of the incomplete asset, the excess should be recorded as a trade advance that will be ex- hausted as work proceeds.

In the absence of a contract of sale, the incomplete structure is recorded as work in progress, and completed structures are recorded as fi nished goods, on the balance sheet of the unit doing the construction until ownership of the asset changes.
Fixed assets being constructed on own account are treated as fi xed assets rather than inventories of work in progress.

Th ese general principles also apply to the production of cultivated assets (see paragraph 7.62).

7.38 Fixed assets acquired under a fi nancial lease— most likely machinery and equipment—are treated as if purchased and owned by the user or lessee (the eco- nomic owner) rather than the lessor (the legal owner).
Th e acquisition is treated as being fi nanced by a fi - nancial claim, classifi ed as a loan.

For example, if a bank purchases an airplane and then leases it to the national airline, the airplane is recorded as an asset of the airline and a loan is recorded as a liability of the airline and an asset of the bank.

Financial leases are discussed in detail in paragraphs A4.10–A4.15.
7.39 A further consideration to be taken into ac- count in determining ownership concerns fi xed as- sets built under a public-private partnership (PPP) or a build, own, operate, and transfer (BOOT) scheme, sometimes also described as a private fi nance initia- tive (PFI), or some other similar shorthand.

Th e sta- tistical treatment is based on the economic ownership of the asset involved (see paragraph 7.5).

PPPs are discussed in detail in paragraphs A4.58–A4.65.
Also, im movable fi xed assets, such as buildings and other structures within the economic territory, are deemed, by convention, to be owned by resident units (see paragraph 2.13).

7.40 Small/hand tools are excluded from the fi xed asset boundary.

Costs incurred on these inexpensive durable goods are recorded as use of goods and ser- vices (22) when such expenses are incurred regularly and are small compared with the costs incurred for the acquisition of machinery and equipment.
But there can be circumstances when such small/hand tools are recorded as fi xed assets (see paragraph 6.43) .

Buildings and structures (6111) 7.41 Buildings and structures (6111) consist of dwellings (61111), buildings other than dwellings (61112), other structures (61113), and land improvements (61114), as shown in Table 7.3.
Th e value of buildings and structures includes the costs of site clearance and preparation and the value of all fi xtures, facilities, and equipment that are integral parts of the structures.

7.42 Public monuments in the form of build- ings and structures are included here.

Public monu- ments are identifi able because of particular historical, national, regional, local, religious, or symbolic sig- nifi cance.
Th ey are accessible to the general public, Table 7.3 Classiﬁ cation of Buildings and Structures Buildings and structures Dwellings Buildings other than dwellings Other structures Land improvements 6111 61111 61112 61113 61114 The Balance Sheet 179 and visitors are oft en charged for admission to the monuments or their vicinity.

Public sector units typically use public monuments to produce cultural or entertainment-type services.
In principle, public monuments should be included in dwellings, build- ings other than dwellings, and other structures, as ap- propriate; in practice, it may be desirable to classify them with other structures when such a breakdown is not available.

Consumption of fi xed capital on new monuments, or on major improvements to existing monuments, should be calculated on the assumption of appropriately long service lives.
7.43 Public monuments can be valued directly, however, only when their signifi cance has been rec- ognized by someone other than the owner, typically by a sale or a formal appraisal.

Newly constructed public monuments are valued at written-down re- placement cost.

Other than newly constructed monu- ments should be valued at the most recent sale price, updated, if need be, by a general price index.
If no sale price is available, then an alternative valuation, such as an insurance appraisal or replacement cost (see paragraph 7.31), should be used.

Dwellings (61111) 7.44 Dwellings (61111) are buildings, or desig- nated parts of buildings, that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fi x- tures customarily installed in residences.
Houseboats, barges, mobile homes, and caravans that are used as principal residences are also included, as are public monuments identifi ed primarily as dwellings.

Dwell- ings acquired by government for military personnel are included in this category because they are used in the same way as dwellings acquired by civilians.
In- complete dwellings are included to the extent that the ultimate user is deemed to have taken economic own- ership, because the construction is on own account, the ultimate user assumed the risks and benefi ts of the asset, or as evidenced by the existence of a contract of sale or purchase.
7.45 For dwellings, there may be adequate infor- mation available from the sale of both new and exist- ing buildings in equivalent private markets to assist in making balance sheet estimates of comparable price movements in the total value of public sector dwellings.

However, these house prices depend to a 180 Government Finance Statistics Manual 2014 considerable extent on location and may include land values.
Th e geographical pattern of sales in the pe- riod may not cover all areas adequately, in which case a technique such as a PIM will have to be used (see paragraph 7.32).

Th is technique will probably also apply to many other public buildings and structures since their characteristics are oft en specifi c to the structure concerned.

Buildings other than dwellings (61112) 7.46 Buildings other than dwellings (61112) in- clude whole buildings or parts of buildings not desig- nated as dwellings.
Fixtures, facilities, and equipment that are integral parts of the structures are included.

For new buildings, costs of site clearance and prepara- tion are included.

7.47 Examples of types of buildings included in this category are offi ce buildings, schools, hospitals, build- ings for public entertainment, warehouses and in- dustrial buildings, commercial buildings, hotels, and restaurants.

Public monuments identifi ed primarily as nonresidential buildings are also included.
Prisons, schools, and hospitals are regarded as buildings other than dwellings despite the fact that they may shelter institutional households.

Buildings and structures ac- quired for military purposes are included to the extent that they are used repeatedly, or continuously, in pro- cesses of production for more than one year.

Other structures (61113) 7.48 Other structures (61113) consist of all struc- tures other than buildings.

Th e costs of site clearance and preparation are also included.
Public monuments are included if identifi cation as dwellings or buildings other than dwellings is not possible.

Also included are the construction of sea walls, dikes, fl ood barriers, etc.

intended to improve the quality and quantity of land adjacent to them.

Th e infrastructure necessary for aquaculture, such as fi sh farms and shellfi sh beds, is also included.
Further examples are: • Highways, streets, roads, bridges, elevated high- ways, tunnels, railways, subways, and airfi eld runways • Communication lines, power lines, long-distance pipelines, local pipelines, and cables • Outdoor sport and recreation facilities • Structures acquired for military purposes are in- cluded to the extent that they are used repeatedly, or continuously, in processes of production for more than one year.
Land improvements (61114) 7.49 Land improvements (61114) are the result of actions that lead to major improvements in the quan- tity, quality, or productivity of land, or prevent its de- terioration.

Activities such as land reclamation, land clearance, land contouring, and creation of wells and watering holes that are integral to the land in question are to be treated as resulting in land improvements.
Seawalls, dikes, dams, and major irrigation systems that are in the vicinity of the land but not integral to it, which oft en aff ect land belonging to several owners and which are oft en carried out by government, are classifi ed as other structures (61113).

7.50 Land improvements represent a category of fi xed assets distinct from the nonproduced asset land (6141) as it existed before improvement.
Unimproved land remains a nonproduced asset and as such is sub- ject to holding gains and losses separately from price changes aff ecting the improvements.

In cases where it is not possible to separate the value of the land before improvement and the value of those improvements, the asset should be allocated to the category that rep- resents the greater part of the value.
7.51 Th e value of land improvements is shown as the written-down replacement cost of the improve- ments as originally carried out, suitably revalued to market prices.

Th is is conceptually equal to the dif- ference in value between the land concerned in an unimproved or natural state and its value aft er the im- provements have been made, taking into account price changes.

Th e costs of ownership transfer on all land are, by convention, included with land improvements.
Consumption of fi xed capital and the costs of owner- ship transfer are discussed in paragraphs 6.53–6.60.

• Sewers, waterways, harbors, dams, and other Machinery and equipment (6112) waterworks • Shaft s, tunnels, and other structures associated with mining mineral and energy resources 7.52 Machinery and equipment (6112) cover transport equipment, machinery for information, computer, and telecommunications (ICT) equipment, and machinery and equipment not elsewhere classi- fi ed.
Machinery and equipment forming an integral part of a building or other structure are included in the value of the building or structure rather than in machinery and equipment.

Tools that are inexpensive and purchased at a relatively steady rate, such as hand tools, are not considered fi xed assets unless they form a large share of the stock of machinery and equip- ment.
As explained in paragraph 7.38, machinery and equipment under a fi nancial lease are classifi ed here because they are treated as being acquired by the user (lessee).

Machinery and equipment acquired for mili- tary purposes other than weapons systems are classi- fi ed under this category; weapons systems (6114) form a separate category (see paragraph 7.74).
7.53 Machinery and equipment are classifi ed in two main categories: transport equipment (61121) and machinery and equipment other than transport equip- ment (61122), with a further breakdown of other ma- chinery and equipment, as shown in Table 7.4.

Transport equipment (61121) 7.54 Transport equipment (61121) consists of equip- ment for moving people and objects, including motor vehicles, trailers and semitrailers, ships, railway loco- motives and rolling stock, aircraft , motorcycles, and bicycles.
Markets for existing automobiles, aircraft , and some other types of transportation equipment may be suffi ciently representative to yield price ob- servations that are superior to valuations at written- down replacement cost.

Machinery and equipment other than transport equipment (61122) 7.55 Th is category consists of all machinery and equipment other than transport equipment.
A dis- Table 7.4 Classiﬁ cation of Machinery and 6112 61121 61122 611221 611222 Equipment Machinery and equipment Transport equipment Machinery and equipment other than transport equipment Information, computer, and telecommunications (ICT) equipment Machinery and equipment not elsewhere classiﬁ ed The Balance Sheet 181 tinction is made between information, computer, and telecommunications (ICT) equipment (611221) and machinery and equipment not elsewhere classifi ed (611222).
Information, computer, and telecommunications equipment (ICT) (611221) 7.56 Information, computer, and telecommunica- tions equipment (611221) consists of devices using electronic controls and also the electronic compo- nents forming part of these devices.

Examples are products that form part of computing machinery and parts and accessories thereof, television and radio transmitters, television, video, and digital cameras, and telephone sets.
In practice, this narrows the cov- erage of ICT equipment mostly to computer hardware and telecommunications equipment.
Machinery and equipment not elsewhere classiﬁ ed (611222) 7.57 Th is category includes all machinery and equip- ment not classifi ed in any of the other machinery and equipment categories.18 Types of assets that would be included are general- and special-purpose machinery; offi ce and accounting equipment; electrical machinery; medical appliances; precision and optical instruments; furniture; watches and clocks; musical instruments; and sports goods.
It also includes paintings, sculptures, other works of art or antiques, and other collections of considerable value that are owned and displayed for the purpose of producing museum and similar ser- vices.

Similar items owned primarily as stores of value that are not intended for use in production would be classifi ed as valuables (see paragraphs 7.87–7.89).
Also excluded from this category are inexpensive durable goods such as small/hand tools that are recorded as use of goods and services (22) (see paragraph 6.43).

Other ﬁ xed assets (6113) 7.58 Other fi xed assets consist of cultivated biologi- cal resources (61131) and intellectual property products (61132), as shown in Table 7.5.
18 All items under the United Nations’ Central Product Classifi - cation (CPC), version 2.0, categories 43–48, are included here, except for categories 452 and 472, which are classifi ed under Information, Computer, and Telecommunications (ICT) Equip- ment.

For more details, see http://unstats.un.org/unsd/cr/registry/ cpc-2.asp.
182 Government Finance Statistics Manual 2014 Table 7.5 Classiﬁ cation of Other Fixed Assets 6113 61131 611311 611312 61132 611321 611322 611323 6113231 6113232 611324 Other ﬁ xed assets Cultivated biological resources Animal resources yielding repeat products Tree, crop, and plant resources yielding repeat products Intellectual property products Research and development Mineral exploration and evaluation Computer software and databases Computer software Databases Entertainment, literary, and artistic originals 611325 Other intellectual property products Cultivated biological resources (61131) 7.59 Cultivated biological resources (61131) cover animal resources yielding repeat products and tree, crop, and plant resources yielding repeat products whose natural growth and regeneration are under the direct control, responsibility, and management of in- stitutional units.
7.60 Animal resources yielding repeat products (611311) include breeding stocks, dairy cattle, draft animals, sheep, or other animals used for wool pro- duction, animals used for transportation, racing, or entertainment, and aquatic resources yielding repeat products.

Immature cultivated assets are excluded unless produced for own use.

Animals raised for slaughter, including poultry, are not fi xed assets but inventories.
7.61 Tree, crop, and plant resources yielding repeat products (611312) include trees (including vines and shrubs) cultivated for fruits and nuts, for sap and resin, and for bark and leaf products.

Trees grown for timber that yield a fi nished product once only when they are ultimately felled are not fi xed assets, but are included as inventories, just as grains or vegetables that produce only a single crop when they are har- vested cannot be fi xed assets.
7.62 In general, when the production of fi xed as- sets takes a long time to complete, those assets for which production is not yet completed at the end of the reporting period are recorded as inventories in the form of work in progress.

Th ese general principles also apply to the production of cultivated assets, such as animals or trees that may take a long time to reach maturity.
Two cases need to be distinguished from each other: the production of cultivated products by specialized producers, such as breeders or tree nurs- eries, and the own-account production of cultivated assets by their users: • In the case of the specialist producers, animals or trees whose production is not yet complete and are not ready for sale or delivery are recorded as work in progress.
• However, when animals or trees intended to be used as fi xed assets are produced on own account on farms or elsewhere, incomplete assets in the form of immature animals, trees, etc.

not ready to be used in production are treated as the acquisi- tion of fi xed assets by the producing public sector unit in its capacity as eventual user and not as work in progress.
7.63 Only animals and plants cultivated under the direct control, responsibility, and management of insti- tutional units are cultivated assets or inventories.

Oth- erwise, they are nonproduced assets.

Animals classifi ed as cultivated biological resources usually can be valued on the basis of the current market prices for similar animals of a given age.

Such information is less likely to be available for plants; more likely they will have to be valued at the written-down replacement cost.
Intellectual property products (61132) 7.64 Intellectual property products (61132) are the result of research, development, investigation, or innovation leading to knowledge that the developers can market or use to their own benefi t in production because use of the knowledge is restricted by means of legal or other protection.

Th e knowledge may be em- bodied in a free-standing product or may be embod- ied in another product.
When the latter is the case, the product embodying the knowledge has an increased price relative to a similar product without this embod- ied knowledge.

Th e knowledge remains an asset as long as its use can create some form of monopoly profi ts for its owner.

When it is no longer protected or becomes outdated by later developments, it ceases to be an asset.
Intellectual property products can be classifi ed as: • Research and development (611321) • Mineral exploration and evaluation (611322) The Balance Sheet 183 • Computer soft ware and databases (611323) • Entertainment, literary, and artistic originals part or whole of the original to the unit holding the license to reproduce.

(611324) • Other intellectual property products (611325).
7.65 Some intellectual property products are used solely by the unit responsible for their development or by a single unit to whom the product is transferred.

Mineral exploration and evaluation are an example.

Other products, such as computer soft ware and ar- tistic originals, are used in two forms.

Th e fi rst is the original copy.

Th is is frequently controlled by a single unit but exceptions exist, as explained in the remain- der of this section.
Th e original is used to make copies that are, in turn, supplied to other institutional units.

Th e copies may be sold outright or made available under a license: • A copy sold outright may be treated as a fi xed asset if it satisfi es the necessary conditions—that is, it will be used in production for a period in excess of one year.
• A copy made available under a license to use may also be treated as a fi xed asset if it meets the necessary conditions—that is, if it is expected to be used in production for more than one year and the licensee assumes all the risks and re- wards of ownership.

A good indication, but not a necessary one, is if the license is purchased with a single payment for use over a multiyear period.
• If the acquisition of a copy with a license to use is purchased with regular payments over a mul- tiyear contract and the licensee is judged to have acquired economic ownership of the copy, then it should be regarded as the acquisition of a fi xed asset.

• If regular payments are made for a license to use without a long-term contract, then the payments are treated as payments for a service.
• If there is a large initial payment followed by a se- ries of smaller payments in succeeding years, the initial payment is recorded as the net acquisition of a fi xed asset and the succeeding payments are treated as payments for a service.
• If the license allows the licensee to reproduce the original and subsequently assume responsibility for the distribution, support, and maintenance of these copies, then this is described as a license to reproduce and should be regarded as the sale of 7.66 Research and development (611321) consists of the value of expenditure on creative work under- taken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture, and society, and use of this stock of knowl- edge to devise new applications.
It does not extend to including human capital as assets within GFS and other macroeconomic statistics.

Th e value of research and development should be determined in terms of the economic benefi ts it is expected to provide in the future.

Th is value includes the provision of pub- lic services in the case of research and development acquired by government.
In principle, research and development that does not provide an economic ben- efi t to its owner does not constitute a fi xed asset and should be treated as an expense.

Only research and development that meets the criteria to be a nonfi nan- cial asset should be included in this category.19 7.67 Unless the market value of the research and development is observed directly, it may, by conven- tion, be valued at the sum of costs, including the cost of unsuccessful research and development.
More spe- cifi cally, research and development undertaken by government units, universities, nonprofi t research in- stitutes, etc.

is nonmarket production and should be valued on the basis of the total costs incurred, exclud- ing a return to capital used.

Research and develop- ment expenditure carried out on contract is valued at the contract price.

If carried out on own account, it is valued as cumulated costs.

If it is carried out by a pub- lic corporation, the costs include a return to capital.
Th ese valuations need to be increased for changes in prices and reduced because of consumption of fi xed capital over the life of the asset.
With the inclusion of research and development in the asset boundary, patented resources are no longer considered as a form of nonproduced assets.20 19 For further guidance on the practical measurement of research and development, see Organisation for Economic and Co-oper- ation and Development, Handbook on Deriving Capital Measures of Intellectual Property Products (Paris, 2010).
20 Th e patent agreement is to be seen as the legal agreement con- cerning the terms on which access by third parties to research and development is granted.

Th e patent agreement is a form of license to use, which is treated as payments for service or the acquisition of assets.

See discussions on contracts, leases, and licenses (61441) in paragraph 7.105 and in Appendix 4.
184 Government Finance Statistics Manual 2014 7.68 Mineral exploration and evaluation (611322) consist of the value of expenditure on exploration for petroleum and natural gas and for nonpetroleum de- posits and subsequent evaluation of the discoveries made.

Th e information obtained from exploration infl uences the production activities of those who ob- tain it over a number of years.
Mineral exploration and evaluation should be valued either on the basis of the amounts payable under contracts awarded to other institutional units for the purpose or on the basis of the costs incurred for exploration undertaken on own account.

Th ese costs should include a return to the fi xed capital used in the exploration activity.
In addition to the costs of actual test drilling and boring, mineral exploration includes any prelicense, license, acquisition, and appraisal costs, the costs of aerial and other surveys, and transportation and other costs incurred to make the exploration possible.

Th e value of the resulting asset is not measured by the value of new deposits discovered by the exploration but by the value of the resources allocated to exploration dur- ing the reporting period.
Exploration undertaken in the past whose value has not yet been fully written off should be revalued to the prices and costs of the cur- rent period.

7.69 Computer soft ware and databases (611323) are grouped together because a computerized data- base cannot be developed independently of a database management system that is itself computer soft ware.

Th is category can be further divided into computer soft ware (6113231) and databases (6113232).
7.70 Computer soft ware (6113231) includes com- puter programs, program descriptions, and sup- porting materials for both systems and applications soft ware that is expected to be used for more than one year.

Th e soft ware may be purchased from other units or developed on own account and may be in- tended only for own use or may be intended for sale by means of copies.

Databases (6113232) consist of fi les of data organized in such a way as to permit resource-eff ective access and use of the data.
Th ese expenditures on the purchase, development, or exten- sion of computer databases are assets when expected to be used in production for more than one year.

7.71 Th e value of computer soft ware and databases (611323) should be based on the amount payable if acquired from another unit or on the costs of pro- duction (including a return to capital if produced by a public corporation) if produced on own account.
Soft ware and databases acquired in previous years and not yet fully written off should be revalued to cur- rent prices.

7.72 Entertainment, literary, and artistic origi- nals (611324) are original fi lms, sound recordings, manuscripts, tapes, and models in which drama per- formances, radio and television programming, musi- cal performances, sporting events, and literary and artistic output are recorded or embodied.

Th ey should be valued at their current market price when they are actually traded.
Otherwise, they should be valued ei- ther on the basis of their acquisition price or costs of production (including a return to capital if produced by a public corporation), revalued to the prices of the current period and written down, or on the basis of the present value of the expected future receipts.
7.73 Other intellectual property products (611325) consist of new information and specialized knowledge not elsewhere classifi ed, the use of which is restricted to the units that have established ownership rights over the information or to other units licensed by the owners.

Th e assets should be valued at their current written-down replacement cost or the present value of expected future receipts.
Weapons systems (6114) 7.74 Weapons systems (6114) include vehicles and other equipment, such as warships, submarines, mili- tary aircraft , tanks, missile carriers and launchers, etc.

Weapons systems are treated as fi xed assets.


Th e mili- tary weapons systems comprising specialized vehicles and other equipment, such as warships, submarines, military aircraft , tanks, missile carriers and launch- ers, etc., are used continuously in the provision of de- fense services, even if their peacetime use is simply to provide deterrence.
Th erefore, military weapons systems should be classifi ed as fi xed assets and this classifi cation of military weapons systems as fi xed as- sets should be based on the same criteria as for other fi xed assets—that is, produced assets that are them- selves used repeatedly, or continuously, in processes of production for more than one year.

Most single-use weapons they deliver, such as ammunition, missiles, rockets, bombs, etc., are treated as military invento- ries (61225) (see paragraphs 7.86 and 6.49).
However, The Balance Sheet 185 some single-use items, such as certain types of bal- listic missiles with a highly destructive capability, may provide an ongoing service of deterrence against ag- gressors and therefore meet the general criteria for classifi cation as fi xed assets.

Weapons systems are val- ued at their written-down replacement cost.
Inventories (612) 7.75 Inventories (612) are produced assets consist- ing of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production, or other use at a later date.

Inventories are classifi ed as materials and sup- plies (61221), work in progress (61222), fi nished goods (61223), goods for resale (61224), and military invento- ries (61225), as shown in Table 7.6.
Each of these types of inventories has a diff erent economic function.

their acquisition prices.

In principle, current market prices should be available for most types of inven- tories, but in practice, the values of inventories fre- quently are estimated by adjusting book or acquisition values of inventories with the aid of price indexes.

Materials and supplies (61221) 7.79 Materials and supplies (61221) consist of all goods held with the intention of using them as inputs to a production process.
Public sector units may hold a variety of goods as materials and supplies, including offi ce supplies, fuel, and foodstuff s. Every public sec- tor unit may be expected to hold some materials and supplies, if only offi ce supplies.

Materials and supplies oft en can be valued on the basis of the current market prices for the same goods.
7.76 Inventories consist of stocks of: Work in progress (61222) • Goods that are still held by the units that pro- duced them prior to their being further pro- cessed, sold, delivered to other units, or used in other ways • Products acquired from other units that are in- tended to be used in the production of market and nonmarket goods and services by units, or for resale without further processing • Strategic stocks that are goods held for strategic and emergency purposes, goods held by market regulatory organizations, and other goods of spe- cial importance to the nation, such as grain, mili- tary inventories, and petroleum.
7.77 Inventories may include services consisting of work in progress or fi nished products—for example, architectural drawings that are in the process of com- pletion or are completed and waiting for the building to which they relate to be started.
7.78 Inventories should be valued at their current market prices on the balance sheet date rather than Table 7.6 Classiﬁ cation of Inventories 612 61221 61222 61223 61224 61225 Inventories Materials and supplies Work in progress Finished goods Goods for resale Military inventories 7.80 Work in progress (61222) consists of goods and services that are not yet suffi ciently processed to be in a state in which it is normally supplied to other institutional units.
General government units that primarily produce nonmarket services are likely to have little or no work in progress, as the production of most such services is completed in a short time span or continuously.

Work in progress must be recorded for any output that is not complete at the end of the reporting period, such as construction.
Th e only ex- ceptions to recording incomplete work as work in progress are for partially completed projects for which the ultimate owner is deemed to have taken economic ownership in stages (see paragraph 7.37).

Economic ownership conveys in stages when the production is for own use, the new owner assumes the risks and benefi ts associated with the incomplete asset, or when evidenced by specifi c clauses in a contract of sale or purchase.
In these exceptions, the partially complete products are recorded as the acquisition of fi xed assets rather than work in progress.

7.81 Work in progress can take a wide variety of diff erent forms, ranging from growing crops to devel- oping computer programs.
Although work in prog- ress is output that has not reached the state in which it is normally supplied to others, its ownership is never- theless transferable, if necessary.21 21 For example, it may be sold under exceptional circumstances, such as the liquidation of a public sector unit.

186 Government Finance Statistics Manual 2014 7.82 Work in progress inventories are valued on the basis of the cost of production at current prices as of the balance sheet date.
Th e value of standing timber and other cultivated crops may be estimated by discounting the future proceeds of selling the fi nal product at current prices and the expenses of bringing the product to maturity.

Finished goods (61223) 7.83 Finished goods (61223) consist of goods that are the output of a production process, are still held by their producer, and are not expected to be processed further by the producer before being supplied to other units.
Finished goods may be held only by the units that produce them.

General government units will have fi nished goods only if they produce goods for sale or transfer to other units.

Inventories of fi nished goods are valued at their current sales value (before adding any taxes, transport, or distribution charges) or at the cost to produce them currently (i.e., their current replacement prices).
Goods for resale (61224) 7.84 Goods for resale (61224) are goods acquired for the purpose of reselling or transferring to other units without being further processed.

Goods for resale may be transported, stored, graded, sorted, washed, or packaged by their owners to present them for resale in ways that are attractive to their custom- ers or benefi ciaries, but they are not otherwise trans- formed.
Any general government unit that sells goods for economically signifi cant prices, such as a museum gift shop, is likely to possess an inventory of goods for resale.

Th is category also includes goods purchased by general government units for provision free of charge or at prices that are not economically signifi cant to other units.

Goods acquired by government for distri- bution as social transfers in kind but that have not yet been so delivered are also included in goods for resale.
7.85 Inventories of goods intended for resale are valued at their current replacement prices.

Military inventories (61225) 7.86 Military inventories (61225) consist of sin- gle-use items, such as ammunition, missiles, rockets, bombs, etc., delivered by weapons or weapons sys- tems.

As noted in paragraph 7.74, in the discussion of weapons systems as fi xed assets, most single-use items are treated as inventories, but some types of missiles with highly destructive capability may be treated as fi xed assets.
Military inventories are valued at their current replacement prices.

Valuables (613) 7.87 Valuables (613) are produced assets of consid- erable value that are not used primarily for purposes of production or consumption but are held as stores of value over time.

Th ey are expected to appreciate, or at least not to decline, in real value, and they do not deteriorate over time under normal conditions.
7.88 Included in valuables are: • Nonmonetary gold and other precious stones and metals that are not intended to be used as materi- als and supplies in the processes of production • Paintings, sculptures, and other objects recog- nized as works of art or antiques held primarily as stores of value over time • Jewelry of signifi cant value fashioned out of pre- cious stones and metals, collections, and miscel- laneous other valuables.
Many items fi tting the description of a valuable that are owned by general government units will be classifi ed as machinery and equipment not elsewhere classifi ed (611222) because they are not held primar- ily as stores of value but used in production, such as by being displayed in government museums.

(See also paragraph 7.57.)


7.89 To the extent that there are well-organized markets for valuables, they can be valued at current market prices, including any costs of ownership trans- fer, such as agents’ fees or commissions.

Otherwise, the amounts for which they are insured against fi re, theft , and other risks may be appropriate.
Nonproduced assets (614) 7.90 Nonproduced assets consist of tangible, nat- urally occurring assets—natural resources—over which ownership rights are enforced, and intangible nonproduced assets (6144) that are constructs of soci- ety.

Natural resources comprise land (6141), mineral and energy resources (6142), and other naturally occur- ring assets (6143).

If ownership rights have not or can- not be enforced over naturally occurring resources, then they are not economic assets.
7.91 All immovable nonproduced assets such as land and other natural resources within the economic territory are deemed, by convention, to be owned by resident units (see paragraph 2.13).

Land (6141) 7.92 Land (6141) consists of the ground, including the soil covering and any associated surface waters, over which ownership rights are enforced and from which economic benefi ts can be derived by their own- ers by holding or using them.
Th e associated surface water includes any reservoirs, lakes, rivers, and other inland waters over which ownership rights can be ex- ercised and that can, therefore, be the subject of trans- actions between units.

However, water bodies from which water is regularly extracted, against payment, for use in production (including for irrigation) are in- cluded not in water associated with land but in water resources (61432).
7.93 Land excludes the following: • Buildings and other structures constructed on the land or through it, such as roads, offi ce build- ings, and tunnels • Land improvements and the costs of ownership transfer on land • Cultivated components of vineyards, orchards, and other plantations of trees, animals, and crops • Subsoil assets • Noncultivated biological resources • Water resources below the ground.
7.94 Land is valued at its current price that would be payable by a new owner, excluding the costs of ownership transfer.

By convention, the costs of own- ership transfer on land are recorded as the net invest- ment in fi xed assets as part of land improvements and are subject to consumption of fi xed capital.

Th e value of land can vary enormously depending on its loca- tion and the uses for which it is suitable or sanctioned.
As a result, these factors must be taken into account when the current market price for the land is deter- mined.
In a number of instances, it may be diffi cult to separate the value of land from the value of structures erected on the land: • One method of estimating the value of land sepa- rately is to calculate ratios of the value of the site to the value of the structure from valuation ap- The Balance Sheet 187 praisals and to deduce the value of land from the replacement cost of the buildings or from the value on the market of the combined land and buildings.
• When the value of land cannot be separated from the building, structure, plantation, vineyard, etc., above it, the composite asset should be classifi ed in the category representing the greater part of its value.
• Similarly, if the value of the land improvements (which include site clearance, preparation for the erection of buildings or planting of crops, and costs of ownership transfer) cannot be sepa- rated from the value of land in its natural state, the value of the land may be allocated to one category or the other, depending on which is as- sumed to represent the greater part of the value.
7.95 Land appears on the balance sheet of the legal owner except when the land is not separable from other assets that are subject to a fi nancial lease.
Th is may most oft en occur in connection with a fi nancial lease over a building or plantation on the land, when the inseparable assets, including land, are on the bal- ance sheet of the economic owner.22 7.96 By convention, where the legal owner of a building is not the legal owner of the land on which the building stands, but the purchase price of the building includes an upfront payment of rent on the land beneath, without any prospect of further pay- ments being due in future, land is recorded on the balance sheet of the owner of the building on the land.
Mineral and energy resources (6142) 7.97 Mineral and energy resources (6142) consist of mineral and energy reserves located on or below the earth’s surface that are economically exploitable, given current technology and relative prices.

Ownership rights to the mineral and energy resources are usually separable from those to the land itself.

Th e deposits may be located on or below the earth’s surface, includ- ing deposits under the sea, but they must be economi- cally exploitable.
Mineral and energy resources are known reserves of oil, natural gas, coal, metallic ores (including ferrous, nonferrous, and precious metal ores), and nonmetallic mineral reserves (including 22 See paragraphs 3.38–3.41 and 7.5, for a description of the dis- tinction between legal and economic ownership.
188 Government Finance Statistics Manual 2014 stone quarries, clay and sand pits, chemical and fer- tilizer mineral deposits, and deposits of salt, quartz, gypsum, natural gem stones, asphalt, bitumen, and peat).

Mine shaft s, wells, and other subsoil extraction facilities are fi xed assets in the form of other structures (61113) rather than subsoil assets.
7.98 Th e value of the resources is usually estimated as the present value of the expected net returns re- sulting from their commercial exploitation, but if the ownership of subsoil assets changes frequently on markets, then it may be possible to obtain appropri- ate prices.

In practice, it may be necessary to use the valuations that the owners of the assets place on them in their own accounts.
7.99 It is frequently the case that the enterprise extracting a resource is diff erent from the owner of the resource.

In many countries, for example, oil re- sources are the property of government.

However, it is the extractor who determines how fast the resource will be depleted, and since the resource is not renew- able on a human time scale, it appears as if there has been a change of economic ownership to the extractor even if this is not the legal position.
Nor is it necessar- ily the case that the extractor will have the right to ex- tract until the resource is exhausted.

Because there is no wholly satisfactory way in which to show the value of the asset split between the legal owner and the ex- tractor, the whole of the resource is shown on the bal- ance sheet of the legal owner and the payments by the extractor to the owner shown as rent.
(Th is treatment is, therefore, an extension of the concept of a resource lease applied in this case to a depletable asset, as de- scribed in paragraphs 5.130 and A4.16 –A4.17.

)23 Other naturally occurring assets (6143) 7.100 Other naturally occurring assets (6143) com- prise noncultivated biological resources (61431), water resources (61432), and other natural resources (61433), as shown in Table 7.7.
7.101 Noncultivated biological resources (61431) consist of animals, birds, fi sh, and plants that yield both once-only and repeat products over which ownership rights are enforced but for which natural growth or regeneration is not under the direct control, responsibility, and management of any institutional 23 See Appendix 4, Box A4.1, for a description of the criteria to distinguish between rent and asset sales of natural resources.
Table 7.7 Classiﬁ cation of Other Naturally Occurring Assets 6143 61431 61432 61433 614331 614332 Other naturally occurring assets Noncultivated biological resources Water resources Other natural resources Radio spectrum Natural resources not elsewhere classiﬁ ed units.

Examples are virgin forests and fi sheries that are commercially exploitable.

Only those resources that have economic value that is not included in the value of the associated land are included.
As observed prices are not likely to be available, such assets are usually valued at the present value of expected future returns (see paragraph 7.33).

7.102 Water resources (61432) consist of surface and groundwater resources used for extraction to the extent that their scarcity leads to the enforcement of ownership or use rights, market valuation, and some measure of economic control.
As observed prices are not likely to be available, such assets are usually val- ued at the present value of expected future returns.

7.103 Th e category other natural resources (61433) includes the electromagnetic spectrum, which in- cludes the range of radio frequencies used in the transmission of sound, data, and television.

Th e value of the spectrum is usually determined as the present value of expected future returns.
If a long-term con- tract to use the spectrum exists, its value could be used as a basis for estimating the total value of the asset.

Given the tendency to implement environmen- tal policy by means of market instruments, it may be that additional natural resources will come to be recognized as economic assets.

(See also paragraphs A4.18–A4.40 and A4.48–A4.50 on the treatment of permits and licenses to use natural resources.)
Intangible nonproduced assets (6144) 7.104 Intangible nonproduced assets (6144) are constructs of society evidenced by legal or account- ing actions.

Such assets entitle their owners to engage in certain specifi c activities or to produce certain spe- cifi c goods or services and to exclude other units from doing so except with the permission of the owner.
Th e owners of the assets may be able to earn monopoly Table 7.8 Classiﬁ cation of Intangible Nonproduced Assets 6144 61441 614411 614412 614413 614414 Intangible nonproduced assets Contracts, leases, and licenses Marketable operating leases Permits to use natural resources Permits to undertake speciﬁ c activities Entitlement to future goods and services on an exclusive basis 61442 Goodwill and marketing assets profi ts by restricting the use of the assets to them- selves.
Two types of intangible nonproduced assets are distinguished: contracts, leases, and licenses (61441) and goodwill and marketing assets (61442), as shown in Table 7.8.

Whenever possible, contracts, leases, and licenses, should be valued at current prices when they are actually traded on markets.

Otherwise, it may be necessary to use estimates of the present value of ex- pected future returns.
Goodwill and marketing assets are typically valued at their initial acquisition costs minus allowances for amortization (see paragraph 10.55).
Contracts, leases, and licenses (61441) 7.105 Contracts, leases, and licenses (61441) are treated as assets only when both the following condi- tions are satisfi ed: • Th e terms of the contract, lease, or license spec- ify a price for the use of an asset or provision of a service that diff ers from the price that would prevail in the absence of the contract, lease, or license.

• One party to the contract must be able legally and practically to realize this price diff erence.
7.106 Th ese kinds of contracts are regarded as as- sets only if the existence of the legal agreement confers benefi ts on the holder in excess of the price payable to the lessor, owner of the natural resource, or permit issuer,24 and the holder can realize these benefi ts le- gally and practically (i.e., if a market for the contract exists).
It is recommended that in practice, contracts, leases, and licenses should be recorded only when the value of the asset is signifi cant and if holders can actu- ally exercise the right to realize the price diff erence The Balance Sheet 189 by on-selling the asset.

In this case, a suitable mar- ket price necessarily exists.

Th e asset does not exist beyond the length of the contract agreement, and its value must be reduced accordingly as the remaining contract period shortens (see paragraph 10.53).
7.107 Contracts, leases, and licenses may be mar- ketable operating leases (614411), permits to use natu- ral resources (614412), permits to undertake specifi c activities (614413), and entitlement to future goods and services on an exclusive basis (614414).25 Marketable operating leases (614411) 7.108 Marketable operating leases (614411) are third-party property rights relating to fi xed assets.
Th e lease confers economic benefi ts to the holder in excess of the fees payable and the holder can realize these benefi ts legally and practically, through transferring them.

An example is where a tenant of a building has a fi xed rental but the building could fetch a higher rental in the absence of the lease.

If, in these circum- stances, the tenant is able both legally and practically to sublet the building, then the tenant has an asset of the type of a marketable operating lease.
Permits to use natural resources (614412) 7.109 Permits to use natural resources (614412) are third-party property rights relating to natural resources.

An example is where an institutional unit holds a fi shing quota and is able, again both legally and practically, to sell this to another unit.

Payment for a mobile phone license constitutes the sale of an asset, not payment for rent, when the licensee ac- quires eff ective economic ownership rights over the use of the spectrum.
To decide whether ownership is eff ectively transferred, the six criteria quoted in Box A4.1 are to be considered.
Permits to undertake speciﬁ c activities (614413) 7.110 A permit to undertake a specifi c activity (614413) is an asset for the holder when: (i) the per- mits are limited in number and so allow the holders to earn monopoly profi ts, (ii) the monopoly profi ts do not come from the use of an asset belonging to the permit-issuer, and (iii) a permit holder is able both le- gally and practically to sell the permit to a third party.

24 Also see 2008 SNA, Chapter 17, part 5.


25 For a description of the recording of these permits issued by government see paragraphs A4.18–A4.52.

190 Government Finance Statistics Manual 2014 Such permits are issued mainly by government but may also be issued by other units.

to the value of individual assets because they are used in combination with each other.
7.111 When governments restrict the number of cars entitled to operate as taxis or limit the number of casinos by issuing permits or licenses, they are in eff ect creating monopoly profi ts for the approved operators and recovering some of the profi ts as the “fee.” For government, such proceeds are recorded as other taxes on the use of goods and on permission to use goods or perform activities (11452) (see paragraph 5.81).
For the permit holder, the incentive to acquire such a license is that the licensee believes that it will thereby acquire the right to make monopoly profi ts at least equal to the cost of the license.

Th is permis- sion to create monopoly profi ts creates an asset for the holder if the licensee can realize these profi ts by on- selling the asset—that is, the license is tradable.
Th e value of this asset is determined by the value at which it can be sold or, if no such information is available, is estimated as the present value of the future stream of monopoly profi ts (see also paragraphs A4.42–A4.45).
Entitlement to future goods and services on an exclusive basis (614414) 7.112 Entitlement to future goods and services on an exclusive basis (614414) relates to the case where one party that has contracted to purchase goods or services at a fi xed price at a time in the future is able to transfer the obligation of the second party to the con- tract to a third party.
Th ese entitlements relate to foot- ballers’ contracts and a publisher’s exclusive right to publish new works by a named author or issue record- ings by named musicians (see also paragraph A4.51).

For example, when a football player contracted his or her services to a club, the latter has an asset with the ability to sell this contract to another club.
Goodwill and marketing assets (61442) 7.113 Potential purchasers of an enterprise are oft en prepared to pay a premium above the net value of its individually identifi ed and valued assets and li- abilities.

Th is excess is described as goodwill and re- fl ects the value of corporate structures and the value to the business of an assembled workforce and man- agement, corporate culture, distribution networks, and customer base.
It may not have value in isolation from other assets, but it enhances the value of those other assets.

Looked at another way, it is the addition 7.114 Goodwill cannot be separately identifi ed and sold to another party.

Th e value has to be derived by deducting the value of assets and liabilities classifi ed elsewhere within the asset boundary of GFS from the sale value of the corporation.
(In practice, since it is estimated as a residual, an estimate of goodwill will also refl ect errors and omissions in the valuation of other assets and liabilities.)

7.115 As well as residual errors, the value of good- will may include the value to the corporation of items known as marketing assets.

Marketing assets consist of items such as brand names, mastheads, trademarks, logos, and domain names.

A brand can be interpreted as far more than just a corporate name or logo.
It is the overall impression a customer or potential customer gains from his or her experience with the company and its products.

Interpreted in that wider sense it can also be seen to encompass some of the characteristics of goodwill, such as customer loyalty.
7.116 Th e value of goodwill and marketing assets is the diff erence between the value paid for an en- terprise as a going concern and the sum of its assets minus the sum of its liabilities, each item of which has been separately identifi ed and valued.

Although goodwill is likely to be present in most corporations, for reasons of reliability of measurement it is recorded in GFS only when its value is evidenced by a market transaction, usually the sale of the whole corporation.
In some exceptions, identifi ed marketing assets may be sold individually and separately from the whole corporation, in which case their value should also be recorded under this item.

7.117 Th e balance sheet entry for goodwill and marketing assets is the written-down value of the entry that appears as a transaction in fi nancial assets and lia- bilities when an enterprise is taken over or when a mar- keting asset is sold.26 Th ese entries are not revalued.
Financial Assets (62) and Liabilities (63) 7.118 Financial assets and liabilities were defi ned in paragraphs 7.15–7.16.

Th e classifi cations of fi nan- cial assets and liabilities are based primarily on the 26 As explained in paragraph 10.55, the amortization of goodwill and marketing assets over their service or legal lives is an other economic fl ow.

liquidity and legal characteristics of the instruments that describe the underlying creditor-debtor relation- ships.
Th e liquidity of a fi nancial instrument embraces characteristics such as negotiability, transferability, marketability, and convertibility.

7.119 Securities are debt and equity instruments that have the characteristic feature of negotiability.

Th at is, their legal ownership is readily transferred from one unit to another unit by delivery or endorsement.
While any fi nancial instrument can potentially be traded, se- curities are designed to be traded, usually on organized exchanges or “over the counter.” (Th e over-the-counter market involves parties negotiating directly with one another, rather than on a public exchange.)

Negotiabil- ity is a matter of the legal form of the instrument.

Some securities may be legally negotiable, but there is not, in fact, a liquid market where they can be readily bought or sold.
Listed fi nancial derivatives, such as warrants, are sometimes considered to be securities.

7.120 In addition to classifying fi nancial assets and liabilities by the characteristics of the fi nancial instru- ment, they can also be classifi ed according to the resi- dence of the other party to the instrument (the debtors for fi nancial assets and the creditors for liabilities).27 Residence is defi ned in paragraphs 2.6–2.21.
Th e clas- sifi cations of fi nancial assets and liabilities by instru- ment are shown in Table 7.9.

7.121 Because a given fi nancial instrument creates both a fi nancial asset and a liability, the same descrip- tions of instruments can be used for both.

For simplic- ity, the descriptions will refer only to fi nancial assets unless there is a specifi c need to refer to liabilities.
7.122 As discussed in paragraphs 3.113 and 7.20– 7.25, in principle, all fi nancial assets should be valued at market value.28 Because the creditor can dispose of the asset on the date of the balance sheet at its current market price, it is that price that is relevant for the bal- ance sheet.
In practice, valuing debt instruments29 at market value on the balance sheet date means that: 27 A discussion of Islamic banking instruments and how they can be treated in terms of the classifi cation of fi nancial assets and liabilities can be found in the MFSM, Appendix 2.

28 Th at value, however, may diff er from an asset’s nominal value, which is a measure of value from the viewpoint of the debtor: at any moment in time the nominal value is the amount that the debtor owes to the creditor.
See paragraph 3.115.

29 All liabilities except equity and investment fund shares, and fi nan- cial derivatives and employee stock options are debt instruments.

The Balance Sheet 191 • Debt securities are valued at market prices.

• Insurance, pension, and standardized guarantee schemes are valued according to principles that are equivalent to market valuation.
• All other debt instruments are valued at nominal prices, which are considered to be the best gener- ally available estimates of their market prices.

7.123 Some fi nancial assets and liabilities, most typically deposits, debt securities, loans, and other accounts payable/receivable, require the debtor to pay interest.

Th e interest accrues continuously and increases the total amount that the debtor will be re- quired to pay (see paragraph 6.64).
7.124 To calculate the overall balance (see para- graph 4.57) fi nancial assets acquired by government units in support of their fi scal policies30 are classifi ed diff erently from fi nancial assets acquired for liquidity management.

Th e distinction between fi nancial assets acquired for public policy purposes and fi nancial as- sets acquired for liquidity purposes is not included in the GFS classifi cation of fi nancial assets.
Th is distinc- tion rests on the judgment of the analyst of the par- ticular purpose for employing fi nancial assets.31 Monetary gold and Special Drawing Rights (SDRs) (6201, 6221, 6301, 6321) 7.125 On the fi nancial assets side, this category comprises monetary gold and SDRs, and on the li- abilities side it comprises only SDRs (see paragraph 7.128).

Th e counterparties to this fi nancial asset and liability are nonresidents.
Monetary gold (62011, 62211)32 7.126 Monetary gold is gold to which the mon- etary authorities (or others who are subject to the ef- fective control of the monetary authorities) have title and is held as a reserve asset.

It comprises gold bul- lion (including gold held in allocated gold accounts) 30 Th is is oft en referred to as “public policy lending” or “policy lending” and is treated akin to expenditure in the calculation of the overall balance.
31 As explained in Box 6.3, under some circumstances, “capital or equity injections” are considered to be expense—that is, they do not result in a fi nancial claim on the debtor.

32 Th ere is no liability in the form of monetary gold; the counter- part liability to monetary gold in the form of unallocated gold accounts with nonresidents that give title to claim the delivery of gold is classifi ed under deposits.

Gold bullion has no counter- party liability.
192 Government Finance Statistics Manual 2014 Table 7.9 Classiﬁ cation of Financial Assets and Liabilities by Instrument and Residence of the Counterparty Financial assets Monetary gold and Special Drawing Rights (SDRs) Monetary gold Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts receivable Trade credit and advances Miscellaneous other accounts receivable Domestic debtors Same instrument breakdown as above, but excluding monetary gold and SDRs External debtors Same instrument breakdown as above 62 6201 62011 62012 6202 6203 6204 6205 62051 62052 6206 62061 62062 62063 62064 62065 6207 62071 62072 6208 62081 62082 621 6212– 6218 622 6221– 6228 63 6301 6302 6303 6304 6305 63051 63052 6306 63061 63062 63063 63064 63065 6307 63071 63072 6308 63081 63082 631 6312– 6318 632 6321– 6328 Liabilities Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life
 insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts payable Trade credit and advances Miscellaneous other accounts payable Domestic creditors Same instrument breakdown as above, but excluding SDRs External creditors Same instrument breakdown as above and unallocated gold accounts with nonresidents that give title to claim the delivery of gold.33 All monetary gold is included in reserve assets or is held by interna- tional fi nancial organizations.
Only gold that is held as a fi nancial asset and as a component of reserve as- sets is classifi ed as monetary gold.

Th erefore, except in limited institutional circumstances,34 gold bullion is a fi nancial asset only for the central bank or central gov- ernment.
Deposits, loans, and securities denominated in gold are treated, respectively, as deposits, loans, and securities denominated in foreign currencies, and not 33 See the BPM6, paragraphs 5.74–5.78, for a detailed discussion of gold bullion and gold accounts.

34 For example, gold held by a commercial bank but under the control of the monetary authorities.

as monetary gold, unless held as unallocated gold ac- counts by monetary authorities as reserve assets.
7.127 Allocated gold accounts provide ownership of a specifi c piece of gold.

Th e ownership of the gold remains with the entity placing it for safe custody.

When held as reserve assets, allocated gold accounts are classifi ed as monetary gold.

Otherwise, allocated gold accounts are treated as representing the owner- ship of a nonfi nancial asset.

In contrast, unallocated gold accounts represent a claim against the account custodian to deliver gold.
For these accounts, the ac- count provider holds title to a reserve base of physical gold and issues claims to account holders denominated in gold.

When held as reserve assets, unallocated gold accounts are classifi ed as monetary gold.

Unallocated accounts not held as reserve assets, and all unallocated gold account liabilities, are classifi ed as deposits.
7.128 Gold bullion takes the form of coins, ingots, or bars with a purity of at least 995 parts per 1,000, including such gold held in allocated gold accounts.

Gold bullion is usually traded on organized markets or through bilateral arrangements between central banks.

Gold bullion held as a reserve asset is the only fi nancial asset with no corresponding liability.
7.129 Any gold held by a government unit that does not satisfy the defi nition of monetary gold is not a fi nancial asset and is included in nonmonetary gold as a nonfi nancial asset, most likely valuables (613) but possibly inventories (612).35 In some cases, a central bank may own gold bullion that is not held as reserves, such as sometimes occurs when it acts as a monopoly reseller of mined gold.

A gold swap is treated as a loan (see paragraph 7.161).
7.130 Monetary gold is valued at the price estab- lished in organized markets or when traded through bilateral arrangements between central banks.

Special Drawing Rights (SDRs) (62012, 62212, 6301, 6321) 7.131 Special Drawing Rights (SDRs) are inter- national reserve assets created by the International Monetary Fund (IMF) and allocated to its members to supplement reserve assets.
Th e Special Drawing Rights Department of the IMF allocates SDRs among mem- ber countries of the IMF (collectively known as the participants).

Th e allocation of SDRs is a liability of the member country and interest accrues on this liability.36 7.132 SDR holdings represent each holder’s un- conditional right to obtain foreign exchange or other reserve assets from other IMF members.

Th ese fi nan- cial assets represent claims on the participants in the IMF’s SDR Department collectively and not on the IMF.
A participant may sell some or all of its SDR holdings to another participant and receive other re- serve assets, particularly foreign exchange, in return.

Participants may also use SDRs to meet liabilities.

35 Nonmonetary gold is a good and classifi ed under nonfi nancial assets as valuables, if held primarily as a store of value, and classi- fi ed as inventories of materials and supplies, if used in a produc- tion process (such as jewelry or dentistry).
36 Th e IMF has also designated a limited number of international fi nancial institutions as holders of SDRs.

The Balance Sheet 193 7.133 SDR allocations constitute a (debt) liability of the recipients (and part of the public sector’s debt liabilities) and the SDR holdings are part of the public sector’s fi nancial assets.

Th e allocation and holdings are recorded on a gross basis.
Th e macroeconomic statistical guidelines do not specify on whose balance sheet SDR holdings and allocations should be re- corded (e.g., the central bank or a general government entity such as the ministry of fi nance or treasury).
Th is is because SDR allocations are made to IMF members that are participants in the SDR Department of the IMF, and it is for those members to follow domestic legal and institutional arrangements to determine the ownership and recording of SDR allocations and SDR holdings in the public sector.
Given that fi nancial claims on and liabilities to members in the SDR sys- tem are attributed on a cooperative basis, a residual partner category—other nonresidents—is used as the counterparty to SDR holdings and allocations.

7.134 In addition to SDRs as a type of fi nancial in- strument, SDRs may also be used as a unit of account in which other debt instruments can be expressed.

Th e value of the SDR is determined daily by the IMF on the basis of a selected basket of currencies.
To en- sure consistency, the SDR rates against domestic cur- rencies are obtainable from the IMF.

Both the basket and the weights of the currencies that make up the SDR basket are revised from time to time.

Currency and deposits (6202, 6212, 6222, 6302, 6312, 6322) 7.135 Currency consists of notes and coins that are of fi xed nominal values and are issued or autho- rized by the central bank or government.
All sectors may hold currency as assets, but normally only central banks and government may issue currency.

In some countries, commercial banks are able to issue currency under the authorization of the central bank or govern- ment.

Currency constitutes a liability of the issuing units.

Unissued currency held by a public sector unit is not treated as a fi nancial asset of the public sector or a liability of the central bank.
Gold and commemora- tive coins that are not in circulation as legal tender, or as monetary gold, are classifi ed as nonfi nancial as- sets in the form of valuables or inventories of materials and supplies, as appropriate, rather than currency.

7.136 A distinction should be drawn between do- mestic currency that is a liability of a resident unit 194 Government Finance Statistics Manual 2014 and foreign currency that is the liability of nonresi- dent units.
(See paragraph 3.134 for the defi nitions of domestic and foreign currency.)

Domestic currency has a fi xed nominal value.

Th e value of foreign cur- rency is converted to the domestic currency at the exchange rate valid on the date to which the balance sheet relates.

Th e rate used should be the midpoint be- tween the buying and selling spot rates for currency transactions.
7.137 Deposits are all claims, represented by evi- dence of deposit, on the deposit-taking corporations (including the central bank) and, in some cases, gen- eral government or other institutional units.

A deposit is usually a standard contract, open to the public at large, that allows the placement of a variable amount of money.

Public sector units may hold a variety of de- posits as assets, including deposits in foreign curren- cies.
It is also possible for a government unit to incur liabilities in the form of deposits.

For example, postal offi ces or other government units may accept deposits from the public, acting like a sort of rural fi nancial institution as a secondary activity.

Public fi nancial corporations (e.g., the central bank) typically incur liabilities in the form of deposits, including to govern- ment units.
7.138 Claims on the IMF that are components of international reserves and are not evidenced by loans should be classifi ed as deposits.

(Claims on the IMF evidenced by loans should be included in loans.)

Re- payable margin payments in cash related to fi nancial derivative contracts (see paragraph 7.219) can also be classifi ed under deposits.
7.139 Unallocated accounts for precious metals, such as unallocated gold accounts, are also deposits, except for unallocated gold accounts held by mon- etary authorities for reserves purposes, for which the asset holding is included in monetary gold, with the counterpart liability being recorded as a deposit (as also mentioned in paragraph 7.15).

7.140 Deposits may be transferable or nontransfer- able.
Transferable deposits comprise all deposits that are (i) exchangeable (without penalty or restriction) on demand at par, and (ii) directly usable for mak- ing third-party payments by check, draft , giro order, direct debit/credit, or other direct payment facility.

Nontransferable deposits comprise all other fi nancial claims, other than transferable deposits, represented by evidence of deposit.
Examples of other deposits are sight deposits that permit immediate cash withdraw- als but not direct third-party transfers, savings and fi xed-term deposits, overnight and very short-term repurchase agreements that are included in the na- tional measures of broad money, and foreign currency deposits that are blocked because of the rationing of foreign exchange as a matter of national policy.
7.141 It may be useful to further classify deposits according to whether they are denominated in the do- mestic currency or a foreign currency.

7.142 Deposits should be recorded at nomi- nal value.

Th ey give rise to the same issues as loans with respect to nominal and fair values (see para- graph 7.163).

Deposit assets at banks and other pub- lic deposit-taking corporations in liquidation also should be recorded at their nominal value until they are written off .
If the diff erence between the nominal and fair values is signifi cant, the fair value of such de- posits could be shown as an additional memorandum item to the balance sheet.

Th e same treatment is ap- plicable for any other cases of impaired deposits (i.e., where the public deposit-taking corporation is not in liquidation but is insolvent).

Debt securities (6203, 6213, 6223, 6303, 6313, 6323) 7.143 Debt securities are negotiable fi nancial in- struments serving as evidence of a debt.
Th e security normally specifi es a schedule for interest and princi- pal payable.

Examples of debt securities are: • Bills • Bonds and debentures, including bonds that are convertible into shares • Loans that have become negotiable from one holder to another • Nonparticipating preferred stocks or shares • Asset-backed securities and collateralized debt obligations • Similar instruments normally traded in the fi - nancial markets.
7.144 Bills are defi ned as securities (usually short- term) that give holders the unconditional rights to receive stated fi xed sums on a specifi ed date.

Bills are issued and usually traded in organized markets at discounts to face value that depend on the rate of interest and the time to maturity.

Examples of bills are treasury bills, negotiable certifi cates of deposit, bank- ers’ acceptances, promissory notes, and commercial paper.
7.145 A banker’s acceptance is created when a fi nancial corporation endorses, in return for a fee, a draft or bill of exchange and the unconditional prom- ise to pay a specifi c amount at a specifi ed date.

Inter- national trade is oft en fi nanced in this way.

A banker’s acceptance is classifi ed under the category of debt securities.
A banker’s acceptance represents an un- conditional claim on the part of the holder and an unconditional liability on the part of the accepting fi nancial corporation; in turn, the fi nancial corpora- tion acquires an asset because it has a claim on its cus- tomer.
A banker’s acceptance is treated as a fi nancial asset from the time of acceptance, even though funds may not be exchanged until a later stage.37 7.146 Bonds and debentures are securities that give the holders the unconditional right to fi xed pay- ments or contractually determined variable payments on a specifi ed date or dates.

Th e earning of interest is not dependent on earnings of the debtors.

Bonds and debentures could have various characteristics and uses.
For example, bonds may be issued to recognize a lia- bility for government employee pensions (oft en called recognition bonds).

Bonds can be issued at a deep dis- count or with no coupons (zero-coupon bonds).

7.147 Zero-coupon bonds are long-term securi- ties that do not involve periodic payments during the life of the bond.
Similar to short-term securities, zero-coupon bonds are sold at a discount, and a single payment, that includes accrued interest, is made at maturity.38 Deep-discount bonds are long-term secu- rities that require periodic coupon payments during the life of the instrument, but the amount is substan- tially below the market rate of interest at issuance.

7.148 Instruments with embedded derivatives39 are not classifi ed as fi nancial derivatives.
If a primary instrument, such as a security or loan, contains an em- 37 Appendix 1 of the EDS Guide provides a glossary of fi nancial instruments, including banker’s acceptances.

38 For a discussion of the accrual recording of interest on zero- coupon and deep-discounted bonds, see paragraphs 6.71–6.72 and the annex to Chapter 2 of the PSDS Guide.

39 An embedded derivative arises when a derivative feature is inserted in a standard fi nancial instrument and is inseparable from the instrument.
The Balance Sheet 195 bedded derivative, the instrument is valued and clas- sifi ed according to its primary characteristics—even though the value of that security or loan may well diff er from the values of comparable securities and loans because of the embedded derivative.
Examples are corporate bonds that are convertible into shares of the same corporation at the option of the bondholder and securities with options for repayment of principal in currencies that diff er from those in which the secu- rities were issued.

If the conversion option is traded separately, then the option is treated as a separate in- strument, classifi ed as a fi nancial derivative, and it is not debt.
7.149 Loans (see paragraph 7.157) that have be- come negotiable from one holder to another are to be reclassifi ed (through other changes in the volume of assets) from loans to debt securities under certain circumstances.
For such reclassifi cation, there needs to be evidence of secondary market trading, including the existence of market makers, and frequent quota- tions of the instrument, such as provided by bid-off er spreads.40 7.150 Nonparticipating preferred stocks or shares are those that pay a fi xed income but do not provide for participation in the distribution of the residual value of an incorporated enterprise on dissolution.

Th ese shares are classifi ed as debt securities.


Bonds that are convertible into equity should also be classifi ed as debt securities prior to the time that they are converted.

7.151 Asset-backed securities and collateralized debt obligations are arrangements under which pay- ments of interest and principal are backed by payments on specifi ed assets or income streams.

Th is process is also described as securitization (for more details, see paragraph A3.59–A3.66).
Asset-backed securities are backed by various types of fi nancial assets—for example, mortgages and credit card loans.

A general government unit may issue debt securities backed by specifi c streams of earmarked revenue.

Th is is not an asset-backed security, as in macroeconomic statistical systems, the ability to raise taxes or other government revenue is not recognized as a government asset that could be used for securitization.
Nevertheless, the 40 An example is a syndicated loan, which is provided by a group of lenders and is structured, arranged, and administered by one or several commercial or investment banks.

If parts of a syndicated loan become traded in secondary markets, the loan may meet the criteria to be reclassifi ed as a security.
196 Government Finance Statistics Manual 2014 earmarking of future revenue, such as receipts from toll roads, to service debt securities issued by a gen- eral government (or public sector) unit may resemble securitization.

7.152 Stripped securities are securities that have been transformed from a principal amount with cou- pon payments into a series of zero-coupon bonds, with a range of maturities matching the coupon pay- ment date(s) and the redemption date of the principal amount(s).
Th e function of stripping is that investor preferences for particular cash fl ows can be met in ways diff erent from the mix of cash fl ows of the origi- nal security.

Th ere are two cases of stripped securities: • When a third party acquires the original se- curities and uses them to back the issue of the stripped securities; then new funds have been raised and there is a new fi nancial instrument.
• When no new funds are raised and the payments on the original securities are stripped and mar- keted separately by the issuer or through agents (such as strip dealers) acting with the issuer’s consent; in this case, there is no new instrument.

7.153 Index-linked securities are instruments for which either the coupon payments (interest) or the principal or both are linked to another item, such as a price index, an interest rate, or the price of a com- modity.
Issues in the measurement of interest on index-linked securities are discussed in paragraphs 6.75–6.78.

7.154 Debt securities traded (or tradable) in or- ganized and other fi nancial markets—such as bills, bonds, debentures, negotiable certifi cates of depos- its, asset-backed securities—should be valued at both market and nominal value.

Debt securities are shown in the balance sheet at market value.
Th e nomi- nal value is used to determine gross debt at nominal value, which is shown as a memorandum item to the GFS balance sheet.

For a traded debt security, nominal value can be determined from the value of the debt at creation and subsequent economic fl ows, while mar- ket value is based on the price at which it is traded in a fi nancial market.
7.155 For debt securities that are tradable but for which the market price is not readily observable, the market value can be estimated by the discounted pres- ent value method provided an appropriate discount rate can be used (see paragraph 3.125).

Th is and other methods of estimating market value are explained in the PSDS Guide, Box 2.2.

7.156 When securities are quoted on markets with a buy-sell spread, the midpoint should be used to value the instrument.
Th e spread is an implicit service fee of the market platform or dealer payable by buyers and sellers.
Loans (6204, 6214, 6224, 6304, 6314, 6324) 7.157 A loan is a fi nancial instrument that is cre- ated when a creditor lends funds directly to a debtor and receives a nonnegotiable document as evidence of the asset.41 Th is category includes overdraft s, mort- gage loans, loans to fi nance trade credit and advances, repurchase agreements, fi nancial assets and liabilities created by fi nancial leases, and claims on or liabilities to the IMF in the form of loans.
Trade credit and ad- vances and similar accounts payable/receivable are not loans (see paragraph 7.225).

Loans that have be- come marketable in secondary markets should be re- classifi ed under debt securities (see paragraph 7.149).

However, if traded only occasionally, the loan is not reclassifi ed under debt securities.

7.158 A fi nancial lease involves imputing a loan.


A fi nancial lease is a contract under which the lessor, as legal owner of an asset, conveys substantially all risks and rewards of ownership of the asset to the lessee.

When goods are acquired under a fi nancial lease, the lessee is deemed to be the owner, even though legally the leased good remains the property of the lessor.

Th is is because the risks and rewards of ownership have been, de facto, transferred to the lessee.
Th is change in ownership is deemed to have been fi nanced by an imputed loan, which is an asset of the lessor and a liability of the lessee.
7.159 A securities repurchase agreement (repo) is an arrangement involving the sale of securities for cash, at a specifi ed price, with a commitment to re- purchase the same or similar securities at a fi xed price either on a specifi ed future date (oft en one or a few days hence) or with an open maturity.42 Th e economic nature of the transaction is that of a collateralized loan 41 A loan is distinguished from a deposit on the basis of the repre- sentation in the documents that evidence them.
42 An open maturity exists when both parties have the option to agree daily to renew or terminate the agreement.

(or a deposit43) because the risks and rewards of own- ership of the securities remain with the original owner (security provider).

Th us, the funds advanced by the security taker (cash provider) to the security provider (cash taker) are treated as a loan and the underlying securities remain on the balance sheet of the security provider, despite the legal change in ownership.
7.160 Securities lending is an arrangement whereby a security holder transfers securities to an- other party (security taker), subject to the stipulation that the same or similar securities be returned on a specifi ed date or on demand.

As with a securities re- purchase agreement, the risks and rewards of owner- ship remain with the original owner.

If the security taker provides cash as collateral, then the arrange- ment is a repo (see paragraph 7.159).
If the security taker provides noncash collateral, then no stock po- sition changed.

In either case, the securities involved remain on the balance sheet of the original owner.

7.161 A gold swap involves an exchange of gold for foreign exchange deposits with an agreement that the transaction be reversed at an agreed future date at an agreed gold price.
Th e gold taker (cash provider) should not record the gold on its balance sheet, while the gold provider (cash taker) should not remove the gold from its balance sheet.

Gold swaps are similar to securities repurchase agreements, except that the col- lateral is gold, and should therefore be recorded as a collateralized loan or deposit.

Gold loans occur in the same form as securities lending and should be treated in the same way.
7.162 An off -market swap is a swap contract44 that has a nonzero value at inception as a result of having reference rates priced diff erently from current market values—that is, “off -the-market.” Such a swap results in a lump sum being paid, usually at inception, by one party to the other.
Th e economic nature of an off - market swap is equivalent to a combination of bor- rowing (i.e., the lump sum), in the form of a loan, and an on-market swap (fi nancial derivative).45 43 Repurchase agreements that are included in the national defi nition of broad money should be classifi ed as nontransferable deposits.

All other securities repurchase agreements should be classifi ed under loans.
44 A swap contract involves the counterparties exchanging, in accordance with prearranged terms, cash fl ows based on the reference prices of the underlying items.

45 For more details, see the PSDS Guide, paragraphs 4.127–4.131.

The Balance Sheet 197 7.163 Loans are recorded at nominal value (i.e., the amount advanced plus interest accrued and not paid minus any repayments).

Th e use of nominal values is partly infl uenced by pragmatic concerns about data availability.
In addition, because loans are generally not intended for trading on the secondary market, estimating a market price can be subjective.

Nomi- nal value is also useful because it shows actual legal liability and the starting point of creditor recovery behavior.

In some cases, loans may be traded, oft en at discount, or a fair value may exist or could be es- timated.
It is recognized that nominal value provides an incomplete view of the fi nancial position of the creditor, particularly when the loans are nonperform- ing.

In such cases, information on the nominal value, as well as the fair value, of nonperforming loan as- sets should be included as a memorandum item to the GFS balance sheet—see paragraph 7.262.
Equity and investment fund shares (6205, 6215, 6225, 6305, 6315, 6325) 7.164 Equity and investment fund shares have the distinguishing feature that the holders own a re- sidual claim on the assets of the institutional unit that issued the instrument.

Equity represents the owners’ funds in the institutional unit.

In contrast to debt, eq- uity does not generally provide the owner with a right to a predetermined amount or an amount determined according to a fi xed formula.
Investment fund shares have a specialized role in fi nancial intermediation as a kind of collective investment in other assets, and should be identifi ed separately.

When an institutional unit’s net worth is calculated, equity and investment fund shares are, by convention, included in total li- abilities (see paragraphs 7.228–7.233).
Equity (62051, 62151, 62251, 63051, 63151, 63251) 7.165 Equity consists of all instruments and re- cords that acknowledge claims on the residual value of a corporation or quasi-corporation, aft er the claims of all creditors have been met.

Equity is treated as a liability of the issuing institutional unit (a public cor- poration or other government unit).

7.166 Ownership of equity in legal entities is usu- ally evidenced by shares, stocks, participations, de- pository receipts, or similar documents.
Shares and stocks have the same meaning.

Participating preferred 198 Government Finance Statistics Manual 2014 shares are those that provide for participation in the residual value on the dissolution of an incorporated enterprise.

Such shares are also equity securities, re- gardless of whether the income is fi xed or determined according to a formula.

(For nonparticipating pre- ferred shares, see paragraph 7.150.)
In addition to the purchase of shares, the value of equity can be aff ected by a range of factors, such as share premiums, accu- mulated reinvested or retained earnings, or revalua- tions.

In addition, a direct investor may increase its equity in an affi liate by providing goods and services or assuming debt.

7.167 Depository receipts are securities that repre- sent ownership of securities listed in other economies.
Depository receipts listed on one exchange represent ownership of securities listed on another exchange, and ownership of the depository receipts is treated as if it represents direct ownership of the underlying securi- ties.

Depository receipts facilitate transactions in secu- rities in economies other than their home listing.

Th e underlying securities may be equity or debt securities.

7.168 Equity may be subdivided into listed shares, unlisted shares, and other equity.
Both listed and un- listed shares are equity securities (securities are de- fi ned in paragraph 7.119).

Listed shares are equity securities listed on an exchange and may be referred to as quoted shares.

Unlisted shares are equity secu- rities not listed on an exchange.

Listed and unlisted shares tend to be issued by diff erent types of corpora- tions (unlisted shares are oft en issued by subsidiaries and smaller businesses) and typically have diff erent regulatory requirements.
7.169 Other equity is equity that is not in the form of securities.

Th is can include equity in quasi- corporations, such as branches, trusts, limited liability and other partnerships, unincorporated funds, and notional units for ownership of real estate and other natural resources.

Th e ownership of many interna- tional organizations is not in the form of shares and should be classifi ed as other equity (although equity in the Bank for International Settlements is in the form of unlisted shares).
Ownership of currency union cen- tral banks is included in other equity.46 shares.

However, in two cases, it is possible to show a general government unit with liabilities for equity and investment fund shares.
Th e fi rst relates to some units (usually special purpose entities) that are established legally as public corporations but carry out only fi scal and quasi-fi scal activities—they are treated as part of general government (regardless of their legal status) because they are not considered to be separate insti- tutional units, unless they are nonresident.
Second, when a unit under the control of government is legally established as a corporation but functions as a non- market producer, such a unit is also part of general government, as explained in paragraph 2.41.

7.171 Th e general principles of valuation at mar- ket prices given in paragraphs 7.20–7.33 apply to eq- uity.

Equity can be readily valued at its current market prices when it is regularly traded on stock exchanges or other fi nancial markets.
7.172 However, there may be no observable market prices for unlisted shares and other equity positions (e.g., for equity in direct investment enterprises, un- listed and delisted companies, listed but illiquid compa- nies, joint ventures, and unincorporated enterprises).

7.173 When actual market values of equity are not available, an estimate is required.

One approach is to use information from the stock market on a similar listed share, as described in paragraph 7.29.
Alterna- tive methods of approximating the market value of shareholders’ equity are outlined in 2008 SNA, para- graphs 13.71–13.73, and include the following: recent transaction price, net asset value, present value/price to earnings ratios, book values reported by enterprises with macro-level adjustments by the statistics com- pilers, own funds at book value, and apportioning global value.

Th e value of other equity is equal to the value of the unit’s assets minus the value of its liabili- ties.
So for unincorporated enterprises, such as quasi- corporations, net worth is zero and the estimated value of other equity can be negative if the value of liabilities exceeds the value of the assets.47 Investment fund shares or units (62052, 62152, 62252, 63052, 63152, 63252) 7.170 Most general government units do not have liabilities in the form of equity and investment fund 7.174 Investment funds are collective investment undertakings through which investors pool funds for 46 See the BPM6, paragraph A3.44.
47 Incorporated corporations have a limited liability toward their shareholders so that the minimum value of their equity is zero.

investment in fi nancial or nonfi nancial assets.

Th ese funds issue shares (if a corporate structure is used) or units (if a trust structure is used).

Investment funds include money market funds (MMF) and non-MMF investment funds.48 Investment fund shares or units refer to the shares issued by mutual funds and unit trusts, rather than the shares they may hold.
7.175 MMFs are investment funds that invest only or primarily in short-term money market securities, such as treasury bills, certifi cates of deposit, and com- mercial paper.

MMF shares and units sometimes are functionally close to transferable deposits—for exam- ple, accounts with unrestricted check-writing privi- leges.

If MMF shares are included in broad money in the reporting economy, they should be recorded as a separate item in the balance sheet to allow reconcilia- tion with monetary statistics.
7.176 Investment funds invest in a range of assets, such as debt securities, equity, commodity-linked investments, real estate, shares in other investment funds, and structured assets.

7.177 Shares (or units) in money market funds or in other investment funds should be valued in a man- ner similar to the methods under equity: • Listed shares should be valued using the market price of the share.
• Unlisted shares should be valued according to one of the methods described in paragraph 7.172 for unlisted equity and other equity.
Insurance, pension, and standardized guarantee schemes [GFS] (6206, 6216, 6226, 6306, 6316, 6326) 7.178 Insurance, pension, and standardized guar- antee schemes comprise: • Nonlife insurance technical reserves • Life insurance and annuities entitlements • Pension entitlements [GFS] • Claims of pension funds on pension manager • Provisions for calls under standardized guaran- tee schemes.
7.179 Th ese reserves, entitlements, and provisions for calls represent liabilities of a public sector unit as 48 Th ese are discussed further in the BPM6, paragraphs 4.73–4.75.

The Balance Sheet 199 the insurer, pension fund, or issuer of standardized guarantees, and corresponding assets of the poli- cyholders or benefi ciaries.

In the public sector, it is usually public fi nancial corporations that engage in insurance schemes.
General government units may incur liabilities for these reserves, entitlements, and provisions as operators of nonlife insurance schemes, nonautonomous or unfunded pension schemes, and standardized guarantee schemes.49 7.180 Th e value of a public sector unit’s assets in the form of insurance, pension, and standardized guar- antee schemes—as a policyholder—is determined by the amount of prepaid premiums plus estimates for claims established but not yet received by the public sector unit.
Th e value of a public sector unit’s liabili- ties in the form of each of these instruments is dis- cussed under the relevant instrument.

7.181 In general, insurance companies and op- erators of pension funds and standardized guarantee schemes make actuarial estimates of their liabilities under these schemes.

Th ese estimates will be the usual source to compile statistics for this instrument.
7.182 Th e following paragraphs briefl y defi ne the types of reserves, entitlements, and provisions appli- cable to insurance, pension, and standardized guaran- tee schemes.50 Nonlife insurance technical reserves (62061, 62161, 62261, 63061, 63161, 63261) 7.183 Nonlife insurance 51 technical reserves con- sist of (i) prepayments of net nonlife insurance pre- miums and (ii) reserves to meet outstanding nonlife insurance claims.
In other words, nonlife insurance technical reserves consist of premiums paid but not 49 It is unlikely that a general government unit would incur liabili- ties with respect to life insurance and annuities, unless it provides such schemes to its employees.

50 Th ese issues are discussed in detail in the 2008 SNA, paragraphs 17.76–17.224.

51 Nonlife insurance covers all risks other than life insurance, such as accidents, sickness, fi re, etc.
A policy that provides a benefi t in the case of death within a given period but in no other circum- stances, usually called term insurance, is regarded as nonlife insurance because, as with other nonlife insurance, a claim is pay- able only if a specifi ed contingency occurs and not otherwise.

In practice, because of the way in which insurance corporations keep their accounts, it may not always be possible to separate term insurance from other life insurance.
In these circumstances, term insurance may have to be treated in the same way as life insurance for practical reasons.

200 Government Finance Statistics Manual 2014 yet earned (called unearned premiums) and claims incurred but not yet settled.

7.184 Prepayments of net nonlife insurance premi- ums arise because premiums are usually payable at the beginning of the period covered by the policy.
How- ever, on an accrual basis, the premiums are earned through the policy period, so that the initial payment involves a prepayment or advance.

At any given time, part of the insurance premiums already paid has not yet been earned by the insurance enterprise because these prepaid premiums provide coverage against risks in the future.

Th e value of the prepaid or un- earned premiums should be determined proportion- ally.
For example, if an annual policy with a premium of 120 currency units comes into force on April 1 and accounts are being prepared for a calendar year, the premium earned in the calendar year is 90.

Th e pre- paid or unearned premium is the amount of the actual premium received that relates to the period past the reporting point.

In the example just given, there will be an unearned premium of 30 at the end of Decem- ber.
Th is unearned premium is intended to provide coverage for the fi rst three months of the next year.

7.185 Reserves to meet outstanding nonlife insur- ance claims are amounts arising from events that have occurred but for which the claims are still pending.

Th ey also include reserves for unexpired risks.


Th e liability incurred by the insurer to meet outstanding claims represents the present value of the amounts ex- pected to be paid out in settlement of claims, includ- ing disputed claims, as well as allowances for claims for incidents that have taken place but have not yet been reported.

7.186 Other reserves, such as equalization reserves, may be identifi ed by insurers.
However, these are recog- nized as liabilities (and corresponding assets) only when there is an event that gives rise to a liability.

Otherwise, equalization reserves are internal accounting entries by the insurer that represent saving to cover irregularly occurring catastrophes, and thus do not represent any existing corresponding claims for policyholders.
Life insurance and annuities entitlements (62062, 62162, 62262, 63062, 63162, 63262) 7.187 Life insurance and annuities entitlements are fi nancial claims policyholders have against an enterprise off ering life insurance or providing annui- ties.

Th is category consists of liabilities of life insur- ance companies and annuity providers for prepaid premiums and accrued liabilities to life insurance policyholders and benefi ciaries of annuities.
Life in- surance and annuity entitlements are the obligation to provide benefi ts to policyholders, or to compensate benefi ciaries upon the death of policyholders,52 and thus are kept separate from shareholders’ funds.

Th ese entitlements are regarded as liabilities of the insur- ance companies and assets of the policyholders and benefi ciaries.

Annuities entitlements are the actuarial calculation of the present value of the obligations to pay future income until the death of the benefi ciaries.
7.188 Th e amount to be recorded as the stock posi- tions for life insurance and annuities entitlements is similar to that for nonlife insurance technical reserves in that it represents obligations to meet future claims already accrued.
However, in the case of life insurance, the level of the entitlements is considerable and repre- sents the present value of all expected future benefi ts.53 Pension entitlements [GFS]54 (62063, 62163, 62263, 63063, 63163, 63263) 7.189 As explained in paragraphs A2.5–A2.7, en- titlements to social insurance benefi ts are divided between those relating to pensions and those relat- ing to all other forms of benefi ts (i.e., nonpensions).
Th e distinction between the two is important because the GFS recognizes liabilities for employment-related pensions, regardless of whether there are actually assets set aside to meet the entitlements, but recog- nizes reserves for employment-related nonpension benefi ts only when these reserves actually exist (see paragraph 7.195).

Furthermore, a distinction is made between social security schemes and employment- related schemes.
Th is section deals with entitlements to employment-related pension schemes.

7.190 Pension entitlements are fi nancial claims that existing and future pensioners55 hold against 52 Th is is distinct from term insurance, which is regarded as non- life insurance (see footnote 51).

53 In the commercial accounts of insurance corporations, some of these obligations will be described as provisions for bonuses and rebates.
Th is is the result of the insurance industry’s practice of smoothing benefi ts over time and retaining some benefi ts until the policy matures.

54 [GFS] indicates that an item has the same name but diff erent coverage in the 2008 SNA.

55 Existing and future pensioners include past and current employ- ees, as well as existing pensioners, but exclude future employees.
The Balance Sheet 201 either their employer or a fund designated by the em- ployer, to pay pensions earned as part of a compensa- tion agreement between the employer and employee.

Th e nature of these claims, and the corresponding li- abilities of the units operating the pension funds, de- pends on the type of benefi t promised.

that were due to be paid but have not yet been paid are classifi ed as other accounts receivable/payable (6308, 6318, 6328).
If a social security fund also administers an employment-related pension scheme, those pen- sion obligations are included under pension entitle- ments, and not as implicit social security obligations.
7.191 Th e two main types of pension schemes are defi ned-benefi t schemes and defi ned-contribution schemes.56 In a defi ned-benefi t scheme, the level of pension benefi ts promised by the employer to par- ticipating employees and other family members is determined by an actuarial formula based on par- ticipants’ length of service and salary.

In a defi ned- contribution scheme, the level of contributions to the fund is set, but the benefi ts that will be payable depend on the assets of the fund.
7.192 A pension fund for public sector employ- ees can be managed on behalf of the public sector unit by a public or private insurance corporation, or it can be organized and managed by the public sec- tor unit as an autonomous or nonautonomous pen- sion fund.

A nonautonomous pension fund is not a separate unit and the assets of the fund belong to the employer.
Th e employees have a claim against the employer who operates the nonautonomous fund, and the employer has a liability equal to the present value of the promised benefi ts.

For a description of the typology of social protection arrangements, see Appendix 2.

7.193 Th e liabilities of unfunded pension schemes should also be included in pension entitlements.
By its nature, an unfunded employment-related pension scheme must be organized and managed by the em- ployer, which may be a general government unit or a public corporation.
7.194 No liability is recognized in the primary accounts of macroeconomic statistical systems for benefi ts under social security schemes.57 Th e implicit obligation for future social security benefi ts are re- ported as a memorandum item to the balance sheet (see paragraph 7.261), regardless of the level of assets in a social security fund or other segregated accounts.
Liabilities for the payment of social security benefi ts 7.195 As well as pensions, some employment- related schemes may have other related liabilities, such as for health benefi ts, which are included under entitlements to nonpension benefi ts.58 Liabilities for these nonpension entitlements are recorded in mac- roeconomic statistics only when and to the extent that they exist in the employer’s accounts—that is, when reserves for these nonpension entitlements actually exist.
For pragmatic reasons, such liabilities for non- pension entitlements may be included with those for pension entitlements.

7.196 In addition to its pension entitlement liabili- ties to its benefi ciaries, a pension fund may sometimes have a claim on the employer, as the pension manager of the scheme.

On the other hand, the pension man- ager may have a claim on the surplus of the pension fund.
Such claims are excluded from pension entitle- ments and are classifi ed as claims of pension funds on pension manager (62064, 62164, 62264, 63064, 63164, 63264) (see paragraphs 7.199–7.200).

7.197 Pension entitlements are valued as follows: • Th e liability of a defi ned-benefi t pension scheme (including nonautonomous pension funds and unfunded pension schemes) is the present value of the promised benefi ts.
• Th e liability of a defi ned-contribution pension fund is the current market value of the fund’s net assets, which is determined according to the per- formance of the assets acquired with the pension contributions.59 7.198 Because the measurement of defi ned-benefi t pension fund entitlements rests on various assump- tions and methods, the nature of coverage and estima- tion should be described in metadata accompanying the balance sheet and other data reports.
56 Defi ned-benefi t schemes are sometimes referred to as “fi nal sal- ary schemes,” while defi ned-contribution schemes are sometimes referred to as “money-purchase schemes.” 57 Social security schemes are defi ned in paragraphs 2.100–2.102.

58 Funded schemes for social insurance other than pensions are not common.

59 Th e basis on which pension entitlement is calculated is de- scribed in detail in the 2008 SNA, Chapter 17.
202 Government Finance Statistics Manual 2014 Claims of pension funds on pension manager (62064, 62164, 62264, 63064, 63164, 63264) 7.199 An employer may contract with a third party to administer a pension fund for its employees.
If the employer continues to determine the terms of the pension scheme and retains the responsibility for funding any defi cit, as well as the right to retain any excess funding, the employer is referred to as the pension manager and the unit working under the di- rection of the pension manager as the pension admin- istrator.
If the agreement between the employer and the administrator is such that the employer passes the risks and responsibilities for any defi cit in funding to the administrator in return for the right of the admin- istrator to retain any excess, the latter becomes the pension manager as well as the administrator.
7.200 When the pension manager is a unit diff er- ent from the administrator, and the responsibility for any defi cits, or claims on any excess, rests with the pension manager, the following are recorded in the balance sheet of the pension manager: • A liability for claims of pension funds on the pension manager, in the case of defi cits • A fi nancial asset in the form of a claim on the pension fund, if the pension fund generates more investment income from the assets it holds than is necessary to cover the increase in pension entitlements • A counterpart entry should be recorded in im- puted employer’s social contributions on a net basis (i.e., an expense to increase the liability and a reduction in the expense when the liability re- duce or when government acquires an asset).
Provisions for calls under standardized guarantee schemes (62065, 62165, 62265, 63065, 63165, 63265) 7.201 Standardized guarantees are those kinds of guarantees that are issued in large numbers, usually for fairly small amounts, along identical lines.60 Op- erators of standardized guarantee schemes incur lia- bilities equal to the present value of the expected calls under outstanding guarantees, net of any recoveries 60 In contrast, one-off guarantees are individual, and guarantors usually cannot reliably estimate the risk of calls.
As a result, in most cases, one-off guarantees are considered a contingent liabil- ity (unless and until such guarantees are called).

For a discussion of contingent liabilities, see paragraphs 7.251–7.260.

the guarantor expects to receive from the defaulting borrowers, a similar approach as for nonlife insur- ance.

Th is liability is called provisions for calls under standardized guarantees.
7.202 Th ere are three parties involved in these ar- rangements: the borrower (debtor), the lender (credi- tor), and the guarantor.

Either the borrower or lender may contract with the guarantor to repay the lender if the borrower defaults.

Examples are export credit guarantees, deposit guarantees, and student loan guarantees.
Standardized guarantees are based on the same paradigm as that for nonlife insurance, and a similar treatment is adopted for these guarantees, as discussed in paragraphs A4.66–A4.80.

Financial derivatives and employee stock options (6207, 6217, 6227, 6307, 6317, 6327) 7.203 Financial derivatives and employee stock options are fi nancial assets and liabilities that have similar features, such as a strike price and some of the same risk elements.
However, although both transfer risk, employee stock options are also designed to be a form of remuneration.
Financial derivatives (62071, 62171, 62271, 63071, 63171, 63271) 7.204 A fi nancial derivative contract is a fi nancial instrument that is linked to another specifi c fi nancial instrument, indicator, or commodity and through which specifi c fi nancial risks (e.g., interest rate risk, foreign exchange risk, equity and commodity price risks, and credit risk) can be traded in their own right in fi nancial markets.
Transactions and positions in fi - nancial derivatives are treated separately from the val- ues of any underlying items to which they are linked.

Financial derivatives are valued at market prices pre- vailing on balance sheet recording dates.

If market price data are unavailable, other fair value methods (e.g., option models or present values) may be used to value them.

Compilers are generally constrained to use the parties’ own accounts.
7.205 Th e risk embodied in a fi nancial derivative contract can be traded either by selling the contract it- self, as is possible with options, or by creating a new contract embodying risk characteristics that match, in a countervailing manner, those of the existing contract.

Th e latter practice, which is termed off setability, occurs in forward markets.
Off setability means that it is oft en possible to eliminate the risk associated with a deriva- tive by creating a new but reverse contract having char- acteristics that countervail the risk underlying the fi rst derivative.

Buying the new derivative is the functional equivalent of selling the fi rst derivative because the re- sult is the elimination of the underlying fi nancial risk.
Th e ability to countervail the underlying risk in the market is therefore considered the equivalent of trad- ability in demonstrating value.

Th e outlay that would be required to replace the existing derivative contract represents its value; actual off setting is not required.

7.206 In many cases, derivatives contracts are set- tled by payments of net amounts in cash, rather than by the delivery of the underlying items.
Once a fi nan- cial derivative reaches its settlement date, any un- paid overdue amount is reclassifi ed as other accounts receivable/payable, as its value is fi xed, and thus the nature of the claim becomes debt.

7.207 Th e following types of fi nancial arrange- ments are not fi nancial derivatives: • A fi xed-price contract for goods and services is not a fi nancial derivative unless the contract is standardized so that the market risk therein can be traded in fi nancial markets in its own right.
For example, an option to purchase an aircraft from the manufacturer is not classifi ed as a fi nan- cial derivative; if the option to purchase is trans- ferable, and is in fact transferred, the transaction is recorded under contracts, leases, and licenses, discussed in paragraph A4.52.

• Insurance and standardized guarantees are not fi nancial derivatives.
Insurance involves the col- lection of funds from policyholders to meet fu- ture claims arising from the occurrence of events specifi ed in insurance policies.

Th at is, insurance and standardized guarantees are used to manage event risk primarily by the pooling, not the trad- ing, of risk (see paragraph 7.201).

However, some guarantees other than standardized guarantees meet the defi nition of fi nancial derivatives.
Th ose guarantees protect, on a guarantee-by-guaran- tee basis, the lender against certain types of risk arising from a credit relationship by paying the guarantor a fee for a specifi ed period—these are known as credit derivatives (see paragraph 7.218).

• Contingent assets and liabilities, such as one-off guarantees and letters of credit, are not fi nancial assets (as discussed in paragraph 7.251).
The Balance Sheet 203 • Instruments with embedded derivatives are not fi nancial derivatives (see paragraph 7.148).

If the owner of the primary instrument sub- sequently creates a new but reverse fi nancial derivative contract to off set the risk of the em- bedded derivative, the creation of this new fi nancial derivative contract is recorded as a separate transaction, which does not aff ect the recording of transactions and positions in the primary instrument.
However, detachable war- rants are treated as separate fi nancial deriva- tives, because they can be detached and sold in fi nancial markets.

• Timing delays that arise in the normal course of business and may entail exposure to price move- ments do not give rise to fi nancial derivatives.

Timing delays include normal settlement periods for spot transactions in fi nancial markets.

7.208 Th ere are two broad types of fi nancial derivatives—options and forward-type contracts.
Options 7.209 In an option contract (option), the pur- chaser acquires from the seller a right to buy or sell (depending on whether the option is a call (buy) or a put (sell)) a specifi ed underlying item at a strike price on or before a specifi ed date.

Th e purchaser of an option pays a premium to the writer of the op- tion.
In return, the buyer acquires the right but not the obligation to buy (call option) or sell (put option) a specifi ed underlying item (real or fi nancial) at an agreed-on contract price (the strike price) on or be- fore a specifi ed date.

(On a derivatives exchange, the exchange itself may act as the counterparty to each contract.)
7.210 Options can be contrasted with forward- type contracts in that: • At inception, there is usually no up-front pay- ment for a forward-type contract and the de- rivative contract begins with zero value, whereas there is usually a premium paid for an option that refl ects the nonzero value of the contract.
• During the life of the contract, for a forward-type contract, either party can be creditor or debtor, and it may change, whereas for an option, the buyer is always the creditor and the writer is al- ways the debtor.

204 Government Finance Statistics Manual 2014 • At maturity, redemption is unconditional for a forward-type contract, whereas for an option it is determined by the buyer of the option.
7.211 Warrants are a form of fi nancial derivative option giving the owner the right but not the obliga- tion to purchase from the issuer of the warrant a fi xed amount of an underlying asset, such as equities and bonds, at an agreed contract price for a specifi ed pe- riod of time or on a specifi ed date.
Although similar to other traded options, a distinguishing factor is that the exercise of the warrants can create new securities, thus diluting the capital of existing bond- or share- holders, whereas traded options typically grant rights over assets that are already available.
Forward-type contracts 7.212 A forward-type contract (forward) is an un- conditional contract by which two counterparties agree to exchange a specifi ed quantity of an underlying item (real or fi nancial) at an agreed-on contract price (the strike price) on a specifi ed date.

Forward-type contracts include futures and swaps (other than as discussed in paragraph 7.215).
Th e term forward-type contract is used because the term forward is oft en used more nar- rowly in fi nancial markets (oft en excluding swaps).

7.213 Futures are forward-type contracts traded on organized exchanges.

Th e exchange facilitates trading by determining the standardized terms and conditions of the contract, acting as the counterparty to all trades, and requiring a margin to be deposited and paid to mitigate risk.
Forward rate agreements and forward foreign exchange contracts are common types of forward-type contracts.

7.214 At the inception of a forward-type contract, risk exposures of equal market value are exchanged, so a contract typically has zero value at that time.

As the price of the underlying item changes, the market value will change, although it may be restored to zero by periodic settlement during the life of the forward.
Th e classifi cation of a forward-type contract may change between asset and liability positions.

Other issues associated with ﬁ nancial derivatives Swap contracts 7.215 A swap contract involves the counterparties exchanging, in accordance with prearranged terms, cash fl ows based on the reference prices of the un- derlying items.

Swap contracts classifi ed as forward- type contracts include currency swaps, interest rate swaps, and cross-currency interest rate swaps.
Under a swap contract, the obligations of each party may arise at diff erent times—for example, an interest rate swap for which payments are quarterly for one party and annual for the other.

In such cases, the quarterly amounts payable by one party prior to payment of the annual amount payable by the other party are re- corded as transactions in the fi nancial derivative con- tract.
Other types of arrangements also called swaps but not meeting the foregoing defi nition include gold swaps (see paragraph 7.161 for a discussion of their treatment), central bank swap arrangements,61 and credit default swaps (see paragraph 7.218).

7.216 For foreign currency fi nancial derivative swap contracts, such as currency swaps, it is necessary to dis- tinguish between transactions in a fi nancial derivative contract and transactions in the underlying currencies.
At inception, the parties exchange the underlying fi - nancial instruments (usually classifi ed as currency and deposits or loans).

At the time of settlement, the diff er- ence in the values of the currencies swapped, as mea- sured in the unit of account at the prevailing exchange rate, is allocated to a transaction in a fi nancial deriva- tive, with the values swapped recorded in the relevant item (usually currency and deposits, or loans).
7.217 As mentioned in paragraph 7.162, the eco- nomic nature of an off -market swap is equivalent to a combination of borrowing (i.e., the lump sum), in the form of a loan, and an on-market swap (fi nancial derivative).

Credit derivatives 7.218 Credit derivatives are fi nancial derivatives whose primary purpose is to trade credit risk.

Th ey are designed for trading in loan and security default risk.
In contrast, the fi nancial derivatives described in para- graphs 7.215–7.217 are mainly related to market risk, which pertains to changes in the market prices of secu- rities, commodities, interest, and exchange rates.

Credit derivatives take the form of both forward-type (total return swaps) and option-type contracts (credit default swaps).

Under a credit default swap, premiums are paid in return for a cash payment in the event of a default 61 See the BPM6, paragraphs 6.102–6.104.
by the debtor of the underlying instrument.

Like other fi nancial derivatives, credit derivatives are frequently drawn up under standard master legal agreements and involve collateral and margining procedures, which allow for a means to make a market valuation.

Margins 7.219 Financial derivatives are oft en subject to margin calls.

Margins are payments of cash or de- posits of collateral that cover actual or potential ob- ligations incurred.
Th e required provision of margin refl ects market concern over counterparty risk, es- pecially in markets for futures and exchange-traded options.

Th e classifi cation of margins depends on whether they are repayable or nonrepayable: • Repayable margin consists of cash or other col- lateral deposited to protect counterparties against default risk.

Ownership of the margin remains with the unit that deposited it.
Repayable margin payments in cash are classifi ed as transactions and stock positions in deposits (particularly if the debtor’s liabilities are included in broad money) or in other accounts receivable/payable.

When a repayable margin deposit is made in an asset other than cash (such as securities), no transaction nor change in stock position is recorded because no change in economic ownership has occurred.

• Nonrepayable margin payments reduce the fi nan- cial liability position in a derivative.
In organized exchanges, nonrepayable margin (sometimes known as variation margin) is paid daily to meet liabilities recorded as a consequence of the daily marking of derivatives to market value.

Th e en- tity that pays nonrepayable margin no longer re- tains ownership of the margin nor has the right to the risks and rewards of ownership.

Nonrepay- able margin payments are classifi ed as transac- tions in fi nancial derivatives.
7.220 Th ese principles for the classifi cation of mar- gins also apply more generally to margin calls relating to positions in other fi nancial assets.

Employee stock options (62072, 62172, 62272, 63072, 63172, 63272) 7.221 Employee stock options are options to buy the equity of a company, off ered to employees of the company as a form of remuneration.
Employee stock options have similar pricing behavior to fi nancial de- The Balance Sheet 205 rivatives, but they have a diff erent nature—including arrangements for the granting and vesting dates—and purpose (i.e., to motivate employees to contribute to increasing the value of the company, rather than to trade risk).

If a stock option granted to employees can be traded on fi nancial markets without restriction, it is classifi ed as a fi nancial derivative.
7.222 In some cases, stock options may be provided to suppliers of goods and services to the enterprise.

Although these are not employees of the enterprise, for convenience they are also recorded under em- ployee stock options because their nature and moti- vation is similar.
(Whereas the corresponding entry for stock options granted to employees is wages and salaries in kind (2112) as discussed in paragraph 6.17, the corresponding entry for stock options granted to suppliers is use of goods and services (22).)
7.223 Employee stock options should be valued at fair value at grant date62 using a market value of equivalent traded options (if available) or using an option pricing model (binomial or Black-Scholes) with suitable allowance for particular features of the options.63 Aft er the vesting date, employee stock op- tions are valued at market prices.
Other accounts receivable/payable (6208, 6218, 6228, 6308, 6318, 6328) 7.224 Other accounts receivable/payable consist of trade credit and advances and miscellaneous other items due to be paid or received.

If an economic event requires a subsequent cash fl ow, for example, goods and services are sold on credit provided by the sup- plier and the length of time between the economic event and the time of the cash fl ow is bridged by an entry in other accounts receivable/payable.
7.225 Trade credit and advances (62081, 62181, 62281, 63081, 63181, 63281) include (i) trade credit extended directly to purchasers of goods and services and (ii) advances for work that is in progress or to be undertaken, such as progress payments made during 62 Th e terms grant date, vesting date, and exercise date are defi ned in paragraph 9.77.
63 Th e International Accounting Standards Board provides detailed recommendations on how employee stock options may be valued, and its recommendations are likely to be followed by corpora- tions using employee stock options as a form of compensation for their employees.

Th e value of the employee stock options varies between grant date and vesting date and then between the vesting date and exercise date, as the value of the shares covered changes.
206 Government Finance Statistics Manual 2014 construction in advance for work being performed, or for prepayments of goods and services.

Such credit arises both from normal delays in receiving payment and from deliberate extensions of vendor credit to fi nance sales.

Trade credit extended by the seller of goods and services does not include loans, debt se- curities, or other liabilities that are provided by third parties to fi nance trade.
If a government unit issues a promissory note or another type of security to con- solidate the payment due on several trade credits, the note or security should be classifi ed as a debt security.
Trade credit and advances exclude trade credits that meet the defi nition of a loan.64 7.226 Miscellaneous other accounts receivable/ payable (62082, 62182, 62282, 63082, 63182, 63282) include accrued but unpaid taxes, dividends, payment for purchases and sales of securities paid or received before the instrument is issued, rent, wages and sala- ries, social contributions, social benefi ts, and similar items.
Th ey also include payments due under fi nancial derivative contracts that are in arrears and payments of amounts that have not yet accrued, such as pre- payments of taxes.

Some of these prepayments, oft en called “deposits,” should be recorded here rather than in currency and deposits.

Th ese “deposits” are repay- able only when specifi c conditions are met.
Examples of this type of “deposit” included under miscellaneous other accounts receivable/payable are deposits held by court or tax authorities pending resolution of a dis- pute, deposits payable in advance to cover breakages or nonpayment for the use of goods and services, and bail deposits.

In principle, accrued but unpaid inter- est should be added to the principal of the underly- ing asset rather than included in this category.
Taxes receivable and/or compensation of employees pay- able should be separately identifi ed if the amounts are substantial.

64 A supplier of goods or services may have a claim on a gov- ernment unit in the form of a trade credit.
When the supplier transfers this claim completely and irrevocably to a fi nancial insti- tution (notably a unit engaged in factoring activity), the original liability of the government unit recorded as trade credit in other accounts payable should be reclassifi ed (by way of other changes in the volume of assets) as a loan when the following two condi- tions are both met: (i) the government unit has no longer any payment obligation to its supplier, and (ii) the fi nancial institu- tion has no direct or indirect recourse on the supplier (transferor of the claim) if the government unit does not meet its payment obligations in due time.
Also, if a trade credit is restructured in such a way that it meets the defi nition of a loan, it should be reclassifi ed as a loan.

7.227 Other accounts receivable/payable should be recorded at nominal value.

By defi nition, other ac- counts receivable/payable are accrual concepts and do not exist in an accounting system that uses a pure cash basis of recording.
Net Worth 7.228 As defi ned in paragraph 7.1, net worth (6) of an institutional unit (or grouping of units) is the total value of its assets minus the total value of its liabilities.

Net worth is a balancing item that stems from valuing assets and liabilities (including equity and investment fund shares) at their market prices on the balance sheet date.

Net worth can be positive, negative, or zero.

As with other balancing items in GFS, net worth cannot be measured independently of the other entries.
7.229 For most government units, the net worth is the economic value of the unit because they usually have no issued shares and other equity.

In the case of quasi-corporations, net worth is zero, because the value of the owners’ equity is assumed to be equal to its assets minus its liabilities.
Even when general government units have liabilities in the form of equity (see para- graph 7.170), the net worth of such government units is zero, similar to that of quasi-corporations, if these shares are not traded or the value of the shares cannot be determined independently.

For other corporations, net worth is a component of own funds.
In macroeco- nomic statistics, own funds and net worth have a spe- cifi c meaning, which may diff er from the understanding of these terms within the context of accounting.

7.230 When an autonomous pension fund oper- ates as a defi ned contribution scheme, the net worth will be zero, because by defi nition the claims on the pension fund are equal to the assets of the fund.
How- ever, a defi ned-benefi t pension scheme operated by an insurance corporation or as an autonomous pen- sion fund can have a net worth, positive or nega- tive, if the assets of the fund exceed or fall short of the fund’s liability for the pension benefi ts, unless there is a claim of the pension fund on the pension manager—in which instance the net worth is also zero (see paragraphs 7.199–7.200).
7.231 Own funds are defi ned as the diff erence between total assets (at market values) and total li- abilities excluding shares and other equity (at market value).
From the foregoing, it follows that the value Figure 7.1 Net Worth in a Macroeconomic Statistics Balance Sheet Assets (at market value) Shares and other equity (at market value) + net worth = Own funds Liabilities excluding shares and other equity (at market value) of own funds is equal to the value of shares and other equity (at current market prices on the balance sheet date) plus net worth, as illustrated in Figure 7.1.
7.232 In the case of quasi-corporations, their im- puted shareholders’ equity is equal to their own funds.

Public corporations are seen to have a net worth (which could be positive or negative) in addition to the value of the shareholders’ equity, if shares are traded in the market or the value can be determined independently.

Th is is because shares are included in the public corporation’s balance sheet at their current market price on the balance sheet date.
7.233 If the current market value of equity and invest- ment fund shares cannot be determined independently or they do not trade in the market, an alternative calcu- lation is similar to the treatment of quasi-corporations (see paragraph 7.232).

Th is calculates the value of eq- uity and investment fund shares in such a way that the net worth of the public corporation is zero.
Memorandum Items 7.234 It may be desirable to record memorandum items to provide supplemental information about items (such as aggregates and balancing items) related to, but not included on, the balance sheet.

Table 7.10 shows the memorandum items to the balance sheet proposed in the GFS framework (additional items and subitems may be added, as needed).
Net Financial Worth (6M2) 7.235 Th e net fi nancial worth (6M2) of an insti- tutional unit (or grouping of units) is the total value of its fi nancial assets minus the total value of its li- abilities.

Th is balancing item is oft en cited because of the general government and public sectors’ infl uence on the fi nancial system and also because of the dif- fi culties in valuing government-unique nonfi nancial assets.
The Balance Sheet 207 Table 7.10 Classiﬁ cation of Memorandum Items 6M2 6M3 6M4 6M35 6M36 6M37 6M38 6M391 6M392 6M5 6M6 6M61 6M62 6M63 6M7 6M8 6M81 to the Balance Sheet Net ﬁ nancial worth Gross debt at market value Gross debt at nominal value Gross debt at face value Net debt at market value Net debt at nominal value Net debt at face value Concessional loans at nominal value Implicit transfers resulting from loans at concessional interest rates Arrears Explicit contingent liabilities1 Publicly guaranteed debt Other one-off guarantees Explicit contingent liabilities not elsewhere classiﬁ ed Net implicit obligations for future social security beneﬁ ts1 Nonperforming loan assets at fair value Nonperforming loan assets at nominal value 1The contingent liabilities are shown in the Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Beneﬁ ts (Table 4.6).
Debt65 Gross debt 7.236 Total gross debt—oft en referred to as “total debt” or “total debt liabilities”—consists of all liabili- ties that are debt instruments.

A debt instrument is defi ned as a fi nancial claim that requires payment(s) of interest and/or principal by the debtor to the credi- tor at a date, or dates, in the future.
Th e following in- struments are debt instruments: • Special Drawing Rights (SDRs) • Currency and deposits • Debt securities • Loans • Insurance, pension, and standardized guarantee schemes [GFS] • Other accounts payable.

65 For a detailed discussion on the compilation of public sector debt, see the PSDS Guide.
208 Government Finance Statistics Manual 2014 7.237 From the foregoing list, it follows that all li- abilities included in the GFS balance sheet are consid- ered debt, except for liabilities in the form of equity and investment fund shares and fi nancial derivatives and employee stock options.

Equity and investment fund shares are not debt instruments because they entitle the holders to dividends and a claim on the re- sidual value of the unit.
Financial derivatives are not debt instruments because they do not supply funds or other resources, but rather shift the exposure to risks from one party to another.

7.238 As recommended in the PSDS Guide, debt instruments should be valued on the reference date at nominal value, and, for traded debt securities, at mar- ket value as well.

Both valuation bases provide useful information about debt.

If the nominal and market values of debt instruments are not available, gross debt is at face value.
Deviations from these valuation principles should always be specifi ed in the footnotes to the balance sheet.

7.239 Th ese valuations of gross debt are discussed, in turn, in paragraphs 7.240–7.242.

For more details on valuation, see paragraphs 3.107–3.129.
Gross debt at market value (6M3) 7.240 Gross debt at market value (6M3) means that debt securities are valued at market prices; insurance, pension, and standardized guarantee schemes are val- ued according to principles that are equivalent to mar- ket valuation; and all other debt instruments are valued at nominal prices, which are considered to be the best generally available proxies of their market prices.
Gross debt at nominal value (6M4) 7.241 Gross debt at nominal value means that debt securities are valued at their nominal values.

Th e nominal value of a debt instrument at any moment in time is the amount that the debtor owes to the credi- tor.

Th is is a measure of value from the viewpoint of the debtor.

Gross debt at face value (6M35) 7.242 Th e face value of a debt instrument is the undiscounted amount of principal to be repaid at (or before) maturity and has been called nominal value in some cases.
Th e use of face value as a proxy for nomi- nal value in measuring the gross debt position can re- sult in an inconsistent approach across all instruments and is not recommended, unless nominal and market values are not available.
Net debt 7.243 Net debt is calculated as gross debt minus fi nancial assets corresponding to debt instruments.66 Financial assets corresponding to debt instruments are: • Monetary gold and Special Drawing Rights (SDRs) • Currency and deposits • Debt securities • Loans • Insurance, pension, and standardized guarantee schemes [GFS] • Other accounts receivable.
7.244 Monetary gold, as defi ned in the 2008 SNA and this Manual, includes elements of a debt instru- ment (unallocated gold accounts) and a nondebt in- strument (gold bullion).

In principle, the gold bullion element of monetary gold should be excluded from the calculation of net debt.

However, in practice, the total amount for monetary gold may have to be used in the net debt calculation because compilers of public sector debt statistics may not be able to exclude the gold bullion element.
7.245 Net debt can be calculated at market value (6M36), nominal value (6M37), and face value (6M38).

Concessional loans 7.246 Loans with concessional interest rates could be seen as providing a benefi t to the borrower in the form of a transfer equal to the diff erence between the actual interest payable and the amounts that would 66 Th is category calculates net debt as total debt liabilities minus all fi nancial assets corresponding to debt instruments.
For some purposes, it may be useful to net individual debt instruments against their corresponding fi nancial assets.

For other purposes, it may be useful to calculate debt net of highly liquid assets.

How- ever, in most cases, a one-on-one netting of a debt instrument against its corresponding fi nancial asset may not be analytically useful because, typically, specifi c types of assets are not earmarked to repay specifi c types of liabilities.
Debt net of highly liquid as- sets is, in most cases, equal to gross debt minus fi nancial assets in the form of currency and deposits.

However, in some cases, debt securities held for debt management purposes could be included as highly liquid fi nancial assets.

be payable if market-equivalent interest prevailed.

If such a transfer were recognized, it would usually be recorded as current transfer/grant (depending on the type of recipient), and the interest recorded would be adjusted by the same amount.
However, the means of incorporating the impact of concessional rates within macroeconomic statistics have not fully evolved, al- though various alternatives have been advanced.

67 Accordingly, until the treatment is agreed, informa- tion on concessional debt should be provided through supplementary information in the form of two mem- orandum items.

Th e fi rst shows the stock of conces- sional loans at nominal value (6M391).
Th e second shows an estimate of the value of the benefi t trans- ferred to the borrower—that is, the value of implicit transfers resulting from loans at concessional interest rates (6M392), calculated as described in footnote 67.

Arrears (6M5) 7.247 Arrears are defi ned as amounts that are both unpaid and past the due date for payment.
In prin- ciple, amounts payable for any expense, acquisition of assets, or related to any liability may be in arrears.68 For debt liabilities, arrears arise when principal or in- terest payments are not made when due.

For expense and the acquisition of nonfi nancial assets, amounts payable may be in arrears from inception.

For example, when amounts payable for compensation of employees are not made when due, the other accounts payable for compensation of employees are in arrears.
Also, when a contract stipulates payment on delivery 67 Th e one-off benefi t at the point of loan origination can be calcu- lated as being equal to the diff erence between the nominal value of the debt and its present value using a relevant market discount rate.

Th is option has the advantage of considering all the possible sources of transfers in debt concessionality—maturity period, grace period, and frequency of payments, as well as the interest rate—and is consistent with nominal valuation of loans.
Such an approach should be used for offi cial lending involving an inten- tion to convey a benefi t and occurrence in a noncommercial set- ting (usually government-to-government).

For example, in debt reorganization through the Paris Club, debt reduction in present value terms is calculated using a market-based discount rate, usu- ally the OECD’s Commercial Interest Reference Rate (CIRR).
Th e diff erence between the nominal value of the applicable debt and its present value is the amount of capital transfer derived from the debt reorganization arrangements.

For more details, see the PSDS Guide, paragraphs 4.83–4.86.

For the treatment of concessional loans to employees, see paragraph 6.17.

68 In some cases, arrears arise for operational reasons (such as minor administrative delays) rather than from a reluctance or inability to pay.
Nonetheless, in principle, such arrears should be recorded as arrears when outstanding at the reference date.

The Balance Sheet 209 for goods and services or nonfi nancial assets and such amounts payable are not settled on delivery, other ac- counts payable for these goods and services or nonfi - nancial assets are in arrears from inception.

7.248 When arrears in an existing liability occur, they should continue to be shown in the same instru- ment until the liability is extinguished.
However, if the contract provides for a change in the characteristics of a fi nancial instrument when it goes into arrears, this change should be recorded as a reclassifi cation through other changes in the volume of assets and li- abilities (see paragraphs 3.97, 9.21, and 10.84).

7.249 If under a cash accounting system, arrears are not recorded separately, compilers will need to collect supplementary information to estimate ar- rears.
Information on arrears is useful for various kinds of policy analyses and solvency assessments and should be shown as a memorandum item in the bal- ance sheet where signifi cant.

Information on arrears should continue to be collected from their creation— that is, when payments are not made—until they are extinguished, such as when debt arrears are repaid, re- scheduled, or forgiven by the creditor, or when (say) wages and salaries in arrears are paid.
7.250 Th e nominal value of arrears is equal to the value of the payments—interest and principal in the case of liabilities—missed, and any subsequent eco- nomic fl ows, such as the accrual of additional interest on a liability in arrears, or the settlement of arrears.

(See also paragraphs 9.22–9.23.)

Explicit Contingent Liabilities (6M6) Overview 7.251 Contingent liabilities create fi scal risks69 and may arise from deliberate public policy or from un- foreseen events, such as a fi nancial crisis.
Contingent liabilities are obligations that do not arise unless a particular, discrete event(s) occurs in the future.

A key diff erence between contingent liabilities and liabilities70 is that one or more conditions must be fulfi lled before 69 At the most general level, fi scal risks may be defi ned as any potential diff erences between actual and expected fi scal outcomes (e.g., fi scal balances and public sector debt).

Contingent liabilities are a specifi c source of potential fi scal risk.
70 Liabilities refer to those obligations recognized on a macroeco- nomic statistics balance sheet in the calculation of an institutional unit’s net worth.

Contingent liabilities are not included on the balance sheet (i.e., contingent liabilities are not taken into account in the calculation of a unit’s net worth).

210 Government Finance Statistics Manual 2014 a contingent liability is recognized as a liability.
With contingent liabilities, there is typically uncertainty over whether a payment will be required, and its potential size.71 7.252 A distinction is made between explicit and implicit contingent liabilities.

Explicit contingent li- abilities are defi ned as legal or contractual fi nancial arrangements that give rise to conditional require- ments to make payments of economic value.

Th e re- quirements become eff ective if one or more stipulated conditions arise.
By contrast, implicit contingent liabilities do not arise from a legal or contractual source but are recognized aft er a condition or event is realized.

While the focus of GFS (and other mac- roeconomic statistical systems) is largely on explicit contingent liabilities, implicit contingent liabilities, such as the net implicit obligations for future social security benefi ts (see paragraph 7.261), are impor- tant factors in fi scal risk and vulnerability analyses.
Other examples of implicit contingent liabilities in- clude ensuring the solvency of the banking sector, covering the obligations of subnational governments (state and local governments) or the central bank in the event of a default, assuming unguaranteed debt of public sector units, and potential spending for natu- ral disaster relief.72 7.253 Figure 7.2 provides an overview of liabilities and contingent liabilities in macroeconomic statis- tics.
Explicit contingent liabilities can take a variety of forms, although guarantees are the most common.

However, not all guarantees are contingent liabilities; as discussed earlier in this chapter, guarantees in the form of fi nancial derivatives and provisions for calls under standardized guarantee schemes are liabilities on the balance sheet.

On the other hand, one-off guar- antees are contingent liabilities.
7.254 Explicit contingent liabilities comprise: • Publicly guaranteed debt (6M61), which is one- off guarantees in the form of loan and other debt instrument guarantees (see paragraphs 7.259–7.260) 71 Uncertainty about the potential size of liabilities does not make them contingent liabilities.
72 It is recommended in this Manual (and the PSDS Guide) to include as a separate memorandum item in the balance sheet the net obligations for future social security benefi ts—oft en the larg- est implicit contingency of government.
• Other one-off guarantees (6M62) for other than publicly guaranteed debt (see paragraphs 7.259–7.260) • Explicit contingent liabilities not elsewhere classifi ed (6M63), which are explicit contingent liabilities that are not in the form of guarantees—for example:  Potential legal claims, which are claims stem- ming from pending court cases73  Indemnities, which are commitments to ac- cept the risk of loss or damage another party might suff er (e.g., indemnities against unfore- seen tax liabilities arising in government con- tracts with other units)  Uncalled capital, which is an obligation to provide additional capital, on demand, to an entity of which it is a shareholder (e.g., an in- ternational fi nancial institution)  Potential payments resulting from PPP arrangements.
7.255 Information on the stock positions of one-off guarantees is relevant for public fi nancial policy and analysis—particularly the stock position of publicly guaranteed debt.

It is recommended that publicly guar- anteed debt (6M61) should be shown, at nominal value, as a memorandum item to the balance sheet.
If signifi - cant, information on other one-off guarantees (6M62) and explicit contingent liabilities not elsewhere classifi ed (6M63) should also be included as a memorandum item to the balance sheet, at nominal value.74 One-off guarantees are discussed in paragraphs 7.256–7.260.
One-off guarantees 7.256 One-off guarantees comprise those types of guarantees where the debt instrument is so particular that it is not possible to calculate the degree of risk 73 A pending legal case may also be a contingent asset—for example, a case in which the government has claimed damages against another party.

74 Limitations of this approach are that it off ers no information on the likelihood of the contingency occurring and it may overstate the possible risk.
For loan and other debt instrument guarantees, the maximum potential loss is likely to be less than their nominal value, because not all debts will default.

Th ere are several other approaches that address limitations to valuing explicit contingent liabilities; they are discussed in detail in Chapter 4 of the PSDS Guide and in Chapter 9 of the EDS Guide.

Th e actual approach ad- opted will depend on the availability of information on the type of contingency.
For this reason, it is particularly important to provide metadata on the method(s) used to value contingent liabilities.
The Balance Sheet 211 Figure 7.2 Overview of Liabilities and Contingent Liabilities in Macroeconomic Statistics Liabilities Contingent liabilities Explicit contingent liabilities Implicit contingent liabilities Guarantees Other explicit contingent liabilities Net implicit obliga- tions for future social security benefits2 Other implicit contingent liabilities One-off guarantees Loan and other debt instrument guarantees (publicly guaranteed debt) Other one-off guarantees Guarantees in the form of financial derivatives Provisions for calls under standardized guarantee schemes Other: • Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements, claims of pension funds on managers, and nonpension entitlements1 Equity and investment fund shares Other financial derivatives and employee stock options Other accounts payable 1 Includes liabilities for nonautonomous unfunded employer pension schemes.
2 Excludes liabilities for nonautonomous unfunded employer pension schemes.

associated with the debt with any degree of accuracy.

In contrast to standardized guarantees, one-off guar- antees are individual, and guarantors are not able to make a reliable estimate of the risk of calls.

7.258 In contrast, a one-off guarantee granted by government to a corporation in fi nancial distress and with a very high likelihood to be called is treated as if the guarantee is called at inception.
75 Th e activation 7.257 In most cases, a one-off guarantee is consid- ered a contingent liability of the guarantor.

Liabilities under one-off guarantees continue to be attributed to the debtor, not the guarantor, unless and until the guarantee is called.

75 Such treatment should be undertaken with caution, not least to avoid double-counting of the debt and inconsistencies with other macroeconomic statistics (which still record the claim to the original debtor).
Eurostat uses the following practical guidance with regards to publicly guaranteed debt: if government, as a guarantor, makes a payment on an existing guaranteed debt in three consecutive years, 212 Government Finance Statistics Manual 2014 of such a one-off guarantee is treated as debt assumption76 and this liability is part of the public sec- tor unit’s balance sheet.
7.259 One-off guarantees may be grouped into loan and other debt instrument guarantees and other one-off guarantees: • Loan and other debt instrument guarantees— or one-off guarantees of payment—are commit- ments by one party to bear the risk of nonpayment by another party.

Guarantors are required to make a payment only if the debtor defaults.
Loans and other debt instrument guarantees constitute publicly guaranteed debt that is defi ned as debt liabilities of public and private sector units, the servicing of which is contractually guaranteed by public sector units.

• Other one-off guarantees include credit guar- antees (such as lines of credit and loan commit- ments), contingent credit availability guarantees, and contingent credit facilities.
Lines of credit and loan commitments provide a guarantee that undrawn funds will be available in the future, but no fi nancial liability/asset exists until such funds are actually provided.

Undrawn lines of credit and undisbursed loan commitments are contingent liabilities of the issuing institutions—generally, banks.

Letters of credit are promises to make payment upon the presentation of pre-specifi ed documents.
Underwritten note issuance facilities provide a guarantee that a borrower will be able to issue short-term notes and that the underwriting institution(s) will take up any unsold portion of the notes.

Only when funds are advanced by the underwriting institution(s) will a liability/asset be created.

Th e unutilized portion is a contingent li- ability.
Other note guarantee facilities providing contingent credit or back-up purchase facilities are revolving underwriting facilities, multiple op- tions facilities, and global note facilities.

Bank and nonbank fi nancial institutions provide back-up purchase facilities.

Again, the unutilized amounts of these facilities are contingent liabilities.

7.260 Loan and other debt instrument guarantees (publicly guaranteed debt) diff er from the other types of one-off guarantees.
Th is is because the guarantor and this situation is expected to continue, then the debt is consid- ered to be assumed, normally in its entirety (or for the proportion government is expected to repay, if there is evidence of that).

76 Debt assumption is discussed in paragraphs A3.26–A3.31.

guarantees the servicing of an existing debt of other public and private sector units.

With the other one- off guarantees, no fi nancial liability/asset exists until funds are provided or advanced.
Net Implicit Obligations for Future Social Security Beneﬁ ts (6M7) 7.261 As explained in paragraphs 7.194 and A2.39, no liability is recognized in macroeconomic statisti- cal systems for social security benefi ts—such as re- tirement benefi ts (other than employment-related pensions) and health care benefi ts—payable in the fu- ture.77 Th ese implicit obligations to pay social security benefi ts in the future are not contractual obligations and are therefore not recorded on the balance sheet (see paragraph 7.252).
Th e present value of social security benefi ts that have already been earned ac- cording to the existing laws and regulations but are payable in the future should be calculated in a man- ner similar to the liabilities of an employment-related pension scheme.

Th is amount minus the present value of social security scheme contributions provides an indication of the net implicit obligations that a gov- ernment unit has for social security benefi ts payable in the future.
Nonperforming Loan Assets at Fair Value (6M8) 7.262 Nonperforming loans are those for which (i) payments of principal and/or interest are past due by three months (90 days) or more; or (ii) interest payments equal to three months (90 days) inter- est or more have been capitalized (reinvested to the principal amount) or payment has been delayed by agreement; or (iii) evidence exists to reclassify a loan as nonperforming even in the absence of a 90-day past due payment, such as when the debtor fi les for bankruptcy.
Th e amount of nonperforming debt out- standing remains a legal liability of the debtor and interest should continue to accrue, unless the liabil- ity has been extinguished (e.g., by repayment or as a result of a bilateral arrangement between debtor and creditor).

77 In contrast, social security benefi ts due for payment but not yet paid are included as other accounts payable in a public sector unit’s balance sheet.
Also included in the balance sheet (and thus excluded from implicit contingent liabilities) are public sector units’ liabilities for unfunded nonautonomous pension schemes for their employees.

7.263 As mentioned earlier in this chapter, loans are recorded at nominal value (i.e., the amount ad- vanced plus interest accrued and not paid minus any repayments).
It is recognized that nominal value pro- vides an incomplete view of the fi nancial position of the creditor, particularly when the loans are nonper- forming.

In such cases, information on the nominal value (6M81), as well as the fair value (6M8),78 of nonperforming loan assets should be included as a memorandum item to the balance sheet.
Classiﬁ cation of the Counterparty of Financial Assets and Liabilities by Institutional Sector 7.264 Th e preceding section discussed the clas- sifi cations of fi nancial assets and liabilities based on the characteristics of the instrument underlying the claim.

For a fuller understanding of fi nancial assets and liabilities of the general government or the pub- lic sector, the counterparties to these fi nancial rela- tionships should also be considered.
For example, a classifi cation of liabilities according to the economic sectors providing the fi nancing (i.e., the sources of funding) complements the classifi cation by type of fi nancial instrument.

Information on debtor-creditor relationships between sectors and subsectors is essen- tial for proper consolidation of GFS.
A classifi cation of fi nancial assets and liabilities according to whether the counterparty is a public or private nonfi nancial or fi nancial corporation, respectively, will be necessary to compile accurate consolidated general government or public sector balance sheets.

7.265 Two parties are associated with all fi nan- cial claims.
As a result, it is possible to cross-classify the fi nancial instruments of fi nancial claims with the sector of the counterparty, making a distinction be- tween resident and nonresident units.79 Th is supple- mental classifi cation is presented in Table 7.11, which should be compiled separately for fi nancial assets and liabilities.80 78 Th e concepts nominal value and fair value are described in paragraph 3.115.
79 Although gold bullion has no counterparty, by convention, the counterparty to the stock position in gold bullion is shown as “other nonresidents” in Table 7.11.

80 See Chapter 2 of this Manual, and the 2008 SNA, Chapter 4, for a description of sector classifi cation.

Issues in the identifi cation of counterparties of traded debt securities are discussed in the PSDS Guide, Chapter 7.
The Balance Sheet 213 Classiﬁ cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity 7.266 A supplementary classifi cation of debt li- abilities and fi nancial assets corresponding to debt instruments by maturity and type of fi nancial instru- ment provides information on the liquidity dimensions of debt.

Th e maturity of a debt instrument refers to the time until the debt is extinguished according to the contract between the debtor and the creditor.
A debt instrument’s maturity can be either short-term or long-term: • Short-term is defi ned as payable on demand or with a maturity of one year or less.

Th is category includes arrears and interest on arrears.

• Long-term is defi ned as having a maturity of more than one year or no stated maturity (other than debt repayable on demand, which is consid- ered short-term).
7.267 Maturity may relate to: • Original maturity, which is the period from the issue date until the fi nal contractually scheduled payment date, or • Remaining maturity or residual maturity, which is the period from the reference date (balance sheet date) until the fi nal contractually scheduled payment date.
7.268 Th is Manual recommends a three-way clas- sifi cation (see Table 7.12) that allows for deriving debt statistics on both original and remaining maturity bases: • Short -term debt on an original maturity basis • Long-term debt due for payment within one year or less • Long-term debt due for payment in more than one year.

7.269 To derive short-term debt on a remaining maturity basis, the second bullet above can be com- bined with the fi rst bullet above.
To derive long-term debt on an original maturity basis, the second bullet above can be combined with the third bullet above.

Other aggregates on an original or a remaining matu- rity basis can be derived directly from Table 7.12.

Th e classifi cation codes in Table 7.12 correspond to those in Table 7.9; only a suffi x has been added to indicate the type of maturity.
214 Government Finance Statistics Manual 2014 Table 7.11 Cross-Classiﬁ cation of Financial Assets and Liabilities by the Institutional Sector of the Counterparty Monetary gold1 and Currency Equity and standardized and accounts and Debt investment guarantee employee receivable/ SDRs deposits securities Loans fund shares schemes [GFS] stock options payable Insurance, Financial pension, and derivatives Other Financial assets: Domestic debtors General government2 Central bank Deposit-taking corporations except the central bank Public deposit-taking corporations except the central bank Private deposit-taking corporations except the central bank Other ﬁ nancial corporations Public other ﬁ nancial corporations Private other ﬁ nancial corporations Nonﬁ nancial corporations Public nonﬁ nancial corporations Private nonﬁ nancial corporations Households and nonproﬁ t institutions serving households External debtors General government International organizations Financial corporations other than international organizations Central banks Financial corporations not elsewhere classiﬁ ed Other nonresidents Liabilities: Domestic creditors Same institutional breakdown as above External creditors Same institutional breakdown as above 1Gold bullion does not have a counterparty.
By convention, in this table, the counterparty to the stock position in gold bullion is shown as other nonresidents.

2Zero if data cover the consolidated general government.

Further breakdown/of which lines could allow for the identiﬁ cation of subsectors and individual units (see Table 3.1).
The Balance Sheet 215 Table 7.12 Classiﬁ cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity and by Type of Debt Instrument Long-term by original maturity Short- term, by original maturity1 (a) With payment due in one year or less (b) With payment due in more than one year = Long-term by remaining maturity (c) Financial assets corresponding to debt instruments 62.1 Monetary gold and Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Other accounts receivable Trade credit and advances Miscellaneous other accounts receivable Domestic Same instrument breakdown as above, but excluding monetary gold and SDRs External Same instrument breakdown as above Debt instruments (= gross debt) Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Other accounts payable Trade credit and advances Miscellaneous other accounts payable Domestic Same instrument breakdown as above, but excluding SDRs External Same instrument breakdown as above 1This category includes arrears and interest on arrears.
6201.1 6202.1 6203.1 6204.1 6206.1 62061.1 62062.1 62063.1 62064.1 62065.1 6208.1 62081.1 62082.1 621.1 6212.1– 6218.1 622.1 6221.1– 6228.1 63.1 6301.1 6302.1 6303.1 6304.1 6306.1 63061.1 63062.1 63063.1 63064.1 63065.1 6308.1 63081.1 63082.1 631.1 6312.1– 6318.1 632.1 6321.1– 6328.1 62.2 6201.2 6202.2 6203.2 6204.2 6206.2 62061.2 62062.2 62063.2 62064.2 62065.2 6208.2 62081.2 62082.2 621.2 6212.2– 6218.2 622.2 6221.2– 6228.2 63.2 6301.2 6302.2 6303.2 6304.2 6306.2 63061.2 63062.2 63063.2 63064.2 63065.2 6308.2 63081.2 63082.2 631.2 6312.2– 6318.2 632.2 6321.2– 6328.2 62.3 6201.3 6202.3 6203.3 6204.3 6206.3 62061.3 62062.3 62063.3 62064.3 62065.3 6208.3 62081.3 62082.3 621.3 6212.3– 6218.3 622.3 6221.3– 6228.3 63.3 6301.3 6302.3 6303.3 6304.3 6306.3 63061.3 63062.3 63063.3 63064.3 63065.3 6308.3 63081.3 63082.3 631.3 6312.3– 6318.3 632.3 6321.3– 6328.3 Short- term by remaining maturity (a) + (b) 62.5 6201.5 6202.5 6203.5 6204.5 6206.5 Total (b) + (c) 62.4 6201.4 6202.4 6203.4 6204.4 6206.4 62061.4 62061.5 62062.4 62062.5 62063.4 62063.5 62064.4 62064.5 62065.4 62065.5 6208.4 6208.5 62081.4 62081.5 62082.4 621.4 6212.4– 6218.4 622.4 6221.4– 6228.4 63.4 6301.4 6302.4 6303.4 6304.4 6306.4 62082.5 621.5 6212.5– 6218.5 622.5 6221.5– 6228.5 63.5 6301.5 6302.5 6303.5 6304.5 6306.5 63061.4 63061.5 63062.4 63062.5 63063.4 63063.5 63064.4 63064.5 63065.4 63065.5 6308.4 6308.5 63081.4 63081.5 63082.4 631.4 6312.4– 6318.4 632.4 6321.4– 6328.4 63082.5 631.5 6312.5– 6318.5 632.5 6321.5– 6328.5 216 Government Finance
 Statistics Manual 2014 7.270 Measuring the value of outstanding long-term public sector debt (original maturity) falling due in one year or less may raise practical diffi culties, in which in- stance, one proxy measure that may be used is the un- discounted value of principal payments on long-term public sector debt liabilities (original maturity basis) due to mature in one year or less.
Th is proxy measure is in- complete in its coverage of interest payments falling due in the coming year but can be compiled using the princi- ples for projecting payments in a debt-service schedule.

7.271 Statistics on a remaining maturity basis per- mit an assessment of liquidity risk by indicating when public sector debt payments will fall due.

Information on payments becoming due in the short- to near- term is particularly relevant for this analysis.
Statis- tics on a remaining maturity basis are also used for debt management purposes.

Statistics on an original maturity basis provide an indication of the borrower’s credit-worthiness and the type of markets in which it is borrowing.

8 Transactions in Nonﬁ nancial Assets Th is chapter describes transactions in nonfi nancial as- sets and their classifi cation.

Introduction 8.1 Chapter 7 describes the balance sheet and the assets and liabilities recorded on it.
As an integrated framework, GFS also includes the fl ows necessary to explain all changes between the balance sheet at the beginning of the period and the balance sheet at the end of the reporting period.

As described in paragraphs 3.1–3.4, there are two types of fl ows— transactions and other economic fl ows—both of which can aff ect stock positions of assets and liabilities.

Th is chapter describes the transactions that aff ect stock po- sitions of nonfi nancial assets.
Chapter 9 describes the transactions that aff ect stock positions of fi nancial as- sets and liabilities, and Chapter 10 describes other eco- nomic fl ows.
8.2 For each category of nonfi nancial assets, there is an accounting identity linking successive balance sheets.1 Th e identity states that: Th e value of a category of nonfi nancial assets on the balance sheet at the beginning of the re- porting period plus Th e total value of that category of nonfi nancial as- sets acquired in transactions during the reporting period minus Th e total value of that category of nonfi nancial as- sets disposed of in transactions during the reporting minus Th e value of consumption of fi xed capital for that category of nonfi nancial assets during the report- ing period 1 With the exception of consumption of fi xed capital, the same identity could be applied to fi nancial assets and liabilities.
plus Th e net value of other economic fl ows that aff ect that category of nonfi nancial assets during the re- porting period equals Th e value of the category of nonfi nancial assets on the balance sheet at the end of the reporting period.

Th is identity requires that transactions, other eco- nomic fl ows, and stock positions be recorded consis- tently with regard to time of recording and valuation.

Th e accounting rules governing these factors are de- scribed in Chapter 3.
8.3 Transactions can change stock positions of nonfi nancial assets in diff erent ways and all must be accounted for.

Th e more important types of transac- tions follow: • Existing assets of all types can be acquired from or disposed to other units by purchase/sale, bar- ter, or transfer in kind.

• Newly produced fi xed assets, inventories, and valu- ables can be sold or otherwise disposed of by their producers in the same manner as existing assets, or the producers can retain them for their own use.
• A government unit may produce goods and services for own use as fi xed assets (i.e., own- account fi xed capital formation).

Th ese transac- tions are classifi ed as acquisitions of fi xed assets (and shown as a memorandum item).

• Renovations, reconstructions, or enlargements that signifi cantly increase the productive capac- ity or extend the service life of an existing fi xed asset are classifi ed as acquisitions of fi xed assets even though physically they function as part of the existing asset.
Land improvements are a sep- arate category of fi xed assets, distinct from the nonproduced land asset.

218 Government Finance Statistics Manual 2014 • Consumption of fi xed capital is an internal trans- action that records the decrease in the value of fi xed assets because they have been used repeat- edly or continuously in production.

• Inventories can be acquired (additions) or dis- posed of (withdrawals) through internal transac- tions as well as transactions with other units.
For example, withdrawals from inventories of materials and supplies for use in the production of general government services and transfers of completed production from work-in-progress inventories to inventories of fi nished goods are internal transac- tions.

Recurrent losses and spoilage of goods held in inventories are also treated as internal transactions.

8.4 All transactions that increase a unit’s holdings of nonfi nancial assets are labeled acquisitions.
With the exception of consumption of fi xed capital, all transac- tions that decrease a unit’s holdings of nonfi nancial assets are labeled disposals.

Th us, the results of trans- actions in a particular category of nonfi nancial assets can be presented either as total acquisitions, total dis- posals, and consumption of fi xed capital, or as net in- vestment in nonfi nancial assets.2 Th e net investment in a nonfi nancial asset is its acquisitions minus disposals minus consumption of fi xed capital.
Th e gross invest- ment in a nonfi nancial asset is its acquisitions minus disposals (i.e., consumption of fi xed capital is not taken into account).

On a cash basis, the purchases minus the sales of nonfi nancial assets are referred to as the net cash outfl ow from investment in nonfi nancial assets.
8.5 Th e remainder of this chapter fi rst describes costs of ownership transfer, valuation, time of re- cording, consumption of fi xed capital, and netting of transactions that aff ect nonfi nancial assets and then provides details on the classifi cation of transactions that aff ect specifi c categories of nonfi nancial assets.
Costs of Ownership Transfer 8.6 Costs of ownership transfer are the costs as- sociated with acquiring and disposing of nonfi nancial assets (other than inventories3) and consist of: • All professional charges or commissions incurred by both units acquiring or disposing of an asset, 2 Th e net investment in inventories is referred to as “changes in inventories.” Net investment in nonfi nancial assets can be positive or negative.

3 Usually, there are no costs of ownership transfer on inventories.
such as fees paid to lawyers, architects, surveyors, engineers, and valuers, and commissions paid to estate agents and auctioneers • Any trade and transport costs separately invoiced to the purchaser • All taxes payable by the unit acquiring the asset on the transfer of ownership of the asset • Any tax payable on the disposal of an asset • Any delivery and installation or disinstallation costs not included in the price of the asset being acquired or disposed of • Any terminal costs4 incurred at the end of an asset’s life, such as those required to render the structure safe or to restore the environment in which it is situated.
8.7 Th e costs of ownership transfer on fi xed as- sets, valuables, and nonproduced assets are treated as transactions in fi xed assets.
In particular, transactions in the: • Costs of ownership transfer on fi xed assets are recorded as transactions in the relevant fi xed asset • Costs of ownership transfer on valuables are re- corded as transactions in valuables (313.1) • Costs of ownership transfer on land are re- corded, by convention, with land improvements (31114.1), a fi xed asset • Costs of ownership transfer on nonproduced as- sets other than land are recorded in fi xed assets as transactions in costs of ownership transfer on nonproduced assets other than land (31133.1), as explained in paragraph 8.42; in the balance sheet, however, these costs of ownership transfer on nonproduced assets other than land are incorpo- rated in the value of the asset to which they relate (see paragraph 3.111), even though the asset is nonproduced (i.e., there are no costs of owner- ship transfer on nonproduced assets other than land shown separately in the balance sheet).
4 In the case of some signifi cantly large and important assets, such as oil rigs and nuclear power stations, there may also be major costs associated with the decommissioning of the asset at the end of its productive life.

For some land sites, such as those used for landfi ll, there may be large costs associated with rehabilitation of the site.

Th ese are referred to collectively as terminal costs.
8.8 Costs of ownership transfer are attributed to the purchaser or seller of the asset according to which unit bears the responsibility of meeting the costs.

Th ese costs of ownership transfer should be written off as consumption of fi xed capital, as discussed in paragraph 6.60.

Interest and other fi nancing charges incurred in connection with a transaction are not costs of ownership transfer.
Valuation 8.9 General principles for valuation of transactions in assets and liabilities are discussed in paragraphs 3.108–3.112.

Acquisitions and disposals of fi xed as- sets and valuables are valued at market prices (i.e., ex- change value plus costs of ownership transfer).

Fixed assets acquired through barter or transfer in kind are valued at a market price-equivalent.
Fixed assets pro- duced for own-account capital formation or for trans- fers in kind are valued at their estimated market prices before adding any taxes less subsidies, transport, or distribution margins, or by their costs of production when satisfactory estimates of market prices cannot be made.5 8.10 Additions to and withdrawals from invento- ries are valued at market prices applicable at the time of the addition or withdrawal, which in the case of withdrawals may be quite diff erent from their value when acquired.6 No costs for installation or owner- ship transfer are added or subtracted for transactions in inventories.
8.11 Acquisitions and disposals of land are valued at their exchange value, and the costs of ownership transfer on land are included, by convention, with land improvements (311141.1).

Acquisitions and dis- posals of nonproduced assets other than land are val- ued at their exchange value.
Th e costs of ownership transfer on nonproduced assets other than land are recorded as a separate category of fi xed assets, costs 5 In GFS, it is assumed that market prices of fi xed assets con- structed by general government units will not be known, and these values are calculated as the sum of expense on compensa- tion of employees, use of goods and services, and the consump- tion of fi xed capital used for own-account production of these assets.
Th is treatment also applies to the production of valuables and major improvements to land when carried out on own account.

6 Holding gains on inventories are discussed in paragraphs 10.16–10.17.

Transactions in Nonﬁ nancial Assets 219 of ownership transfer on nonproduced assets other than land (31133.1), as explained in paragraph 8.42.
8.12 General government units may acquire or dis- pose of nonfi nancial assets on a nonmarket basis as an element of their fi scal policy, either by purchasing an asset for more than its market value or by selling an asset for less than its market value.

By their nature, such transactions involve a transfer component.
If the asset’s market value can be determined, then the transaction should be valued at that amount and a second transaction should be recorded as an expense to account for the transfer.7 Usually, however, there is not an active market for the assets and it is diffi cult to estimate a market value.
In this case, the value of the acquisition or disposal should be the amount of eco- nomic value exchanged, which could be in the form of ownership rights on physical objects (e.g., a dwelling) or intangible assets (e.g., a fi lm original).

Time of Recording 8.13 As described in paragraph 3.62, on an accrual basis, transactions are recorded at the time economic value is created, transformed, exchanged, transferred, or extinguished.
For transactions in nonfi nancial as- sets, this time is when the economic ownership of the nonfi nancial assets is obtained or relinquished.

On a cash basis, transactions are recorded when cash pay- ments are made.

8.14 Transactions (including by barter, payment in kind, or transfer in kind)8 in nonfi nancial assets are, in principle, recorded the moment when eco- nomic ownership changes, which oft en may depend on the provisions in the sales contract.
When change of ownership is not obvious, the time of recording by the transaction partners9 may be a good indication and, failing that, the moment when there is a change in physical possession or control.

8.15 Th e time of recording of the acquisition of a new nonfi nancial asset depends on how the asset is acquired.

7 Th e expense oft en will be a capital transfer to a market enterprise and classifi ed as capital transfers not elsewhere classifi ed (2822).
It would be a capital grant if the recipient is a general government unit.

For inventories, this type of transfer is a subsidy (see paragraph 6.91).

8 Th ese acquisitions and disposals are excluded from a pure cash basis of recording.

9 To maintain symmetry in the macroeconomic system, the time of recording should be the same for both partners to the transaction.
220 Government Finance Statistics Manual 2014 • If the asset is acquired from the producing unit as a fi nished good, then the timing is determined in the same manner as for the purchase of an ex- isting asset—that is, when economic ownership changes hands.

Typically, this time is not the time at which the asset was produced or the time at which it is put to use in production.
• When another unit produces buildings and structures under a contract of sale agreed in ad- vance with the general government unit, and the production extends over more than one report- ing period, then ownership of the structure is deemed to be transferred to the government unit as work proceeds; stage or progress payments may approximate the value of the transactions in fi xed assets to be recorded.10 In the absence of a contract of sale, the incomplete production each period is added to work in progress of the con- tractor (see also paragraph 7.37).
• When production is carried out on own account, there is no formal transfer of ownership.

Th e pro- ducing unit eff ectively takes possession progres- sively as production proceeds, so that the asset is acquired as each transaction involved in its pro- duction is recorded.

For example, if a government unit constructs a building using its own work- force, then each use of goods and services and work performed by employees is classifi ed as an acquisition of the fi xed asset as work takes place.
8.16 Consumption of fi xed capital, in principle, should be recorded continuously throughout each reporting period.

In practice, consumption of fi xed capital can be computed only aft er the end of the re- porting period because its value depends on the aver- age price of the asset over the entire reporting period (see paragraphs 6.53–6.61).
8.17 Fixed assets acquired or disposed of by means of a fi nancial lease are deemed to be acquired or dis- posed of when the lease is signed or economic control of the asset otherwise changes hands.

Consumption of Fixed Capital 8.18 Consumption of fi xed capital is an internal transaction that refl ects the fact that an institutional 10 A transaction in other accounts receivable/payable is recorded if the value of the stage payment exceeds the value of the work put in place.
As work proceeds, an acquisition of fi xed assets is recorded by the fi nal owner until the other accounts receivable/ payable are exhausted.

unit used up a portion of each of its fi xed assets through its productive activities during the reporting period and the value of those assets declined correspondingly.
As a result, consumption of fi xed capital (23), which is recorded as an expense, is also recorded as a transac- tion that reduces the value of the respective category of fi xed asset, so that there is no impact on expenditure nor net lending/net borrowing (see paragraph 4.20).

Th e recording of consumption of fi xed capital is dis- cussed in detail in paragraphs 6.53–6.61 and Box 6.1.
Netting of Transactions 8.19 It is recommended that transactions in non- fi nancial assets other than inventories be presented as acquisitions, disposals, and consumption of fi xed capital, as indicated in Table 8.1.

Th e net investment in a category of nonfi nancial assets is computed as acquisitions minus disposals minus consumption of fi xed capital.
8.20 Acquisitions of, use of, and disposals of in- ventories should be netted because the separate data for acquisitions and disposals are not economically meaningful.

In addition, as a matter of practice, it is oft en impossible to estimate individual transactions in inventories (see paragraphs 8.44–8.47).

Inventories are not subject to consumption of fi xed capital.
Classiﬁ cation and Recording of Transactions in Nonﬁ nancial Assets 8.21 Th e classifi cation of transactions in nonfi nan- cial assets is shown in Table 8.1.

Th e table summarizes transactions in nonfi nancial assets as acquisitions, disposals, and consumption of fi xed capital.

8.22 Th e classifi cation of transactions in nonfi nan- cial assets is identical to the classifi cation of stock po- sitions in nonfi nancial assets employed in Chapter 7 (Table 7.2).
Chapter 7 also provides full defi nitions of the assets included in each category, and those defi - nitions are not repeated here.

Th is chapter provides guidance applicable to transactions aff ecting all or most categories of nonfi nancial assets.

Th e remain- der of this section provides guidance only on those transactions for which the general guidance may not be suffi cient.
8.23 In addition to the classifi cation of transac- tions in nonfi nancial assets described in this chapter, the Classifi cation of the Functions of Government (COFOG) can also be applied to the acquisitions Transactions in Nonﬁ nancial Assets 221 Table 8.1 Classiﬁ cation of Transactions in Nonﬁ nancial Assets Nonﬁ nancial assets Fixed assets Buildings and structures Dwellings Buildings other than dwellings Other structures Land improvements Machinery and equipment Transport equipment Other machinery and equipment Information, computer, and telecommunication (ICT) equipment Machinery and equipment not elsewhere classiﬁ ed Other ﬁ xed assets Cultivated biological resources Animal resources yielding repeat products Tree, crop, and plant resources yielding repeat products Intellectual property products Research and development Mineral exploration and evaluation Computer software and databases Computer software Databases Entertainment, literary, and artistic originals Other intellectual and property products Costs of ownership transfer on nonproduced assets other than land Weapons systems Inventories2 Materials and supplies Work in progress Finished goods Goods for resale Military inventories Valuables Nonproduced assets Land Mineral and energy resources Other naturally occurring assets Noncultivated biological resources Water resources Other natural resources Radio spectra Natural resources not elsewhere classiﬁ ed Acquisitions of Disposals of 31.1 311.1 3111.1 31111.1 31112.1 31113.1 31114.1 3112.1 31121.1
 31122.1 31.2 311.2 3111.2 31111.2 31112.2 31113.2 31114.2 3112.2 31121.2 31122.2 Consumption of ﬁ xed capital1 31.3 = 23 311.3 3111.3 31111.3 31112.3 31113.3 31114.3 3112.3 31121.3 31122.3 Net investment in nonﬁ nancial assets Government Finance Statistics Manual 2014 Table 8.1 Classiﬁ cation of Transactions in Nonﬁ nancial Assets (concluded) Acquisitions of Disposals of Consumption of ﬁ xed capital1 Net investment in nonﬁ nancial assets Intangible nonproduced assets Contracts, leases, and licenses Marketable operating leases Permits to use natural resources 3144.1 31441.1 314411.1 314412.1 Permits to undertake speciﬁ c activities 314413.1 Entitlement to
 future goods and services on an exclusive basis 314414.1 3144.2 31441.2 314411.2 314412.2 314413.2 314414.2 Goodwill and marketing assets 31442.1 31442.2 Memorandum items Own-account capital formation Compensation of employees Use of goods and services Consumption of ﬁ xed capital Other taxes on production minus other subsidies on production 3144 31441 314411 314412 314413 314414 31442 3M1 3M11 3M12 3M13 3M14 1Consumption of ﬁ xed capital is not recorded for inventories.
It is recorded for nonproduced assets only to the extent of costs of ownership transfer on nonproduced assets other than land (a ﬁ xed asset).

For land, the costs of ownership transfer are included, by convention, with land improvements (a ﬁ xed asset).

2In GFS, only the net changes in inventories resulting from transactions are recorded, but gross acquisitions and disposals may be recorded, if needed.

minus disposals of these assets.

COFOG is described in the annex to Chapter 6.


Fixed Assets (311)11 8.24 Th e cost of acquisition of assets from third par- ties is determined by the market price of the transac- tions.

Government or public sector units can also incur costs associated with the production or the mainte- nance of fi xed assets.
To determine the amount of these costs that should be recorded as the value of own- account production of fi xed assets during the reporting period, a distinction between major improvements of assets and maintenance of assets is necessary.

Th e sec- tion on Fixed Assets fi rst describes how to distinguish transactions that should be recorded as acquisitions of fi xed assets from transactions that should be recorded as expense related to maintenance.
Th e recording of transactions in specifi c categories of assets follows.

Major improvements versus maintenance and repair 8.25 Major improvements (such as renovations, reconstructions, and enlargements) to existing assets that increase their productive capacity, extend their 11 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.

Appendix 8 provides all classifi - cation codes used in GFS.
service lives, or both, are classifi ed as acquisitions of fi xed assets.

On the other hand, maintenance and repair of fi xed assets constitute an expense classifi ed as the use of goods and services (22) (as mentioned in paragraph 6.45).

By defi nition, however, major im- provements do not lead to the creation of new assets that can be separately identifi ed and valued.

Instead, the value of such an improvement is added to the value of the existing underlying asset.
8.26 Although the distinction is not clear-cut, major improvements to assets are distinguished from maintenance and repairs by the following features: • Th e decision to renovate, reconstruct, or enlarge an asset is a deliberate investment decision that may be undertaken at any time and is not dic- tated by the condition of the asset.

Major reno- vations of ships, buildings, or other structures are frequently undertaken well before the end of their normal service lives.
• Th e major renovations, reconstructions, or en- largements increase the performance or capac- ity of existing assets or signifi cantly extend their previously expected service lives.

Enlarging or extending an existing road, building, or structure constitutes a major change in this sense, but a complete refi tting or restructuring of the interior of a building also qualifi es.
8.27 Maintenance and repairs are distinguished by two features: • Th ey are activities that owners or users of assets are obliged to undertake periodically in order to be able to utilize such assets over their expected service lives.

Th ey are current costs that cannot be avoided if the fi xed assets are to continue to be used.

Th e owner or user cannot aff ord to neglect maintenance and repairs as the expected service life may be drastically shortened otherwise.
• Th ey do not change the fi xed asset or its perfor- mance, but simply maintain it in good working order or restore it to its previous condition in the event of a breakdown.

Defective parts are replaced by new parts of the same kind without changing the basic nature of the fi xed asset.
Buildings and structures (3111) 8.28 In addition to the transactions refl ecting the acquisition of newly constructed buildings and struc- tures, acquisitions of buildings and structures include all amounts payable for site clearance and preparation and the cost of all fi xtures, facilities, and equipment that are integral parts of buildings and structures.

8.29 Certain structures, such as buildings, roads, and bridges, may be produced for communal use by groups of households.
Aft er the construction is com- pleted, the ownership of such structures may then be transferred to a general government unit that will as- sume responsibility for their maintenance.

When the transfer occurs, an acquisition of a structure is recorded together with the receipt of a capital transfer in kind.
8.30 Th e construction of new public monuments, as well as major improvements to existing public mon- uments, constitutes an acquisition of buildings and structures, either as dwellings (31111), buildings other than dwellings (31112), or other structures (31113), as explained in paragraphs 7.42–7.43.12 However, when the special archaeological, historical, or cultural sig- nifi cance of a structure or site not already recorded in the balance sheet is fi rst recognized, it is recorded as an other change in the volume of assets, as explained in paragraph 10.50.
8.31 Th e costs of land improvements (31114) are recorded as transactions and, in subsequent periods, Transactions in Nonﬁ nancial Assets 223 transactions in consumption of fi xed capital (23) are re- corded, based on the service life of the improvement.

Any excess in the increase in the value of the land over the value of land improvements or any increase in price levels due to adjacent capital activity is recorded as holding gains.
Other changes in the volume of as- sets (economic appearance) of the nonproduced asset land (5141) should be recorded when adjacent activi- ties bring land into the asset boundary (see paragraph 10.52).

8.32 Acquisitions of tunnels and other structures associated with the mining of mineral deposits are classifi ed as acquisitions of structures and not as im- provements to land.

Th ese assets are used separately from the land through which they are drilled or bored.
Th e costs of ownership transfer on land are in- cluded, by convention, with land improvements, and these costs are written off over the period the owner expects to own the land.

Machinery and equipment (3112) 8.33 Th e determination of which goods should be classifi ed as machinery and equipment is normally straightforward.

However, as explained in paragraphs 6.43 and 7.40, some fl exibility may be needed in the recording of small/hand tools.
Other ﬁ xed assets (3113) Cultivated biological resources (31131) 8.34 As explained in paragraphs 7.59–7.63, culti- vated biological resources comprise animal resources yielding repeat products (311311) and tree, crop, and plant resources yielding repeat products (311312).
Ac- quisitions of cultivated biological resources include acquisitions from other units of plants and animals that are cultivated for the products they yield year aft er year and the value of similar plants and ani- mals produced on own account.13 Disposals consist of animals and plants sold or otherwise disposed of, including animals sold for slaughter or slaughtered by their owners and plants cut down before the end of their service lives.
Disposals do not include ex- ceptional losses of animals and plants due to major outbreaks of disease, contamination, drought, fam- ine, or other natural disasters, which are recorded as 12 Consumption of fi xed capital on new public monuments as well as major improvements to existing public monuments should be calculated on the assumption of appropriately long service lives.
13 Plants and animals grown for a single use, such as animals grown for slaughter and trees grown for timber, are treated as inventories rather than fi xed assets (see paragraphs 7.60–7.61).

224 Government Finance Statistics Manual 2014 other changes in the volume of assets.

Consumption of fi xed capital on these resources includes incidental losses of animals and plants from natural causes, as well as the decline in an animal’s or plant’s value as it gets older.
8.35 Th e net investment in livestock that are culti- vated for the products they yield year aft er year (e.g., dairy cattle) is equal to the total value of all mature animals and immature animals produced on own ac- count or acquired by users of the livestock minus the value of their disposals minus consumption of fi xed capital.

8.36 Th e net investment in plantations, orchards, etc.

is equal to the value of the acquisitions of mature trees, shrubs, etc.

(including immature trees, shrubs, etc.


produced on own account) minus their dispos- als minus consumption of fi xed capital.

Th e value of immature trees, shrubs, etc.

may be approximated, if necessary, by the value of accumulated costs incurred in their production.
Intellectual property products (31132) 8.37 As explained in paragraphs 7.64–7.73, intel- lectual property products comprise: • Research and development (311321) • Mineral exploration and evaluation (311322) • Computer soft ware and databases (311323) • Entertainment, literary, and artistic originals (311324) • Other intellectual and property products (311325).
8.38 Th e value of expenditure on research and de- velopment (311321) should be determined in terms of the economic benefi ts it is expected to provide in the future.

It is treated as an asset except in cases where it is clear that the activity does not entail any economic benefi ts for its owner (see paragraphs 7.66–7.67).

8.39 As mentioned in paragraph 7.68, expenditure incurred on exploration is classifi ed as the acquisi- tion of mineral exploration and evaluation (311322).
Mineral exploration expenditure includes the costs of actual test drillings and borings and all other costs in- curred to make it possible to carry out the tests, such as prelicense, license, acquisition, and appraisal costs, the costs of aerial and other surveys, and transporta- tion and other costs incurred to make the exploration possible.
Consumption of fi xed capital may be cal- culated for such assets by using average service lives similar to those used by mining or oil corporations in their own accounts.

8.40 Computer soft ware and databases (311323) include acquisitions of computer soft ware that com- prise programs, program descriptions, and sup- porting materials for both systems and applications soft ware that are expected to be used for more than one year.
Th e net investment in nonfi nancial assets in the form of computer soft ware includes both the initial development and subsequent extensions of soft ware, as well as acquisition of copies that are classifi ed as assets.

Soft ware developed in-house is valued at its cost of production.

Th is category also includes the purchase, development, or extension of large databases that the unit expects to use for more than one year.
When a database is created, its value will generally have to be estimated by a sum-of-costs approach.

Th ese costs include the cost of preparing data in the appropriate format, staff time estimated on the basis of the amount of time spent in develop- ing the database, and costs of items included as use of goods and services.14 Not included are the cost of the database management system and the cost of acquir- ing or producing the data.
Transactions in databases sold should be valued at their market price, which includes the value of the information content.

If the value of a soft ware component in a database that is sold is available separately, it should be recorded as the sale of soft ware.

8.41 Th e production of new entertainment, liter- ary, and artistic originals (311324) is recorded at their current market price when they are actually traded.

However, this asset category is oft en undertaken on own account.
Subsequently, they may be sold outright or by means of licenses.

When produced on own ac- count, it may be diffi cult to establish their market value, which depends on the present value of the fu- ture benefi ts the owner expects to derive from their use.

In the absence of information, it may be neces- sary to value the acquisition of the original by its cost of production.
14 If the database is created in-house, compensation of employees and use of goods and services related to this own-account capital formation are excluded from compensation of employees (21) and use of goods and services (22).

Costs of ownership transfer on nonproduced assets other than land (31133) 8.42 Transactions in the costs of ownership transfer on nonproduced assets15 other than land are treated as transactions in fi xed assets because these costs are considered a produced asset.
Th e costs of ownership transfer on nonproduced assets other than land are subject to consumption of fi xed capital, which is also included in this category.

However, in the balance sheet, these costs of ownership transfer, as well as the consumption of fi xed capital on these costs, are re- fl ected in the value of the respective nonproduced assets.

Th e additional entries necessary for this treat- ment are discussed in paragraph 10.83.
Th e treatment of costs of ownership transfer on nonproduced assets is illustrated in Figure 8.1.

Weapons systems (3114) 8.43 Th e acquisitions and disposals of weapons systems that meet the general defi nition of assets in- clude vehicles and other equipment such as warships, submarines, military aircraft , tanks, missile carriers and launchers, etc.
Th e acquisitions of most single-use weapons they deliver, such as ammunition, missiles, rockets, bombs, etc., are classifi ed as transactions in military inventories and their use as withdrawals from military inventories.

However, some single-use items, such as certain types of ballistic missile with a highly destructive capability, may be classifi ed as fi xed assets (see paragraph 7.74).
Inventories (312) 8.44 In principle, net investment in inventories (change in inventories) is measured by the value of the additions to inventories minus the value of withdraw- als from inventories minus the value of any recurrent losses of goods held in inventories during the report- ing period.16 In general, additions to and withdraw- als from inventories should be recorded according to the same principles used for recording transactions in other nonfi nancial assets.
Additions to inventories are recorded when products are purchased, produced, or otherwise acquired, and withdrawals from inven- 15 Transactions in nonproduced assets are discussed in paragraphs 8.49–8.58.

16 Th ese changes in inventories are as a result of transactions.

Th e value of the stock of inventories may also change due to other economic fl ows.
Transactions in Nonﬁ nancial Assets 225 tories are recorded when products are sold, used up in production, transferred to a diff erent category of inventories, or otherwise relinquished.

8.45 In contrast to other nonfi nancial assets, how- ever, no costs of ownership transfer are included in the values of additions to or withdrawals from inven- tories, and no consumption of fi xed capital is attrib- uted to inventories, as indicated by the shaded area in Table 8.1.
Further, only the net value of additions minus withdrawals of inventories is usually estimated rather than separate, gross values for additions and withdrawals, unlike for other nonfi nancial assets.

Th is estimate of the changes in inventories is used in the formula to determine an estimate of expense in the form of use of goods and services (22), as explained in paragraph 6.29.
8.46 To understand the various transactions in in- ventories, it is useful to distinguish between two func- tions performed by a unit: its function as a producer of goods and services and its function as an owner of assets.

When a good is entered into inventories, it is acquired as an asset by the unit in its capacity as owner either by purchase (or barter) or by an internal transaction with itself as the producer.
Conversely, a good leaving inventories represents the disposal of an asset by the owner either by sale or other use, by an internal transfer to the producer, or possibly as a re- sult of recurrent losses (recurrent wastage, accidental damage, or pilfering).

8.47 Many transactions in inventories (i.e., addi- tions to and withdrawals from) are purchases from or distributions to other units, but other acquisitions and disposals refl ect internal transactions.
All additions to and withdrawals from inventories, such as for use of goods or investment in fi xed assets, should be valued at current market prices.

Because of the continuous or frequent withdrawals from materials and supplies in- ventories and the additions to and withdrawals from work-in-progress inventories, information is usually not available to record these internal transactions ac- curately, and estimates may be necessary.
• When materials and supplies (31221) are trans- ferred to a production process, a transaction is recorded for the withdrawal, which is balanced by an addition either to work-in-progress inven- tories (31222), use of goods and services (22), or, in the case of own-account capital formation, a 226 Government Finance Statistics Manual 2014 Figure 8.1 Illustrating the Treatment of Costs of Ownership Transfer on Nonproduced Assets Opening balance Transactions relating to costs of ownership transfer on nonproduced assets Costs of ownership transfer on land: Fixed asset Stock position in land improvements (61114) + • Acquisitions minus disposals of land improvements (31114.1 − 31114.2) Transactions in cost of ownership transfer on land (3114.1) − Consumption of fixed capital on land improvements, including on cost of ownership transfer on land (31114.3) Costs of ownership transfer on nonproduced assets other than land: Fixed assets Transactions in costs of ownership transfer on nonproduced assets other than land (31133.1) − Consumption of fixed capital on costs of ownership transfer on nonproduced assets other than land (31133.3) + − Non- produced assets Stock positions in nonproduced assets other than land (6142, 6143, 6144) + Acquisitions minus disposals of nonproduced assets other than land (3142.1 − 3142.2) (3143.1 − 3143.2) (3144.1 − 3144.2) + + Closing balance Holding gains and losses (revaluations) and other changes in the volume of assets relating to nonproduced assets Holding gains/losses and other
 changes in the volume of land improvements (41114, 51114) = Stock position in land improvements (61114) Other change in volume of assets, equal to value of transactions and consumption of fixed capital on costs of ownership transfer on nonproduced assets other than land (51133) Other change in volume of assets, equal to value of transactions and consumption of fixed capital on costs of ownership transfer on nonproduced assets other than land (51133) Holding gains/losses and other changes in the volume of nonproduced assets other than land (4142, 4143, 4144) (5142, 5143, 5144) = Stock positions in nonproduced assets other than land (6142, 6143, 6144) • Costs of ownership transfer on land are, by convention, included with land improvements.
This applies to the transactions as well as the stock position of land improvements.

• There are no stock positions in costs of ownership transfer on nonproduced assets other than land shown separately in the balance sheet.

These costs are included with the respective nonproduced assets in the balance sheet.

• Transactions in the costs of ownership transfer on nonproduced assets other than land are recorded as part of ﬁ xed assets.
• Costs of ownership transfer on nonproduced assets (and on produced assets other than inventories—which are not shown in this example) are subject to consumption of ﬁ xed capital over the period the owner expects to hold the asset.

• Costs of ownership transfer on nonproduced assets other than land and consumption of ﬁ xed capital on these costs are reclassiﬁ ed, through other changes in the volume of assets, to the respective nonproduced assets to maintain the integration of stock positions and ﬂ ows.
These reclassiﬁ cations are considered to take place at the time of recording the transactions.

The costs of ownership transfer on land, which are included with land improvements, are not reclassiﬁ ed to land and remain part of the stock of land improvements.

specifi c fi xed asset or possibly valuables (313).

In other words, the balancing entry depends on the nature of the production process.

Th e acquisition of gold, diamonds, etc.


intended for use in pro- duction is recorded under materials and supplies (31221), but the acquisition of the same items to hold as a store of value is recorded under valu- ables (313).

• Transactions that add to work-in-progress inven- tories (31222) are, in principle, recorded continu- ously as production takes place.
Th e counterpart transactions are reduction in other assets, such as materials and supplies, and the other costs incurred in production.17 When production is completed, all work in progress is reclassifi ed as fi nished goods (31223).

Th is reclassifi cation is re- corded as other changes in the volume of assets under the respective subcategories of invento- ries.
Withdrawals of work-in-progress inventories (31222) should be valued at their cost of produc- tion, where all inputs are valued at their current market prices at the time of withdrawal rather than the prices paid for them.

Th e diff erence be- tween the prices payable for the inputs and their current market prices is a holding gain or loss.

Th e ownership of work-in-progress inventories is transferable, if necessary.
For example, it may be sold under exceptional circumstances, such as the liquidation of a public corporation.

• Work-in-progress inventories should be recorded for single-use cultivated biological resources.

Any cultivation of resources with repeat yields, other than on own account or under an agreed contract with another unit, is also included in work-in-progress inventories.
However, repeat- yield resources, being cultivated on own account or under an agreed contract with another unit, are recorded as the acquisition of fi xed assets.

• A good is fi nished when its producer has com- pleted its intended production process and such inventories of fi nished goods (31223) may be held only by the units that produce them.
When fi n- ished goods are sold or otherwise disposed of (e.g., as compensation of employees in kind or social benefi ts in kind), a transaction must be 17 As explained in paragraph 6.27, an adjustment is made to use of goods and services (22) to account for those items used to produce nonfi nancial assets, such as work-in-progress inventories.
Transactions in Nonﬁ nancial Assets 227 recorded to reduce inventories of fi nished goods (31223), which is balanced by an increase in use of goods and services (22).

Th e distribution of fi nished goods as compensation of employees in kind or social benefi ts in kind is always recorded as use of goods and services (22) by the unit that produced these goods (see paragraph 6.39).
• Finished goods entering inventories are valued at the prices of those goods before adding any taxes, transport, or distribution margins, at the times the entries take place; fi nished goods withdrawn from inventories are valued at the prices before adding any taxes, transport, or distribution mar- gins, at the time when their withdrawals take place.

Th e diff erence between the “entering” and “withdrawal” values of fi nished goods is a hold- ing gain or loss.
• When goods held as goods for resale (31224) are sold or otherwise disposed of, two transac- tions are recorded.

First, reduce inventories of goods for resale (31224) and record a counterpart transaction in expense, recorded as use of goods and services (22) expense at the purchase price.

Second, record (at the sale price) a sales of goods and services (142), which is balanced by either an increase in currency and deposits (3202) or other accounts receivable (3208).
Th e diff erence between the value recorded as sales of goods and services and use of goods and services is refl ected in the net operating balance (NOB).

By conven- tion, goods acquired by government for distribu- tion as social transfers in kind or other transfers in kind but that have not yet been so delivered are also included in goods for resale.
Th e distri- bution of such goods is recorded as a reduction in inventories of goods for resale (31224), and an increase in subsidies (25), grants (26), social ben- efi ts (27), or current transfers not elsewhere classi- fi ed (2821).

• Goods for resale added to inventories are valued at their actual or estimated purchase prices, in- cluding any transportation charges paid to other units but not the costs of any transport services produced on own account by the unit taking de- livery.
In principle, goods acquired by barter are valued at their estimated purchasers’ prices at the time of acquisition.

However, because there are no taxes or margins on bartered goods, the purchaser’s price is the same as the basic price.
228 Government Finance Statistics Manual 2014 Goods for resale withdrawn from inventories are valued similarly at the purchase prices at which they can be replaced when they are withdrawn, which may diff er from the prices that were paid to acquire them and the prices for which they were sold.18 Reductions in inventories are valued in this way whether the goods withdrawn are sold at a profi t or at a loss, or even not sold at all as a result of physical deterioration, recurrent ac- cidental damage, or pilfering.
• When military inventories (31225) are used or otherwise disposed of, their cost is recorded as use of goods and services (22) expense.

A counterpart transaction is recorded as the withdrawal of military inventories (31225).

Ad- ditions and withdrawals of military inventories are valued in a manner similar to fi nished goods or goods for resale, depending on how they were acquired.
• Recurrent losses of inventories resulting from physical deterioration, normal accidental dam- age, or pilfering should be treated as withdraw- als in the same way as inventories withdrawn on purpose.

In practice, determining the time of recording may be diffi cult because the time at which the inventories were stolen or spoiled may be unknown.

Exceptional inventory losses are in- cluded as other changes in the volume of assets (see paragraph 10.70).
Valuables (313) 8.48 Acquisitions of valuables are valued at the prices payable plus any associated costs of owner- ship transfer incurred by the units acquiring the as- sets.

Disposals are valued at the sales price minus any associated costs of ownership transfer incurred by the units disposing of the assets.

Costs of own- ership transfer may be signifi cant for the services of appraisers, auctioneers, and dealers.
Units fulfi lling some functions of the monetary authority may have transactions in both monetary and nonmonetary gold, and care needs to be taken to classify them cor- rectly and to record the other changes in the volume of assets needed to transfer gold from one category to the other.

Nonproduced Assets (314) 8.49 Transactions refl ecting a change in the own- ership of nonproduced assets should be recorded in the same manner as transactions in existing fi xed as- sets.
Th e recording of the costs of ownership transfer on nonproduced assets other than land and the con- sumption of fi xed capital on these costs are discussed in paragraphs 8.42 and 10.83.

Land (3141) 8.50 Purchases and sales of land exclude the costs of ownership transfer on land for both buyers and sellers.

Th ese costs are, by convention, included in land improvements (31114).
Actions that lead to major improvements in the quantity, quality, or pro- ductivity of land, or prevent its deterioration (such as land clearance,19 land contouring, creation of wells and watering holes that are integral to the land in question, etc.

), are also treated as resulting in land improvements (31114), not the acquisition of land (3141).
When a government unit acquires land that is physically located in a foreign country (for use as an embassy, base, or other territorial enclave), the transaction converts the land into part of the eco- nomic territory of the country of the acquiring gov- ernment and, therefore, it enters the balance sheet by means of a transaction (i.e., the acquisition of a nonfi nancial asset).
8.51 Buildings, or other structures, and plantations are oft en purchased or sold together with the land on which they are situated, without separate valu- ations being placed on the structures and the land.
Even if it is not feasible to obtain separate valuations, as may be the case for existing structures, it may be possible to determine whether the land or the struc- ture accounts for most of their combined value and to classify the transaction as the purchase of land or of a structure, depending upon which has the greater value.
If it is not possible to determine whether the land or the structure is the more valuable, by conven- tion, the transaction should be classifi ed as the pur- chase of a structure (i.e., as the acquisition of a fi xed asset in the form of buildings and structures (3111)).

A similar convention holds for plantations.

In most 18 Th e diff erence between the price at which goods for resale is added to inventories and the price at which it is withdrawn is a holding gain or loss.
19 Costs relating to site clearance and preparation of land for purposes of construction are excluded; these are classifi ed as the acquisition of buildings and other structures.

cases, subsoil assets may be owned separately from the land and separate valuations should be estimated if possible.

On the other hand, the law may stipulate that the ownership of the subsoil assets is inseparably linked to that of the land.
For a fi nancial lease of a building or plantation on the land when the assets are inseparable, see paragraph 7.95.

8.52 When governments acquire land (or other assets) under a compulsory sale by the owners, any diff erence between the market value of the assets ac- quired and any compensation provided is recorded as other changes in the volume of assets, in the form of an uncompensated seizure (see paragraph 10.62).
8.53 Th ere is no consumption of fi xed capital on land, but there are transactions in consumption of fi xed capital on land improvements (31114) and costs of ownership transfer on land (which are included in land improvements).

Mineral and energy resources (3142) 8.54 Transactions in mineral and energy resources (3142) refer to acquisitions or disposals of deposits of mineral and energy resources in which the ownership of such assets passes from one institutional unit to an- other.
Reductions in the value of known reserves of mineral and energy resources resulting from their de- pletion as a result of extracting the assets for purposes of production are not transactions but other changes in the volume of assets, as described in paragraph 10.52.

Similarly, increases in the values resulting from discoveries are treated as other changes in the volume of assets.

Decreases arising from reappraisals are also recorded as other changes in the volume of assets.
Th e transactions in mineral and energy resources refer only Transactions in Nonﬁ nancial Assets 229 to those mineral and energy resources over which ownership rights have been established.

Other naturally occurring assets (3143) 8.55 Transactions in noncultivated biological re- sources, water resources, and other natural resources relate to acquisitions or disposals of deposits of these resources in which the economic ownership of such assets passes from one institutional unit to another.
Similar to mineral and energy resources, depletion of noncultivated biological resources, water resources, or other natural resources, because a portion of the asset has been extracted, is recorded as other changes in the volume of assets, as described in paragraph 10.52, and not as a transaction in nonfi nancial assets.
Intangible nonproduced assets (3144) 8.56 As explained in paragraphs 7.104–7.117, in- tangible nonproduced assets consist of contracts, leases, and licenses (31441) and goodwill and market- ing assets (31442).

8.57 Contracts, leases, and licenses may be market- able operating leases, licenses to use natural resources, permits to undertake specifi c activities and entitle- ment to future goods and services on an exclusive basis.
Th e specifi c stocks and fl ows involved with con- tracts, leases, and licenses are discussed in Appendix 4.

8.58 As explained in paragraphs 7.113–7.117, goodwill is recorded in GFS only when its value is evidenced by a market transaction, usually the sale/ purchase of the whole corporation.

Th e amortization of goodwill and marketing assets or other intangible nonproduced assets is an other e conomic fl ow rather than a transaction (see paragraph 10.55).
9 Transactions in Financial Assets and Liabilities Th is chapter describes transactions in fi nancial assets and liabilities and their classifi cation.

Introduction 9.1 Chapter 7 describes the balance sheet and the assets and liabilities recorded on it.

As an integrated framework, GFS also include the fl ows necessary to ex- plain all changes between the balance sheet at the be- ginning of the period and the balance sheet at the end of the reporting period.
As described in Chapter 3, there are two types of fl ows—transactions and other economic fl ows—both of which can aff ect stock posi- tions of assets and liabilities.

Th is chapter describes the transactions that aff ect stock positions of fi nancial assets and liabilities, and Chapter 10 describes other economic fl ows.
9.2 Th e accounting identity given in paragraph 8.2 for nonfi nancial assets also holds for fi nancial assets and liabilities.1 Th e identity states that: Th e value of a category of fi nancial assets (liabili- ties) on the balance sheet at the beginning of the reporting period plus Th e total value of that category of fi nancial assets (liabilities) acquired (incurred) in transactions during the reporting period minus Th e total value of that category of fi nancial assets (liabilities) disposed of (extinguished) in transac- tions during the reporting period plus Th e net value of other economic fl ows that aff ect that category of fi nancial assets (liabilities) 1 For ease of expression, assets will oft en be used as a reference to both assets and liabilities.
equals Th e value of the category of fi nancial assets (li- abilities) on the balance sheet at the end of the re- porting period.

Th is identity requires that transactions, other eco- nomic fl ows, and stock positions be recorded consis- tently with regard to classifi cation, time of recording, and valuation.

Th e accounting rules governing these factors are described in Chapter 3.
9.3 Transactions can change stock positions of fi - nancial assets or liabilities in diff erent ways and all must be accounted for.

Th e more important types of transactions follow: • Transactions involving revenue, expense, the transfer of economic ownership of a good or nonfi nancial asset, or the provision of a service or labor almost always entail a counterpart entry in transactions in fi nancial assets and liabilities for means of payment or claims on future means of payment.
Even many transactions in kind, such as barter transactions and remuneration in kind, could conceptually lead to counterpart transactions in fi nancial assets (other accounts receivable) and/or liabilities (other accounts pay- able) when the timing of the exchange does not coincide.

Th e sale of a good, service, or asset may have as its counterpart a change in currency or transferable deposit.
Alternatively, the counter- part may be refl ected as another type of fi nancial asset or liability, such as other accounts receiv- able or payable.

• New fi nancial claims are oft en created by trans- actions in which a creditor advances funds to a debtor.

Th e creditor then acquires a fi nancial asset and the debtor incurs a liability.

• Some transactions in fi nancial assets and liabili- ties are simply exchanges of fi nancial instruments.

• Financial claims are normally terminated by transactions.
In some cases, the debtor pays the creditor the funds stipulated by the fi nancial instrument, thereby terminating the claim.

In other cases, the debtor buys its own instrument in the market.

• Accrued interest is deemed to be reinvested in an additional quantity of the underlying fi nancial instrument by means of a transaction.

• Th e trading and settlement of fi nancial derivative contracts.

9.4 All transactions that increase a unit’s holdings of assets are labeled acquisitions.
All transactions that decrease a unit’s holdings of assets are labeled dispos- als.

Transactions that increase liabilities are referred to as the incurrence of a liability.

Transactions that decrease liabilities are variously titled repayments, reductions, withdrawals, redemptions, liquidations, or extinguishments.

Th us, the results of transactions in a particular category of fi nancial assets can be pre- sented either as total acquisitions and total disposals or as net acquisitions.
Similarly, changes in liabilities can be presented as total incurrences and total reduc- tions or as net incurrences.

Transactions that change a category of fi nancial assets are never combined with transactions that change the same category of liabili- ties.

Th at is, in GFS, the net acquisition of loans is not presented as the increase in loans held as fi nancial as- sets minus the increase of loans as liabilities (also see paragraph 9.17).
9.5 As explained in paragraph 4.17, the net operat- ing balance minus the net investment in nonfi nancial assets equals net lending (+) / net borrowing (–).

If the operating balance is not exhausted by the net invest- ment in nonfi nancial assets, the resulting surplus is called net lending (+).

Alternatively, if the net oper- ating balance is not suffi cient to cover the net accu- mulation of nonfi nancial assets, the resulting defi cit is called net borrowing (–).
Transactions in fi nancial assets and liabilities explain how net lending/net bor- rowing is fi nanced by means of changes in holdings of fi nancial assets and liabilities—that is, total fi nancing.

In other words, the net acquisition of fi nancial assets minus the net incurrence of liabilities is conceptually equal to net lending/net borrowing.
9.6 Th e remainder of this chapter describes fi rst the valuation, time of recording, netting, and con- Transactions in Financial Assets and Liabilities 231 solidation of transactions that aff ect fi nancial assets and liabilities.

It then provides details on transactions that aff ect specifi c categories of fi nancial assets and liabilities.

Th e classifi cation of transactions in fi nan- cial assets and liabilities by residence and sector of the counterparty is also discussed.
Valuation 9.7 Th e value of an acquisition or disposal of an ex- isting fi nancial asset or liability is its exchange value— that is, the current market price.

Th e value of a newly created fi nancial claim is generally the amount ad- vanced by a creditor to a debtor.

9.8 All service charges, fees, commissions, and similar payments for services provided in carrying out transactions and any taxes payable on transactions are excluded from transactions in fi nancial assets and liabilities.
Th ey are expense transactions classifi ed as use of goods and services (22).

In particular, when new securities are marketed by underwriters or other intermediaries as agents for the unit issuing the se- curities, the securities should be valued at the price payable by the purchasers.

Th e diff erence between that price and the amount receivable by the issuing unit is a payment for the services of the underwrit- ers.
When dealers have a margin between their buying and selling prices, the buyer and seller record transac- tions in fi nancial assets and liabilities at the same mid- price—that is, the midpoint between the buyer’s price and the seller’s price.

9.9 When a security is issued at a discount or pre- mium relative to its contractual redemption value, the transaction should be valued at the amount actually payable for the asset and not the redemption value.
Any interest that is prepaid jointly with the acquisi- tion of a security should be treated as accrued interest that had been reinvested in an additional quantity of the security.

In this case, the value of the acquisition is the sum of the amount paid for the security directly plus the amount prepaid for accrued interest.
When issued at a premium, the diff erence between the re- demption and issue price is amortized over the life of the instrument and reduces (rather than increases) the amount of interest accruing in each period.

9.10 In some cases, the value of a fi nancial asset is determined by the value of the counterpart item to the transaction.
For example, the initial value of a loan 232 Government Finance Statistics Manual 2014 resulting from a fi nancial lease is usually the value of the nonfi nancial asset leased (if no initial down payments or fees are involved).

Th e value of other accounts pay- able resulting from the purchase of goods or services is the value of the goods acquired or services received.
9.11 As mentioned in paragraph 3.119, the value of a transaction expressed in a foreign currency is con- verted to the domestic currency using the midpoint of the buying and selling exchange rates at the time of the transaction.2 If a transaction expressed in a for- eign currency involves the creation of a fi nancial asset or liability, such as other accounts receivable/payable, and is followed by a second transaction in the same foreign currency that extinguishes the fi nancial asset or liability, then both transactions are valued at the exchange rates eff ective when each takes place.
9.12 Government units or public corporations may acquire or dispose of fi nancial assets on a nonmarket basis as an element of their fi scal policy rather than as a part of their liquidity management.

For example, they may lend money at a below-market interest rate or purchase shares of a corporation at an infl ated price.
It is generally accepted that concessional loans occur when units lend to other units and the contrac- tual interest rate is intentionally set below the market interest rate that would otherwise apply.

Th e degree of concessionality can also be enhanced with grace periods3 and frequencies of payments and maturity periods favorable to the debtor.
Since the terms of a concessional loan are more favorable to the debtor than market conditions would otherwise permit, concessional loans eff ectively include a transfer from the creditor to the debtor.

However, the means of in- corporating the transfer impact within the SNA and other macroeconomic statistics have not been fully developed, although various alternatives have been advanced.
Accordingly, until the appropriate treat- ment of concessional debt is agreed, information on concessional debt should be provided in supplemen- tary tables, and in the memorandum items conces- 2 Th e diff erence between buying or selling prices and midpoint prices represents a service charge and should conceptually be reported as sales of goods and services (142) or use of goods and services (22).
Th e service charge may be estimated from the aver- age trade margin spread between the buying and selling rates.

If not signifi cant or not practical to identify, it is recommended to disregard any service charge in GFS.

3 Th e treatment of grace periods is discussed in paragraphs 6.69. sional loans at nominal value (6M391) and implicit transfers resulting from loans at concessional interest rates (6M392), discussed in paragraph 7.246.
Time of Recording 9.13 On an accrual basis, transactions in fi nancial assets and liabilities are recorded when economic ownership of the asset changes—that is, when the asset is created or liquidated—and when the addi- tion or reduction in the amount of the fi nancial in- strument occurs, such as the accrual of interest and subsequent reduction when debt service payments are made.4 Th is time is usually clear when the transac- tion involves an exchange of existing fi nancial assets or the simultaneous creation or extinction of a fi nan- cial asset and a liability.
In most cases, it will be when the contract is signed or when money or some other fi nancial asset is paid by the creditor to the debtor or repaid by the debtor to the creditor.

9.14 In some cases, the parties to a transaction may perceive economic ownership to change on diff erent dates because they acquire the documents evidencing the transaction at diff erent times.

Th is variation usually is caused by the process of check clearing or the length of time checks are in the mail.
Th e amounts involved in such “fl oat” may be substantial in the case of transfer- able deposits and other accounts receivable or payable.

If there is disagreement on a transaction between two general government units or a government unit and a public corporation, the date on which the creditor re- ceives the payment is the date of record because a fi - nancial claim exists up to the point that the payment is cleared and the creditor has control of the funds.
9.15 When a transaction in a fi nancial asset or li- ability involves a nonfi nancial component, the time of recording is determined by the nonfi nancial compo- nent.

For example, when a sale of goods or services gives rise to a trade credit, the transaction should be recorded when economic ownership of the goods is transferred or when the service is provided.

When a fi nancial lease is created, the loan implicit in the transaction is recorded when control of the fi xed asset changes.
4 On the pure cash basis of recording, transactions are recorded when cash is paid or received.

See Chapter 3 for more details on the cash basis of recording.

Transactions in Financial Assets and Liabilities 233 9.16 Some transactions, such as the accrual of interest expense and its treatment as borrowing of an additional amount of the fi nancial instrument, take place continu- ously.

In this case, the transaction in the associated fi - nancial asset or liability also takes place continuously.
amounts payable for any expense, for acquisition of nonfi nancial assets, or related to any liability may become in arrears if the amounts are past due for payment (e.g., in the case of overdue debt service payments).

Netting and Consolidation of Flows Netting 9.17 Transactions in fi nancial assets and liabilities are presented in Table 9.1 as the net acquisition of each category of fi nancial asset and the net incurrence of each category of liability.
Th at is, in the GFS framework, only the net change in the holding of a type of asset is presented, not gross acquisitions and gross disposals, as with most nonfi nancial assets.

(Separate amounts for gross acquisitions and gross disposals may, of course, be presented if the underlying accounting records per- mit and the information is analytically meaningful.)
When the same type of fi nancial instrument is held both as a fi nancial asset and a liability, transactions in fi nancial assets are presented separately from transac- tions in liabilities rather than netting transactions in li- abilities against transactions in fi nancial assets.

Consolidation 9.18 As explained in paragraphs 3.152–3.168, con- solidation is a method of presenting statistics for a set of units (or entities) as if they constituted a single unit.
A consolidated set of accounts for a unit, or group of units, is produced by, fi rst, an aggregation of all fl ows and stock positions within an agreed analytical frame- work, followed by the elimination, in principle, of all fl ows and stock positions that represent relationships among the units or entities being consolidated.

9.19 Transactions in fi nancial assets are eliminated when the two parties to the transaction are units that are being consolidated.
For example, if a local govern- ment unit purchases a security issued by the central government, both the acquisition of the fi nancial asset and the incurrence of the liability would disappear in a presentation of statistics for the entire general gov- ernment sector but not in a presentation of either the central or the local government subsector separately.

Arrears 9.20 As explained in paragraphs 7.247–7.250, ar- rears are defi ned as amounts that are both unpaid and past the due date for payment.
In principle, 9.21 Some types of fi nancial assets and liabilities, most notably debt securities, loans, fi nancial deriva- tives, and other accounts receivable/payable, mature at scheduled dates, or series of dates, when the debtor is required to make specifi ed payments to the creditor.

If the payments are not made as scheduled, the debtor has eff ectively obtained additional fi nancing by not making the scheduled payments.
When arrears occur, no transactions should be imputed, but the arrears should continue to be shown in the same instrument until the liability is extinguished.

However, if the con- tract provided for a change in the characteristics of a fi nancial instrument when it goes into arrears, this change should be recorded as a reclassifi cation in the form of other changes in the volume of the fi nancial assets and liabilities (see paragraph 10.84).
If the con- tract is renegotiated or the nature of the instrument changes from one instrument category to another (e.g., from bonds to equity), the resulting fl ow should be recorded as transactions in the repayment of the original liability and the creation of a new liability (see paragraph 3.97).

9.22 Nonetheless, interest accrues on liabilities in arrears (both principal and interest arrears) and is known as late interest.
Late interest should ac- crue at the same interest rate as on the original debt instrument, unless the interest rate for arrears was stipulated in the original debt contract, in which case this stipulated interest rate should be used.

Th e stipulated rate may include a penalty rate in addi- tion to the interest rate on the original debt.

For other liabilities in arrears, in the absence of other information, interest costs accrue on these arrears at the market rate of interest for overnight borrow- ing.
Also, any additional charges relating to arrears (such as penalties) should be recorded as interest on arrears of the debtor at the time the charges accrue.

If an item is purchased on credit and the debtor fails to pay within the period stated at the time the pur- chase was made, any extra charges incurred should be regarded as interest on arrears and accrue until the debt is extinguished.
234 Government Finance Statistics Manual 2014 Table 9.1 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classiﬁ ed by Instrument and Residence of the Counterparty 32 Net acquisition of ﬁ nancial assets 33 Net incurrence of liabilities 3201 32011 32012 3202 3203 3204 3205 32051 32052 3206 32061 32062 32063 32064 32065 3207 32071 32072 3208 32081 32082 321 3211– 3218 322 3221– 3228 Monetary gold and Special Drawing Rights (SDRs) 3301 Special Drawing Rights (SDRs) Monetary gold Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes 3302 3303 3304 3305 33051 33052 3306 33061 33062 33063 33064 33065 Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options 3307 Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts
 receivable Trade credit and advances Miscellaneous other accounts receivable Domestic debtors Same instrument breakdown as above, but excluding monetary gold External debtors Same instrument breakdown as above Financial derivatives Employee stock options Other accounts payable Trade credit and advances Miscellaneous other accounts payable Domestic creditors Same instrument breakdown as above, but excluding SDRs External creditors Same instrument breakdown as above 33071 33072 3308 33081 33082 331 3312– 3318 332 3321– 3328 9.23 When using the cash basis of recording, cash payments for the settlement of arrears should be re- corded with a counterpart entry in the relevant cat- egories of expense, net acquisition of nonfi nancial assets, or net incurrence of liabilities.
Recording ar- rears in this way recognizes the appropriate economic nature of these payments since they have not been re- corded under the appropriate GFS categories in the past (see also paragraph 7.249).

Classiﬁ cation of Transactions in Financial Assets and Liabilities by Type of Financial Instrument and Residence 9.24 Table 9.1 presents the classifi cation of transac- tions in fi nancial assets by type of fi nancial instrument and residence.
Th is classifi cation is consistent with the classifi cation of the same fi nancial assets and li- abilities employed in Chapter 7 (Table 7.9).

Chapter 7 also provides full defi nitions of the fi nancial assets or liabilities included in each category, and those defi - nitions are not repeated here.

Th e remainder of this section provides guidance only on those transactions for which the general guidance may not be suffi cient.
9.25 In principle, the classifi cation of transactions in fi nancial assets and liabilities by residence is based on the residence of the units that are a party to the transaction being recorded.

Th e classifi cation of stock positions in fi nancial assets and liabilities in a unit’s balance sheet (see paragraph 7.264) is based on the residence of the issuer of fi nancial instruments (as- sets), and the residence of the holder of the fi nancial instruments (liabilities).
If a transaction in fi nancial assets or liabilities between a resident and a nonresi- dent unit involves an instrument originally issued by a resident, an entry in other changes in the volume of assets (reclassifi cation) should be recorded to main- tain the integrated GFS framework of fl ows and stock positions (see also paragraphs 9.85–9.87 and 10.79).

In practice, available information may not permit the identifi cation of the two parties to the transaction.
Th erefore, transactions recorded in the source data for external transactions in fi nancial assets and liabilities may include those that take place not only between residents and nonresidents but also between two resi- dents in nonresident fi nancial assets and liabilities.
9.26 In addition to transactions in interest and principal on debt liabilities, general government and public sector units may undertake a range of complex debt-related transactions, such as assuming debt of other units, making payments on behalf of other units, debt rescheduling, debt forgiveness, debt defeasance, and fi nancial leasing.

Th e special features of these types of transactions are described in Appendix 3.
9.27 Th e classifi cation of fi nancial instruments in GFS, described in this chapter, does not include functional categories used in the Balance of Payment and International Investment Position, such as direct investment, portfolio investment, or international reserves.5 Monetary Gold and Special Drawing Rights (SDRs) (3201, 3211, 3221, 3301, 3321)6 Monetary gold (32011, 32211) 9.28 Transactions in monetary gold are the exclu- sive responsibility of the monetary authorities, which will normally be the central bank (a public fi nancial corporation).
It is possible, however, for a unit of the general government sector to undertake some mone- tary functions, in which case it may have transactions in monetary gold.

When transactions in fi nancial as- sets are classifi ed by residence of the counterparty, the counterpart liability to transactions in monetary gold 5 For information on these categories, see the BPM6, Chapter 6.
See also Appendix 7 for more information on the linkages between GFS and the Balance of Payments and International Investment Position.

6 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.

Appendix 8 provides all classifi cation codes used in the GFS framework.
Transactions in Financial Assets and Liabilities 235 is shown as external because monetary gold can be held only as part of foreign reserves.7 9.29 Transactions in monetary gold can take place only between two monetary authorities or between a monetary authority and an international fi nancial or- ganization.
If the monetary authority adds to its hold- ings of monetary gold by acquiring newly mined gold or existing gold off ered on the private market, then the gold so acquired is said to have been monetized.

No transaction in fi nancial assets should be recorded.

Instead, the acquisition of the gold should fi rst be recorded as a transaction in nonfi nancial assets, and then the reclassifi cation of the gold as monetary gold should be recorded as an other economic fl ow.
De- monetization of gold is recorded symmetrically (see paragraph 10.84).

9.30 Transactions in nonmonetary gold (including gold not held as reserves by the monetary authorities and all gold held by fi nancial institutions other than the monetary authorities) are treated as acquisitions minus disposals of valuables (if the sole purpose is to provide a store of wealth) and otherwise as changes in inventories.
Deposits, loans, and securities denom- inated in gold are treated as fi nancial assets (not as gold) denominated in foreign currencies.

Special Drawing Rights (SDRs) (32012, 32112, 32212, 3301, 3321) 9.31 SDRs are held exclusively by participants of the IMF’s SDR Department and prescribed holders, and are transferable among them.

Th e creation of SDRs (referred to as allocations of SDRs) and the ex- tinction of SDRs (cancellations of SDRs) are recorded as transactions.
Transactions in SDRs also take place when a holder exercises its right to obtain foreign exchange or other reserve assets from other partici- pants and prescribed holders and when SDRs are sold, loaned, or used to settle fi nancial obligations.

9.32 At the time of the SDR allocation, the amounts recorded as SDR allocations (liabilities) and holdings (fi nancial assets) are identical and on the same public sector unit’s balance sheet.
Th is public sector unit— as offi cial holder—may, subsequently, exchange some or all of its SDR holdings (fi nancial asset) with other offi cial holders for a freely usable currency(ies) or to 7 See paragraphs 7.126–7.130 for more details on monetary gold.

236 Government Finance Statistics Manual 2014 meet its liabilities.
Consequently, the SDR allocations and holdings on the balance sheet of that public sector unit would no longer be identical; the SDR holdings would be less than the allocations because they have been exchanged.

As a result, interest payable on the SDR allocation of that public sector unit will be larger than interest receivable on its SDR holdings.

Interest receivable on the SDR holdings exchanged will accrue to the new holder.
Th ese transactions in SDRs (and resulting stock positions) are recorded at their gross amounts.

Currency and Deposits (3202, 3212, 3222, 3302, 3312, 3322) 9.33 Because the market price of domestic cur- rency and deposits is fi xed in nominal terms, the net acquisition of domestic currency and deposits is equal to the stock held at the end of the reporting period minus the stock held at the beginning of the period, adjusted for any currency that was lost, stolen, or destroyed.
Calculation of the net acquisition of for- eign currencies and deposits must exclude the eff ects of changes in exchange rates, which are recorded as holding gains or losses (as also mentioned in para- graph 10.23).

9.34 Currency is treated as a liability of the unit that issued the currency.

Consequently, when a unit puts new currency into circulation, a transaction is recorded that increases its liability for currency.
Usu- ally, the counterpart to the increase in liabilities is an increase in the unit’s fi nancial assets, most likely deposits.8 Transactions in gold and commemorative coins that do not circulate as legal tender are treated as transactions in inventories or valuables rather than currency (see paragraph 7.135).

Th e cost of producing new currency is an expense transaction unrelated to the value of transactions in currency.
9.35 Transactions in unallocated accounts for pre- cious metals (including gold) are classifi ed under deposits (as explained in paragraph 7.15), except for transactions between two monetary authorities in unallocated gold accounts for reserves purposes.
If a monetary authority acquires an unallocated gold ac- 8 Seigniorage profi ts (i.e., the diff erence between the face value of currency issued and its costs of production, including the costs of base metals) for the issuer of currency are implicitly included under currency and deposits and are not treated as revenue.
count from a nonmonetary authority, the transaction is recorded as a transaction in currency and deposits and then reclassifi ed as monetary gold (see paragraph 10.84).9 Debt Securities (3203, 3213, 3223, 3303, 3313, 3323) 9.36 Most transactions in bonds and other types of debt securities are covered by the general guide- lines previously established.

Th e accrual of interest on certain debt securities may deserve special attention and is summarized here (also see paragraphs 6.62– 6.83).
Interest is the amount debtors will have to pay their creditors over and above the repayment of the amounts advanced by the creditors.

Interest accrues on a debt instrument for its entire life as determined by the conditions set at inception of the instrument.

When payments are fi xed in advance, accrued interest is determined using the original yield-to-maturity.
A single, eff ective yield—established at the time of the security issuance—is used to calculate the amount of accrued interest in each period to maturity.

Th is ap- proach is known as the “debtor approach.” 9.37 Most debt securities have a fi xed or variable in- terest rate and may also be issued at a discount or, possi- bly, a premium.
In such cases, the interest receivable by the holders of the debt securities has two components: • Th e amount of money income receivable from coupon10 payments each period, plus • Th e amount of interest accruing each period at- tributable to the diff erence between the redemp- tion price and the issue price.

9.38 On a cash basis, interest expense is recorded at the time it is paid in cash, with a reduction in cur- rency and deposits as the counterpart.
Debt securities issued at par 9.39 For debt securities for which the issue and redemption prices are the same (i.e., issued at par), total interest accrued over the whole life of the debt 9 See also BPM6, paragraph 9.20.

10 A coupon payment is a contractually agreed cash amount paid by the issuer of the debt security to the holder, at each coupon date.
It is calculated from the coupon rate, face value of the debt security, and the number of payments per year, and may diff er from the accrued interest if debt securities are issued at a discount or a premium.

securities is given by the periodic coupon payments.

If coupon payments are fi xed, accrued interest can be calculated by allocating the coupon payment to the relevant period using a daily compound formula.
Debt securities issued at a discount or premium 9.40 Debt securities issued at a discount (or pre- mium), such as short-term bills of exchange and dis- counted and zero-coupon bonds, are recorded at the time of issue at the issue price.11 Th e diff erence be- tween the discounted issue price of such debt securi- ties and their price at maturity (redemption price) is treated as interest accruing over the life of the debt security.
For each reporting period, the holder of the debt security should record a transaction for the re- ceipt of interest revenue arising from the diff erence between the issue and redemption prices and its re- investment in an additional quantity of the debt secu- rity.

Th e issuer of the debt security records the accrual of interest expense and an increase in its liability for debt securities.
For debt securities issued at a pre- mium, the diff erence between the issue price and the price at maturity should be amortized over the life of the instrument, reducing (rather than increasing) the amount of interest accruing in each period.

On a cash basis, interest resulting from the discount should be recorded as an expense on redemption of the bond.

Interest resulting from a premium should be recorded as a reduction in interest expense at the time of issue.
Index-linked debt securities 9.41 With an index-linked debt security,12 an in- dexation mechanism links the amount to be paid at maturity or coupon payments (or both) to an indica- tor agreed by the parties.

Th e values of the indicators are not known in advance.

For debt securities with indexation of the amount to be paid at maturity, these amounts may be known only at the time of redemp- tion.

As a result, total interest fl ows before redemption cannot be determined with certainty.
To estimate the change in the value of the debt security due to inter- est accrued before the values of the reference indica- tors are known, some proxy measures need to be used.
Transactions in Financial Assets and Liabilities 237 In this regard, it is useful to distinguish the following three arrangements: • Indexation of coupon payments only with no in- dexation of amount to be paid at maturity • Indexation of the amount to be paid at maturity with no indexation of coupon payments • Indexation of both the amount to be paid at ma- turity and coupon payments.
9.42 Th e principles describing the transactions for these index-linked debt securities revolve around de- termining the value of interest and are discussed in paragraphs 6.75–6.78.

Debt securities with embedded derivatives 9.43 For debt securities with embedded derivatives,13 such as call, put, or equity conversion options, the re- cording of accrued interest is the same as for securities that do not have such features.
For all periods leading up to the exercise of the option, the interest accrued is unaff ected by the presence of the option.

When the em- bedded option is exercised, the securities are redeemed and the accrual of interest ceases.

Loans (3204, 3214, 3224, 3304, 3314, 3324) 9.44 Th e terms of a loan contract frequently require periodic payments for all interest expense accrued since the previous periodic payment and a payment covering a portion of the original amount borrowed.
On an accrual basis, interest accrues continuously over the reporting period and should be added to the principal; the payments of interest and principal are transactions in fi nancial assets or liabilities (see para- graph 6.64).

On a cash basis, periodic interest and principal payments are recorded as interest expense/ revenue and transactions in fi nancial assets or liabili- ties, respectively, when cash payments are made—no interest is accrued (see paragraph 6.65).
9.45 When goods are acquired under a fi nancial lease, a change of economic ownership from the lessor to the lessee is deemed to take place, even though the leased goods remain legally the property of the lessor.

Th is change in economic ownership is 11 Th e issue price is the actual amount paid—that is, aft er the discount has been subtracted or premium added.

12 It is possible for loans and other fi nancial instruments to be index linked and the same transactions would be recorded.
13 As explained in paragraph 7.148, securities with an embedded derivative are classifi ed entirely as debt securities.

A separate fi nancial derivate component is not recorded.

238 Government Finance Statistics Manual 2014 fi nanced by a loan transaction: the lessor and lessee record a loan equal to the market value of the asset, this loan being gradually paid off over the period of the lease.

Th e implication of treating a fi nancial lease as a loan is that interest accrues on the loan.
Th e rate of interest on the imputed loan equates the present value of the total amount payable in installments over the life of the lease (including any value to be repaid at maturity) with the market value of the asset at the time the lease is initiated.

Th e installment cov- ers interest accrued during the period as well as the component of the repayment of the principal.
9.46 As described in paragraphs 7.159 and 7.161, repurchase agreements and gold swaps are treated as loans with no change of economic ownership for the underlying assets that legally were sold.

Similarly, the winding up of the repurchase agreement or swap ac- cording to the initial terms of the agreement is treated as a liquidation of a loan.
Th e economic nature of an off -market swap is equivalent to a combination of borrowing (the lump sum) in the form of a loan trans- action and an on-market swap transaction (fi nancial derivative) (see paragraph 7.162).

Equity and Investment Fund Shares (3205, 3215, 3225, 3305, 3315, 3325) Equity (32051, 32151, 32251, 33051, 33151, 33251) 9.47 Th e treatment of transactions in publicly traded shares is generally straightforward.
Problems may be created, however, by the operations of quasi- corporations and public corporations.

9.48 Additions to the funds and other resources of a quasi-corporation, including in-kind transfers of nonfi nancial assets, are treated as purchases of equity by the owner of the quasi-corporation.

Th is includes new fi nance made available for use by the enterprise in purchasing fi xed assets, accumulating inventories, acquiring fi nancial assets, or redeeming liabilities.
Similarly, receipt by the owner of proceeds from sales of any of the quasi-corporation’s assets, transfers in kind from the quasi-corporation, and withdrawals by the owner of accumulated retained earnings of the quasi-corporation are treated as reductions in equity by the owner.

Liquidating dividends payable to share- holders when an enterprise becomes bankrupt (or is otherwise wound up) should also be recorded as with- drawal of equity.
9.49 For government units, regular transfers to corporations or quasi-corporations to cover persis- tent operating defi cits are subsidies (251), but if pay- ments from government are irregular and are made to cover accumulated losses or exceptional losses due to factors outside the control of the enterprise, they are treated as a capital transfer under capital transfers not elsewhere classifi ed (2822).14 If government makes a transfer to a public corporation to fi nance all or part of the costs to fi nance its acquisition of nonfi nancial assets, this also is recorded as equity unless there is no reasonable expectation of a suffi cient rate of return on the investment, in which case the transfer is recorded as capital transfers not elsewhere classifi ed (2822) (see Box 6.3).
Regular withdrawals of the income from public corporations or quasi-corporations are prop- erty income under, respectively, dividends (1412) or withdrawals of income from quasi-corporations (1413).

Th e exception occurs when dividends are dispropor- tionately large relative to the recent level of dividends and earnings.
Any dividends declared greatly in excess of the recent level of dividends and earnings should be treated as withdrawal of owners’ equity (32051, 32151, 32251, 33051, 33151, 33251) from the public corpora- tion.

Th is will be the case for distributions by public corporations to shareholders of proceeds from priva- tization receipts and other sales of assets and large and exceptional one-off payments based on accumulated reserves or holding gains.
9.50 Government units may acquire equity in a public corporation or quasi-corporation as a result of legislation or an administrative change creating the corporation or quasi-corporation.

In some cases, this event will amount to a reclassifi cation of existing as- sets and liabilities, which is recorded as an other eco- nomic fl ow that results in an addition of equity to the government unit’s balance sheet.
An advance of funds to create the new enterprise is a transaction refl ect- ing the purchase of equity.

As explained in paragraph 6.121, retained earnings of a foreign direct investment enterprise are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them by means of additions to equity.

14 See Box 6.3 for more details.


9.51 From time to time, corporations restructure their shares and may off er shareholders a new number of shares for each share previously held.

Th ese bonus shares are not, however, treated as transactions, but as a form of redenomination.

If a public corporation buys its own shares, the transaction is classifi ed as being a reduction in the equity liability, rather than an acquisition of an asset.
Because a corporation can- not have a claim on itself, the liability is deemed to be extinguished, even if the shares are not canceled.
9.52 Membership dues and subscription fees payable to international organizations are treated as the acquisition of equity in cases when there is a possibility—even if unlikely—of repayment of the full amount.15 A capital contribution to an international organization or nonprofi t institution is a capital trans- fer if it does not give rise to equity for the provider of the contribution (see paragraphs 6.94 and 6.124).
Privatization/Nationalization 9.53 Privatization generally is the disposal to pri- vate owners by a government unit of the controlling equity of a public corporation or quasi-corporation.

Such a disposal is treated as a transaction in equity.16 If a public corporation or quasi-corporation sells some of its assets and provides part or all of the proceeds to its parent government unit, then the provision of the proceeds would also be a disposal of equity of the gov- ernment unit.
Brokers’ commissions and other priva- tization costs are expense transactions just as all other costs of ownership transfer related to the acquisition or disposal of a fi nancial asset.

9.54 Government units also can be privatized.

If the assets disposed of as a single transaction con- stitute a complete institutional unit, the transaction should be classifi ed as a sale of equity.
Th e govern- ment is assumed to have converted the unit to a quasi- corporation immediately prior to disposal by means of a reclassifi cation of assets, which should be recorded as an other economic fl ow.
If the assets disposed of do not constitute a complete institutional unit, then the 15 In most cases, these membership dues and subscription fees should be recorded as an expense in use of goods and services (22) if there is an exchange of a payment for some form of a service or, if no exchange, as a current transfer not elsewhere classifi ed (2821).
16 Th e public corporation is reclassifi ed to a private corporation through an entry in other changes in the volume of assets and liabilities, as explained in Chapter 10.

Transactions in Financial Assets and Liabilities 239 transactions should be classifi ed as a disposal of the individual nonfi nancial and/or fi nancial assets.

9.55 Nationalization is generally the acquisition from private owners by a government unit of the controlling equity of a private corporation or quasi- corporation.
Such an acquisition is treated as a trans- action in equity.

In some exceptions, government units may acquire ownership of a private corporation or quasi-corporation by way of confi scation or ap- propriation.

Th ere is no payment to the owners (or the compensation is not commensurate with the fair value of the assets).

Th is is not the result of a transac- tion by mutual agreement.
Th e diff erence between the market value of the asset acquired and any compensa- tion provided (a transaction) should be recorded as other changes in the volume of assets, in the form of an uncompensated seizure (see paragraph 10.62).17 Investment fund shares or units (32052, 32152, 32252, 33052, 33152, 33252) 9.56 Changes to the value of investment funds due to the issuance or repayment of shares or units are re- corded as transactions.
Th e increase (decrease) in the value of investment fund shares or units, other than from holding gains and losses, is recorded as distrib- uted to the share- or unit holders and reinvested by the holders in the shares or units (see paragraph 5.121).

Th is treatment is similar to the treatment of retained earnings of a foreign direct investment enterprise.
Gains and losses arising from the value of an asset or fund to refl ect its current market value are not re- corded as transactions, but as holding gains or losses.

Insurance, Pension, and Standardized Guarantee Schemes [GFS] (3206, 3216, 3226, 3306, 3316, 3326) 9.57 General government units may incur liabili- ties for these reserves, entitlements, and provisions as operators of nonlife insurance and standardized guarantee schemes, nonautonomous pension funds, and unfunded pension schemes.
General government units may acquire insurance technical reserves as fi - nancial assets in their capacity as holders of nonlife insurance policies.

Public corporations can engage 17 Th e same treatment would apply to the acquisition of land or any other nonfi nancial asset under a compulsory sale.
240 Government Finance Statistics Manual 2014 in all types of insurance activities.18 When operat- ing standardized guarantee schemes, such as stu- dent loan guarantees, deposit guarantees, and export credit guarantees, general government units record transactions in liabilities for provision for calls under standardized guarantee schemes.
Th ese transactions in liabilities comprise: • Prepayments of net fees: fees prepaid in the reporting period less previously prepaid fees earned for the reporting period • Provisions for outstanding calls: expected calls less any expected asset recoveries on the stan- dardized guarantees provided in the recording period less any calls settled in the recording pe- riod (see paragraphs A4.78–A4.80).
Nonlife insurance technical reserves [GFS] (32061, 32161, 32261, 33061, 33161, 33261) 9.58 In general, nonlife insurance premiums are paid in advance of the period covered by the policy.

On an accrual basis, all such prepaid premiums are transactions that increase the insurance unit’s liabil- ity and the policyholder’s asset for insurance techni- cal reserves.
As the period covered by the premium progresses, the insurance unit continuously earns the premium, which requires a transaction to decrease its liability and the policyholder’s asset for nonlife insur- ance technical reserves.

9.59 When events occur giving rise to a valid claim, a transaction is recorded that increases reserves against outstanding claims as a liability of the insur- ance unit and an asset of the benefi ciaries.
If payment of the claim is delayed for a substantial length of time or consists of periodic payments over several report- ing periods, the value of the transaction corresponds to the present value of the expected payments.

9.60 Th e change in unearned premiums and re- serves against outstanding claims is shown as a trans- action in liabilities of the insurer and a transaction in assets of the policyholders.
Th e relevant transactions in revenue and expense are discussed in paragraphs 5.149–5.151 and 6.125.

9.61 On a cash basis, premiums received and claims paid are shown as a transaction in revenue and expense of the insurer and the policyholders when payments are made.
Life insurance and annuities entitlements (32062, 32162, 32262, 33062, 33162, 33262) 9.62 As noted in paragraph 7.179, it is unlikely for general government units to incur liabilities or hold assets with respect to life insurance and annuities, un- less they provide such schemes to their employees.

Changes in life insurance and annuities entitlements are transactions in liabilities for the insurer and trans- actions in fi nancial assets for the policyholders.
In the case of annuities, the transactions constitute a stream of ongoing payments, rather than a lump sum that re- duces the liability.

Th e treatment of life insurance and annuities is elaborated in paragraph A4.69.

Pension entitlements [GFS] (32063, 32163, 32263, 33063, 33163, 33263) 9.63 If a public sector unit operates a pension scheme, then it will have transactions in liabilities for pension entitlements.
9.64 For a defi ned-benefi t scheme, actual and im- puted social contributions receivable from employees, employers, or other institutional units on behalf of in- dividuals or households with claims on the public sec- tor unit for future pension benefi ts will increase the unit’s liability for pension entitlements.
Th e increase in the existing liability (because the future payments are discounted over fewer periods) is recorded as a transaction in pension entitlements with the corre- sponding entry being an expense in the form of im- puted social contributions, as explained in paragraph 6.117.

Payments to retired persons or their depen- dents and survivors in the form of periodic payments or lump sums reduce the liability, with a decrease in currency and deposits as the counterpart entry.
On a cash basis, the benefi ts paid should be recorded as an expense in the form of employment-related social ben- efi ts [GFS] (273).19 18 It is assumed that general government units do not operate life insurance schemes and do not purchase life insurance policies.

Th e treatment of insurance technical reserves created by life in- surance activities of public corporations is similar to autonomous pension funds, but is not addressed separately here.
Also see the 2008 SNA, Chapter 17, and the BPM6, Appendix 6c.

19 Th e cash treatment diff ers from the accrual treatment because there are no imputations for contributions and accumulated liabilities in a cash-based system.

Furthermore, in a cash system, the benefi ts paid cannot be regarded as compensation of em- ployees because they are paid to retired employees, not current employees—there is no exchange of labor involved at the time.
9.65 For a defi ned-contribution scheme, transac- tions in pension liabilities for the pension fund are actual contributions receivable from employers on be- half of employees, from employees, and possibly from other individuals (formerly participating in a scheme, self-employed and unemployed persons, and retirees) plus contribution adjustments (property expense for investment income disbursement20) minus benefi ts payable.
Th e same transactions in fi nancial assets are recorded for the participants in the scheme.

On a cash basis, transactions in liabilities of the insurance corporation are equal to social contributions and in- vestment income received in cash minus benefi t pay- ments in cash.

9.66 On occasion, large one-off transactions (lump sums) may occur between a government and another institutional unit, oft en a public corporation, linked to pension reforms or to privatizations of public corporations.
Th e goal may be to make the public cor- poration competitive and fi nancially more attractive by removing existing pension liabilities from the bal- ance sheet of the corporation.

Th is goal is achieved by government assuming the liability in question in exchange for an asset or assets from the public cor- poration.

If the value of the assets receivable is equal to the value of the liability assumed, the transaction is recorded as an exchange of assets and liabilities.
How- ever, the value of the asset(s) may not be the same value as the liability.

• If the value of the asset(s) receivable is less than the value of the liability incurred, an expense in the form of a capital transfer from government to the public corporation should be recorded for the diff erence.
Th e assumer (government) records an increase in liabilities for pension en- titlements, an increase in the relevant fi nancial and/or nonfi nancial assets, and an expense in the form of capital transfer to the public corporation (see paragraph 6.124).

Th e public corporation records a decrease in liabilities for pension en- titlements, a decrease in fi nancial and/or non- fi nancial assets, and revenue in the form of a capital transfer from government.
20 Holding gains and losses generated by the investment of cumulated pension entitlements are not included in investment income.

Transactions in Financial Assets and Liabilities 241 • If the value of the asset(s) receivable is more than the value of the liability incurred, a capital transfer from the public corporation to the government is recorded for the diff erence (see paragraph 5.148).
Th e public corporation records a decrease in li- abilities for pension entitlements, a decrease in fi - nancial and/or nonfi nancial assets, and an expense in the form of a capital transfer to government.

9.67 Where a government unit assumes pension liabilities, the pension obligations absorbed by the so- cial security fund continue to be classifi ed as pension entitlement liabilities.

Th ese obligations are gradually extinguished as the benefi ts are paid out.
As noted in paragraph 7.261, net implicit obligations for future social security benefi ts are shown as a memorandum item to the balance sheet.

Claims of pension fund on pension manager (32064, 32164, 32264, 33064, 33164, 33264) 9.68 As explained in paragraph 7.199, an employer may contract with a third party to administer a pen- sion fund for its employees.
When the funding of a defi cit of the pension fund is the responsibility of the employer or other sponsor (pension manager), then a claim of the pension fund on the manager accrues.

Similarly, if the employer or sponsor (pension man- ager) has a right to claim surpluses of the pension fund, then a claim of the manager to the pension fund may accrue.
Provision for calls under standardized guarantee schemes (32065, 32165, 32265, 33065, 33165, 33265) 9.69 As explained in paragraphs 7.201–7.202, standardized guarantee schemes have much in com- mon with nonlife insurance and are thus recorded in similar ways.

Th e treatment of standardized guarantee schemes is elaborated in paragraphs A4.78–A4.80.
Financial Derivatives and Employee Stock Options (3207, 3217, 3227, 3307, 3317, 3327) Financial derivatives (32071, 32171, 32271, 33071, 33171, 33271) 9.70 Transactions involving fi nancial derivatives may arise at inception, on secondary markets, with ongoing servicing (such as for margin payments), and at settlement.
Transactions in derivatives preferably 242 Government Finance Statistics Manual 2014 should be shown separately for assets and liabilities, whenever possible, but net settlements are acceptable when gross reporting is impractical.

Any commis- sion payable to brokers or other intermediaries for arranging a fi nancial derivatives contract is treated as a payment for a service.
In many cases, however, fi nancial derivatives transactions involve implicit ser- vice charges, and it is usually not possible to estimate the service element.

In such cases, the entire value of the transaction should be treated as a transaction in fi nancial derivatives.
9.71 At inception: • Th e creation of a forward-type contract (see paragraphs 7.212–7.214) does not generally re- quire the recording of a transaction in a fi nan- cial derivative because risk exposures of equal value are usually being exchanged.

Th at is, there is usually zero exposure and zero value for both sides.

In some cases, however, there may be a nonzero transaction value at issue, such as with off -market swaps.

(In addition, there may be a service charge for the issue.)
• Th e purchaser of an option (see paragraph 7.209) pays a premium to the seller, which is the acqui- sition price of the instrument.

Sometimes a pre- mium is paid aft er the inception of the contract.

In that case, the value of the premium is recorded at the inception of the contract in the same man- ner as if it had been paid then, but is shown as being fi nanced by other accounts receivable/ payable between the writer and the purchaser.
9.72 Subsequent changes in the prices of deriva- tives are recorded as holding gains or losses, not as transactions, as explained in paragraph 10.42.

9.73 Sales of options in secondary markets— whether exchanges or over the counter—are valued at market prices and recorded as transactions in fi nan- cial derivatives.
9.74 When a contract requires ongoing servicing (such as an interest rate swap) and a cash payment is received, there is a decrease (increase) in a fi nancial derivative asset (liability) if, at the time of the payment, the contract is in an asset (liability) position.

If compil- ers are unable to implement this approach because of market practice, all cash receipts should be recorded as reductions in fi nancial assets, and all cash payments should be recorded as decreases in liabilities.
9.75 Margins are payments of cash or deposits of collateral that cover actual or potential obligations incurred through fi nancial derivatives—especially futures or exchange-traded options.

As discussed in paragraph 7.219, repayable margins in cash are clas- sifi ed as transactions in deposits or other accounts receivable/payable, and nonrepayable margins are classifi ed as transactions in fi nancial derivatives.

9.76 At settlement, either a cash payment is made or an underlying item is delivered.
• When a fi nancial derivative is settled in cash, a transaction equal to the cash value of the settle- ment is recorded for the derivative.

In most instances, when a cash settlement payment is re- ceived, a reduction in a fi nancial derivative asset is recorded.

When a cash settlement payment is made, a reduction of a fi nancial derivative liabil- ity is recorded.
• When an underlying item is delivered, two trans- actions are recorded:  Th e transaction involving the underlying item is valued at the market price at the time.

Th e entry for the underlying item is recorded under the relevant heading (goods, fi nancial instru- ment, etc.).

 Th e transaction involving the derivative is val- ued as the diff erence, multiplied by the quantity, between the market price for the underlying item and the strike price specifi ed in the deriva- tive contract.
• When more than one contract is settled—in cash, at the same time, and with the same counterparty— some of the contracts being settled are in asset positions and some are in liability positions.

In this situation, transactions involving assets should be recorded separately from those involv- ing liabilities, wherever possible, but net settle- ments are acceptable when gross reporting is impractical.
Employee stock options (32072, 32172, 32272, 33072, 33172, 33272) 9.77 General government units are very unlikely to issue stock options.

Only entities with issued share capital can create employee stock options, so they may arise for public corporations in unusual cases.
An employee stock option is created on a given date Transactions in Financial Assets and Liabilities 243 (the “grant” date), providing that an employee may purchase a given number of shares of the employer’s stock at a stated price (the “strike” price) either at a stated time (the “vesting” date) or within a period of time (the “exercise” period) immediately following the vesting date.

items due to be paid or received.


Transactions in trade credits occur when credit is extended directly to purchasers of goods and services.

Advances are recorded for amounts paid in advance of work being performed, or for prepayments of goods and services (see paragraph 7.225).

9.78 At the grant date, a transaction in employee stock options should be recorded as the corresponding entry to wages and salaries in kind (2112).
Th e value of the employee stock options recorded as compensation should be spread over the period between the grant and vesting dates, if possible.

Similarly, any increase in the value of the employee stock options between the grant and vesting date should be classifi ed as com- pensation of employees.

If this is not possible, for a pragmatic solution see paragraph 9.80.
9.79 When the option is exercised, the transac- tion in the employee stock option is recorded at a value that refl ects the diff erence between the market price of the equity and the price paid by the buyer for the equity.

Any change in the value between vesting date and exercise date is not treated as compensation of employees but as a holding gain or loss (see para- graph 10.43).
9.80 In practice, it is most unlikely that estimates of the costs of employee stock options to the employ- ers are revised between the grant date and the exercise date.

For pragmatic reasons, therefore, the whole of the increase between grant date and exercise date is treated as a holding gain or loss (see paragraph 10.43).

Cancel- lation of employee stock options is recorded as other changes in the volume of assets (see paragraph 10.57).
9.81 Employee stock options do not generally raise separate issues to those for fi nancial derivatives, but one special case occurs when an employee of a subsid- iary is issued options for stock in the parent company.

Because the parent is not the employer, the subsidiary records a transaction acquiring the option from the parent before granting the stock option to the em- ployee.

See also paragraph 7.222 regarding stock op- tions provided to suppliers of goods and services to an enterprise.
Other Accounts Receivable/Payable (3208, 3218, 3228, 3308, 3318, 3328) 9.82 Other accounts receivable/payable consist of trade credits and advances and miscellaneous other 9.83 Miscellaneous other accounts receivable/ payable occur with respect to accrued but unpaid taxes, dividends, purchases and sales of securities, rent, wages and salaries, social contributions, so- cial benefi ts, and similar transactions.

Prepayments of taxes are also included in this category.
Accrued but unpaid interest should be added to the principal of the underlying asset rather than included in this category.

9.84 Th is category is used to bridge the timing dif- ference between the occurrence of economic events and the time the actual cash fl ows take place.

It should not be used to record statistical discrepancies.
Classiﬁ cation of Transactions in Financial Assets and Liabilities by Sector and Residence 9.85 For a full understanding of fi nancial fl ows and the role they play in government fi nance, it is oft en important to know not just what types of liabilities a general government unit uses to fi nance its activities and what types of fi nancial assets it holds as invest- ments.

It is also important to know which sectors are providing the fi nancing and what types of fi nan- cial assets are held.
In addition, it is oft en necessary to analyze fi nancial fl ows between subsectors of the general government sector or the public sector.

Th ese fl ows of funds may be analyzed in a from-whom-to- whom framework.21 Table 9.2 presents a classifi cation of transactions in fi nancial assets and liabilities based on the sector and residence of the two parties involved in the transactions.

9.86 An issuer of securities is usually not a party involved in a secondary market transaction in that security.
However, when a transaction changes the residence or sector of the creditor, an entry in other 21 See the PSDS Guide, Chapter 7, and Handbook on Securities Statistics, Part 2, for a detailed discussion of the from-whom-to- whom approach.
244 Government Finance Statistics Manual 2014 Table 9.2 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classiﬁ ed by Residence of 82 821 8211 8212 8213 82131 82132 8214 82141 82142 8215 82151 82152 8216 822 8221 8227 8228 82281 82282 the Counterparty Net acquisition of ﬁ nancial assets Domestic debtors General government Central bank Deposit-taking corporations except the central bank Public deposit-taking corporations except the central bank Private deposit-taking corporations Other ﬁ nancial corporations Other public ﬁ nancial corporations Other private ﬁ nancial corporations Nonﬁ nancial corporations Public nonﬁ nancial corporations Private nonﬁ nancial corporations Households and nonproﬁ t institutions serving households External debtors General government International organizations Financial corporations other than international organizations Central banks Financial corporations not elsewhere classiﬁ ed 83 831 8311 8312 8313 83131 83132 8314 83141 83142 8315 83151 83152 8316 832 8321 8327 8328 83281 83282 Net incurrence of liabilities Domestic creditors General government Central bank Deposit-taking corporations except the central bank Public deposit-taking corporations except the central bank Private deposit-taking corporations Other ﬁ nancial corporations Other public ﬁ nancial corporations Other private ﬁ nancial corporations Nonﬁ nancial corporations Public nonﬁ nancial corporations Private nonﬁ nancial corporations Households and nonproﬁ t institutions serving households
 External creditors General government International organizations Financial corporations other than international organizations Central banks Financial corporations not elsewhere classiﬁ ed 8229 Other nonresidents 8329 Other nonresidents changes in the volume of assets (reclassifi cation) should be recorded to maintain the integrated GFS framework of stock positions and fl ows (see para- graphs 9.25 and 10.79).
9.87 Th e composition of the sectors listed in Table 9.2 is described in Chapter 2.

All nonresident units are referred to collectively as the external sec- tor (“rest of the world” sector in the 2008 SNA).
In the GFS framework, it is important to know not only the total amount of fi nancing receivable from non- resident units, but also the types of nonresident units supplying the fi nancing.22 In GFS, therefore, the sec- 22 Oft en, in cases of traded debt securities, this will show only the initial holders.

tor classifi cation principles could also be applied to nonresident units.

In particular, all foreign govern- ments and international organizations are treated as separate sectors in Table 9.2.
Classiﬁ cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity 9.88 A supplementary classifi cation of the stock positions of debt liabilities and fi nancial assets corre- sponding to debt instruments by maturity and type of fi nancial instrument is of particular interest and is shown in Table 7.12.
If analytically useful, the same classifi cation structure could be applied for transac- tions in these debt liabilities and fi nancial assets cor- responding to debt instruments.

10 Other Economic Flows Th is chapter describes the other economic fl ows that are recorded in the government fi nance statistics frame- work.

Th e two major categories are holding gains and losses and other changes in the volume of assets.
Introduction 10.1 Other economic fl ows are changes in the volume or value of assets or liabilities that do not re- sult from transactions.

Th is chapter describes the two major categories of other economic fl ows that change net worth: • A holding gain or loss1 is a change in the mon- etary value of an asset or liability resulting from changes in the level and structure of prices, ex- cluding qualitative or quantitative changes in the asset or liability.
Holding gains and losses can apply to almost all assets and liabilities and, in the case of assets and liabilities expressed in a for- eign currency, include gains and losses resulting from changes in exchange rates.2 • Other changes in the volume of assets are any changes in the value of an asset or liability that do not result from a transaction or a holding gain.
Other changes in the volume of assets result from events that change the quantity or quality of an existing asset, events that add a new asset to the balance sheet or delete an existing asset from the balance sheet, and events that require a reclassifi - cation of existing assets.

1 Revaluation may also be used with the same meaning as holding gain or loss.

2 A holding gain or loss always aff ects net worth.

Th e words gain and loss are used in reference to the direction of the change in net worth.
A fl ow that increases the value of an asset or decreases the value of a liability will increase net worth and is referred to as a holding gain.

A fl ow that decreases the value of an asset or increases the value of a liability will decrease net worth and is a holding loss.

References to fi nancial assets can be assumed to refer also to liabilities.

10.2 Other economic fl ows are recorded in a State- ment of Other Economic Flows; an abbreviated ver- sion is shown in Table 10.1.
Th e balancing item to this statement is described as the change in net worth due to other economic fl ows, which is defi ned as the sum of the change in net worth due to holding gains or losses and the change in net worth due to other changes in the volume of assets.

• Th e balancing item change in net worth due to holding gains (or revaluations) is defi ned as the sum of the positive or negative holding gains on all assets and liabilities.
• Th e balancing item change in net worth due to other changes in the volume of assets is defi ned as the sum of the positive and negative other changes in the volume of assets and liabilities.

10.3 Many other economic fl ows change both the value of an asset or a liability and the value of net worth by the same amount.
For example, holding gains that lead to an increase in the value of assets Table 10.1 Statement of Other Economic Flows (Abbreviated) 9 91 92 93 4 41 42 43 5 51 52 53 Change in net worth due to other economic ﬂ ows Nonﬁ nancial assets Financial assets Liabilities Change in net worth due to holding gains and losses Nonﬁ nancial assets Financial assets Liabilities Change in net worth due to other changes in the volume of assets and liabilities Nonﬁ nancial assets Financial assets Liabilities Note: See Table 10.2 for a detailed classiﬁ cation of other economic ﬂ ows.
246 Government Finance Statistics Manual 2014 increase net worth.

In contrast, other economic fl ows related to reclassifi cations do not aff ect total net worth.

Th ese reclassifi cations change the value of two assets or two liabilities by the same amount but with opposite signs, or they change one asset and one li- ability by the same amount—for example, the reclas- sifi cation of a loan when it becomes negotiable (see paragraph 7.149).
10.4 Other economic fl ows are classifi ed by the type of asset or liability aff ected.

Th e classifi cation of assets and liabilities given in Chapter 7 is used for this purpose.

In Table 10.2, total other economic fl ows are classifi ed as being either holding gains and losses or other changes in the volume of assets.

In ad- dition, other economic fl ows can be classifi ed by the type of event that caused the fl ow in as much detail as needed for fi scal analysis.
Th e types of holding gains or specifi c types of other changes in the volume of assets could be introduced as an expansion of the table, if considered useful.

For example, subcategories of other changes in volume of assets could identify whether the changes are due to the appearance, dis- appearance, or change in classifi cation of assets and liabilities.
Holding Gains Holding Gains in General 10.5 Holding gains result from price changes and can accrue on almost all economic assets held for any length of time during a reporting period.

It does not matter whether an asset is held the entire period, ac- quired during the period and held until the end of the period, held at the beginning of the period and dis- posed of during the period, or acquired and disposed of within the same period.
In each case, a holding gain is possible and must be recorded for the entire diff er- ence between the opening balance sheet date (or at time of acquisition) and closing balance sheet date (or time of disposal).

10.6 Holding gains may be unrealized or realized: • An unrealized holding gain is one accruing on an asset that is still owned or a liability that is still outstanding at the end of the reporting pe- riod.
Th e values of the assets and liabilities in the closing balance sheet incorporate the unrealized holding gains or losses.

• A holding gain is realized when an asset is sold, redeemed, used or otherwise disposed of, or a liability incorporating a holding gain or loss is repaid.

Th e value of transactions includes the value of realized holding gains or losses.

In other words, unrealized holding gains are realized when transactions take place.
10.7 Th e holding gain is recorded when the price change occurs, which may be at a diff erent time from when the holding gain is realized.

Th us, to capture the full value of the holding gains and losses that arose during the reporting period, both realized and unre- alized gains and losses need to be covered.
10.8 Holding gains do not include a change in the value of an asset resulting from a change in the quan- tity or quality of the asset (which are other changes in the volume of assets)—in particular: • Th e decline in the value of the fi xed assets due to physical deterioration, normal rates of obsoles- cence, and normal accidental damage should be recorded as consumption of fi xed capital (23) and not as a holding loss.
• Debt securities issued at a discount may increase in value progressively prior to redemption be- cause of the accrual of interest.

Th e increase in the market value of a bill or bond due to the ac- crual of interest should be recorded as a transac- tion in the asset and is not a holding gain.
10.9 It is not possible to calculate total holding gains using only balance sheet data since the stock positions do not refl ect each of the economic events that may have occurred during a reporting period (see paragraphs 3.1–3.4).

To measure holding gains directly, therefore, the calculation requires records to be maintained of all individual transactions and indi- vidual other changes in the volume of assets plus the price of each asset at the time of the opening and clos- ing balance sheets.
Observable market prices for non- fi nancial assets are generally not as readily available as for fi nancial assets and liabilities.

If, in practice, not all of the requisite data are available, alternative estima- tion techniques must be employed to calculate hold- ing gains.
10.10 A commonly used alternative method to estimate holding gains and losses is based on the identity that the ending balance sheet value for a Other Economic Flows 247 Table 10.2 Classiﬁ cation of Other Economic Flows Holding gains and losses Other changes in the volume of assets Total other economic ﬂ ows Change in net worth due to total other economic ﬂ ows / holding gains and losses / other changes in the volume of assets 4 Nonﬁ nancial assets Fixed assets Buildings and structures Dwellings Buildings other than dwellings Other structures Land improvements Machinery and equipment Transport equipment 41 411 4111 41111 41112 41113 41114 4112 41121 Machinery and equipment other than transport equipment 41122 Other ﬁ xed assets Cultivated biological resources Intellectual property products Weapons systems Inventories Materials and supplies Work in progress Finished goods Goods for resale Military inventories Valuables Nonproduced assets Land Mineral and energy resources Other naturally occurring assets Noncultivated biological resources Water resources Other natural resources Intangible nonproduced assets Contracts, leases, and licenses Goodwill and marketing assets Financial assets Monetary gold and Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units 4113 41131 41132 4114 412 41221 41222 41223 41224 41225 413 414 4141 4142 4143 41431 41432 41433 4144 41441 41442 42 4201 4202 4203 4204 4205 42051 42052 Insurance,
 pension, and standardized guarantee schemes [GFS] 4206 Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives Employee stock options 42061 42062 42063 42064 42065 4207 42071 42072 5 51 511 5111 51111 51112 51113 51114 5112 51121 51122 5113 51131 51132 5114 512 51221 51222 51223 51224 51225
Government Finance Statistics Manual 2014 Table 10.2 Classiﬁ cation of Other Economic Flows (concluded) Other accounts receivable Trade credit and advances Miscellaneous other accounts receivable Domestic debtors Same instrument breakdown as above, but excluding monetary gold External debtors Same instrument breakdown as above Liabilities Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes [GFS] 4306 Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts payable Trade credit and advances Miscellaneous other accounts payable Domestic creditors Same instrument breakdown as above External creditors Same instrument breakdown as above Holding gains and losses
 Other changes in the volume of assets Total other economic ﬂ ows 4208 42081 42082 421 5208 52081 52082 521 9208 92081 92082 921 4212–4218 5212–5218 9212–9218 422 522 4221–4228 43 5221–5228 53 922 9221– 93072
93061 93062 93063 93064 93065 9307 93071 93072 9308 93081 93082 931 4312–4318 432 5312–5318 532 4321–4328 5321–5328 9312–9318 932 9321–9328 category of assets must equal the opening balance sheet value plus the net value of transactions, other changes in the volume of assets, and holding gains that aff ect that category of assets or liabilities.
If the information available on balance sheets, transac- tions, and other changes in the volume of assets is complete and accurate, then the net value of holding gains can be calculated to complete the identity.

Th is formulation does not imply that the value of holding gains is a residual item—even if estimated this way, the results should always be carefully examined and evaluated.
10.11 For some analytic purposes, it may be desir- able to divide the total value of holding gains accruing on a category of assets or liabilities into neutral and real holding gains.

• Neutral holding gains and losses over a period are the increase (decrease) in the value of an asset that would be required, in the absence of transac- tions and other changes in the volume of assets, to maintain command over the same amount of goods and services as at the beginning of the pe- riod.
It is the value needed to preserve the real value of the asset.

• A real holding gain is defi ned as the value ac- cruing to an asset as a result of a change in its price relative to the prices of goods and services in general.

An increase in the relative price of an asset leads to a positive real holding gain, and a decrease in the relative price of an asset leads to a negative real gain.3 10.12 In concept, holding gains and losses occur continuously because prices change continuously.
As a practical matter, holding gains for the entire report- ing period are normally estimated at the end of the period.

Holding Gains for Particular Types of Assets Fixed assets (411)4 10.13 Estimating the holding gains on fi xed assets is complicated by the fact that the value of a fi xed asset changes as a result of consumption of fi xed cap- ital as well as price changes.

Consumption of fi xed capital, however, is valued in terms of the average prices prevailing during a reporting period.
Th us, estimating the change in the price of a given fi xed asset of a given age and condition is critical for esti- mating both consumption of fi xed capital and hold- ing gains.

10.14 Holding gains may occur on existing fi xed assets because the market price of the asset itself changes over time.

If market prices are not readily available, market-value equivalent prices should be used (see paragraph 7.31).
When assets of the same kind are still being produced and sold on the market, an existing asset should be valued in the opening or closing balance sheet at the current acquisition price of a newly produced asset minus the accumulated consumption of fi xed capital (i.e., at written-down re- placement cost) up to that time.

10.15 When new assets of the same type are no longer being produced, the valuation of existing as- sets may pose diffi cult conceptual and practical prob- lems.
If broadly similar kinds of assets are still being produced, it may be reasonable to assume that the prices of the existing assets would have moved in the same way as those of new assets if they were still being produced.
Such an assumption becomes questionable, Other Economic Flows 249 however, when the characteristics of new assets are much improved by technical progress.5 Inventories (412) 10.16 Th e estimation of holding gains on invento- ries is needed for the calculation of use of goods and services (22) using the indirect method, as illustrated in Table 6.3.
However, estimation may be diffi cult be- cause of a lack of data on transactions or other changes in the volume of inventories: • Many transactions in inventories are internal transactions, and the prices prevailing at the time they occur may not be adequately recorded.

• Withdrawals from inventories include an allow- ance for recurrent losses that are part of the nor- mal operations of a production process.
• Other changes in the volume of assets are likely to consist of goods destroyed by natural disas- ters, major fi res, and other exceptional events.

Estimating the prices and quantities involved in these events may be diffi cult.

10.17 Th us, holding gains on inventories exclude both exceptional and recurrent losses on invento- ries.
Certain types of inventories (e.g., stationery) have stable prices and are held over reasonably short periods of time, in which case the holding gains or losses are normally minimal.

In other cases, such as strategic stocks, more sophisticated methods have to be applied.
As records on transactions and other changes in the volume of assets may not be available, it becomes necessary to try to deduce the value of changes in inventories from the value and quantities of the opening and closing inventories using meth- ods that attempt to partition the diff erence between the values of the opening and closing stock positions of assets into transactions and holding gains.
Such methods are only as good as the assumptions on which they are based.6 In general, if assumptions are made, they should cover as short a period as possible.

When there are high rates of infl ation, estimating holding gains accurately in this way becomes more important.

3 Information on the calculation and interpretation of neutral and real holding gains is in the 2008 SNA, paragraphs 12.87–12.93.

4 Th e numbers in parentheses aft er each classifi cation category are the GFS classifi cation codes.
Appendix 8 provides all classifi cation codes used in GFS.

5 See Organisation for Economic Co-operation and Development, Measuring Capital—OECD Manual: Measurement of Capital Stocks, Consumption of Fixed Capital and Capital Services (Paris, 2009), for more details.

6 Also see the 2008 SNA, paragraph 12.99.

250 Government Finance Statistics Manual 2014 Valuables (413) 10.18 Th e nature of valuables is that they are held as a store of value in the expectation that their value will increase over time.
Any increase/decrease in value of an individual valuable is treated as a holding gain/loss.

Nonﬁ nancial assets disposed of during the reporting period 10.19 Th ere are no remaining costs of ownership transfer included in the value of the asset when it is sold to a new owner, as the amount the old owner receives is equal to the amount the new owner pays except for any costs of ownership transfer incurred by the new owner.
Th is is because consumption of fi xed capital is calculated on the value of the asset excluding the costs of ownership transfer over the whole of its life, and the consumption of fi xed capital in respect of the costs of ownership transfer is calculated only over the period that the owner expects to hold the asset (see paragraph 6.60).
10.20 When a nonfi nancial asset is disposed of in a market-related transaction7 at a value that is diff erent from the balance sheet value of the asset immediately prior to disposal, a revaluation should be recorded to refl ect the current market value of the asset in the bal- ance sheet.
Th is applies to all nonfi nancial assets but not to scrap.8 Monetary gold and Special Drawing Rights (SDRs) (4201, 4221, 4301, 4321) 10.21 Th e price of gold is usually quoted in dol- lars; therefore, monetary gold (including unallocated gold accounts) is subject to holding gains and losses because of changes in the exchange rate as well as in the price of gold itself.
10.22 Th e value of the SDR is based on a bas- ket of key currencies; therefore, the value of SDRs is always subject to holding gains and losses.

From time to time, new allocations of SDRs may be made; when this occurs, the allocation is recorded as a transaction.

7 If there is a transfer element to the transaction, the economic value of the transfer should be recorded as a separate transaction (see paragraph 3.122).
8 In cases where the scrap value does not coincide with the resid- ual balance sheet value of the asset immediately before disposal, an adjustment is to be made to the value of the asset via the other changes in the volume of assets account.

Financial assets and liabilities with ﬁ xed monetary values 10.23 Not all fi nancial assets and liabilities have market prices.

Currency, deposits, most loans, and other accounts receivable/payable, such as trade credit and advances, are recorded at nominal value.
As a result, holding gains resulting from market price changes on these assets are always zero in terms of the currency in which they are denominated.

When these fi nancial assets are denominated in a foreign currency or held as unallocated gold accounts (or similar ac- counts in other precious metals), their value in do- mestic currency terms can change because of a change in the exchange rate or a change in the value of the precious metal.
Debt securities (4203, 4213, 4223, 4303, 4313, 4323) 10.24 Debt securities typically have market prices that change over time.

Changes in the value of the stock of debt securities between balance sheet dates arise from transactions in debt securities (i.e., acqui- sitions, disposals, and the accrual of interest), other changes in the volume of assets (such as write-off s), and revaluations (e.g., changes in the market rate of interest, exchange rate, expectation of creditworthi- ness, etc.).
10.25 When debt securities, especially deep- discount and zero-coupon bonds, are issued at a discount, then, in the absence of other changes, the price will gradually rise over the life of the bond until it reaches the maturity value.

Th is gradual increase in the market price of a bond that is attributable to the accumulation of accrued interest is a transaction, not a holding gain.

Th e converse treatment applies to bonds issued at a premium.
10.26 Th e values of debt securities may change when the market rates of interest and/or exchange rates change.

With the exception of broad-based index-linked securities (see paragraph 6.77), changes in the values of debt securities that are attributable to changes in market rates of interest and exchange rates (for debt securities denominated in another currency) are holding gains.
An increase in interest rates causes a decrease in the market value of the fi xed-rate debt securities, which is a holding gain for the debtor and a holding loss for the creditor, and conversely for a decrease in interest rates.

Other Economic Flows 251 10.27 Prices of bonds may also change because of a change in the creditworthiness of the issuer or guar- antor.

Such changes give rise to holding gains.

the profi tability of the corporation and when shares go ex-dividend.
Valuation changes in shares are re- corded as holding gains and losses.

10.28 As explained in paragraphs 6.76–6.77, when the amount to be paid at maturity or when the cou- pon payments and the amount to be paid at maturity are indexed to a narrow index (e.g., a gold index) that includes a holding gain motive, any deviation of the underlying index from the originally expected path leads to holding gains or losses.

10.29 Holding gains or losses may accrue on bills in the same way as for bonds.
However, because bills are short-term debt securities with much shorter times to maturity, the holding gains generated by interest rate changes are oft en much smaller than on bonds with the same face values.

Equity and investment fund shares (4205, 4215, 4225, 4305, 4315, 4325) 10.30 General government units may have fi nan- cial assets or liabilities in the form of equity and invest- ment fund shares.
For example, a general government unit may own all or part of the equity of a public cor- poration or the equity of a quasi-corporation.

As with any other asset, a change in the monetary value of these fi nancial assets resulting from price changes is a holding gain or loss.

10.31 Several events can aff ect the valuation of shares and other equity.
For purposes of explanation, a distinction is made between: • Shares issued by incorporated corporations that are listed (publicly traded) and unlisted shares whose value can be otherwise independently determined • Unlisted shares issued by incorporated corpo- rations whose value cannot be independently determined and other equity of unincorporated enterprises, such as quasi-corporations.
10.32 If the shares of a public corporation are publicly traded or their value can be independently determined, then the holding gains or losses of the government unit or other public corporation that owns the shares are determined by reference to the market price per share or the independently deter- mined price per share.
Several factors may aff ect the market price per share, such as market perceptions on 10.33 As explained in paragraph 7.229, net worth is zero for quasi-corporations9 and for public cor- porations for which the value of shares cannot be independently determined (most likely because the controlling government unit owns all of the shares).
In these cases, the total value of the implicit equity of the quasi-corporation or shares of the corporation is equal to the total value of its assets minus the total value of its liabilities other than equity.

As a result, a holding gain equal to the change in the total value of this mea- sure of the equity needs to be recorded, taking into ac- count all retained earnings, and other additions to and withdrawals from equity that may have occurred.
10.34 As mentioned in paragraphs 5.121 and 6.119, reinvested earnings on investment fund shares or of a foreign direct investment enterprise are treated as a type of property income and not holding gains.
Insurance, pension, and standardized guarantee schemes (4206, 4216, 4226, 4306, 4316, 4326) 10.35 When the reserves for nonlife insurance and standardized guarantee schemes are denominated in domestic currency, there are generally no holding gains and losses, just as there are none for currency or deposits and loans.
In some exceptions, if an amount for a claim outstanding has been agreed upon and it has been agreed that it will be indexed pending payment, then there may be a holding gain or loss recorded for it.

10.36 Liabilities for pension entitlements include liabilities for the future payment of pensions and other retirement benefi ts of defi ned-benefi t schemes.

Th e value of these liabilities can change for several reasons, one of which is the passage of time.
Th e li- ability is computed as the present value of the future benefi ts, and it will increase each period because there is one fewer period over which it is discounted.

In GFS, this increase is treated as a property expense for investment income disbursements (2813) (see para- graphs 6.113–6.118).

10.37 In GFS, a holding gain is recorded with re- spect to the liability for a defi ned-benefi t pension 9 Because quasi-corporations do not issue shares, market prices do not apply to them.
252 Government Finance Statistics Manual 2014 scheme when there is a change in the value of the li- ability because of a change in the interest rate used to discount the future benefi ts.

Th e liability should be reviewed periodically and revalued as necessary for changes in market interest rates.
10.38 At fi rst sight, it would seem that there are no other economic fl ows involved for a defi ned-benefi t pension scheme since the two components recorded as the pension contributions and property expense for investment income disbursements are matched by equal-value increases in entitlements.
However, because the nature of a defi ned-benefi t pension scheme is that the level of benefi t entitlements is de- termined by a formula, there are other factors that may intervene to aff ect changes in the level of entitle- ments.

Th ese factors include a price escalation clause, changes in the formula used to determine benefi ts, and demographic assumptions about lifespan.
10.39 Th e factors that change the level of entitle- ments (i.e., changes in the formula used to determine the benefi ts and demographic assumptions) should be recorded as other changes in the volume of assets (see paragraph 10.73); the adjustments from changes in the price escalation formula are recorded as hold- ing gains or losses.
10.40 Th e impact of promotions, merit increases, and other real salary increases on entitlements is a special case.10 Many defi ned-benefi t pension schemes use a formula to set benefi ts based on either the fi nal salary or average salary as a key determinant.

Th ere- fore, this implies that any promotion or other real increase in salaries means that the total pension en- titlements accrued to date are increased to take ac- count of the new salary level.
Th is is a signifi cant benefi t for the individual and has consequences for the employer’s pension liabilities.

It is recommended that a simple and adequate solution would be to treat the impact of promotions for the unit as a whole as a price change and record this change as a holding gain.
If the projected benefi t obligation method is used to value pension entitlements, an adjustment in the form of other changes in the volume of assets is needed if the enterprise makes a structural change in the way promotions and merit increases are awarded (see paragraph 10.72).

10 Also see the 2008 SNA, paragraphs 17.180–17.186.
10.41 An equal-valued holding gain should be recorded with respect to the liability for a defi ned- contribution pension scheme whenever a holding gain is recorded with respect to the assets of the fund.

Th e investment of accumulated pension entitlements of a defi ned-contribution pension scheme leads to hold- ing gains (and possibly losses).

Th ese come about through the management of investment in assets held by the fund.
Th e holding gains appear under entries for the relevant assets for the pension fund, with a matching entry for the increase in the liability of the pension fund toward the policyholders (households).

Financial derivatives and employee stock options (4207, 4217, 4227, 4307, 4317, 4327) 10.42 Financial derivatives have quoted prices or have prices that can be derived from the underlying item that is the subject of the derivative.

Th us, fi nan- cial derivatives register holding gains and losses.
10.43 Employee stock options can also register holding gains and losses.

In principle, any change in value between the grant date and vesting date should be recorded as compensation of employees, while any change in the value between vesting date and exercise date is treated as a holding gain or loss.

In practice, and for pragmatic reasons, the whole of the increase between grant date and exercise date is treated as a holding gain or loss (see paragraph 9.80).
An increase in value of the share price above the strike price is a holding loss for the employer.

Financial assets denominated in foreign currencies 10.44 Th e value of a fi nancial asset denominated in a foreign currency is its current value in the foreign currency converted into the domestic currency at the current exchange rate.

Th erefore, holding gains may occur not only because the price of the asset in the foreign currency changes but also because exchange rates change.
Debt instruments that do not accrue interest 10.45 Th ere may be an unusually long time11 be- fore payment is due on an outstanding debt liability 11 What constitutes an unusually long time in this context will depend on the circumstances.

For example, for any given time pe- riod, the higher the level of interest rates or the longer the delay in payment, the greater is the opportunity cost of delayed payment.
Other Economic Flows 253 (or the corresponding fi nancial asset in the form of a debt instrument) on which no interest accrues (see paragraph 7.30).

If so, the value of the principal should be reduced by an amount that refl ects the time to maturity and an appropriate existing contractual rate, such as for similar debt instruments.

Once the value of the principal is reduced through a revalua- tion, interest should accrue until actual payment is made, at the rate used to discount the principal.
because the owner is no longer willing or capable of exercising ownership rights over the asset.

10.49 Th e recording of events relating to the ap- pearance and disappearance of assets can be grouped according to the main type of asset under consider- ation based on whether they relate to: • Th e economic recognition of produced assets • Entry and exit from the asset boundary of natu- Other Changes in the Volume of Assets 10.46 Other changes in the volume of assets cover a wide variety of events.
For the purpose of descrip- tion, these events are divided into three groups:12 • Events that involve the appearance or disappear- ance of existing resources as economic assets.

In other words, certain assets enter and leave the GFS balance sheet through events other than by transactions • Th e eff ects of external events—exceptional and unexpected—on the economic benefi ts derivable from assets (and corresponding liabilities) • Changes in classifi cation.
10.47 Many other volume changes occur at specifi c times and should be recorded when the event occurs.

Some other volume changes occur continuously or at frequent intervals, such as the depletion of subsoil and other naturally occurring assets or environmental damage to assets.

Th ese changes should be recorded in the same manner as holding gains.
Appearance or Disappearance of Existing Economic Assets 10.48 For a resource to be an economic asset, own- ership rights over it must be enforced and it must be ca- pable of providing economic benefi ts.
If a resource that is known to exist but is not classifi ed as an economic asset becomes an economic asset because of a change in relative prices, technology, or some other event, an entry in other changes in the volume of assets should be recorded to recognize the asset’s value and add it to the balance sheet.
Conversely, an economic asset may need to be removed from the balance sheet because it is no longer capable of supplying economic benefi ts or 12 Th e distinctions made here are only for purposes of description; the GFS classifi cations do not specify this breakdown.

ral resources • Contracts, leases, and licenses • Changes in goodwill and marketing assets, or • Financial assets (and liabilities).
10.50 Usually, two types of assets can appear under the economic recognition of produced assets: public monuments and valuables.

Th ese are existing goods that may not already have been recorded in the bal- ance sheets as public monuments or valuables for any of several reasons; they may date from a time before the reporting period covered by the accounts, they may have been originally recorded as expense for use of goods, or they may be structures that have already been written off .
• Public monuments are included with dwellings, buildings other than dwellings, or other struc- tures, as appropriate, in the classifi cation of fi xed assets (see paragraphs 7.42–7.43).

When the special archaeological, historical, or cultural signifi cance of a structure or site not already re- corded in the balance sheet is fi rst recognized, it is classifi ed as an economic appearance and recorded as other changes in the volume of as- sets.
For example, such recognition might be accorded to an existing structure or site that is fully written off and thus no longer recorded in the balance sheet.

Alternatively, a structure or site that is already within the asset boundary, but is new or only partially written off , may be assessed as having the status of a public monu- ment.

If the monument was previously written off , then its recognition as a public monument is recorded as an economic appearance of an asset.
If it was previously classifi ed as another type of asset, it is recorded as a reclassifi cation of an asset (see paragraphs 10.80–10.84) and if at the same time a new valuation is placed on the monument, this increase in value is recorded as an economic appearance.
254 Government Finance Statistics Manual 2014 • Valuables, such as precious stones, antiques, and other art objects, for which the high value or ar- tistic signifi cance has not already been recorded in the balance sheet, should be recognized as an economic appearance.

Hitherto, the object may have been of little value and not considered an asset.

For example, the item might have been considered an ordinary good whose purchase was recorded as an expense, classifi ed in use of goods and services (22).
Recognition of its worth as a store of value leads to its entrance into the balance sheet as a valuable.

Th e recognition of the value of a previously unvalued item is oft en necessitated by a sale (e.g., at auction).

Th e sale is recorded as a transaction under the disposal of nonfi nancial assets only aft er the asset fi rst en- tered into the balance sheet of the seller through an entry in other changes in the volume of assets.
10.51 Conversely, a nonfi nancial asset that no lon- ger has economic value because of a change in tech- nology, relative prices, or other event must be removed from the balance sheet.

For example, the commercial exploitation of mineral reserves, land, forests, fi sh stocks, aquifers, and other naturally occurring assets may become unfeasible.

If so, then a negative entry in other changes in the volume of assets would be re- corded to remove the asset from the balance sheet.
10.52 It may be diffi cult to determine the exact time at which a natural asset should be added to the balance sheet, and to determine the value that should be attributed to it at that time.

Oft en, the date at which the fi rst substantial commercial exploitation begins or the signing of a contract to permit commercial exploi- tation is used to establish the time of recording.
Sev- eral events may result in natural resources to enter or exit the asset boundary: • Discoveries/extractions and upward/downward reappraisals of subsoil resources—Th e value of these resources may increase in the balance sheet by the discovery of new exploitable deposits, whether as a result of systematic scientifi c ex- plorations or surveys, or by chance.
Economic appearance may also occur because a deposit of subsoil minerals has become economically ex- ploitable as a result of technological progress or relative price changes.

• Conversely, the value of these resources may decrease in the balance sheet by the depletion of deposits of subsoil assets as a result of the physical extraction and use of the assets, or from downward reappraisals that reduce their exploit- ability because of changes in technology or rela- tive prices.
• Natural growth/harvesting of noncultivated bio- logical resources—Th e natural growth of noncul- tivated biological resources, such as natural forests and fi sh stocks, may take various forms: a stand of natural timber may grow taller, or fi sh in the estuaries may become more numerous.
Although these resources are economic assets, growth of this kind is not under the direct control, respon- sibility, and management of an institutional unit and thus is not treated as a transaction in net investment in fi xed assets.

In principle, natural growth should be recorded gross, and the deple- tion of these resources should be recorded as economic disappearance, as described in the next bullet.
Th is recording would be consistent with the gross recording of transactions in acquisitions and disposals described under the net investment in nonfi nancial assets.

In practice, however, many countries will record natural growth net because only the net physical measures are likely to be available.

Th e net physical measure multiplied by the market price for a unit of the asset may be used in estimating the value of the volume change to be recorded.
• Th e depletion of natural forests, fi sh stocks in the open seas, and other noncultivated biological re- sources included in the asset boundary of general government or public sector units as a result of harvesting, forest clearance, or other use beyond sustainable levels of extraction constitutes an economic disappearance of assets and should be recorded as negative other changes in the volume of assets.
• Transfers of other natural resources to/out of economic activity—Not all land included in the geographic surface area of a country is neces- sarily within the asset boundary of GFS.
Land may make its economic appearance when, for example, general economic development in nearby areas transforms the land from a wild or waste state to a state in which ownership rights can be enforced and the land can be put to eco- nomic use.13 Land may also make its economic 13 For the treatment of land improvements, including land recla- mation, see paragraphs 7.49–7.51.
appearance (or enter the asset boundary) because of activity in the vicinity—for example, land that becomes more desirable because a new devel- opment is established nearby or an access road built.

Any excess in the value of the land over the value of land improvements or any increase due to adjacent capital activity is recorded as economic appearance.
For virgin forests, gather- ing fi rewood is not commercial exploitation, but large-scale harvesting of a virgin forest for timber is and brings the forest into the asset boundary.

Similarly, drawing water from a natural spring does not bring an aquifer into the asset boundary of GFS, but a signifi cant diversion of groundwa- ter does.

A move to charge for regular extraction from a body of surface water may also bring a water resource into the balance sheet.
• A government unit can create an economic asset by exerting ownership rights over a naturally oc- curring asset that had not previously been rec- ognized as an asset, such as the electromagnetic spectrum or fi sh stocks in exclusive economic zones.

When this occurs, the asset enters the bal- ance sheet through other changes in the volume of assets.
• It is possible that some natural resources cease to be exploited because of changed technology or reduced demand for the resulting product, or for legislative reasons, such as the suspension of fi sh- ing to ensure the survival of fi sh stocks.

When this change in use occurs, the asset is removed from the balance sheet through other changes in the volume of assets.

• Quality changes in natural resources due to changes in economic uses—In this case, the asset is already within the asset boundary.
Th e change in quality of the asset due to changes in its economic use is regarded as the appearance of additional amounts of the asset.

For example, the use of bare rural land changes when it be- comes land underlying buildings and may result in a change in the balance sheet value that is ef- fected through an other change in the volume of the asset.
• All degradation of land, water resources, and other natural assets caused by economic activity should be recorded as negative other changes in the volume of assets.

Th e degradation may be the anticipated result from regular economic activity or less predictable erosion and other damage to Other Economic Flows 255 land from deforestation or improper agricultural practices.
• Th e diff erence between a quality change and a price change is a matter of degree, and it may not always be clear whether other changes in the volume of assets or a holding gain is most appropriate.

For example, activities adjacent to land may bring land into the asset boundary (recorded as another volume change), while the value of land in the vicinity may also increase due to a rise in general price levels of land (re- corded as holding gains).
10.53 It is recommended to recognize assets in the form of contracts, leases, and licenses in the balance sheet of the holder only when the value of the asset can be realized (see paragraph 7.106).

In this case, they are fi rst recorded as other changes in the vol- ume of assets and, subsequently, form the basis of a transaction (or series of transactions).
Th e value of the contract, lease, or license that is treated as an asset is equal to the present value of the excess of the pre- vailing price over the contract price.

Th e value will decline as the remaining contract period shortens.
Changes in the value of the contract, lease, or license due to changes in the prevailing price are recorded as holding gains or losses (revaluations); changes due to the expiration of the time over which the con- tract, lease, or license is valid are recorded as other changes in volume of assets (i.e., to write off the cost of the asset).

Th e rate at which the value is written down should be in accordance with internationally accepted accounting standards.
Th e treatment of contracts, leases, and licenses is discussed more ex- tensively in Appendix 4.

10.54 When an enterprise—whether a corporation, quasi-corporation, or unincorporated enterprise—is sold, the price payable may not equal the sum of all the assets minus the liabilities of the enterprise.

Th e diff erence between the price payable and the sum of all the assets minus liabilities is called the purchased goodwill and marketing assets of the buyer.

Th e value may be positive or negative (or zero).


When the buyer includes this asset in the calculation of the net worth of the enterprise at the moment it is bought, net worth is exactly zero.

10.55 Th e value of purchased goodwill and mar- keting assets is calculated at the time of the sale, and entered in the books of the seller as an other 256 Government Finance Statistics Manual 2014 change in the volume of assets.

Subsequently, it is then exchanged as a transaction with the purchaser.
Th ereaft er, the value of the purchased goodwill and marketing asset must be written down in the books of the purchaser via entries under other changes in the volume of assets.

Th e rate at which it is written down should be in accordance with internationally accepted accounting standards.
Th ese standards are typically conservative in the amount that may appear on the balance sheet of an enterprise and should be subject to an “impairment test” whereby accountants can satisfy themselves that the remaining value is likely to be realizable in case of a further sale of the enterprise.

10.56 Goodwill that is not evidenced by a sale or purchase is not considered an economic asset in GFS.

In some exceptions, a marketing asset may be subject to sale.
When this is the case, entries should be made for the buyer and the seller along the lines of those made for purchased goodwill and marketing assets when the entire enterprise is sold.

10.57 Financial assets and liabilities may appear on or disappear from the balance sheet in several ways— for example: • A creditor may determine that a fi nancial claim can no longer be collected because of the debtor’s bankruptcy or other factors.
If so, the creditor writes off the debt and removes the claim from its balance sheet by means of an entry in other changes in the volume of assets.14 • Cancellations of employee stock options are re- corded as other changes in the volume of assets.
10.58 Th e creation of SDRs (referred to as allocations of SDRs) and the extinction of SDRs (cancellations of 14 Usually, debt is written off as uncollectible because of the bank- ruptcy or liquidation of the debtor; however, it may sometimes be written off for other reasons, such as a court order.

Th e write-off may be full or partial; partial write-off s may arise, for example, under a court order, or if the liquidation of the debtor’s assets allows some of the debt to be settled.
Recognition that the debt is uncollectible should be distinguished from internal accounting provisions of the creditor for the possibility of default (such as adjustments to fair value of nonperforming loans).

Although such provisions may be useful for analysis, they do not mean that the debt should no longer be recognized as existing and should there- fore not be considered as written off .
In contrast, as described in paragraphs 6.124 and A3.7–A3.9, a reduction in a fi nancial claim by mutual agreement between the creditor and debtor is a trans- action rather than an other change in the volume of assets.
SDRs) are treated as transactions, not other changes in the volume of assets.15 The Effect of External Events on the Value of Assets 10.59 Th ere are three principal causes of the reduc- tion in the value of an asset, or even its disappearance, that are not related to the nature of the asset but to conditions prevailing in the economy that impact ei- ther the value or ownership of assets.
Th ese are cata- strophic losses, uncompensated seizures, and other changes in the volume of assets not elsewhere classi- fi ed.

Each is discussed in the remainder of this section.

Catastrophic losses 10.60 A catastrophic loss is the partial or com- plete destruction of a signifi cantly large number of assets within any of the asset categories resulting from a large-scale, discrete, and recognizable event.

Such events will generally be easy to identify.


Th ey are usually sudden or one-time events of large pro- portions.

Th ey include major earthquakes, volcanic eruptions, tidal waves, exceptionally severe hurri- canes, droughts, and other natural disasters; acts of war, riots, and other political events; and technologi- cal accidents, such as major toxic spills or release of radioactive particles into the air.
Included here are such major losses as deterioration in the quality of land caused by abnormal fl ooding or wind dam- age; destruction of cultivated assets by drought or outbreaks of disease; and destruction of buildings, equipment, or valuables in fi res or earthquakes.

An entry in other changes in the volume of assets is re- corded to reduce or eliminate the value of any asset damaged or destroyed.
10.61 Although produced assets are the most likely candidates to be damaged or destroyed by a catastrophic loss, nonproduced assets and fi nancial assets are also subject to damage or destruction.

For example, major decreases in the value of land and other natural assets caused by abnormal fl ood- ing or wind damage and the accidental destruction of currency or bearer securities as a result of natural catastrophes or abnormal political events would be included.

15 See paragraphs 7.131–7.134 and 9.31.


Uncompensated seizures 10.62 Government units may take possession of the assets of other institutional units without full compensation for reasons other than the failure to pay taxes, fi nes, or similar levies.

Such seizures of assets, legal or illegal, are not capital transfers because they do not take place by mutual agreement of the units involved.
Th e diff erence between the market value of the assets seized and any compensation provided is recorded as an other change in the volume of assets, in the form of an uncompensated seizure.

Foreclosures and repossessions of assets by creditors are transac- tions when the contractual agreement between debtor and creditor provides this avenue of recourse.
Other volume changes not elsewhere classiﬁ ed 10.63 Th e value of a fi xed asset is continuously re- duced by consumption of fi xed capital until the asset is disposed of or has no remaining value.

It is pos- sible for the assumptions underlying the calculation of consumption of fi xed capital to be inaccurate, in which case corrections to the value of the asset need to be made through other changes in the volume of assets.
Similarly, if the assumption about the rate of shrinkage of inventories was inaccurate, this should also be corrected through an entry in other changes in the volume of assets.
Financial assets and liabilities, such as those related to insurance, pension, and stan- dardized guarantee schemes, can also be aff ected by volume changes.16 Fixed assets (511) 10.64 Th e calculation of the consumption of fi xed capital refl ects an assumption about normal rates of physical deterioration, obsolescence, and accidental damage.

Each of these assumptions may prove to be faulty.

In that case, an adjustment in the form of other changes in the volume of assets must be made.
10.65 Physical deterioration may include the eff ect of unforeseen environmental degradation on fi xed as- sets.

Entries must, therefore, be made through other changes in the volume of assets for the decline in the value of the fi xed assets from, for example, the unfore- seen eff ects of acidity in the air and acid rain on build- ing surfaces or vehicle bodies.

16 See paragraphs 10.39–10.40 and A2.54.


Other Economic Flows 257 10.66 Th e introduction of improved technology can render an asset obsolete or accelerate the rate of obsolescence.

For example, improved models of the asset or of a new production process that no longer re- quires the asset may lead to unforeseen obsolescence.
In consequence, the amount included in consump- tion of fi xed assets for their expected obsolescence may have been underestimated, so an entry in other changes in the volume of assets should be recorded.

10.67 Th e amount included for normally expected damage—as included in the calculation of consump- tion of fi xed capital—may fall short of the actual dam- age.
Adjustments must therefore be made through other changes in the volume of assets for the decline in the value of the fi xed assets due to these events.

While these losses may be larger than normal, they are not on a scale suffi ciently large to be considered catastrophic—they are therefore included in other volume changes not elsewhere classifi ed.
10.68 As explained in paragraph 6.60, costs of ownership transfer should, in principle, be written off over the expected time the asset will be in the posses- sion of the purchaser.

If the asset is disposed of before the costs of ownership transfer are completely writ- ten off , the remainder should be recorded as an other change in the volume of assets.

10.69 Production facilities with long construction periods may cease to have an economic use before they are completed or are put into service.
For exam- ple, a nuclear power plant or industrial site may never be put into service.

When the decision to abandon is made, the value of the fi xed asset (or in some cases, work-in-progress inventories) as recorded in the bal- ance sheet should be written off through an other change in the volume of assets.

Exceptional losses in inventories (512) 10.70 Exceptional inventory losses from fi re, rob- bery, insect and vermin infestation of grain stores, and unusually high levels of disease in livestock, etc.
are included as other changes in the volume of assets.

In this context, exceptional losses indicate that the losses are not only large in value but also irregular in occurrence.

Even very large losses that occur regularly should be taken into account when calculating the net change in inventories, as explained in paragraph 8.47.
Th e adjustment for unforeseen damage could be an 258 Government Finance Statistics Manual 2014 increase in assets if the actual damage falls short of the amount covered by the allowance for losses.

Life insurance and annuities entitlements (52062, 52162, 52262, 53062, 53162, 53262) 10.71 For an annuity, the relationship between the expected net premiums and benefi ts is usually determined when the contract is entered into, tak- ing account of mortality data available at that time.
Any subsequent changes will aff ect the liability of the annuity provider toward the benefi ciary, and the con- sequences should be recorded as other changes in the volume of assets.

Pension entitlements (52063, 52163, 52263, 53063, 53163, 53263) 10.72 In defi ned-benefi t pension schemes, the level of benefi ts promised to participating employees is determined by a formula that is usually based on the participants’ length of service and salary.
Changes in pension entitlements that are imposed without ne- gotiation are recorded as other changes in the volume of assets.17 Th at is because such changes are assumed to be imposed unilaterally by the employer and do not constitute a capital transfer negotiated by mutual agreement.
10.73 As explained in paragraph 10.38, for a de- fi ned-benefi t pension scheme, any changes in the value of the liability due to changes in the formula used to determine benefi ts and due to changes in demographic assumptions about the lifespan should be recorded as other changes in the volume of assets.
If the projected benefi t obligation method is used to value pension en- titlements, an adjustment in the form of other changes in the volume of assets is needed if the enterprise makes a structural change in the way promotion and merit increases are awarded (see paragraph 10.40).
10.74 No such adjustments are needed for defi ned-contribution schemes where the benefi ts are determined solely in terms of the contributions and investment earnings of the scheme.18 17 Th e cases where changes in pension entitlements are recorded as transactions are discussed in paragraphs 9.63–9.67.
Th e dis- tinction between transactions and other changes in the volume of assets remains theoretical, as it is recognized that the distinction between what is negotiated and what is imposed without negotia- tion will be diffi cult to determine in practice, with diff erent situa- tions prevailing in diff erent countries.

18 Also see the 2008 SNA, Chapter 17, Part 2.


Provisions for calls under standardized guarantee schemes (52065, 52165, 52265, 53065, 53165, 53265) 10.75 Changes to provisions for calls under stan- dardized guarantee schemes not resulting from trans- actions and holding gains and losses are shown as other changes in volume of assets.
For example, such other changes in volume of assets occur whenever a signifi cant change to the expected level of calls is rec- ognized beyond any asset recovery (see paragraph A4.79).

Changes in Classiﬁ cation 10.76 Th e composition of the general government or public sector’s balance sheet may change because there has been a reclassifi cation of an entire institu- tional unit, the structure of a unit, or a group of assets and liabilities.
A reclassifi cation rearranges assets and liabilities without adding to or subtracting from total net worth.

Changes in sector classiﬁ cation and structure 10.77 An entire unit may be reclassifi ed from the general government sector to another sector or to the general government sector from another sector without a change of ownership or control, normally because the unit either begins or ceases to sell its out- put for economically signifi cant prices.
When a unit is reclassifi ed out of the general government sector, all of the unit’s assets and liabilities are removed from the general government sector’s balance sheet and the net value of those assets and liabilities is replaced by a fi nancial asset, equity and investment fund shares, to refl ect the continued ownership or control of the unit by a general government unit.

Th e reverse will be true when a unit is reclassifi ed into the general govern- ment sector.
By contrast, when a public corporation is privatized, all of the unit’s assets, liabilities, and net worth are reclassifi ed from being that of a public cor- poration to a private corporation.19 10.78 A change in the structure of units is also re- corded as an other change in the volume of assets—for example, when two general government units merge into a single unit, or a single unit splits into two units.
19 In the balance sheet of the shareholder (such as government), the privatization transaction will lead to a reduction in the fi nan- cial asset equity and investment fund shares.

When two units are merged, all fi nancial claims and liabilities that existed between them are eliminated.

Symmetrically, when a unit splits into two or more units, new fi nancial claims and liabilities may appear between the new units.
10.79 In cases where general government units issue negotiable securities that sell in secondary markets, the holders of the securities may change during the life of the security.

In debt data classifi ed by counterparties, this change in the debtor/creditor relationship should be recorded as a reclassifi cation under other changes in the volume of assets (see also paragraphs 9.25 and 9.86).
For example, a central government debt security may be sold originally to a bank and then subsequently sold by the bank to a local government unit.
To show on the central government’s balance sheet that the new holder of the security on the reporting date is the local government, entries in other changes in the volume of assets are recorded in the central government ac- counts, reducing the security liability to the bank and increasing the liability to the local government.20 No transactions between the central government, bank, and the local government should be imputed to reclas- sify the holder of the securities.
Changes in classiﬁ cation of assets and liabilities 10.80 Depending on the degree of detail of the classifi cations of assets, there may be reclassifi cations of existing assets and liabilities from one category to another, usually when there is a change in the purpose for which an asset is used.

Th e change in classifi cation is recorded as other changes in the volume of assets with the same value for both entries.
If the change in the use also means a change in its value, then a second entry in other changes in the volume of assets is re- corded for the entrance into the asset boundary of the asset with the higher value.

It is not recorded as a re- valuation since the value increase is due to the change in use and is not due to price changes.

10.81 Th e use of a structure may be changed from a dwelling to a government offi ce building or vice versa.
If these types of structures are classifi ed sepa- Other Economic Flows 259 rately, then an entry in other changes in the volume of assets is recorded.

Th e positive change in one asset category is balanced by a negative change in the other asset category.

A conversion resulting solely from new investment in a building is not an other change in the volume of the asset but a transaction in fi xed assets (see paragraph 8.28).
10.82 In all instances, work in progress needs to be reclassifi ed to fi nished goods prior to sale, through an entry in other changes in the volume of assets.

In principle, reclassifi cation from one type of inventory to another or from fi xed assets to inventories should not involve a change in value.
If at the time of con- version, the previous value is diff erent from the ap- propriate new value, an entry in other changes in the volume of assets should be recorded under economic appearance or disappearance as appropriate.

If this is found to be happening systematically, the valuation techniques for inventories should be re-examined.
10.83 As explained in paragraph 8.42, transactions in the costs of ownership transfer of nonproduced as- sets other than land are classifi ed as fi xed assets and these costs are subject to consumption of fi xed capi- tal.
To maintain the integration of stock positions and fl ows, the costs of ownership transfer of nonproduced assets other than land and the consumption of fi xed capital relating to these costs are reclassifi ed to the respective nonproduced assets through an entry in other changes in the volume of assets.

21 Th is reclas- sifi cation is considered to take place at the time of re- cording the transactions in cost of ownership transfer and consumption of fi xed capital, respectively.
10.84 Some examples of changes in the classifi ca- tion of fi nancial assets and liabilities are: • When monetary gold held in the form of gold bullion becomes a reserve asset, it enters the fi nancial assets in the balance sheet as a reclas- sifi cation via other changes in the volume of as- sets from valuables to monetary gold.
At the time it is acquired by a monetary authority, it is fi rst classifi ed as inventory or a valuable.22 Th e same 20 Because the local government has a claim on central govern- ment, without the central government being involved in the transaction, the same other volume change would be recorded on the local government’s balance sheet to show that the central government is the creditor.
21 Two entries are recorded in other changes in the volume of assets: a reduction in the fi xed asset costs of ownership transfer on nonproduced assets other than land (31133) and an increase in the value(s) of the respective nonproduced assets.

22 Gold is reclassifi ed to inventories if not primarily held as a store of value.

260 Government Finance Statistics Manual 2014 recording is followed for allocated gold accounts that become part of monetary gold.
When unal- located gold accounts become reserve assets, they are reclassifi ed from currency and deposits to monetary gold, also through other changes in the volume of assets.

Monetary gold may be sold to another monetary authority, but otherwise, any reduction in holdings follows a similar declas- sifi cation path; the monetary gold is reclassifi ed to be either a valuable or inventories (in the case of gold bullion) or currency and deposits (in the case of unallocated gold accounts).
Subsequent transactions are recorded in terms of inventories or valuables or currency and deposits and not in terms of monetary gold.

• In cases when benefi ts under a defi ned-contribution pension scheme are converted to annuities, a reclas- sifi cation should be recorded from pension entitle- ments to annuities entitlements.

• When loans become tradable in the conditions stated in paragraph 7.149, a reclassifi cation should be recorded from loans to debt securities.
• If arrears arise and the contract provides for a change in the characteristics of a fi nancial in- strument when it goes into arrears, this change should be recorded as a reclassifi cation in the other changes in the fi nancial assets and liabili- ties account.

Th e reclassifi cation applies to situ- ations where the original contract remains, but the terms within it changes (e.g., interest rates or repayment periods).
• If the amount payable under a derivative remains due for payment aft er the derivative matures, the amount due no longer represents a derivative be- cause the value is fi xed.

It is therefore reclassifi ed under other accounts receivable or payable.23 • Bonds that are convertible into equity are reclas- sifi ed as equity and investment fund shares when the option is exercised.
• In cases where government units acquire equity in a public corporation or quasi-corporation as a result of legislation or an administrative change creating the corporation or quasi-corporation, this event will amount to a reclassifi cation of the corporation’s existing assets and liabilities that results in an addition of equity and investment fund shares to the balance sheets of government and the corporation (see paragraph 9.50).
23 Th e creation and exhaustion of fi nancial derivatives are transac- tions in fi nancial assets (and liabilities), not other changes in the volume of assets.
APPENDIX 1 Changes from the GFSM 2001 and GFSM 1986 Th is appendix describes the changes in the Govern- ment Finance Statistics Manual 2014 (GFSM 2014) from the Government Finance Statistics Manual 2001 (GFSM 2001), and describes the diff erences with the traditional approach to fi scal reporting as depicted in A Government Finance Statistics Manual 1986 (GFSM 1986).
Introduction A1.1 In the GFSM 2014, the guidelines in the GFSM 2001 have been revised to harmonize with the updates in other macroeconomic statistical manuals and guides, such as the overarching System of Na- tional Accounts 2008 (2008 SNA), the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6), and the Public Sector Debt Statistics: Guide for Compilers and Users (PSDS Guide).
A1.2 Th e GFSM 2014 addresses important inter- national economic developments in recent years and takes into account improved recording and method- ological treatments of various events.

Th e changes incorporated can broadly be summarized as method- ological changes agreed to in the update of the 2008 SNA, clarifi cations on existing methodological guide- lines, presentational changes, and editorial changes.
A1.3 Th e remainder of this appendix fi rst de- scribes the changes in the GFSM 2014, compared to the GFSM 2001.

Since many countries are still in vari- ous stages of migrating from presenting fi scal statis- tics in a traditional way, based on the GFSM 1986, the second part of this appendix also provides a descrip- tion of the diff erence between the guidelines in this Manual and the GFSM 1986.
Changes from the GFSM 2001 ever, this Manual introduces improved treatments for recent developments and specifi c events, elaborates on aspects of reporting that have proved to be complex, and takes into consideration new needs of compilers and users of GFS.

Th e remainder of this section de- scribes the main changes, grouped according to the chapters of the GFSM 2014, before describing changes in terminology introduced in this Manual.
Th e dis- cussion of the changes includes cross-references to the relevant paragraphs in the chapters.

Chapter 1 A1.5 A defi nition for fi scal policy, general govern- ment sector, and public sector is introduced in para- graph 1.2.

A1.6 A section to describe the evolution of inter- national statistical guidelines on government fi nance statistics, starting in the early 1970s, is presented in paragraphs 1.6–1.9.

Th is section also broadly outlines the reasons for the update of the GFSM 2001.
A1.7 Th e section on the structure and features of the GFS framework introduces two supplementary statements—namely, the Statement of Total Changes in Net Worth and the Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefi ts (see paragraphs 1.18– 1.19).

Th ese supplementary statements are added to the GFS framework due to their analytical usefulness for users of fi scal data.
A1.8 Th e valuation principle described in para- graph 1.29 indicates that current market prices are used to value economic fl ows and stock positions.

Th is principle is clarifi ed by indicating that market- value equivalents are used for assets and liabilities that are not traded in markets, or are traded infrequently.

A1.4 Th e GFSM 2014 retains the basic conceptual framework of its predecessor, the GFSM 2001.
How- A1.9 Th e important linkages between GFS and other macroeconomic datasets are introduced in 262 Government Finance Statistics Manual 2014 paragraph 1.35, also recognizing the close relation- ship with accounting standards.

Paragraph 1.39 high- lights the importance of good dissemination practices as spelled out in the General Data Dissemination Sys- tem, Special Data Dissemination Standard, and the Special Data Dissemination Standard Plus.
Chapter 2 A1.10 Th e delineation of general government and public sector institutional units is clarifi ed.

Th e chapter is reorganized to fi rst delineate the domestic economy, and then it describes institutional units and the types of units that exist in macroeconomic statistics, before defi ning institutional sectors.
Th ese principles are then applied to delineate the general government and pub- lic sectors, and the practical application of the sector classifi cation principles to selected cases is described.

A1.11 Th e concept of residence is elaborated on to align with guidance of 2008 SNA and BPM6 (see para- graph 2.6).

Th e additional guidance includes defi ning and describing the treatment of notional resident units (see paragraph 2.13) and nonresident special purpose entities (see paragraph 2.15).
Additional guidance on identifying international and regional organizations is presented in paragraphs 2.16–2.19.

Th e treatment of multiterritory regional enterprises (see paragraph 2.20) and currency union central banks (see paragraph 2.21) is explained.

A1.12 Th e rationale for working with the institu- tional unit in macroeconomic statistics is explained in paragraph 2.23.

In addition, the concepts estab- lishment and enterprise are defi ned and explained in paragraphs 2.24 and 2.25, respectively.
A1.13 Th e description of the types of institutional units is organized to make a distinction between persons or groups of persons in the form of house- holds and legal or social entities (see paragraph 2.27).

Households are defi ned and described in paragraphs 2.28–2.29, while legal or social entities are defi ned, and the types of legal or social entities described in more detail (see paragraphs 2.30–2.38).
A1.14 Th e section on applying the defi nition of institutional unit to government introduces a discus- sion on artifi cial subsidiaries and ancillary activities, and applies these concepts to resident SPEs and a gov- ernment central borrowing authority (see paragraphs 2.42–2.45).

A1.15 Th e defi nition and identifi cation of nonfi - nancial and fi nancial corporations sectors are presented in detail (see paragraphs 2.52–2.57).
Th e additional guidance is provided to clarify the distinction between these corporations and government units.

Th is includes the introduction of three broad classes of fi nancial corporations—namely, fi nancial intermediaries, fi nan- cial auxiliaries, and other fi nancial corporations—and specifi cally explains fi nancial intermediation.

A1.16 Th e delineation of general government and public corporations is clarifi ed using the concept of market and nonmarket producers.
Th e application of the concept economically signifi cant prices to deter- mine whether a unit is a market or nonmarket pro- ducer is elaborated on (see paragraphs 2.65–2.75).

A1.17 Guidance is provided on how to determine whether a nonprofi t institution is under control of government.

Indicators of control and how to apply these to establish control of government are provided in Box 2.1.

A1.18 An extensive discussion on the public cor- porations subsector is introduced in paragraph 2.104.
Th e rationale for the extension of GFS to include data for public corporations is described in paragraph 2.105, and the types of public corporations are pre- sented in paragraphs 2.113–2.121.

Guidance is pro- vided on how to determine whether a corporation is under control of government (see paragraphs 2.107– 2.112).

Indicators of control and how to apply them to establish control of government over corporations are provided in Box 2.2.
A1.19 Using the concepts of residence, institu- tional units, control, and market versus nonmarket producers, a decision tree for sector classifi cation of the public sector is introduced in paragraph 2.124 and Figure 2.4.

A1.20 A separate section describes the practical application of the sector classifi cation principles to se- lected cases—these cases are the topics of frequently asked questions.
Included are: the identifi cation of quasi-corporations (see paragraph 2.125); distinguish- ing head offi ces and holding companies (see paragraph 2.128); restructuring agencies (see paragraph 2.129); fi nancial protection schemes (see paragraph 2.132); special purpose entities (see paragraph 2.136); joint ventures (see paragraph 2.140); sinking funds (see para- graph 2.144); pension schemes (see paragraph 2.147); provident funds (see paragraph 2.148); sovereign wealth funds (see paragraph 2.152); market regulatory agencies (see paragraph 2.156); and development funds and/or infrastructure companies or entities (see para- graph 2.160).
A1.21 Th e annex to Chapter 2 of the GFSM 2001, describing social protection, is subsumed in Appen- dix 2 of the GFSM 2014.

Th is appendix presents guidance on the identifi cation and sectorization of entities involved in social protection, as well as guid- ance on the recording of the fl ows and stock posi- tions related to their economic activities.

Chapter 3 A1.22 A distinction between monetary and non- monetary transactions is introduced in paragraphs 3.8 and 3.19, respectively.
Th is distinction also forms the basis for the distinction between transfers (capital and current transfers), exchanges, in-kind transactions, and internal transactions.

A1.23 A defi nition of stock positions is provided in paragraph 3.36.

Th e concepts economic benefi ts and ownership are used to defi ne economic assets, before a distinction is drawn between legal and economic ownership in paragraphs 3.38–3.39.
Th ese concepts are used to determine the asset boundary and defi ne assets and liabilities (see paragraphs 3.42–3.50).

A1.24 Th e GFSM 2014 reinstates a more balanced approach between having both accrual and cash infor- mation in an integrated statistical framework.
Th ere- fore, starting in paragraph 3.61, alternative recording bases are discussed with a reference to using the ac- crual basis of recording in the Statement of Operations (see paragraph 3.69) and using the cash basis of re- cording in the Statement of Sources and Uses of Cash (see paragraphs 3.67 and 3.103).

A1.25 Additional guidance on the application of the accrual basis of recording principles is described from paragraph 3.76 onward.
Guidance on the time of recording and measurement of taxes and other com- pulsory transfers is presented in paragraph 3.77.

A1.26 Th e time of recording dividends when using an accrual basis of recording is defi ned as when the equity or shares go ex-dividend (see paragraphs 3.87 and 5.112).
A1.27 When using an accrual basis of record- ing, the time of recording transactions in goods and Changes from the GFSM 2001 and GFSM 1986 263 services, nonfi nancial assets, and many fi nancial as- sets and liabilities is defi ned as the moment when economic ownership changes.

Recognition is given to cases where change of ownership is not obvious and additional guidance for those cases is provided (see paragraphs 3.88–3.97).
A1.28 Guidance on the time of recording other economic fl ows is described in paragraphs 3.98–3.102.

A1.29 Guidance on using the cash basis of record- ing in the Statement of Sources and Uses of Cash is elaborated in paragraphs 3.103–3.106.
A1.30 Guidance on valuation is elaborated on and the section is structured to present descriptions of the general valuation rule (see paragraph 3.107), valu- ation of transactions (see paragraphs 3.108–3.112), valuation of stock positions including alternatives val- uation methods (see paragraphs 3.113–3.117), valu- ation adjustments in special cases (see paragraphs 3.118–3.125), and valuation of other economic fl ows (see paragraphs 3.126–3.129).
A1.31 Th e GFSM 2014 introduces a discussion on currency, starting with a discussion on the unit of account for the compilation of GFS in paragraph 3.130.

Guidance is provided on currency conversions for transactions and stock positions (see paragraphs 3.132–3.133) and the distinction between domestic and foreign currency (see paragraphs 3.134–3.136) and currency of denomination and currency of settle- ment (see paragraphs 3.137–3.139).
A1.32 Starting in paragraph 3.152, the GFSM 2014 presents a detailed discussion of consolidation.

Th e concept is defi ned (see paragraphs 3.153–3.154), a distinction is made between intrasectoral and inter- sectoral consolidation (see paragraphs 3.155–3.157), and reasons for consolidation are discussed (see para- graphs 3.158–3.160), before conceptual guidelines for the process of consolidation are presented (see para- graphs 3.161–3.164).
Paragraphs 3.165–3.166 present practical guidelines on implementing consolidation, while paragraphs 3.167–3.168 describe consolidation principles used in other datasets.

Chapter 4 A1.33 Th e analytic objectives of the GFS framework were expanded to include the ability to assess manage- ment and policy decisions, as well as sustainability and liquidity decisions (see paragraphs 4.3–4.5).
264 Government Finance Statistics Manual 2014 A1.34 Paragraph 4.7 elaborates on the coverage of GFS, emphasizing that data should cover the nonmar- ket activities of the general government sector, as well as the market activities of the public sector.
A1.35 Two additional statements are included in the GFS framework, to further enhance the analyti- cal usefulness of GFS (see paragraphs 4.13–4.15 and 4.46–4.49): • Statement of Total Changes in Net Worth • Summary Statement of Explicit Contingent Li- abilities and Net Implicit Obligations for Future Social Security Benefi ts.
A1.36 Th e concept expenditure is reinstated as an aggregate in both the Statement of Operations and in the Statement of Sources and Uses of Cash (see para- graph 4.21, Table 4.1, and Table 4.2).

A1.37 Th e defi nition and identifi cation of policy lending are elaborated on in Box 4.1.
A1.38 Th e composition of the item net change in the stock of cash, as presented in the Statement of Sources and Uses of Cash, is clarifi ed—the item refers to the fi nancial asset currency and deposits (3202), and should not include other fi nancial instruments or overdraft s (see paragraph 4.33).

A1.39 Th e description of the Balance Sheet is ex- panded with a discussion on the use of the net worth concept in the case of public corporations (see para- graph 4.40).
A1.40 Box 4.1 in the GFSM 2001 is replaced with an annex to Chapter 4 of the GFSM 2014, Using GFS for Fiscal Analysis.

Th e annex off ers an overview of how analysts can use the data in GFS to build well-defi ned and internationally comparable fi scal indicators.

Some of the indicators can be observed or derived directly from the GFS framework, while others can be derived using GFS together with additional data.
Chapter 5 A1.41 Th e rationale for defi ning revenue as an increase in net worth resulting from a transaction is added in paragraph 5.1.

A1.42 Th e defi nition of grants (13) is revised to no longer refer to grants as noncompulsory transfers.

Th e change accommodates cases where compulsory rev- enue sharing occurs between government units.
Th e defi nition is also expanded to indicate that grants are transfers that do not meet the defi nition of a tax, sub- sidy, or social contribution (see paragraphs 5.5 and 5.101).

A1.43 Defi nitions of the respective categories of other revenue (14) are replaced by a defi nition of the main category other revenue (14), with only references to the subcategories it comprises (see paragraph 5.6).
A1.44 Th e section on defi ning revenue is enhanced with the inclusion of a discussion on the treatment of refunds and corrections, and with an explanation of the delineation between revenue and transactions in assets and liabilities (see paragraphs 5.7–5.8).

A1.45 Th e section on the time of recording and measurement of revenue is expanded to clearly in- dicate the time of recording when using the accrual basis of recording, as well as the cash basis of record- ing (see paragraphs 5.10–5.11).
Further clarifi cation is provided on applying an accrual basis of recording to revenue transactions (see paragraphs 5.12–5.17), as well as on the treatment of amounts assessed, but discovered to be uncollectable (see paragraph 5.20).

A1.46 Th e basis on which the classifi cation of rev- enue should be made is presented in paragraph 5.21, while paragraph 5.22 describes the rationale for stan- dardized summary classifi cations and the usefulness of adding subitems according to analytical use and need.
A1.47 Paragraphs 5.27–5.32 describe the treatment of tax refunds and tax relief.

In this regard, the GFSM 2014 adopted the gross recording of payable tax cred- its, while nonpayable tax credits continue to be treated on a net basis.
A1.48 Th e tax category unallocable (1113), in the GFSM 2001, is renamed other taxes on income, prof- its, and capital gains (1113) in the GFSM 2014, and a breakdown of the category is introduced to sepa- rately identify these taxes receivable from general government units (11131) and unallocable taxes on income, profi ts, and capital gains (11132) (see para- graph 5.42 and Tables 5.1 and 5.2).
Th is change al- lows the identifi cation of those taxes receivable from other general government units that are subject to consolidation.

A1.49 Th e tax attribution rules are described in paragraphs 5.33–5.38.
Th e tax attribution rules ap- plicable to cases where the activities of the religious organizations are funded from earmarked taxes Changes from the GFSM 2001 and GFSM 1986 265 collected by general government are clarifi ed in para- graph 5.39. the economic nature of the components of the pay- ment (see paragraph 5.90).

A1.50 Th e GFSM 2001 tax category for taxes on fi nancial and capital transactions (1134) is moved from property taxes (113) to general taxes on goods and services (1141).
In the GFSM 2014, this tax cat- egory retains its name, but with a diff erent classifi - cation code—namely, taxes on fi nancial and capital transactions (11414) (see paragraphs 5.52 and 5.61).

Th is change aligns the GFSM 2014 with the 2008 SNA, which regards this tax as a tax on the sale rather than on the property itself.

To maintain consistency with codes used in the GFSM 2001, the codes in taxes on property do not follow directly.

A1.51 A new defi nition for excises is introduced in paragraph 5.62.
A1.52 Th e concept profi ts on fi scal monopolies (1143) is clarifi ed, and its application to public enter- prises, lotteries, and other gambling activities is elabo- rated on (see paragraphs 5.63–5.68).

A1.53 Th e coverage of taxes on specifi c services is ex- tended to include the implicit taxes that result from the central bank imposing a rate of interest other than the market rates (see paragraphs 5.70 and 6.89, Box 6.2).
A1.54 Th e coverage of taxes on use of goods and on permission to use goods or perform activities (1145) is clarifi ed (see paragraph 5.72).

Boundaries of this tax with administrative fees (paragraph 5.73), taxes on business activities (see paragraph 5.76), other tax cat- egories (see paragraph 5.77), and the acquisition or use of an asset (see paragraph 5.78) are explained.
A1.55 Taxes on use of goods and on permission to use goods or perform activities (1145) are subdivided into motor vehicle taxes (11451) and other taxes on the use of goods and on the permission to use goods or per- form activities (11452).

For the latter, the GFSM 2014 introduces several subcategories of taxes to clarify their classifi cation (see paragraph 5.81 and Table 5.4).
Furthermore, the accrual recording of business li- censes and taxes on pollution (such as emission trad- ing schemes) is elaborated on (see paragraph 5.81).

A1.56 Th e implicit taxes or subsidies created by multiple exchange rate regimes are introduced in paragraph 5.89.
Furthermore, it is clarifi ed that lump- sum payments receivable by government from mon- etary authorities should be disaggregated according to A1.57 Th e concept social contributions (12) is clarifi ed (see paragraph 5.94), specifi cally making a distinction between voluntary and compulsory con- tributions, describing the fl exibility arrangement for the recording of social contributions used in the 2008 SNA (see paragraph 5.95), and presenting the bound- ary between social contributions and other categories of taxes (see paragraph 5.96).
A1.58 Th e treatment of grants is elaborated on, specifi cally describing the distinction between cur- rent and capital grants, grants in kind, and the time of recording in an accrual and cash basis of recording (see paragraph 5.103–5.105).

A1.59 Th e time of recording dividends when using an accrual basis of recording is clarifi ed to be when the equity or shares go ex-dividend (see paragraphs 3.87, 5.112, and 6.109).
In addition, it is clarifi ed that legally constituted corporations, reclassifi ed to be a general government unit, could also distribute dividends (see paragraph 5.113).

Th e treatment of dispropor- tionately large dividends is clarifi ed (see paragraphs 5.115–5.116).

A1.60 Th e coverage of property income from in- vestment income disbursements (1414) is expanded to include distributions to holders of investment fund shares or units (see paragraph 5.120).
A1.61 Th e concept rent (1415) is elaborated on to explain the distinction between a resource lease, the creation of an asset, contracts, leases, and licenses (31441), or the sale of the resource.

Two types of re- source rent, for land and subsoil assets, are described in detail and the boundary with the rental of produced assets is explained (see paragraphs 5.124–5.133).
A1.62 Th e GFSM 2014 assumes the 2008 SNA and BPM6 treatment of reinvested earnings on foreign di- rect investment (1416) (see paragraphs 5.134–5.135 and 6.121).

A1.63 Th e classifi cation of administrative fees (1422) is clarifi ed to include fees payable for voluntary par- ticipation in deposit insurance or other guarantee schemes that do not qualify to be a standardized guarantee scheme.
For it to be administrative fees, the amount payable should be in proportion to the cost of producing the service (see paragraph 5.138).

266 Government Finance Statistics Manual 2014 A1.64 Th e treatment of fi nes and penalties im- posed for evasion of taxes and bails set by courts is clarifi ed in fi nes, penalties, and forfeits (143) (see para- graphs 5.143–5.144).
A1.65 Th e GFSM 2001 revenue categories for vol- untary transfers other than grants (144) and miscella- neous and unidentifi ed revenue (145) are subsumed in two new categories—namely, transfers not elsewhere classifi ed (144) and premiums, fees, and claims re- ceivable related to nonlife insurance and standardized guarantee schemes (145) (see paragraphs 5.145 and 5.149).
Revenue from subsidies (14411) receivable is introduced as a separate category of transfer not else- where classifi ed (see paragraph 5.146), while the other transfers are distinguished as other current transfers not elsewhere classifi ed (14412) (see paragraph 5.147) and capital transfers not elsewhere classifi ed (1442) (see paragraph 5.148).
A1.66 Th e revenue category premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes (145) (see paragraph 5.149) is in- troduced to allow for the appropriate recording of the revenue related to nonlife insurance and standardized guarantees.

Subcategories provide for the identifi ca- tion of premiums receivable (14511), fees for standard- ized guarantees receivable (14512), current claims receivable (14513), and capital claims receivable (1452) (see paragraphs 5.150–5.151).
Chapter 6 A1.67 Th e rationale for defi ning expense as a de- crease in net worth resulting from a transaction is added in paragraph 6.1.

A1.71 Th e defi nition of compensation of employ- ees is clarifi ed to emphasize the individual employer- employee relationship, and the exchange of manual and intellectual labor services (see paragraph 6.9).

Furthermore, the nature of wages and salaries in cash (see paragraph 6.13) and in kind (see paragraph 6.17) is elaborated on.
A1.72 Guidance on estimating imputed employers’ social contributions (2122) is elaborated on.

A clear distinction between nonpension and employment- related pension benefi ts is introduced (see paragraphs 6.23–6.26).
A1.73 Th e section on the use of goods and services (22) is reorganized to: defi ne the concept (see para- graph 6.27); make a distinction between the time of recording use of goods and services when using an accrual and cash basis of recording (see paragraphs 6.28–6.31); describe the boundary between use of goods and services and compensation of employees (see paragraph 6.33); describe the boundary between use of goods and services and transfers (see paragraph 6.37); describe the boundary between use of goods and services and transactions in the acquisition of nonfi nancial assets (see paragraph 6.43); and describe other boundaries related to use of goods and services (see paragraph 6.50).
A1.74 Conceptually, the coverage of use of goods and services (22) in the GFSM 2001 is changed to ex- clude weapons and weapons systems in the GFSM 2014 (see paragraphs 6.49).

Th ese are recognized as the ac- quisition of a specifi c category of nonfi nancial assets in the GFSM 2014 (see paragraph 8.43).

A1.68 Th e distinction between economic classifi ca- tion of expense and functional classifi cation of expense is clarifi ed in paragraphs 6.2 and 6.3, respectively.
A1.75 Th e relationship between inventory (612) and use of goods and services (22) is clarifi ed in Table 6.3.

A1.69 Th e section on defi ning expense is enhanced with the inclusion of a discussion on the treatment of refunds and corrections and the delineation between expense and transactions in assets and liabilities (see paragraphs 6.4–6.5).
A1.70 Th e section on the time of recording expense is expanded to clearly indicate the time of recording when using the accrual basis of recording, as well as the cash basis of recording.

Furthermore, the time of recording of the acquisition and use of goods and ser- vices (22) is clarifi ed (see paragraphs 6.6–6.7).

A1.76 Th e treatment in GFS of the implicit fees for fi nancial services is explained (see paragraphs 6.52 and 6.81).
Th ese implicit fees include items such as fi nancial intermediation services indirectly measured (FISIM), service fees implied by nonlife insurance premiums, and the implicit fees payable by govern- ments to central banks for nonmarket services.

A1.77 Th e concept consumption of fi xed capital (23) is elaborated on.

Th e relation between consump- tion of fi xed capital as recorded in the 2008 SNA and in GFS is explained (see paragraph 6.53).
Th e relation between consumption of fi xed capital and deprecia- tion as used in government fi nancial records is also explained (see paragraph 6.54).

Th e calculation of consumption of fi xed capital is described in Box 6.1.

Furthermore, the treatment of costs of ownership transfer as a component of consumption of fi xed capi- tal is explained in paragraphs 6.60 and 8.42.
A1.78 Th e description of interest (24) is clarifi ed to show the relationship between interest as recorded in the 2008 SNA and interest as recorded in the GFSM 2014.

It is suggested to identify the counterpart for interest transactions to allow for consolidation (see paragraph 6.62).

A discussion on recording interest, when using a cash basis of recording, is introduced in paragraph 6.65.
Recording interest in the case of grace periods and step-up interest arrangements is explained in paragraphs 6.69–6.70.

Th e recording of interest related to index-linked securities is explained in paragraphs 6.75–6.78.

Furthermore, clarifi cation is provided on the treatment of interest on debt securi- ties with embedded derivatives, nonperforming loans, and arrears (see paragraphs 6.79–6.82).

A1.79 Recording subsidies (25) is clarifi ed.


Th e treatment of subsidies in cases when an institutional unit acts on behalf of another unit to redistribute the subsidies is explained in paragraph 6.84.

It is also clar- ifi ed that subsidies are receivable by all resident and nonresident producers, and that units such as gen- eral government units, nonprofi ts institutions serving households, and households can receive subsidies in their capacity as producers (see paragraph 6.86).
Th e coverage of subsidies is extended to include the im- plicit subsidy that results from the central bank impos- ing a rate of interest other than the market rates (see paragraphs 5.70 and 6.89, Box 6.2).

Th e discussion on subsidies also introduced the distinction between subsidies on products and subsidies on production to better align with this distinction in the 2008 SNA (see paragraphs 6.89–6.90).
A1.80 To further delineate subsidies, a list of items that do not constitute subsidies is included (see para- graph 6.91), and Box 6.3 elaborates on transactions with public corporations with specifi c reference to the classifi cation of “capital injections” into public corporations.

A1.81 Th e defi nition of grants (26) is revised to no longer refer to grants as noncompulsory transfers.
Th is Changes from the GFSM 2001 and GFSM 1986 267 change accommodates cases where compulsory rev- enue sharing occurs between government units.

Th e defi nition is also expanded to indicate that grants are transfers that do not meet the defi nition of a tax, sub- sidy, or social contribution (see paragraph 6.92).
A1.82 Th e treatment of grants in kind is elaborated on, specifi cally describing the distinction between current and capital grants, and the time of recording in, respectively, an accrual and cash basis of recording (see paragraph 6.93–6.95).
A1.83 Th e circumstances under which social as- sistance benefi ts (272) become payable are clarifi ed to include contributions payable to social insurance schemes on behalf of households who cannot oth- erwise aff ord to participate in the scheme (see para- graph 6.102).

A1.84 Th e distinction between imputations for employment-related nonpension social benefi ts and employment-related pensions and other retirement benefi ts is clarifi ed in paragraph 6.105.
A1.85 Th e time of recording dividends (2811) when using an accrual basis of recording is clarifi ed to be when the equity or shares go ex-dividend (see paragraphs 3.87, 5.112, and 6.109).

Th e treatment of disproportionately large dividends is clarifi ed (see paragraphs 5.116 and 6.110).

A1.86 Th e coverage of property expense for invest- ment income disbursements (2813) is expanded to include distributions to holders of investment fund shares or units (see paragraph 6.113).
A1.87 It is clarifi ed that rent (2814) includes amounts payable under resource leases on land, sub- soil resources, and on other natural resources.

Th e measurement of such amounts payable is clarifi ed in the context of the corresponding revenue item (see paragraph 6.120).

A1.88 Th e GFSM 2014 assumes the 2008 SNA and BPM6 treatment of reinvested earnings on foreign di- rect investment (2815) (see paragraph 6.121).
A1.89 Th e GFSM 2001 expense categories for mis- cellaneous other expense (282) are subsumed in two new categories in the GFSM 2014—namely, transfers not elsewhere classifi ed (282) and premiums, fees, and claims payable related to nonlife insurance and stan- dardized guarantee schemes (283) (see paragraphs 6.122 and 6.125, respectively).
Th e transfers are 268 Government Finance Statistics Manual 2014 distinguished as current transfers not elsewhere classi- fi ed (2821) (see paragraph 6.123) and capital transfers not elsewhere classifi ed (2822) (see paragraph 6.124).

A1.90 Th e expense category premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes (283) is introduced to allow for the appropriate recording of the expense related to non- life insurance and standardized guarantee schemes.
Subcategories provide for the identifi cation of premi- ums payable (28311), fees for standardized guarantees (28312), current claims payable (28313), and capital claims payable (2832) (see paragraph 6.125).

A1.91 Th e discussion on the Classifi cation of Functions of Government (COFOG) in Chapter 6 of GFSM 2001 is moved to the annex to Chapter 6 in GFSM 2014.
A1.92 COFOG in GFS is limited to the expenditure of government, which diff ers from its application to all outlays of government as used in the OECD/UN classifi cation (see paragraph 6.127 in the annex).
A1.93 Th e annex is reorganized to separately pres- ent: the structure of COFOG classifi cations (see para- graph 6.128); uses of COFOG (see paragraph 6.130); distinction between individual and collective goods and services (see paragraph 6.133); units of classifi cation (see paragraph 6.140); problems in identifying functions of government (see paragraph 6.143); and the cross- classifi cation of expenditure (see paragraph 6.148).

No changes occurred in the functions themselves.


Chapter 7 A1.94 Th e usefulness of a set of balance sheets in- tegrated with economic fl ows is elaborated on in para- graph 7.2.

A1.95 A distinction is drawn between legal and economic ownership in paragraphs 3.38–3.41 and 7.5– 7.13.

Th ese concepts are used to determine the asset boundary and to provide an overview of assets and li- abilities (see paragraphs 7.14–7.19).
A1.96 Th e asset boundary is clarifi ed to not in- clude contingent assets and liabilities (see paragraph 7.13), and fi nancial claims are clarifi ed to include: debt instruments; fi nancial derivatives and employee stock options; equity and investment fund shares; and monetary gold in the form of unallocated gold ac- counts (see paragraph 7.15).

A1.97 Th e GFSM 2001 treatment of monetary gold and SDRs (6201/6301) as fi nancial assets without a corresponding fi nancial claim is revised.
In the GFSM 2014, only monetary gold in the form of gold bullion is regarded as a fi nancial asset without a corresponding fi nancial claim.

Also, recognizing that transactions in SDR holdings may be entered into by two domestic units, the exclusion of SDRs from domestic fi nancial asset fl ows is eliminated (see paragraphs 7.15 and 7.125–7.134, respectively).

A1.98 Th e concept of produced versus nonpro- duced nonfi nancial assets is introduced in paragraph 7.17–7.19.
A1.99 Th e valuation of assets and liabilities is elab- orated on in paragraphs 7.20–7.25.

Th e usefulness of nominal value of fi nancial instruments is presented in paragraph 7.21, while the treatment of cost of owner- ship transfer is described in paragraph 7.22.

Possible methods of estimating current market prices are de- scribed in paragraphs 7.25–7.33.
A1.100 Determining the time of change in owner- ship of fi xed assets that are produced over two or more accounting periods, and those built under a public- private partnership, is elaborated on (see paragraphs 7.37 and 7.39, respectively).

A1.101 Th e creation of notional units to own fi xed assets in territories where they are not residents is ex- plained in paragraphs 2.13 and 7.91.

A1.102 Identifying public monuments and guid- ance on their recording are clarifi ed in paragraph 7.42.
A1.103 Th e defi nition and identifi cation of dwell- ings (61111) are clarifi ed and guidance on the valua- tion of dwellings is provided in paragraphs 7.44–7.45.

A1.104 Within buildings and structures, a category of fi xed assets for land improvements (61114) is added.

Th e cost of ownership transfer on all land is included with land improvements (see paragraphs 7.49–7.51).
A1.105 Subcategories are introduced for machin- ery and equipment other than transport equipment (61122) to separately identify information, computer, and telecommunications (ICT) equipment (see para- graphs 7.56–7.57) and machinery and equipment not elsewhere classifi ed (see paragraph 7.57).
A1.106 Th e defi nition and identifi cation of cul- tivated biological resources (61131) are clarifi ed, and the time of recording when the production of these fi xed assets takes a long time to complete is elaborated on.

Subcategories are introduced to further clarify the composition of this item (see paragraphs 7.59–7.63 and Table 7.5).

A1.107 Th e defi nition and identifi cation of intel- lectual property products (61132) are elaborated on.
Subcategories separately identify research and de- velopment (611321), mineral exploration and evalu- ation (611322), computer soft ware and databases (611323), entertainment, literary, and artistic origi- nals (611324), and other intellectual property prod- ucts (611325).

Th e coverage of this item is expanded to include research and development products so that patented resources no longer appear as nonpro- duced assets.
Furthermore, the coverage of computer soft ware is expanded to include databases (see para- graphs 7.64–7.73).

A1.108 Weapons systems are introduced as a sepa- rate fi xed asset category (see paragraph 7.74).

A1.109 In the GFSM 2014, categories of inventory (612) are aligned with the categories used in 2008 SNA.
Th e category strategic stocks (6121) is eliminated as a separate category of inventory and is subsumed in goods for resale (61224), and a category for military inventories is added (see paragraphs 7.75–7.86).

A1.110 Th e defi nition of land (6141) is clarifi ed and guidance is provided on the valuation of land (see paragraphs 7.92–7.96).

A1.111 Th e GFSM 2001 category subsoil assets is replaced by mineral and energy resources (6142).
Th e ownership and recording of this category of asset are elaborated on in paragraphs 7.97–7.99.

A1.112 Th e classifi cation of other naturally occur- ring assets (6143) is elaborated on.

Subcategories for specifi c classes of other naturally occurring assets are introduced, and their defi nitions are clarifi ed (see paragraphs 7.100–7.103 and Table 7.7).
A1.113 Th e category intangible nonproduced as- sets (6144) is clarifi ed, and subcategories are intro- duced for contracts, leases, and licenses (61441) and goodwill and marketing assets (61442) (see paragraphs 7.104–7.117).

Changes from the GFSM 2001 and GFSM 1986 269 A1.115 Market value for valuing debt instruments is elaborated on by providing practical guidance on valuation (see paragraph 7.122).
A1.116 Monetary gold and Special Drawing Rights (6201, 6221, 6301, 6321) as fi nancial instruments are elaborated on (see paragraphs 7.125–7.134).

A1.117 Th e coverage of currency and deposits (6202/6302) is clarifi ed and the valuation of this in- strument explained (see paragraphs 7.135–7.142).

A1.118 A description of various types of debt secu- rities (6203/6303) and their recording is introduced in paragraphs 7.143–7.156.
A1.119 Th e description of loans (6204/6304) is expanded to clarify fi nancial leases (see paragraph 7.158), gold swaps (see paragraph 7.161), and off - market swaps (see paragraph 7.162).

Th e treatment of securities repurchase agreements is clarifi ed as a col- lateralized loan (see paragraph 7.159).

Th e valuation of loans and treatment of nonperforming loans are presented in paragraph 7.163.
A1.120 Th e category equity and investment fund shares (6205/6305) is elaborated on to distinguish various types of fi nancial instruments (see paragraphs 7.164–7.177).

Investment fund shares (62052/63053) have a specialized role in fi nancial intermediation and are introduced as a separate category (see paragraphs 7.174–7.177).
A1.121 Th e category for the reserves of insurance, pension and standardized guarantee schemes (6206/6306) is clarifi ed by introducing subcategories for: nonlife in- surance technical reserves (see paragraphs 7.183–7.186); life insurance and annuities entitlements (see paragraphs 7.187–7.188); pension entitlements (see paragraphs 7.189–7.198); claims of pension funds on pension manag- ers (see paragraphs 7.199–7.200); and provisions for calls under standardized guarantee schemes (see paragraphs 7.201–7.202).
A1.122 Th e coverage of insurance, pension, and standardized guarantee schemes (6206/6306) is ex- panded following recognition of standardized guar- antees in a way similar to nonlife insurance and the recognition of claims of pension funds on pension managers (see paragraphs 7.201–7.202 and 7.199– 7.200, respectively).

A1.114 Negotiability is introduced as a distin- guishable feature of securities (see paragraph 7.119).
A1.123 Th e category fi nancial derivatives and em- ployee stock options (6207/6307) is clarifi ed by defi ning 270 Government Finance Statistics Manual 2014 the two concepts (see paragraphs 7.204 and 7.221, re- spectively), describing the types of fi nancial deriva- tives (see paragraphs 7.209–7.218), and explaining the use of margins (see paragraphs 7.219–7.220).
A1.132 Th e classifi cation of transactions in nonfi - nancial assets is identical to the classifi cations of the same stock positions introduced in Chapter 7 (see paragraph 8.22 and Table 8.1).

A1.124 Th e main balancing item on the balance sheet, net worth (6), is clarifi ed and the relationship with equity for public corporations explained (see paragraphs 7.228–7.233).
A1.125 Th e items recorded as memorandum items to the balance sheet are expanded to include: net fi nan- cial worth (see paragraph 7.235), various valuations of gross and net debt (see paragraphs 7.236–7.245), concessional loans and the implicit transfers resulting from loans at concessional interest rates (see paragraph 7.246), arrears (see paragraphs 7.247–7.250), explicit contingent liabilities (see paragraphs 7.251–7.260), net implicit obligations for future social security benefi ts (see paragraph 7.261), and nonperforming loans (see paragraph 7.262).
A1.126 Th e classifi cation of the counterparty of fi - nancial assets and liabilities by institutional sector is introduced in paragraphs 7.264–7.265 and Table 7.11.

A1.127 Th e classifi cation of debt liabilities and their corresponding fi nancial assets by maturity is in- troduced in paragraphs 7.266–7.271 and Table 7.12.
Chapter 8 A1.128 Th e concept of net investment in nonfi nan- cial assets is introduced in paragraph 8.4, and a dis- tinction drawn with gross investment in nonfi nancial assets (i.e., consumption of fi xed capital is not taken into account).

A1.129 Th e treatment of costs of ownership transfer associated with acquiring and disposing of nonfi nan- cial assets (other than inventory) is clarifi ed (see para- graphs 8.6–8.8).
A1.130 Th e valuation of transactions in nonfi nan- cial assets is elaborated to make a clear distinction be- tween valuation of acquisitions and disposals of: fi xed assets (see paragraph 8.9); inventories (see paragraph 8.10); land (see paragraph 8.11); and nonproduced as- sets other than land (see paragraph 8.11).

A1.131 Time of recording transactions in nonfi - nancial assets is clarifi ed to be when economic owner- ship changes.
Guidelines for alternatives to use when change of ownership is not obvious are provided (see paragraphs 8.13–8.17).

A1.33 Th e treatment of public monuments as buildings and structures (3111) is clarifi ed in para- graph 8.30.

A1.134 Transactions related to land improvements (31114) are introduced as a separate category of trans- actions in paragraph 8.31.
A1.135 Transactions related to cultivated biological resources (31131) are clarifi ed to include net invest- ment in livestock that are cultivated for the products they yield, and net investment in plantations, or- chards, etc.

Guidance is provided on the valuation of these transactions (see paragraphs 8.34–8.36).
A1.136 Guidance on the transactions in intellec- tual property products (31132) is expanded to clarify the valuation of transactions related to research and development (311321) (see paragraph 8.38), mineral exploration and evaluation (311322) (see paragraph 8.39), computer soft ware and databases (311323) (see paragraph 8.40), and entertainment, literary, and ar- tistic originals (311324) (see paragraph 8.41).
A1.137 Th e treatment of costs of ownership transfer on nonproduced assets other than land (31133) is intro- duced in paragraph 8.42.

Figure 8.1 is included to illus- trate the treatment of these costs in the GFS framework.

A1.138 Th e recording of transactions related to the acquisition and disposals of weapons systems (3114) is introduced in paragraph 8.43.

A1.139 Transactions related to the additions and withdrawals of inventory (312) are elaborated on.
A distinction is made between the owner of inventory acting as a producer of goods and services and acting as an owner of assets (see paragraphs 8.44–8.47).

A1.140 Th e nature and treatment of transactions in all the categories of nonproduced assets are elabo- rated on (see paragraphs 8.49–8.58).

Chapter 9 A1.141 An explanation of the relationship between transactions and the impact of these on fi nancial assets/liabilities is introduced in paragraph 9.3.
Simi- larly, the impact of net lending/net borrowing on the economy is explained in paragraph 9.5.

A1.142 Concessional loans and their treatment in macroeconomic statistics are clarifi ed in paragraph 9.12.

A1.143 Arrears are defi ned in paragraph 9.20, and the recording of transactions related to arrears is de- scribed in paragraphs 9.21–9.23.
A1.144 Th e classifi cation of transactions in fi nan- cial assets and liabilities by instrument and residence of the counterparty is described in paragraphs 9.24– 9.27.

Th e classifi cation by instrument that follows is the same as those described in the balance sheet (Chapter 7).

A1.145 Transactions related to monetary gold and special drawing rights (3201/3301) are clarifi ed in paragraphs 9.28–9.32.
A1.146 For debt securities (3203/3303), transac- tions related to interest and amortization are elabo- rated on (see paragraphs 9.36 – 9.43).

A1.147 Th e impact of recording transactions be- tween the owners of enterprises and the enterprise is clarifi ed.
Transactions such as dividends, transfers, membership dues and subscription fees payable to in- ternational organizations, and other operations, such as privatization and nationalization, are clarifi ed in the description of transactions in equity (32051/33051) (see paragraphs 9.47–9.55).

A1.148 Th e recording of the change in value of in- vestment fund shares or units, other than from holding gains and losses, is described in paragraph 9.56.
A1.149 For insurance, pension, and standardized guarantee schemes (3206/3306), the transactions infl u- encing these reserves are elaborated on for each sub- category of the reserves (see paragraphs 9.57–9.69).

A1.150 Th e coverage of fi nancial derivatives and employee stock options (3207/3307) is expanded to separately identify employee stock options.

Transac- tions related to fi nancial derivatives (32071/33071) are clarifi ed.
A distinction is introduced between transactions at inception, on secondary markets, with ongoing servicing, and at settlement (see paragraphs 9.71–9.76).

Transactions related to employee stock op- tions (32072/33072) are introduced in paragraph 9.77.

A1.151 Th e classifi cation of transactions in fi nan- cial assets and liabilities by sector and residence is in- troduced in paragraphs 9.85–9.87 and Table 9.2.
Changes from the GFSM 2001 and GFSM 1986 271 A1.152 Th e classifi cation of transactions in debt liabilities and their corresponding fi nancial assets by maturity is introduced in paragraph 9.88.

If analyti- cally useful, the same classifi cation structure could be applied for transactions as what is depicted for stock positions in Table 7.12.
Chapter 10 A1.153 Other economic fl ows are described and the two components of other economic fl ows— namely, holding gains and losses and other changes in the volume of assets—are defi ned in paragraph 10.1.

A1.154 Th e section on holding gains for particular types of nonfi nancial assets is elaborated on.
Specifi c guidance is added on: the diff erence between unreal- ized and realized holding gains (see paragraph 10.6); neutral and real holding gains (see paragraph 10.11); estimating the holding gains on fi xed assets (see para- graphs 10.13–10.15) and inventories (see paragraphs 10.16–10.17); valuables (see paragraph 10.18); and nonfi nancial assets disposed of during the reporting period (see paragraphs 10.19–10.20).
A1.155 Th e impact of various events on the valua- tion of fi nancial instruments is elaborated on.
Specifi c guidance is added on: monetary gold and SDRs (see paragraphs 10.21–10.22); fi nancial assets and liabilities with fi xed monetary values (see paragraph 10.23); debt securities (paragraphs 10.24–10.29); equity and invest- ment fund shares (see paragraphs 10.30–10.34); insur- ance, pension, and standardized guarantee schemes (see paragraphs 10.35–10.41); and fi nancial derivatives and employee stock options (see paragraphs 10.42–10.43).
A1.156 Paragraph 10.44 introduces holding gains and losses related to fi nancial instruments denomi- nated in foreign currencies, and debt instruments that do not accrue interest over an unusually long time are discussed in paragraph 10.45.

A1.157 Paragraph 10.46 introduces three events that result in other changes in the volume of assets— namely, the appearance or disappearance of existing resources as economic assets, the eff ects of external events, and changes in classifi cations.
A1.158 Th e appearance or disappearance of fi - nancial assets and liabilities from the balance sheet is elaborated on with specifi c reference to the appear- ance of public monuments and valuables (see para- graph 10.50).

Circumstances under which natural 272 Government Finance Statistics Manual 2014 assets, such as subsoil assets, noncultivated biological resources, other natural resources, or land, appear on the balance sheet are explained in paragraph 10.52.
A1.159 Th e eff ects of external events on the value of assets and liabilities are described in paragraph 10.59.

Details on the recording of these events are provided and include catastrophic losses (see para- graph 10.60), uncompensated seizures (see paragraph 10.62), and other volume changes not elsewhere classi- fi ed (see paragraph 10.63).
A1.160 Paragraph 10.83 introduces the reclassifi - cation of costs of ownership transfer on nonproduced assets other than land, and the consumption of fi xed capital relating to these costs.

Th e reclassifi cation is necessary to maintain the integration of stock posi- tions and fl ows.

A1.161 Paragraph 10.79 elaborates on the reclas- sifi cations of negotiable securities necessary due to secondary transactions.
A1.162 Th e reclassifi cation of monetary gold held in the form of gold bullion when it becomes a reserve asset is introduced as an example of changes in the classifi cation of fi nancial assets and liabilities (see paragraph 10.84).

Cross-Cutting Changes in Terminology A1.163 Th e following changes in terminology were made to further clarify the text of the Manual.

• References to GFS system are replaced with GFS framework—this allows a clear distinction with the 2008 SNA.
• In the context of GFS, references to accounting principles and periods are replaced by references to statistical guidelines and reporting periods—this allows a clear distinction with the use of the term accounting in source data compilation in the con- text of public sector accounting.

• References to fl ows are replaced by references to economic fl ows, while it is acknowledged that fl ows will oft en be used as a short form for eco- nomic fl ows.
• References to the balances of assets and liabili- ties as stocks are replaced by references to stock positions—this allows a clear distinction with the use of the word “stocks” referring to a specifi c type of fi nancial instrument.
• References to net acquisition of nonfi nancial as- sets are replaced with references to net investment in nonfi nancial assets—the former term is oft en misinterpreted as including only the acquisition minus disposals of nonfi nancial assets, while con- sumption of fi xed capital should also be included in this concept.
Similar to what is customary in the case of operating balances, references to net/ gross investment in nonfi nancial assets can now be used to make a distinction for the including/ excluding of consumption of fi xed capital.

• References to net lending/borrowing are replaced with references to net lending/net borrowing, to enhance the precision in terminology.
• References to the Statement of Government Op- erations are replaced with references to State- ment of Operations—this allows the use of this statement for government units as well as public sector units.

• References to other nonrecurrent taxes on prop- erty (1135) in the GFSM 2001 are replaced with references to capital levies (1135)—this allows the terminology in GFS to align with 2008 SNA terminology.
• References to property income attributed to in- surance policyholders are replaced with refer- ences to property income from investment income disbursements—this allows the terminology in GFS to align with 2008 SNA terminology.

• References to the expense for social contributions (212) are replaced by references to employers’ social contributions (212)—this clarifi es the eco- nomic nature of this item.
Similarly, actual social contributions (2121) and imputed social contribu- tions (2122) are replaced with actual employers’ social contributions (2121) and imputed employ- ers’ social contributions (2122), respectively.

• References to the outlays of government are replaced with references to expenditure—this eliminates confusion with the use of outlays in the OECD/UN classifi cation, which include ex- pense, acquisition of nonfi nancial assets, and transactions in fi nancial assets and liabilities.
• References to nonresidential buildings (61112) are replaced with references to buildings other than dwellings (61112)—this allows the terminology in GFS to align with 2008 SNA terminology.
• References to other machinery and equipment (61122) are replaced with references to machin- ery and equipment other than transport equipment (61122)—this allows the revised GFS category to align with historic data and to subsume the 2008 SNA categories of i nformation, computer, and telecommunications equipment and other machin- ery and equipment.
• References to cultivated assets (61131) are re- placed with references to cultivated biological re- sources (61131)—this allows the terminology in GFS to align with 2008 SNA terminology.

• References to subsoil assets (6142) are replaced with references to mineral and energy resources (6142)—this allows the terminology in GFS to align with 2008 SNA terminology.
• References to intangible fi xed assets (61132) are replaced with references to intellectual property products (61132)—this allows the terminology in GFS to align with 2008 SNA terminology.

Th e word “products” is included to make clear that it does not include third-party rights, which are nonproduced assets.

• References than shares to securities other (6203/6303) are replaced with debt securities (6203/6303)—this allows the terminology in GFS to align with 2008 SNA terminology.
• References to shares and other equity (6205/6305) are replaced with equity and investment fund shares (6205/6305)—this allows the terminology in GFS to align with 2008 SNA terminology.

• References to technical insurance reserves (6206/6306) are replaced with insurance, pension, and standardized guarantee schemes (6206/6306)— this allows the terminology in GFS to align with 2008 SNA terminology.
• References to fi nancial derivatives (6207/6307) are replaced with fi nancial derivatives and em- ployee stock options (6207/6307)—this allows the terminology in GFS to align with 2008 SNA terminology.

• References to entity when meaning a good, ser- vice, nonfi nancial asset, etc.

are replaced with references to resource—this eliminates the con- fusion with entities referred to in the context of institutional units.
Changes from the GFSM 2001 and GFSM 1986 273 Changes from the GFSM 1986 Introduction A1.164 Th e integrated GFS framework described in the GFSM 2014 represents a substantial modern- ization and expansion of the framework described in A Manual on Government Finance Statistics, 1986 (GFSM 1986).
Major changes have been made to defi - nitions, classifi cations, balancing items, the coverage of units and economic events to be recorded in the GFS framework, and the timing at which economic events are to be recorded.

Th e GFS framework is also more harmonized with other macroeconomic statisti- cal frameworks than is the GFSM 1986.

Th ere are nu- merous detailed changes within each major topic, but an exhaustive listing of all such changes is beyond the scope of this appendix.
Coverage of Units A1.165 Th e focus of the coverage of units in the GFS framework is the general government sector as defi ned in the 2008 SNA.

Its defi nition is based on the concept of an institutional unit, which is described in Chapter 2.

Th e general government sector con- sists of all resident government units and all resident nonprofi t institutions that are controlled by govern- ment.

Th e coverage of the GFSM 1986 is defi ned on a functional basis rather than a unit basis.
It includes all units carrying out a function of government, but, in principle, only those transactions that are directly related to the functions of government are included.

By implication, the transactions that do not represent the fulfi llment of a fi scal policy are excluded.

In par- ticular, all transactions related to the functions of the monetary authority and other depository fi nancial in- stitutions are excluded.
A1.166 Supranational authorities are international organizations that have been endowed with the au- thority to raise taxes or other compulsory transfers within the territories of the countries that are mem- bers of the authority.

Despite the fact that suprana- tional authorities fulfi ll some of the functions of government within each member country, they are al- ways considered nonresident institutional units.

As a result, they are not included in the GFS framework for any country.
In the GFSM 1986, transactions result- ing from governmental functions carried out within a country by supranational organizations are included 274 Government Finance Statistics Manual 2014 in the statistics for that country.

It is possible, how- ever, to compile statistics for supranational authori- ties using the GFS framework as if they constituted a separate country and to classify relevant categories of transactions by country.
Time of Recording Economic Events A1.167 Th e time at which transactions and other economic fl ows are recorded is determined by the principles of accrual accounting in the GFS frame- work.

Th at is, fl ows are recorded when economic value is created, transformed, exchanged, transferred, or extinguished.

In the GFSM 1986, transactions are recorded when cash is received or paid.

In general, fl ows are recorded at an earlier time under the accrual basis than under the cash basis.
A1.168 Recording fl ows on the accrual basis will automatically capture past-due obligations, such as arrears of debt principal, interest payments, or pay- ments for goods and services.

In the GFSM 1986, use of the cash basis means that arrears and changes in the level of arrears are not recorded.
A1.169 Th e accrual basis of recording permits the diff erence between the redemption value of a bond or similar security and its issue price to be recorded as interest as it is earned or incurred rather than when the security matures.

In the GFSM 1986, the entire diff erence between the issue and redemption prices is recorded as interest when the security is redeemed.
Coverage of Events A1.170 Th e coverage of events in the GFS frame- work is broader than in the GFSM 1986 because the revised framework includes all economic events that aff ect assets, liabilities, revenue, or expense, rather than just those represented by a cash transaction.

For example, barter and grants of goods and services are included.

Th e GFSM 1986 incorporates in-kind trans- actions only selectively and as memorandum items.
A1.171 Th e GFS framework includes other eco- nomic fl ows, which are all fl ows other than trans- actions that aff ect a unit’s stock position of assets, liabilities, and net worth.

Other economic fl ows must be included to fully reconcile the balance sheet at the beginning of an accounting period with the balance sheet at the end of the period.

Examples of other eco- nomic fl ows are price changes and the destruction of assets.
By defi nition, other economic fl ows are non- cash events, which means that they are not part of the GFSM 1986.

Valuation A1.172 Assets and liabilities are valued at current market prices in the GFS framework, including debt securities that may have a diff erent nominal value.

Several assets/liabilities are valued at nominal value as proxy for market value—for example, loans generally are not traded and therefore do not have market values.

Th ey are recorded at their nominal values.


In the GFSM 1986, debt securities are always valued at the amount the government is obligated to pay when the debt ma- tures, which may diff er from both the nominal value and the current market value.

Th e GFS framework in- cludes a provision for recording the nominal value of debt securities as a memorandum item.
Gross and Net Recording of Flows A1.173 Th e presentation of fl ows on a gross or net basis is, for the most part, the same in the GFS framework and the GFSM 1986.

Th e major exception pertains to the sales and expenses of market establish- ments.

Generally speaking, a market establishment is a part of a general government unit that is situated in a single location and whose primary activity is to produce and sell goods and services at economically signifi cant prices.
In concept, it is possible to compile complete accounting records with respect to an estab- lishment’s productive activity, including sales and the costs of production.

In the GFS framework, the sales and costs of production of market establishments are presented on a gross basis as revenue and expense, re- spectively.

In the GFSM 1986, the net value of sales less the costs of production is recorded as revenue if positive and as expenditure if negative.
Integration of Flows and Stocks A1.174 Th e GFS framework is fully integrated— that is, the stock position at the end of a reporting period can be derived from the stock position at the beginning of the reporting period and the fl ows oc- curring during the period.

As a result of this integra- tion, all events that aff ect the fi nancial performance, fi nancial position, or liquidity situation of the gen- eral government sector are included.
In the GFSM 1986, the stock positions included are limited to debt liabilities.

Th e changes in the stock position of debt li- abilities cannot be reconciled with the fl ows recorded.

Flows in the GFSM 1986 represent only cash fl ows and will not account for changes in stocks related to fl ows other than cash, such as discounts allowed, debt assumption, debt forgiveness, etc.

Supplementary ta- bles are included that indicate the additional data that would be needed to complete the reconciliation.
Deﬁ nitions and Classiﬁ cations A1.175 Revenue in the GFS framework is an in- crease in net worth resulting from a transaction.

Th us, revenue includes grants but excludes proceeds from disposals of nonfi nancial assets.

In the GFSM 1986, revenue is defi ned as the set of all nonrepayable re- ceipts other than grants.

Th us, revenue includes pro- ceeds from disposals of nonfi nancial assets.

A1.176 Similarly, expense in the GFS framework is a decrease in net worth resulting from a transac- tion.
Purchases of nonfi nancial assets do not aff ect net worth and are not considered expense transac- tions.

Th e term “expense” replaces “expenditure” from the GFSM 1986 because it is more closely associated with the accrual basis of recording and indicates that transactions in nonfi nancial assets are excluded.

Ex- penditure is defi ned in the GFSM 1986 as the set of all nonrepayable payments and includes purchases of nonfi nancial assets.
A1.177 Th e classifi cations of revenue are substan- tially diff erent in the two manuals.

Revenue in the GFSM 1986 is classifi ed as tax, nontax, or capital rev- enue.

Grants form a separate, nonrevenue category of receipts.

In the GFS framework, revenue is subdivided into taxes, social contributions, grants, and other rev- enue.

In more detail: • Taxes exclude social contributions in the revised GFS framework, but include them in the GFSM 1986.
• Social contributions in the GFS framework in- clude social security contributions, which are classifi ed as taxes in the GFSM 1986, and other social contributions to social insurance schemes operated for the benefi t of government employ- ees, which are classifi ed as nontax revenue in the GFSM 1986.
• Other revenue in the GFS framework includes most of the category of nontax revenue in the Changes from the GFSM 2001 and GFSM 1986 275 GFSM 1986 plus capital transfers, which are clas- sifi ed as capital revenue in the GFSM 1986.

• Capital revenue in the GFSM 1986 consists of sales of nonfi nancial assets and receipts of capital transfers.

Sales of assets are not revenue in the GFS framework, but capital transfers are classi- fi ed as revenue.
A1.178 Expense/expenditure is classifi ed in two ways—by function and by economic type of trans- action—in both the GFS framework and the GFSM 1986.

Th e classifi cation by function in both manuals is the Classifi cation of Functions of Government (COFOG) published by the United Nations.

Th e GFS framework incorporates the 2000 edition of COFOG.

A1.179 Th e classifi cation of expense by economic type in the GFS framework is broadly similar to the corresponding classifi cation in the GFSM 1986.
Th e primary exception is that acquisitions of nonfi nan- cial assets are not considered an expense in the GFS framework.

Other changes include the following: • Consumption of fi xed capital is an expense in the GFS framework.

As a noncash expense, it is ex- cluded from the GFSM 1986.

• Transfer payments are classifi ed by type of pay- ment in the GFS framework.

In the GFSM 1986, they are classifi ed by the sector receiving the pay- ment.
Th e major types of transfer payments are subsidies, grants, social benefi ts, transfers not elsewhere classifi ed, and premiums, fees, and claims related to nonlife insurance and standard- ized guarantee schemes.

A1.180 A new classifi cation is dedicated to net in- vestment in nonfi nancial assets resulting from trans- actions because they are not classifi ed as revenue or expense in the GFS framework.
Th e classifi cation fol- lows the parallel classifi cation in the 2008 SNA, which is based on the type of asset involved in the transac- tion.

Th is classifi cation includes consumption of fi xed capital because it represents a decline in the value of fi xed assets.
A1.181 “Lending minus repayments” is a category of transactions in the GFSM 1986 representing the net acquisition of fi nancial assets for policy purposes, and is classifi ed together with expenditure for the calculation of the overall defi cit/surplus.

In the GFS framework, these transactions are classifi ed together with other transactions in fi nancial assets.
However, 276 Government Finance Statistics Manual 2014 if supplementary information is available on policy lending, both the overall balance and policy lending can be calculated from GFS source data, as a fi scal in- dicator (see annex to Chapter 4, Table 4A.2).

Balancing Items A1.182 Several new balancing items are intro- duced in the GFS framework, a consequence of the view that fi scal analysis must include a variety of con- siderations and that no single measure is suffi cient for all purposes.
In the GFSM 1986, the analytic frame- work is focused on a single balancing item, the overall defi cit/surplus, although provision is made for other balancing items.

A1.183 Th e analytic framework of the integrated GFS features several balancing items.
Th e Statement of Operations includes the following: • Th e net operating balance, which is defi ned as revenue minus expense and represents the change in net worth resulting from transactions • Net lending/net borrowing, which is defi ned as the net acquisition of fi nancial assets minus the net incurrence of liabilities, or, alternatively, as the net operating balance minus the net invest- ment in nonfi nancial assets; it is also equal to the gross operating balance minus gross investment in nonfi nancial assets.
A1.184 Th e Statement of Sources and Uses of Cash includes the cash surplus/defi cit to indicate the bal- ance of cash fl ows from government operations and the gross investment in nonfi nancial assets.

It is similar to the overall defi cit/surplus of the GFSM 1986 except that net cash outfl ows from policy lending (lending minus repayment of policy-related transactions in fi - nancial assets or liabilities) are not subtracted.
A1.185 Another balancing item in the GFS frame- work is the overall balance, defi ned as net lending/ net borrowing adjusted through the rearrangement of transactions in assets and liabilities that are deemed to be for public policy purposes.

Notably, policy lending is added to expense while privatization proceeds (in- cluding fi xed asset sales) are included as transactions in fi nancial items in calculating the overall fi scal bal- ance.
It is the equivalent of the overall defi cit/surplus in the GFSM 1986, but determined using the accrual basis of recording.

A1.186 Other balancing items in the GFS frame- work include net worth, net fi nancial worth, the change in net worth, the change in net fi nancial worth (all related to the balance sheet), the change in net worth from other economic fl ows, the primary bal- ance, and savings.

Th ere are no similar balancing items in the GFSM 1986.
Harmonization with Other Statistical Systems A1.187 Th e GFS framework is harmonized with other international macroeconomic statistical sys- tems.

Th at is, the basic concepts, defi nitions, and con- ventions are the same to the extent possible, given the objective of the GFS framework to provide data that support fi scal analysis.
Th e other statistical manuals with which the GFS framework has been harmonized are the 2008 SNA, the sixth edition of the IMF’s Bal- ance of Payments and International Investment Posi- tion Manual, and the IMF’s Monetary and Financial Statistics Manual (in the process of being updated).

In contrast, the GFSM 1986 follows the 1968 version of the SNA where possible, but the degree of harmoniza- tion is much less, primarily because of the use of the cash basis of recording in the GFSM 1986.
Appendix 7 of this Manual provides additional information on linkages of the GFS framework with other macroeco- nomic statistics.

APPENDIX 2 Social Protection Th is appendix describes the various organizational structures used to provide social protection and the as- sociated government fi nance statistics compiled for the general government or public sectors.
Introduction A2.1 Social protection is the systematic inter- vention intended to relieve households and individ- uals of the burden of a defi ned set of social risks.1 Social risks are defi ned as events or circumstances that may adversely aff ect the welfare of house- holds either by imposing additional demands on their resources or by reducing their income.

Needs may occur due to sickness, unemployment, retire- ment, housing, education, or family circumstances.
Many governments devote considerable economic resources to protect citizens and their employees against these risks.

A2.2 Th is appendix describes the nature of social protection, the boundary between social protection and private insurance, and the criteria used in the classifi cation of social protection arrangements.

A typology of social protection arrangements is pre- sented.
Th e typology has the purpose of identifying the type and sector attribution of social protection arrangements, in order to assist the compiler in the recording of fl ow and stock positions.
Examples of the recording of specifi c fl ows related to various types of social protection arrangements are presented in tabular form.2 1 Th e Classifi cation of Functions of Government (COFOG) (see Annex to Chapter 6) has a category labeled social protection, but its scope diff ers from social protection described here, notably by excluding health care.
2 A discussion of the issues involved in the organization and treat- ment of social protection schemes can also be found in the Euro- pean Commission, European System of Integrated Social Protection Statistics (ESSPROS) Manual 2008 (Luxembourg, 2008).

The Nature of Social Protection A2.3 Households benefi t from social protection in diff erent ways: • Households could receive benefi ts when they meet certain eligibility criteria that originated from a social risk without making any contribu- tions.
Th ese benefi ts are classifi ed as an expense that leads to a redistribution of income through transfers.

• Households could make contributions and re- ceive benefi ts as transfers receivable in the event of the occurrence of the specifi ed social risks.

Neither the contributions nor the benefi ts con- stitute an exchange as no direct exchange of eco- nomic value occurs.

Th e payment of the social contribution entitles the contributor to some contingent future benefi ts.
Th e fi nances of these arrangements function similarly to nonlife in- surance schemes (see paragraph A4.70).

Such social protection arrangements are essentially a process of redistribution across a wide section of the population, with many individuals con- tributing resources so that those in need may benefi t.3 Th ese social benefi ts are classifi ed as an expense.
• Households (including employees, self-employed, and unemployed) could make contributions (ac- tual and imputed) to a scheme to accumulate assets.

Th ey can withdraw from these accumu- lated assets in the event of the occurrence of the specifi ed social risk.

Examples are employment- related pensions and other retirement benefi ts, compulsory saving schemes, and other types of annuities.

Th e fi nances of these arrangements function similarly to life insurance schemes (see paragraph A4.69).
Th ere is relatively little redis- tribution among the various households holding 3 As described in paragraph 6.97, the category social benefi ts [GFS] diff ers from social benefi ts as defi ned in the 2008 SNA.

278 Government Finance Statistics Manual 2014 similar policies, and members of households are able to predict with a reasonable degree of certainty what they will receive and when.

Th erefore, contributions and payments of these benefi ts are transactions in fi nancial assets and liabilities.
A2.4 Depending on the nature of the social protec- tion arrangement, the unit that administers the ar- rangement could earn revenue (social contributions) and/or incur expense (social benefi ts) related to the social protection arrangement.

Social contributions [GFS] (12) are actual or imputed revenue receivable by social insurance schemes to make provision for so- cial insurance benefi ts payable (see paragraphs 5.94– 5.100).
As an expense, social benefi ts [GFS] (27) are current transfers receivable by households intended to provide for the needs that arise from social risks (see paragraphs 6.96–6.106).

Alternatively, the unit that administers the arrangement could be involved in transactions in fi nancial assets and liabilities, clas- sifi ed as insurance, pensions, and standardized guaran- tee schemes (see paragraphs 7.178–7.202).
A2.5 Th e social risks covered by social protection vary from country to country and from scheme to scheme.

Generally, social protection may be divided into two classes—namely: • Pensions and other retirement benefi ts • All other social benefi ts, collectively described as nonpension social benefi ts.

A2.6 Pensions and other retirement benefi ts are payable when individuals cease employment upon retirement.
Pensions may also be payable to other individuals—for example, a bereaved spouse or other dependents, or to someone suff ering from a perma- nent disability.

As indicated in Figure A2.1, pensions and other retirement benefi ts are provided to individ- uals via social assistance, social security, employment- related pension schemes, or private insurance.
A2.7 Nonpension social benefi ts include pay- ments made to individuals when they are temporar- ily unemployed, suff ering from a medical condition, or suff ering from an event that prevents them from working for a period.

Th e following list of typical non- pension social benefi ts illustrates their general nature: pital, convalescent, or long-term care as a result of sickness, injuries, maternity needs, chronic invalidity, old age, etc.
Th ese social benefi ts are provided in kind in the form of treatment or care provided free or at prices that are not economi- cally signifi cant, or by reimbursing expense in- curred by households or individuals.

• Th e benefi ciaries have to support dependents of various kinds: spouses, children, elderly rela- tives, physically or mentally disabled persons, etc.

Th ese social benefi ts are usually payable in cash in the form of regular dependents’ or family allowances.
• Th e benefi ciaries suff er a reduction in income as a result of not being able to work full-time.

Th ese social benefi ts are usually payable regularly in cash for the duration of the condition or for a maximum period.

In some instances, a lump sum may be provided additionally or instead of the regular payment.

People may be prevented from working for various reasons, including in- layoff s, voluntary unemployment, temporary short-time working, sickness, accidental injury, the birth of a child, etc.
• Th e benefi ciaries suff er a reduction in income because of the death of the main income earner.

Th ese social benefi ts are usually payable in cash, oft en in the form of regular allowances or, in some instances, a lump sum.

• Th e benefi ciaries are provided with housing ei- ther free or at prices that are not economically signifi cant, or by reimbursing some of the ex- pense they incur.
• Th e benefi ciaries are provided with allowances to cover education expenses incurred on behalf of themselves or their dependents; education ser- vices may occasionally be provided in kind (i.e., education services provided free or at prices that are not economically signifi cant4 to those subject to social risks).

A2.8 Social benefi ts can be provided in cash or in kind.
If provided in kind, the goods or services could be produced by the unit providing the ben- efi ts, they could be purchased by the unit providing • Th e benefi ciaries, or their dependents, require medical, dental, and other treatments, or hos- 4 In this case, the social benefi t will cover only the diff erence be- tween the normal price of such services and the price payable.
Social Protection 279 Figure A2.1 Boundary between Social Protection and Private Insurance Insurance Social Insurance Social Protection Social Assistance Social Security Schemes Employment-Related Social Insurance Schemes1 Individual Insurance Private Insurance Nonpension Schemes Pension Schemes Nonlife Insurance Schemes Life Insurance Schemes Amounts receivable: Amounts receivable: Amounts receivable: Amounts receivable: Amounts receivable: Amounts receivable: - None - Social security contributions (revenue) - Other social contributions (revenue) - Incurrence of liabilities through actual and imputed contributions - Premiums (revenue) - Incurrence of liabilities through actual contributions Amounts payable: Amounts payable: Amounts payable: Amounts payable: Amounts payable: Amounts payable: - Social assistance benefits (expense) - Social security benefits (expense) - Employment- related social benefits (expense) - Reduction in liabilities through pensions paid - Claims (expense) - Reduction in liabilities through pensions paid 1 Including deﬁ ned-contribution schemes, treated similar to life insurance.
the benefi ts from a market producer before distrib- uting them to the household, or the households could purchase the goods and services and be reim- bursed.

Some benefi ts are provided indirectly, such as through tax allowances, exemptions, and deduc- tions; benefi ts provided in this manner are not con- sidered social benefi ts in GFS.
However, if social benefi ts are made available via the tax system in the form of payable tax credits, these payable tax credits should be recorded on a gross basis and recorded as a social benefi t payable by government (see para- graphs 5.29–5.32).

A2.9 In GFS, a social benefi t expense is always a transfer payment because the benefi ts are provided without the recipients being required to provide something of equivalent value in return.
Allowances provided as compensation of employees or loans pro- vided by employers to employees are not social bene- fi ts.

Transfers are defi ned and explained in more detail in paragraph 3.10.

A2.10 Social benefi ts do not include transfers pay- able in response to events or circumstances that are not normally covered by social insurance schemes.
Th erefore, transfers made in response to unusual events, such as natural disasters or destruction dur- ing wars, should be recorded as transfers not elsewhere classifi ed (282) in GFS (see paragraphs 6.122–6.126).

Boundary between Social Protection and Private Insurance A2.11 Social benefi ts are provided by general gov- ernment employers to their employees and their de- pendents, or other units, such as trade unions and nonprofi t institutions serving households.
Social ben- efi ts are always provided in collective arrangements.

Consequently, individual insurance policies taken out on the private initiative of individuals or households solely in their own interest are excluded from social protection arrangements.
When individuals take out insurance policies in their own names, on their own initiative, and independently of their employers or government, the claims receivable are not treated as social benefi ts, even if the policies are taken out against the same kinds of social risks as those listed in paragraphs A2.6–A2.7—these private initiatives are treated as private insurance.
A2.12 Individual saving arrangements that main- tain the integrity of the participants’ contributions and are restricted to protecting against social risks are private insurance schemes.

Under such arrangements, 280 Government Finance Statistics Manual 2014 the contributions of the participants and/or their em- ployers are kept in a separate account and may be withdrawn under specifi ed circumstances, such as re- tirement, unemployment, invalidity, and death.
A2.13 Social protection arrangements (covering social assistance and social insurance) must be orga- nized collectively for groups of workers or be avail- able by law to all workers or designated categories of workers, possibly including unemployed persons as well as employed.
Social insurance includes private social insurance schemes arranged for selected groups of workers employed by a single employer, and social security schemes (see paragraph 2.101).5 A2.14 Many social insurance schemes (cover- ing social security schemes and employment-related insurance schemes) are organized collectively for groups of workers so that those participating do not have to take out individual insurance policies in their own names.
In such cases, there is no diffi culty about distinguishing social insurance from private insur- ance taken out on an individual basis.

However, some social insurance schemes may permit, or even require, participants to take out policies in their own names.
In order for an individual policy to be treated as part of a social insurance scheme, the eventualities or cir- cumstances against which the participants are insured must be of the kind listed in paragraphs A2.5–A2.7, and, in addition, one or more of the following condi- tions must be satisfi ed: • Participation in the scheme is obligatory ei- ther by law for a specifi ed category of persons, whether employed or unemployed, or under the terms and conditions of employment of an em- ployee, or group of employees.
• Th e scheme is a collective one operated for the benefi t of a designated group of persons, whether employees or unemployed, participation being restricted to members of that group.

• An employer makes a contribution (actual or im- puted) to the scheme on behalf of an employee, regardless of whether the employee also makes a contribution.
A2.15 Th e premiums payable, and claims receiv- able, under individual policies taken out under a 5 Social insurance schemes are a subset of social protection ar- rangements, and social security schemes are a subset of social insurance schemes.

social insurance scheme are recorded as social contri- butions and social benefi ts.
Most individual policies that qualify as social insurance schemes are likely to be for pension provision, but it is possible that they may cover other eventualities—for example, to pro- vide income if the policyholder is unable to work for a prolonged period because of ill health.

A2.16 Participation in insurance schemes, public or private, may be voluntary for the workers con- cerned, but it is more common for it to be obligatory.
For example, participation in schemes organized by individual employers may be required by the terms and conditions of employment collectively agreed be- tween employers and their employees.

Participation in nationwide social security schemes organized by government units may be compulsory by law for the entire labor force, except perhaps for persons who are already covered by private schemes.
Making a distinc- tion in underlying source data between compulsory and voluntary social contributions is required when the total fi scal burden is calculated (see Table 4A.1).

In contrast, social assistance is provided without any insurance involved (see paragraph A2.25).
Classiﬁ cation Criteria for Social Protection Arrangements A2.17 As indicated in Figure A2.2, the following criteria are used in macroeconomic statistics to clas- sify social protection arrangements: • Contributory versus noncontributory—Contrib- utory schemes require actual or imputed social contributions by the protected persons or by other parties on their behalf to obtain entitlement to the benefi ts.
Noncontributory arrangements do not require the payment of contributions, but other eligibility requirements may apply.

• Compulsory versus voluntary—Compulsory schemes may be established by law and/or regu- lation or by agreement between employer and employees.

In some cases, a scheme may be mixed, where some people are required to par- ticipate and others are allowed a choice.

Partici- pation in voluntary schemes is at free will.
• Cover the whole (or large segments of the) pop- ulation or just government employees—Social protection is provided collectively to the general population (or a large segment of the general Social Protection 281 Defined-contribution pension scheme: akin to life insurance Yes Defined contributions?

No Who are the beneficiaries?

Employees and their dependents?


Figure A2.2 Typology of Social Protection Social Protection Typology Impute contributions and treat similarly to contributory schemes Yes Related to government employee schemes?

No Social Assistance Social Security Scheme No Actual contributions?

Yes Social Insurance Scheme Whole (or large segments) of the population?

Employment-Related Social Insurance Scheme Employment-Related Pension Scheme Yes Provides mainly pension benefits?
No Employment-Related Nonpension Benefit Scheme Autonomous Private Pension Enterprise Nonautonomous Pension Scheme Autonomous Pension Scheme Unfunded Pension Scheme population), although possibly limited by eligi- bility criteria, while employment-related schemes provide benefi ts as part of the conditions of employment.6 • Provide pension and other retirement benefi ts, or other types of social benefi ts—Social protection arrangements distinguish between those that provide pensions and other retirement benefi ts, and those that provide other types of nonpen- sion benefi ts, such as medical, unemployment, disability, etc.
Th is distinction determines the transactions recorded for the arrangement; for example, employment-related pension schemes are considered to give rise to liabilities in the form of pension entitlements recorded under the debt instrument insurance, pension, and stan- dardized guarantee schemes.

6 As indicated in paragraph A2.12, individual insurance or saving arrangements that maintain the integrity of the participant’s contributions are not considered social insurance.
• Autonomous versus nonautonomous—A so- cial protection scheme is autonomous when a 282 Government Finance Statistics Manual 2014 separate institutional unit exists7 that is directly held responsible, and accountable, for the deci- sions and actions the unit takes.

Where a separate institutional unit does not exist, the arrangement would be considered nonautonomous and be classifi ed with the unit that controls it.
• Defi ned-contribution versus defi ned-benefi t schemes—A defi ned-contribution scheme is one where the benefi ts are determined by the actual contributions made to the scheme, and the investment income and holding gains and losses earned on these and previous contribu- tions.

Under a defi ned-benefi t scheme, the ulti- mate benefi t is calculated by means of a formula embodied in the terms of the social insurance scheme.
Th ese benefi ts are usually determined in terms of the undertakings made by the employer or operator of the scheme.

• Funded versus unfunded schemes—A social in- surance scheme is funded if contributions are held in a segregated fund (reserve), from which future benefi ts will be payable.

If a segregated fund is suffi cient to fi nance the present value of the future benefi ts payable, the scheme is fully funded.
If the segregated fund is insuffi cient to fi - nance the net present value of the future benefi ts payable, it is underfunded.

If the reserve is more than suffi cient to fi nance the net present value of the future benefi ts payable, it is overfunded.

For an unfunded scheme, contributions are not held in a segregated fund (reserve).

By defi nition, unfunded schemes have no separate pool of re- serves and cannot be a separate institutional unit.
Typology of Social Protection Arrangements A2.18 Th e classifi cation of social protection is based on the type of social protection arrangement governing the payment of the benefi ts.

Social protec- tion can be organized as social assistance or social in- surance schemes, with the latter organized as social security schemes or employment-related social insur- ance schemes.
Th e units involved in the organization and operation of social protection can be general gov- ernment units, public corporations, nonprofi t institu- tions serving households, or private corporations.

7 Th e defi nition of an institutional unit and the criteria that an entity must fulfi ll to be an institutional unit are described in paragraph 2.22.
A2.19 Using the various aspects of the classifi ca- tion criteria for social protection, as described earlier, Figure A2.2 provides a typology designed to assist compilers in identifying and classifying various so- cial protection arrangements.

Identifying the type of unit involved in social protection arrangements is an important step in determining the recording of fl ows and stock positions, which diff ers depending on the type of arrangement.
A2.20 Th e fi rst level in the typology of social pro- tection is based on whether payments of contributions are required to obtain entitlement to benefi ts.

Where no contributions are required, social protection is provided as a social assistance arrangement (see para- graphs A2.25–A2.29).
Th e requirement to make pay- ments of social contributions by the protected persons or by other parties on their behalf to obtain entitle- ment to the benefi ts indicates the existence of a so- cial insurance scheme (see paragraphs A2.30–A2.31).

However, noncontributory employment-related so- cial protection schemes provided by employers for the benefi t of their employees are treated as if they were contributory schemes because contributions are imputed.
Th e amounts necessary to obtain coverage against the specifi ed social risks are imputed as social contributions, and another transaction imputes the employees’ payment of the same amounts to the em- ployer as social contributions (see paragraph A2.40).

A2.21 Th e next level in the typology of social pro- tection is determined by whether the social insurance is arranged as a defi ned-contribution or defi ned- benefi t scheme.
Defi ned-contribution schemes will constitute either a compulsory savings arrangement or an employment-related pension scheme, and, as described in paragraph A2.12, these arrangements are treated similarly to life insurance.

Paragraphs A2.55– A2.59 describe the treatment of defi ned-contribution schemes.

A2.22 Within social insurance, the types of benefi - ciaries covered by the scheme determine the next level in the typology.
When the benefi ciaries are the general population, or a large segment of the general popula- tion, the scheme would be a social security scheme, as discussed in paragraphs A2.33–A2.39.

If individuals or households are eligible to receive social benefi ts as a group of employees, it is an employment-related social insurance scheme, as discussed in paragraph A2.40.
Social Protection 283 A2.23 Th e typology of employment-related social insurance schemes further distinguishes based on the types of benefi ts provided by the scheme: Employment- related pension schemes provide pension and other retirement benefi ts and are discussed in paragraphs A2.41–A2.59; employment-related nonpension social insurance schemes provide nonpension benefi ts and are discussed in paragraphs A2.64–A2.66.
Th ese ben- efi ts may be provided in cash or in kind, similar to the benefi ts as described in paragraph A2.27.

A2.24 Employment-related pension and other re- tirement benefi t schemes can further be distinguished by whether they are funded or unfunded (see para- graph A2.17).

While unfunded schemes are always considered nonautonomous, for funded schemes a further distinction is made between those that are nonautonomous (see paragraph A2.44) or autono- mous (see paragraph A2.47).
Social Assistance A2.25 Social assistance provides social protection benefi ts to all persons who are in need without any formal requirement to participate as evidenced by the payment of contributions.

Th e eligibility to receive social benefi ts is not conditional on the payment of contributions by the protected persons or by other parties on their behalf.
Th ere may, however, be spe- cifi c eligibility criteria, such as a “means test,” where the expression indicates a maximum qualifying level of income or assets.

Th e benefi ts payable by such an arrangement are social assistance benefi ts.

Social as- sistance benefi ts (272) are transfers payable in cash or in kind to households to meet the same needs as social insurance benefi ts but are not made under a social in- surance scheme (see paragraph A2.30).
A2.26 All social assistance is organized and oper- ated by government units and NPISHs.

Th e benefi ts are payable to households, out of the unit’s general re- sources, according to the specifi ed criteria.

Eligibility is purely related to the criteria stipulated in the social protection arrangement.

A2.27 Social assistance benefi ts may be provided in cash or in kind.
Th e classifi cation of this expense is further discussed in paragraphs 6.101–6.102, and Table A2.1 illustrates the recording of fl ows related to social assistance.
Social assistance benefi ts in kind are recorded when: Table A2.1 Illustrative Recording of Flows Related to Social Assistance Description Debit Credit 1.1 Government provides beneﬁ ts payable to qualifying persons who have met the eligibility criteria of a social assistance arrangement Assistance to households in cash 2721 Social assistance beneﬁ ts in cash 3212 / 3318 Currency and deposits / Other accounts payable1 1.2 Government provides goods purchased from market producers to persons who have met the eligibility criteria of a social assistance arrangement Government acquires the goods Government provides goods 31224 2722 Inventories (goods for resale)2 Social assistance beneﬁ ts in kind 3212 / 3318 31224 Currency and deposits / Other accounts payable1 Inventories (goods for resale)2 1.3 Government reimburses market providers or households for goods and services acquired from market entities in accordance with the conditions of a social assistance arrangement Government reimburses providers or households 2722 Social assistance beneﬁ ts in kind 3212 / 3318 Currency and deposits / Other accounts payable1 1.4 Government produces and provides goods or services to the population in accordance with the condition of a social assistance arrangement The operational costs incurred in the production of the goods and services are recorded as relevant 21, 22, 23 Compensation of employees, 3212 / 3318 use of goods and services, and consumption of ﬁ xed capital Currency and deposits / Other accounts payable1 1In a cash reporting environment, the expense will be recorded at the time of the cash ﬂ ow.
In an accrual reporting environment, an other account payable should be recorded in cases where the payment is not made when the eligibility criteria have been met.

2The ﬂ ow of inventories will be recorded only in an inventory accounting system.

284 Government Finance Statistics Manual 2014 • Government provides directly to the house- holds goods and services purchased from market producers.
• Market entities provide goods and services di- rectly to households, with the government pro- viding reimbursement either directly to the provider or to the household for expenses in- curred.
Although households are reimbursed in cash for eligible purchases of goods and services, the transaction should be recorded as social as- sistance benefi ts in kind.8 A2.28 A distinction should be made between so- cial assistance benefi ts and certain other expense cat- egories incurred by government—notably: • When a government unit produces the goods and services provided to households as social as- sistance benefi ts, they are not recorded as social benefi ts but rather by type of expense incurred in producing these goods and services: compensa- tion of employees (21), use of goods and services (22), and consumption of fi xed capital (23).9 • If a government unit reimburses corporations for the cost of goods and services provided to tar- geted social assistance benefi ciaries, the transfers are recorded as social assistance benefi ts in kind.
Th ese transfers to corporations should be distin- guished from subsidies (25), which are transfers to enterprises intended to reduce prices or in- crease the provision of goods and services for the general population.

• Social assistance benefi ts do not include transfers payable in response to events or circumstances that are not normally covered by social insurance schemes (see paragraph A2.10).
A2.29 Typically, social assistance benefi ts will be recorded on an accrual basis as an expense when all eligibility criteria have been met and the benefi ts be- come payable.

Although some benefi ts, such as dis- ability or maternity payments, may be payable over several reporting periods, no liability for the future 8 Th e economic substance of the transactions is recorded as if the government purchased the goods and distributed them to the benefi ciaries.
Th e intermediate step of acquisition and disposal of inventories of goods is netted out in the calculation of change in inventories.

9 Th is treatment diff ers from the treatment in the 2008 SNA.

See Appendix 7, Box A7.1, for an explanation of the diff erence in the treatment of goods produced by government and transferred in kind.

payments of social assistance benefi ts should be re- corded on the balance sheet of government.
Other ac- counts payable will be recognized only in cases where a benefi t accrued but remained unpaid at the end of a reporting period.10 However, to increase transparency and allow an analysis of the sustainability of social assistance policies, an estimate of the present value of social assistance benefi ts that have already been earned, according to the existing laws and regulations, but are payable in the future, could be calculated in a manner similar to the liabilities of an employment- related insurance scheme.
Social Insurance Schemes A2.30 Social insurance schemes provide social protection and require formal participation by the benefi ciaries, evidenced by the payment of contri- butions (actual or imputed).

Th ese schemes are or- ganized in such a way that a third party, usually an employer or the government, encourages or obliges individuals to participate in a scheme that provides benefi ts for a number of identifi ed circumstances, including pensions in retirement.
Social insurance schemes have much in common with direct insur- ance (see paragraph A4.68) and may be run by in- surance corporations.

Th e payment of contributions (corresponding to premiums in the case of direct insurance) and benefi ts (corresponding to claims in the case of direct insurance) is recorded according to the nature of the scheme.

Participation is usually linked to employment, and contributions are pay- able either by the participants, an employer, or both.
Th erefore, a social insurance scheme is an insurance scheme for which the following two conditions are satisfi ed: • Th e benefi ts receivable are conditional on par- ticipation in the scheme and constitute social benefi ts.

10 For example, assume person A has met the eligibility criteria for unemployment payments in period t1, and is entitled to receive benefi ts for six periods.
Because of administrative delays, no benefi t payment was made in the fi rst period—therefore, an other account payable at the end of that period, equal to the value of payment for one period only, should be recorded.

Similarly, if another payment is not made in the second period, the account payable will increase with the value of benefi ts for another one month.
Th e full amount of benefi ts to be receivable over the six periods should not be recognized as an upfront payable, but rather be accrued continuously over the period of eligibility.

Social Protection 285 • At least one of the following three conditions is Social security schemes met:  Participation in the scheme is obligatory ei- ther by law or under the terms and conditions of employment of an employee, or group of employees.
 Th e scheme is a collective one operated for the benefi t of a designated group of workers, whether employed or unemployed, participa- tion being restricted to members of that group.

 An employer makes a contribution (actual or imputed) to the scheme on behalf of an em- ployee, regardless of whether the employee also makes a contribution.
A2.31 A social insurance contribution is the amount payable to a social insurance scheme in order for a designated benefi ciary to be entitled to receive the social benefi ts covered by the scheme.

A social in- surance benefi t is a social benefi t payable because the benefi ciary participates in a social insurance scheme and the identifi ed circumstances have occurred.
A2.32 As indicated in paragraph A2.22, the types of benefi ciaries covered by the social insurance scheme determine the next level in the typology of this scheme (see Figure A2.2).

Th e individuals or households eligible to receive social insurance ben- efi ts are either a group of employees, the general pop- ulation, or a large segment of the general population.
Social security schemes are social insurance schemes that cover the community as a whole, or large sec- tions of the community, and are imposed and con- trolled by government units.

In contrast, as indicated in paragraph A2.40, social insurance schemes in which employers provide social insurance benefi ts only to their employees, former employees, or their benefi ciaries are referred to as other employment- related social insurance schemes.
Where the same scheme covers the general population and govern- ment employees, the scheme is treated as a social security scheme.

However, if the conditions for par- ticipation and benefi ts payable, as determined by the employment contract, diff er from those of the social security scheme for nongovernment employee par- ticipants, an employment-related scheme exists and the fl ows and stock positions of the two schemes should be distinguished within the social security fund (see paragraph 2.102).
A2.33 Social security schemes are social insur- ance schemes covering the community as a whole, or large sections of the community, and are imposed and controlled by government units.

Th ese schemes cover a wide variety of programs, providing benefi ts in cash or in kind for old age, invalidity or death, survivors, sickness and maternity, work injury, unemployment, family allowance, health care, etc.
Th ere is not neces- sarily a direct link between the amount of the con- tribution payable by an individual and the benefi ts receivable.

A2.34 Social security schemes that are organized separately from the other activities of government units, hold their assets and liabilities separately from the latter, and engage in fi nancial transactions on their own account qualify as institutional units.

Th ese insti- tutional units are described as social security funds.
A social security fund is a particular kind of govern- ment unit that is devoted to the operation of one or more social security schemes.

Th ese special types of government units are identifi ed separately in a subsec- tor to allow for the alternative methods of construct- ing subsectors of the general government sector (see paragraph 2.78).
Th e existence of a social security fund depends on its organization as a separate institutional unit, not on other characteristics of the scheme, such as types of benefi ts provided or sources of fi nance.

A2.35 Not all social security schemes are operated by social security funds.
Where a separate social secu- rity fund does not exist, the transactions of the social security scheme would be reported as an integral part of the transactions of the government unit that controls operations of the social security scheme.

Social secu- rity schemes can therefore be operated by government units that are not social security funds.

Consequently, statistics for the social security funds subsector may not include all social security schemes.
If a social security scheme is not a separate institutional unit, however, there may be separate accounts to manage the scheme’s fi nances, which would permit compiling supplemen- tary statistics on social security activities with broader coverage than that of the social security subsector.
A2.36 By defi nition, social security schemes are contributory—participants in the scheme are re- quired to make regular contributions to be eligible to 286 Government Finance Statistics Manual 2014 receive benefi ts for themselves or their dependents.

Th e primary receipts of social security schemes are social security contributions.

As shown in Table 5.1 in Chapter 5, social security contributions are classifi ed according to their source, which may be employers or households.
Participation in social security schemes can be compulsory or voluntary.

Further breakdown in the classifi cation of these social contributions would allow a distinction between contributions receivable in cash and in kind, and between compulsory and vol- untary contributions.

In addition to social contribu- tions, social security schemes may receive grants from general government resources and may earn property income from the investment of their assets.
A2.37 Social security benefi ts [GFS] (271) payable are current transfers and are classifi ed as one of the so- cial benefi ts categories.

Th ese can further be classifi ed as being payable in cash or in kind (see Table 6.1).

So- cial security benefi ts in kind can be provided to ben- efi ciaries in the same ways as social assistance benefi ts in kind (see paragraphs A2.27–A2.28).

Ta ble A2.2 il- lustrates the recording of some of the fl ows related to social security schemes.
A2.38 Social security schemes are characterized by a degree of contingent reciprocity.

Social security contributions secure entitlements to benefi ts that are contingent on the event underlying the social risk oc- curring.

Nonetheless, the amount and timing of re- ceipts of benefi ts by benefi ciaries (if any) are subject to various eligibility criteria without necessarily a direct relationship between the amount of the contribution payable by an individual and the benefi ts receivable.
Th erefore, the link between benefi ts and contribu- tions is not considered suffi ciently strong to give rise to a fi nancial claim on the part of contributors.

Th e potential individual claims of contributors (and there- fore the corresponding government obligations) are regarded as contingent.
Also, because social security benefi ts can be changed at will by the government or legislature as part of its overall economic policy, there is uncertainty about the eventual payment or level of payment of these social benefi ts.11 As a result, in GFS, 11 Th e amounts of social security contributions receivable and benefi ts payable may be deliberately changed in order to achieve objectives of government policy.

Th e change may have no direct connection with the functions of social security.
For example, the contributions and benefi ts may be raised or lowered in order to infl uence the level of aggregate demand in the economy, or to ensure fi scal sustainability.

no liabilities are associated with the potential future claims on social security schemes.

An expense is re- corded only when payment of the benefi ts is due.

A2.39 However, a high expectation exists that so- cial security benefi ts earned according to the exist- ing laws will be payable in the future.
Th erefore, an estimate equal to the net implicit obligations for fu- ture social security benefi ts should be presented as a memorandum item to the Balance Sheet, and de- tails of it presented as a supplementary statement, the Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for Future Social Security Benefi ts (see paragraphs 4.47 and 7.261).
Other employment-related social insurance schemes A2.40 Other employment-related social insur- ance schemes derive from an employer-employee relationship in the provision of pension entitle- ment and other social benefi t to employees as part of the conditions of employment.

By defi nition, these schemes are contributory and, for government or public sector units, protect only their own employ- ees and dependents.
Th e provision of social insur- ance benefi ts by government to its own employees is considered to be part of an actual or implicit con- tract between the government, as employer, and the employees, to compensate them for the provision of their labor services.

Th erefore, employment-related social insurance schemes give rise to requited ex- pense transactions for government when the social contributions became payable.
To accurately refl ect the accrued costs of employment, the actual and im- puted social insurance contributions should be re- corded as employers’ social contributions (212) in the expense category for compensation of employees (21) (see Table 6.1).

E mployment-related pensions and other retirement beneﬁ t schemes A2.41 Employment-related social insurance schemes that provide pensions and other retirement benefi ts can be organized as a funded or unfunded social in- surance scheme.
Table A2.3 illustrates the recording of some of the fl ows of employment-related pensions.
A2.42 Th ere are three types of employment-related pension schemes: • A nonautonomous pension scheme that is there- fore regarded as an integral part of the employer Social Protection 287 Table A2.2 Illustrative Recording of Flows Related to Social Security Schemes Description Debit Credit 2.1 The government social security scheme receives contributions from various contributors Social security contributions receivable from employees, self- employed, and unemployed Social security contributions receivable from employers 3212 / 3218 Currency and deposits / 1211 / 1213 Other accounts receivable1 3212 / 3218 Currency and deposits / 1212 Other accounts receivable1 Social security contributions: Employee contributions/self- employed, and unemployed Social security contributions: Employer contributions 2.2 The government as employer makes contributions to social security schemes on behalf of its employees Government contributions as employer become payable 2121 Actual employers’ social contributions 3212 / 3318 Currency and deposits / Other accounts payable1 2.3 The government social security scheme provides social security beneﬁ ts to the eligible beneﬁ ciaries in accordance with the conditions of the scheme Social security scheme beneﬁ ts become payable 2711 Social security beneﬁ ts in cash 3212 / 3318 Currency and deposits / Other accounts payable1 2.4 The government social security scheme provides goods purchased from market producers to qualifying beneﬁ ciaries Social security scheme acquires the goods Social
 security scheme provides goods to households 31224 2712 Inventories (goods for resale)2 Social security beneﬁ ts in kind 3212 / 3318 31224 Currency and deposits / Other accounts payable1 Inventories (goods for resale)2 2.5 The government social security scheme reimburses market providers or households for goods and services provided by market entities to eligible beneﬁ ciaries in accordance with the conditions of the scheme Social security scheme reimburses providers or households Currency and deposits / Other accounts payable1 2.6 The government social security scheme produces and provides goods or services to the population in accordance Social security beneﬁ ts in kind 3212 / 3318 2712 with the conditions of the scheme No social security beneﬁ ts are recorded in GFS—the operational costs incurred in the production of the goods and services are recorded as relevant 21, 22, 23 Compensation of employees, use of goods and services, and consumption of ﬁ xed capital 3212 / 3318 Currency and deposits / Other accounts payable1 Note: The net implicit obligation for future social security beneﬁ ts should be recorded as a memorandum item (see paragraph 7.261).
1In a cash reporting environment, the revenue/expense will be recorded at the time of the cash ﬂ ow.

In an accrual reporting environment, an other account receivable/payable should be recorded in cases where the payment is not made when the eligibility criteria have been met.

2The ﬂ ow of inventories will be recorded only in an inventory accounting system.

In a cash reporting environment, social beneﬁ ts in kind will not be recorded.
The purchases of goods and services distributed as social beneﬁ ts in kind will be included in purchases of goods and services (22).

• A separate institutional unit that operates a pen- sion scheme that is therefore regarded as an au- tonomous pension fund • A scheme managed by an insurance enterprise on behalf of the employer regarded as a fi nancial corporation.

A2.43 Th e manner in which the employment- related pension scheme is organized determines the recording of the associated transactions.
Insurance enterprises and autonomous pension funds are units of the fi nancial corporations sector, while nonauto- nomous pension funds and unfunded employment- related social insurance schemes are units of the general government sector.
Nonautonomous employment-related pension schemes A2.44 Nonautonomous social insurance schemes are operated by the employer, and these schemes are usually unfunded schemes because they are organized by the employer without assigning specifi c accounts or otherwise creating special reserves for the payment of benefi ts.

Instead, the benefi ts are payable from the employer’s general resources.
A2.45 A nonautonomous pension fund for public sector employees does not meet the criteria to be con- sidered an institutional unit, and is therefore deemed to be included in the unit that operates the scheme.
Th is is also the case when the employer has established 288 Government Finance Statistics Manual 2014 Table A2.3 Illustrative Recording of Flows Related to Employment-Related Pension Schemes Description Debit Credit 3.1 The government makes pension contributions on behalf of its employees to an autonomous pension fund maintained by an insurance company (i.e., it is part of the private ﬁ nancial corporation sector) Government pays social contributions as component of compensation of employees 2121 Actual employers’ social contributions 3212 / 3318 Currency and deposits / Other accounts payable1 3.2 The government makes pension contributions on behalf of its employees to an autonomous pension fund set up by government as a separate institutional unit (i.e., it is part of the public ﬁ nancial corporation sector) Government pays social contributions as component of compensation of employees 2121 Actual employers’ social contributions 3212 / 3318 Currency and deposits / Other accounts payable1 3.3 The government operates a funded nonautonomous pension fund for its employees (i.e., a separate reserve is maintained in the government account but it is not an institutional unit) Government pays social contributions as component of compensation of employees Receipts of social contributions by the pension fund account giving rise to a liability Government, as owner of the pension fund account, receives property income on the investments of the pension fund Government attributes the property income to the policy holders2
 Government provides pension beneﬁ t payments to eligible beneﬁ ciaries 2121 Actual employers’ social contributions 3212 / 3318 Currency and deposits / Other accounts payable1 3212 / 3218 Currency and deposits / 3316 Other accounts receivable1 3212 / 3218 Currency and deposits / Other accounts receivable1 1411 / 1412 Interest Dividends Insurance, pension, and standardized guarantee schemes 2813 3316 Property expense for investment income disbursements Insurance, pension, and standardized guarantee schemes
 3316 Insurance, pension, and standardized guarantee schemes 3212 / 3318 Currency and deposits / Other accounts payable1 3.4 Government operates an unfunded nonautonomous pension fund for its employees (i.e., there are no actual contributions and no separate reserve is maintained in the government account) Government provides pension beneﬁ t payments to eligible beneﬁ ciaries: cash basis of recording Imputed social contributions as component of compensation of employees: accrual basis of recording Government provides pension beneﬁ t payments to eligible beneﬁ ciaries: accrual basis of recording Government recognizes the increase in liability for beneﬁ t entitlements due to time passing 2731 2122 3316 2813 Pension liabilities increase due to unilateral changes in conditions of the scheme Pension liabilities increase due to changes in interest rates used to calculate the present value of the liability 5 4 Employment-related social beneﬁ ts in cash 3212 Currency and deposits Imputed employers’ social contributions 3316 Insurance, pension, and standardized guarantee schemes 3212 / 3318 Currency and deposits / Other accounts payable1 Insurance, pension, and standardized guarantee schemes Property expense for investment income disbursements 3316 5316 Other changes in the volume of assets and liabilities Holding gains/losses 4316 Insurance, pension, and standardized guarantee schemes Insurance, pension, and standardized guarantee schemes Insurance, pension, and standardized guarantee schemes 3.5 All deﬁ ned-beneﬁ t schemes can also be subject to other economic ﬂ ows 1In a cash reporting environment, the revenue/expense will be recorded at the time of the cash ﬂ ow.
In an accrual reporting environment, an other account receivable/payable should be recorded in cases where the payment is not made when the eligibility criteria have been met.

2These disbursements will primarily be reinvested in the fund as social contributions, while the portion that will meet the cost of operating the fund should be recorded as the purchases of a ﬁ nancial service from the pension fund.
segregated reserves, but the organization and op- erations of the scheme do not meet the criteria to be an institutional unit (see paragraph 2.22).

Th e eco- nomic fl ows and stock positions of nonautonomous employment-related pension funds are integrated with those of the controlling employer.
All of the assets, lia- bilities, transactions, and other economic events of the pension fund are combined with the corresponding items of the employer operating the scheme, which may be a general government unit or a public corporation.

Th e treatment of the assets, liabilities, transactions, and other economic events related to the nonautonomous pension fund is similar to that of an autonomous pen- sion fund.
However, in this case, the contributions pay- able as a component of compensation of employees, the receipt of the contributions by the pension scheme, and the associated liabilities are recorded by the same level of government.

Th ese fl ows are not eliminated in consolidation because households are regarded as, re- spectively, the recipient and payer.

Th ese fl ows should be rerouted as described in paragraph 3.28.
A2.46 In accordance with the accrual basis of re- cording, the amount that would be required to cover the accrual of the social benefi ts must be imputed.

Th is will also ensure that the full cost of employment is accounted for by recording the imputed social con- tributions, with a counterpart entry that creates the associated liability for these pension benefi ts.

Th is imputation recognizes the economic fl ows during the period in which the underlying economic event takes place.
It also improves transparency because it records the cost of providing the social benefi ts to its employees and fl ags the risks associated with the future demands on resources.

When these pension benefi ts are paid, the payment is recorded as a reduction in liabilities.12 Autonomous employment-related pension schemes A2.47 To be regarded as autonomous, the entity re- sponsible for the employment-related pension scheme must have the characteristics of an institutional unit (see paragraph 2.22).
Th ese institutional units are con- sidered to provide fi nancial services (i.e., insurance/ pensions) to the household sector, and are therefore 12 When using the cash basis of recording, the only fl ow recorded for these unfunded pension schemes is the employment-related social benefi ts expense, with a counterpart entry as a decrease in currency and deposits.

Th e expense is recorded when cash pay- ments are made.

Social Protection 289 classifi ed in the fi nancial corporations sector.
Th ey are classifi ed as either private or public fi nancial corpo- rations, depending on whether they are controlled by the private or public sectors (see Box 2.2).

A2.48 An employer may contract with a third party to administer the pension funds for its employees.

Th e employment-related pension scheme is then managed through an insurance enterprise or an autonomous pension fund.
Th e employer’s primary responsibility with respect to the scheme is to pay the social contri- butions on behalf of its employees.

Th e government unit records the payment as part of compensation of employees, under actual social contributions (see Table 6.1 and paragraph 6.21).

No other transactions are recorded by the government unit as employer, as it has no direct liability for future provision of social benefi ts.
A2.49 However, in cases where the employer con- tinues to determine the terms of the pension schemes and retains the responsibility for any defi cit in fund- ing, as well as the right to retain any excess funding, the employer is described as the pension manager and the unit working under the direction of the pension manager is described as the pension administrator.
If the agreement between the employer and the third party is such that the employer passes the risks and responsibilities for any defi cit in funding to the third party in return for the right of the third party to retain any excess, the third party becomes the pension man- ager as well as the administrator.
A2.50 When the pension manager is a unit diff er- ent from the administrator, and the responsibility for any defi cit, or claims on any excess, rests with the pen- sion manager, the claim of the pension fund on the pension manager should be shown under the liability, claims of pension funds on pension managers (63064).
By contrast, if the pension fund makes more invest- ment income from the pension entitlements it holds than necessary to cover the increase in entitlements, the diff erence is payable to the pension manager of the scheme.
Th e pension manager records this claim on the pension administrator as a fi nancial asset, claims of pension funds on pension managers (62064).13 13 Although this fi nancial asset eff ectively represents a claim of the pension manager on the pension fund, the same line item title is used for both the asset and liability accounts.
290 Government Finance Statistics Manual 2014 A2.51 If government controls the fi nancial corpo- ration that manages the employment-related pension scheme for government employees, the corporation will be part of the public fi nancial sector, and the rel- evant fl ows and stock positions would be recorded when compiling GFS for the public sector.
Th e receipt of social contributions by this insurance enterprise or pension fund gives rise to a liability, classifi ed in the fi nancial instrument insurance, pensions, and stan- dardized guarantee schemes (6306), and more spe- cifi cally in pension entitlements (63063).

Th e liability originates from the obligation to pay future pension benefi ts—any subsequent payment of the benefi ts will be recorded as a reduction in this liability.
Although the social contributions are payable directly by the em- ployer to the fi nancial corporation, they are recorded in GFS as if payable by the employer to households as compensation of employees: households in turn pay the contributions to the fi nancial corporation.

Because of this rerouting, these transactions should not be eliminated in consolidation of the public sector (see paragraph 3.28).
A2.52 For the fi nancial corporation, revenue from the investment of the fi nancial reserves should be classifi ed as the relevant category of property in- come.

However, since these resources are considered to give rise to an asset of the policyholders, such income should be attributed to policyholders.
An expense is recorded, classifi ed as property expense for investment income disbursements (2813), with a counterpart entry that increases the liability to re- fl ect the policyholders’ increase in claims for pension entitlements.

A2.53 Autonomous employment-related pension schemes can be organized as a defi ned-benefi t pension scheme or a defi ned-contribution pension scheme.
Deﬁ ned-beneﬁ t pension schemes A2.54 A defi ned-benefi t pension scheme is one where the benefi ts payable to an employee on retire- ment are determined by the use of a formula, either alone or as a minimum amount payable.

Th e level of benefi ts promised to participating employees is deter- mined by a formula embodied in the terms of the so- cial insurance scheme.
Th ese terms are usually based on factors such as the participants’ length of service and salary.14 Th e calculation of imputed contribu- tions and net present value of future benefi ts requires advanced actuarial techniques, beyond the responsi- bility of GFS compilers.

Th e present value of future benefi t entitlements increases each period because there is one fewer period over which it is discounted.
Th is increase should be a transaction in property ex- pense for investment income disbursements (2813) (see paragraph 6.113).

Furthermore, a holding gain should be recorded with respect to the liability in order to re- fl ect any change in the value of the liability because of a change in the interest rate used to discount the future benefi ts.
A change in the liability resulting from a change in the benefi t structure should always be treated as an other volume change, because it does not constitute a transaction but represents a unilateral change brought about by the employer.
Deﬁ ned-contribution pension schemes A2.55 A defi ned-contribution pension scheme is one where the benefi ts payable to an employee on retirement are defi ned exclusively in terms of the level of the funds built up from the contributions made over the employee’s working life and the increases in value that result from the investment of these funds by the manager of the scheme.
Th e risk of the scheme to provide an adequate retirement income is thus borne by the employee, and the benefi ts that will be payable depend on the assets of the fund.15 For a defi ned- contribution pension scheme, a pension fund is al- ways deemed to exist.

A2.56 Contributions to a defi ned-contribution pension scheme are invested on behalf of the employ- ees as future benefi ciaries.
Th e investment income on the cumulated assets of the pension fund is recorded as revenue for the fund, classifi ed according to the na- ture of the respective property income revenue (usu- ally including interest (1411), dividends (1412), or 14 Th ere are four sources of changes in pension entitlements in a defi ned-benefi t pension scheme: (i) the current service increase— it is the increase in entitlement associated with the wages and salaries earned in the current period; (ii) the past service increase—it is the increase in the value of the entitlement due to the fact that for all participants in the scheme, retirement (and death) is one year nearer; (iii) a decrease due to the payment of benefi ts to retirees of the scheme; and (iv) other factors—that is, factors that are related to other changes in the volume of assets.
15 Defi ned-contribution schemes are also referred to as money- purchase schemes.

rent (1415)).

Th e investment income is also recorded as being distributed to the benefi ciaries (classifi ed as property expense for investment income disbursements (2813)), who are deemed to reinvest the income in the pension fund as contributions.
Th erefore, the invest- ment income payable on defi ned-contribution en- titlements is equal to the investment income on the fi nancial investments plus any net operating surplus earned by renting land or buildings owned by the fund.

A2.57 Th e value of the pension entitlement liabil- ity of a defi ned-contribution pension scheme is the market value of the fi nancial assets held by the pen- sion fund on behalf of the future benefi ciaries.
Any changes in the market value of these investments of the pension fund would include holding gains and losses.

Th ese holding gains and losses should be re- corded as changes in the value of the relevant assets of the institutional unit administering the pension fund.

In addition, these holding gains or losses should also be attributed to the policyholders.

Th erefore, a match- ing entry for the holding gain or losses in the liabil- ity of the pension fund toward households should be recorded.
A2.58 For a defi ned-contribution pension scheme, the risks and costs associated with the scheme are borne by the benefi ciaries.

Th ere are no imputed con- tributions for defi ned-contribution pension schemes, unless the employer operates the scheme directly.

In that case, the value of the costs of operating the scheme is treated as an imputed contribution payable to the employee as part of compensation of employ- ees.
Th is amount is recorded by the employer as the sale of a fi nancial service to the employees, classifi ed as imputed sales of goods and services (1424) (see para- graph 5.140).
When the fund is operated by a unit other than the employer, the operating costs are fi - nanced from investment income retained by the fund to meet its costs and generate a profi t. Th erefore, in keeping with the recording of insurance, the invest- ment income generated is treated as being attributed in full to the benefi ciaries in the household sector who use part of the income to purchase a fi nancial service from the fund, and reinvest the remainder with the fund.
Social Protection 291 ance schemes.16 However, a scheme that may be defi ned in terms similar to a defi ned-contribution scheme, but with a guaranteed minimum benefi t specifi ed, or other hybrid schemes, should be treated as defi ned-benefi t pension schemes in macroeconomic statistics.
Government assumption of employment- related pension obligations of other institutional units A2.60 On occasion, large one-off transactions (lump-sum transactions) may occur between a gov- ernment and another institutional unit, oft en a public corporation, linked to pension reforms or to priva- tization of the public corporations.

Th e goal may be to make the corporation competitive, or fi nancially more attractive, by removing existing pension liabili- ties from its balance sheet.
Th is goal is achieved by government assuming the liability in exchange for an asset or assets from the other institutional unit.

When the value of the asset(s) receivable is the same as the value of the liability assumed, the transaction is re- corded as a transaction in fi nancial assets and liabili- ties for both units involved.
A2.61 However, if the value of the asset(s) receiv- able by government is less than the value of the liability assumed, an expense in the form of a capital transfer from government to the corporation is recorded for the diff erence.

Th e assumer (government) records an increase in liabilities for pension entitlements, an in- crease in the relevant fi nancial and/or nonfi nancial assets, and an expense in the form of capital transfer to the corporation (see paragraph 6.91).
Th e corpora- tion records a decrease in liabilities for pension en- titlements, a decrease in fi nancial and/or nonfi nancial assets, and revenue in the form of a capital transfer from government.

A2.62 If the value of the asset(s) receivable is more than the value of the liability incurred, a capital trans- fer receivable from the corporation to the government is recorded for the diff erence (see paragraph 5.148).
Th e corporation records a decrease in liabilities for pension entitlements, a decrease in fi nancial and/or nonfi nancial assets, and an expense in the form of a capital transfer to government.

A2.59 As indicated in paragraphs A2.3 and A2.21, defi ned-contribution schemes are similar to life insur- 16 Th e treatment of the fl ows and stock positions of these schemes is similar to the treatment of compulsory savings schemes.
292 Government Finance Statistics Manual 2014 A2.63 Even if the arrangement transforms the pension liability, so that it is to be administered as part of a social security fund, the initial assumption of the pension obligation should be recorded as in the fore- going paragraphs.

Th e pension obligations absorbed by the social security fund continue to be classifi ed as pension entitlement liabilities.

Th ese obligations are gradually extinguished as the benefi ts are paid out.
Employment-related nonpension social insurance schemes A2.64 Employment-related nonpension social in- surance schemes can be operated by the government or by autonomous nongovernment entities.

In either case, the actual or imputed employers’ contributions are in- cluded as an expense in the compensation of employ- ees, under social contributions.

For funded schemes, the actual contributions made to the scheme are classifi ed under actual employers’ social contributions.
For un- funded schemes, the amount that would be required to purchase equivalent social benefi ts must be imputed by the employer, and should be classifi ed under imputed employers’ social contributions.

Where a scheme is operated by the government, a simultaneous transac- tion equal to the actual or imputed social contributions is recorded as revenue from the household sector back to government, and classifi ed under other social con- tributions by employees.
Th e social benefi ts provided by the government are classifi ed as an expense under employment-related social benefi ts.

Table A2.4 illustrates the recording of some of these fl ows of employment- related nonpension social insurance schemes.

A2.65 Some employers provide nonpension social benefi ts directly to their employees, former employ- ees, or dependents without involving an insurance enterprise or autonomous pension fund, and with- out creating a special fund or segregated reserve for the purpose.
Employees may be considered as being protected against various specifi ed social risks, even though no reserves are built up to provide for future entitlement to social security benefi ts.

An expense for employers’ social contributions should therefore be imputed for such employees (see paragraph 6.22), equal in value to the amount of social contributions revenue needed to obtain the de facto entitlements to the accrued social benefi ts.
Th ese amounts take into account any actual contributions made by the em- ployer or employee.

Th e amounts depend not only on the levels of the benefi ts currently payable but also on the impact on future employer’s liabilities of demo- graphic and actuarial factors, such as expected changes in the numbers, age distribution, and life expectancies of their present and previous employees.
Th erefore, the values that should be imputed for the contribu- tions ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises.

A2.66 In practice, however, it may be diffi cult to estimate such imputed contributions.

Th e govern- ment unit may make estimates itself, perhaps on the basis of the contributions payable into similar funded schemes, in order to calculate its likely liabilities in the future.
Otherwise, the only practical alternative may be to use the unfunded nonpension benefi ts payable by government during the same reporting period as an estimate of the imputed remuneration that would be needed to cover the imputed contributions.

Th is is a second best option as the value of the imputed contributions may diverge from the unfunded non- pension benefi ts actually paid in the same period, due to factors such as the changing composition and age structure of the government labor force.
Social Protection 293 Table A2.4 Illustrative Recording of Flows Related to Employment-Related Nonpension Social Insurance Schemes Description Debit Credit 4.1 Social insurance contributions receivable from employers and employees Social insurance contributions receivable from employees Social insurance contributions receivable from employers 3212 / 3218 Currency and deposits / 1221 Other accounts receivable1 3212 / 3218 Currency and deposits / 1222 Other accounts receivable1 Other social contributions: Employee contributions Other social contributions: Employer contributions 4.2 The government as employer makes contributions to social insurance schemes on behalf of its employees Government contributions as employer becomes payable 2121 Actual employers’ social contributions 3212 / 3318 Currency and deposits / Other accounts payable1 4.3 Government as employer imputes contributions to the social insurance scheme where no or insufﬁ cient contributions to obtain entitlement to beneﬁ ts were made Imputed contributions 2122 Imputed employers’ social contributions 1223 Imputed contributions 4.4 Employer social insurance scheme provides beneﬁ ts to government employees Employer social insurance scheme pays beneﬁ ts in cash 3212 / 3318 Currency and deposits / Other accounts payable1 4.5 Employer social insurance scheme provides goods purchased from market producers to employees in accordance Employment-related social beneﬁ ts in cash 2731 with the conditions of the scheme Employer social insurance scheme acquires the
 goods Employer social insurance scheme provides goods to households 31224 2732 Inventories (goods for resale)2 Employment-related social beneﬁ ts in kind 3212 / 3318 Currency and deposits / Other accounts payable1 Inventories (goods for resale)2 31224 4.6 Employer social insurance scheme reimburses market providers or households for goods and services provided by market entities in accordance with the conditions of the scheme Employer social insurance scheme reimburses providers or households 2732 Employment-related social beneﬁ ts in kind 3212 / 3318 Currency and deposits / Other accounts payable1 4.7 Government produces and provides goods or services to their employees in accordance with an employer’s social insurance scheme No employer social insurance beneﬁ ts are recorded in GFS—the operational costs incurred in the production of the goods and services are recorded as relevant 21, 22, 23 Compensation of employees, use of goods and services, and consumption of ﬁ xed capital 3212 / 3318 Currency and deposits / Other accounts payable1 Note: The net implicit obligation for future social security beneﬁ ts should be recorded as a memorandum item (see paragraph 7.261).
1In a cash reporting environment, the revenue/expense will be recorded at the time of the cash ﬂ ow.

In an accrual reporting environment, an other account receivable/payable should be recorded in cases where the payment is not made when the eligibility criteria have been met.

2The ﬂ ow of inventories will be recorded only in an inventory accounting system.
APPENDIX 3 Debt and Related Operations Th is appendix provides guidance on selected issues that may arise in the recording of fl ows and stock positions related to public sector debt.

Introduction A3.1 In the recording of debt1 of the general gov- ernment or public sectors, complex methodological issues can arise with regard to fl ows (i.e., transactions and other economic fl ows) and stock positions associ- ated with the debt liabilities.
Some of the most com- mon issues are discussed in detail, with examples of their treatment, in Chapter 4 of the PSDS Guide.

Th is appendix provides a summary of the same issues and their treatment.

Debt Reorganization A3.2 Debt reorganization (also referred to as debt restructuring) is defi ned as an arrangement involving both the creditor and the debtor (and sometimes third parties) that alters the terms established for servicing an existing debt.
Governments are oft en involved in debt reorganization, as debtor, creditor, or guarantor.

A3.3 Debt reorganization usually involves relief for the debtor from the original terms and conditions of debt obligations.

Th is may be in response to liquidity constraints, where the debtor does not have the cash to meet debt service payments due, or sustainability issues, where the debtor is unlikely to be able to meet its debt obligations in the medium term.
A3.4 A failure by a debtor to honor its debt obliga- tions (e.g., default) does not constitute debt reorga- nization because it does not involve an arrangement between the creditor and the debtor.

Similarly, a creditor can reduce the value of its debt claims on the debtor in its own accounts through debt write- off s—unilateral actions that arise, for example, when the creditor regards a claim as unrecover- 1 Gross debt and net debt are defi ned in paragraphs 7.236–7.245.
able, perhaps because of bankruptcy of the debtor, and, as a result, no longer carries the claim on its balance sheet.

Again, this is not considered debt reorganization.

A3.5 Th e four main types of debt reorganization are: • Debt forgiveness, which is a reduction in the amount of, or the extinguishing of, a debt obli- gation by the creditor via a contractual arrange- ment with the debtor.
• Debt rescheduling or refi nancing (or debt ex- change), which is a change in the terms and con- ditions of the amount owed, which may result in a reduction in debt burden in present value terms.
• Debt conversion and debt prepayment (or debt buybacks for cash), where the creditor exchanges the debt claim for something of economic value, other than another debt claim, on the same debtor; examples of debt conversion are debt-for- equity swaps, debt-for-real-estate swaps, debt- for-development swaps, and debt-for-nature swaps.2 • Debt assumption when a third party is also involved.
A3.6 A debt reorganization package may involve more than one of the types just mentioned; for exam- ple, most debt reorganization packages involving debt forgiveness also result in a rescheduling of the part of the debt that is not forgiven or cancelled.
Debt Forgiveness A3.7 Debt forgiveness (or debt cancellation) is de- fi ned as the voluntary cancellation of all or part of a 2 Some agreements described as debt swaps are equivalent to debt forgiveness from the creditor together with a commitment from the debtor country to undertake a number of development, environmental, etc., expenses.

Th ese transactions should be considered under debt forgiveness, as counterpart funds are not provided to the creditor.
debt obligation within a contractual arrangement between a creditor and a debtor.
With debt forgive- ness, there is a mutual agreement between the par- ties involved and an intention to convey a benefi t. In contrast, with debt write-off , there is no such agree- ment or intention—it is a unilateral recognition by the creditor that the amount is unlikely to be collected (see paragraphs A3.32–A3.34).3 Debt forgiven may include all or part of the principal outstanding, inclu- sive of any accrued interest arrears (interest that fell due for payment in the past) and any other interest costs that have accrued.
Debt forgiveness includes for- giveness of some, or all, of the principal amount of a credit-linked note arising from an event aff ecting the entity on which the embedded credit derivative was written.

Also included is forgiveness of principal that arises when the debt contract stipulates that the debt will be forgiven if a specifi ed event occurs, such as forgiveness in the case of a type of catastrophe.
Debt forgiveness does not arise from the cancellation of fu- ture interest payments that have not yet fallen due and have not yet accrued.

A3.8 Debt forgiveness is always recorded as a capital grant or transfer from the creditor to the debtor, which extinguishes the fi nancial claim and the correspond- ing debt liability.

A government or public sector unit may be involved in debt forgiveness as a creditor or a debtor.
Market prices are the basis for valuing debt for- giveness, except for loans, where nominal value is used.

A3.9 Although no transactions are recorded for debt forgiveness under the cash basis of recording, the stock positions relating to the debt liability and the corresponding fi nancial asset would refl ect the debt forgiveness.
Debt Rescheduling and Reﬁ nancing A3.10 Debt rescheduling and refi nancing involve a change in an existing debt contract and its replace- ment by a new debt contract, generally with extended debt service payments.

4 Debt rescheduling involves rearrangements on the same type of instrument, with 3 Debt forgiveness is unlikely to arise between commercial entities.
4 If the original terms of the contract provide that the maturity or interest rate terms, or both, change as a result of, for example, a default or decline in credit rating, then this involves a reclassifi ca- tion.

In practice, these reclassifi cation entries cancel out within Debt and Related Operations 295 the same principal value and the same creditor as with the old debt.
Debt refi nancing entails a diff erent debt instrument, generally at a diff erent value, and possibly with a diff erent creditor.5 For example, a creditor may choose to apply the terms of a Paris Club (see PSDSG, paragraphs 10.125–10.134) agreement either through a debt rescheduling option (changing the terms and conditions of its existing claims on the debtor) or through refi nancing (making a new loan to the debtor that is used to repay the existing debt).
Debt rescheduling A3.11 Debt rescheduling is a bilateral arrangement between the debtor and the creditor that constitutes a formal postponement of debt service payments and the application of new and generally extended maturi- ties.
Th e new terms normally include one or more of the following elements: extending repayment periods, reductions in the contracted interest rate, adding or extending grace periods for the payment of interest and principal, fi xing the exchange rate at favorable levels for foreign currency debt, and rescheduling the payment of arrears, if any.
In the specifi c case of zero- coupon securities, a reduction in the principal amount to be paid at redemption to an amount that still ex- ceeds the principal amount outstanding at the time the arrangement becomes eff ective could be classifi ed as either an eff ective change in the contractual rate of interest or a reduction in principal with the contrac- tual rate unchanged.
Such a reduction in the principal payment to be made at maturity should be recorded as debt forgiveness, or debt rescheduling if the bilat- eral agreement explicitly acknowledges a change in the contractual rate of interest.
Paris Club creditors provide debt relief to debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defi ned period (fl ow treatment) or as of a set date (stock treatment).

the same instrument category unless the original and new terms have a diff erent principal, diff erent instrument classifi cation, or diff erent maturity classifi cation.
In contrast, if the original terms of a debt (typically a loan or debt security, but also other debt instruments) are changed through renegotiation by the parties, this is treated as transactions in the repayment of the original debt and the creation of a new debt liability.

5 From the debtor perspective, debt refi nancing may involve borrowing from a third party to repay a creditor.
Th e defi nition of debt refi nancing used here is a narrower concept refl ecting transactions between the debtor and same creditor only.

296 Government Finance Statistics Manual 2014 A3.12 With debt rescheduling, the applicable ex- isting debt is recorded as being repaid and a new debt instrument (or instruments) created with new terms and conditions.

Th is treatment does not apply, how- ever, to interest arrears that are rescheduled when the conditions in the existing debt contract remain un- changed.
In such a case, the existing debt contract is not considered as rescheduled, only the interest ar- rears.

A new debt instrument is recorded for the re- scheduled interest arrears.

A3.13 Th e debt rescheduling transaction is re- corded at the time agreed to by both parties (the con- tractually agreed time), and at the value of the new debt (which, under a debt rescheduling, is the same value as that of the old debt).
If no date is set, the time at which the creditor records the change of terms is decisive.

If the rescheduling of obligations due beyond the current period is linked to the fulfi llment of certain conditions, when the obligations fall due (such as multiyear Paris Club rescheduling), entries are recorded only in the period when the specifi ed conditions are met.
Debt reﬁ nancing A3.14 Debt refi nancing involves the replacement of an existing debt instrument or instruments, including any arrears, with a new debt instrument or instruments.

It can involve the exchange of the same type of debt in- strument (such as a loan for a loan) or diff erent types of debt instruments (such as a loan for a bond).
For exam- ple, a public sector unit may convert various export credit debts into a single loan, or exchange existing bonds for new bonds through exchange off ers given by its creditor (rather than a change in terms and conditions).

A3.15 Th e treatment of debt refi nancing transac- tions is similar to debt rescheduling.

Th e debt being refi nanced is extinguished and replaced with a new fi nancial instrument, or instruments.
Th e old debt is extinguished at the value of the new debt instrument, except for nonmarketable debt (e.g., a loan) owed to offi cial creditors.

A3.16 If the refi nancing involves a direct debt ex- change, such as a loan-for-bond swap, the debtor re- cords a reduction in liabilities under the appropriate debt instrument and an increase in liabilities to show the creation of the new obligation.
Th e transaction is recorded at the value of the new debt (refl ecting the current market value of the debt), and the diff erence between the value of the old and new debt instruments is recorded as a holding gain or loss.

However, if the debt is owed to offi cial creditors and is nonmarket- able, the old debt is extinguished at its original value with the diff erence in value with the new instrument recorded as debt forgiveness (see paragraphs A3.7– A3.9).
Where there is no established market price for the new bond, an appropriate proxy is used.

For example, if the bond is similar to other bonds being traded, the market price of a traded bond would be an appropriate proxy for the value of the new bond.

If the debt being swapped was recently acquired by the creditor, the acquisition price would be an appro- priate proxy.
Alternatively, if the interest rate on the new bond is below the prevailing interest rate, the dis- counted value of the bond, using the prevailing inter- est rate, could serve as a proxy.

If such information is not available, the face value of the bond being issued may be used as a proxy.

See also debt-for-equity con- version in paragraph A3.21).
A3.17 Th e balance sheet refl ects the changes in the stock positions as a result of the transactions extin- guishing the old debt instrument and creating the new debt instrument along with any valuation changes.

For example, a loan-for-bond exchange will generally result in a reduction in the liabilities of the debtor (re- duction in the claim of the creditor on the debtor) be- cause the loan is recorded at nominal value, while the bond is recorded at market value, which may be lower.
A3.18 If the proceeds from the new debt are used to partially pay off the old (existing) debt, the remain- ing old debt is recorded being extinguished and a new debt instrument is created (equal to the value of the remaining old debt extinguished), unless the old debt is paid off through a separate transaction.

A3.19 If the terms of any new borrowings are concessional, the creditor could be seen as providing a transfer to the debtor.

Debt concessionality is dis- cussed in paragraphs A3.39–A3.41.
Debt Conversion and Debt Prepayment Debt conversion A3.20 Debt conversion (swap) is an exchange of debt—typically at a discount—for a nondebt claim (such as equity), or for counterpart funds that can be used to fi nance a particular project or policy.

In es- sence, public sector debt is extinguished and a non- debt liability created in a debt conversion.
A3.21 A common example of debt conversion is debt-for-equity swaps.6 Determining the value of the equity may be diffi cult if the equity is not ac- tively traded on a market, as is likely to be the case if the unit that issued the equity is a controlled public corporation.

If the equity is not traded, its valuation should be based on one of the methods set out in paragraph 7.173.
A3.22 Further examples of debt conversions are other types of debt swaps (such as external debt ob- ligations for exports or “debt-for-exports”) or debt obligations for counterpart assets that are provided by the debtor to the creditor for the creditor to use for a specifi ed purpose, such as wildlife protection, health, education, and environmental conservation (debt-for-sustainable-development).

A3.23 Direct and indirect debt conversions should be distinguished.
A direct swap leads directly to the acquisition of a nondebt claim on the debtor (such as a debt-for-equity swap).

An indirect debt conversion involves another claim on the economy, such as a de- posit, that is subsequently used to purchase equity.

Debt prepayment A3.24 Debt prepayment consists of a repurchase, or early payment, of debt at conditions that are agreed between the debtor and the creditor.

Th e debt is extin- guished in return for a cash payment agreed between the debtor and the creditor.
Th e transaction is re- corded at the value of the debt prepaid.

Debt prepay- ment could be driven by the debtor’s need to reduce the cost of its debt portfolio by taking advantage of fa- vorable economic performance or market conditions to repurchase debt.

A3.25 If the debt is owed to offi cial creditors and is nonmarketable (e.g., a loan), an element of debt forgiveness could be involved (i.e., if the prepayment occurs within an agreement between the parties with an intention to convey a benefi t).
As explained in the section on debt forgiveness (see paragraph A3.8), a capital transfer or capital grant from the creditor to the debtor is recorded for debt forgiveness, which re- duces the value of the outstanding liability/claim.

6 Oft en, a third party is involved in a debt-for-equity swap, buy- ing the claims from the creditor and receiving equity in a public corporation (the debtor).
Debt and Related Operations 297 D ebt Assumption and Debt Payments on Behalf of Others Debt assumption A3.26 Debt assumption is a trilateral agreement between a creditor, a former debtor, and a new debtor (typically a government unit), under which the new debtor assumes the former debtor’s outstanding liabil- ity to the creditor, and is liable for repayment of debt.

Calling a guarantee is an example of debt assump- tion.
If the original debtor defaults on its debt obliga- tions, the creditor may invoke the contract conditions permitting the guarantee from the guarantor to be called.

Th e guarantor unit must either repay the debt or assume responsibility for the debt as the primary debtor (i.e., the liability of the original debtor is extin- guished).

A public sector unit can be the debtor that is defaulting or the guarantor.
A government can also, through agreement, off er to provide funds to pay off the debt obligation of another government unit owed to a third party.7 A3.27 Th e statistical treatment of debt assumption depends on (i) whether the new debtor acquires an eff ective fi nancial claim on the original debtor, and (ii) if there is no eff ective fi nancial claim, the relation- ship between the new debtor and the original debtor and whether the original debtor is bankrupt or no longer a going concern.8 Th is implies three possibili- ties (see Figure A3.1): • Th e debt assumer (new debtor) acquires an ef- fective fi nancial claim on the original debtor.
Th e debt assumer records an increase in debt li- abilities to the original creditor, and an increase in fi nancial assets, such as in the form of loans, with the original debtor as the counterparty.

Th e original debtor records a decrease in the original debt liability to the creditor and an increase in liabilities, such as in the form of a loan, to the debt assumer.
Th e value of the debt assumer’s claim on the original debtor is the present value 7 For example, a central government unit off ering to provide funds to pay off the debt of a local government unit owed to a bank.
8 An “eff ective fi nancial claim” is understood to be a claim that is supported by a contract between the new debtor and the original debtor, or (especially in the case of governments) an agreement, with a reasonable expectation to be honored, that the original debtor will reimburse the new debtor.

A “going concern” is under- stood to be an entity in business, or operating for the foreseeable future.
298 Government Finance Statistics Manual 2014 Figure A3.1 Decision Tree for the Statistical Treatment of Debt Assumption Yes Does the new debtor (assumer) obtain an effective financial claim1 on the original debtor?

No Yes Is the value of this claim on the original debtor equal to the present value of the amount expected to be received by the new debtor (assumer)?
No The debt assumer records an increase in debt liabilities to the original creditor, and an increase in financial assets (e.g., loans) with the original debtor as the counterparty.
● The debt assumer records an expense in the form of a capital transfer/grant to the original debtor for the difference between the liability incurred and the financial asset acquired; and ● The debt assumer records an increase in debt liabilities to the original creditor, and an increase in financial assets (e.g., loans) with the original debtor as the counterparty.

Yes Is the original debtor a going concern?


No The debt assumer records an expense in the form of a capital transfer/ grant to the original debtor.

Is the original debtor a public corporation?

No Yes The debt assumer records an increase in financial assets in the form of equity owned in the public corporation.
1An “effective ﬁ nancial claim” is understood to be a claim that is supported by a contract between the new debtor and the original debtor, or (especially in the case of governments) an agreement, with a reasonable expectation to be honored, that the original debtor will reimburse the new debtor.

of the amount expected to be received by the as- sumer.

If this amount is equal to the liability as- sumed, no further entries are required.
If the amount expected to be recovered is less than the liability assumed, the debt assumer records an expense in the form of capital transfer/grant to the original debtor for the diff erence between the liability incurred and the fi nancial asset acquired in the form of loans.

For the debt assumer, gross debt increases by the amount of debt assumed.

• Th e debt assumer (new debtor) does not acquire an eff ective fi nancial claim on the original debtor.
Th is may be the case when the original debtor is bank- rupt or no longer a going concern, or when the debt assumer seeks to convey a benefi t to the original debtor.

Th e debt assumer records an expense in the form of a capital transfer/grant to the original debtor, and an increase in debt liabilities to the original creditor.

Th e original debtor records rev- enue in the form of a capital transfer/grant, which extinguishes the debt liability on its balance sheet.
Th e exception to this case is when the original debtor is a public corporation that continues to be a going concern, which is discussed next.

• Th e debt assumer (new debtor) does not acquire an eff ective fi nancial claim and the original debtor is a public corporation that continues to be a going concern.

Th e debt assumption amounts to an in- crease in the equity owned by the debt assumer in the public corporation (original debtor).
Th e debt assumer records an increase in debt liabilities to the original creditor, and an increase in fi nancial assets in the form of equity and investment fund shares.

Th e public corporation records a decrease in the debt liability to the original creditor, and an increase in nondebt liabilities in the form of equity and investment funds shares.
A3.28 A special case is where debt assumption in- volves the transfer of nonfi nancial assets (such as fi xed assets or land) from, for example, a public corporation (original debtor) to the debt assumer (new debtor).

In this case, the debt assumer records an increase in debt liabilities to the original creditor and the acquisi- tion of a nonfi nancial asset(s).

If the market value of the nonfi nancial asset(s) is equal to the value of the liability assumed, no further entries are required.
A capital transfer/grant between the debt assumer and original debtor is recorded for any diff erence between Debt and Related Operations 299 the value of the liability assumed and the market value of the nonfi nancial assets.

A3.29 Although no transactions are recorded for debt assumption under the cash basis of recording, the stock positions would change due to the debt as- sumption.
Any subsequent payments in cash relating to the assumed debt would be recorded as interest, and/or transactions in fi nancial assets other than cash and liabilities, as relevant.

Debt payments on behalf of others A3.30 Rather than assuming a debt, a public sec- tor unit may decide to repay that debt or make a spe- cifi c payment on behalf of another institutional unit (original debtor), without a guarantee being called or the debt being taken over.
In this case, the debt stays recorded solely on the balance sheet of the other insti- tutional unit, the only legal debtor.

While this activity is similar to debt assumption, as the existing debt re- mains with unaltered terms, debt payment on behalf of others is not considered debt reorganization.
Such a situation may occur where a debtor is experiencing temporary liquidity diffi culties rather than perma- nent solvency problems.9 A3.31 Th e treatment of debt payments on behalf of others depends on whether the public sector unit paying the debt acquires an eff ective fi nancial claim on the debtor.

• If the paying unit obtains an eff ective fi nan- cial claim on the original debtor, the paying unit records an increase in fi nancial assets (e.g., loans) and a decrease in currency and deposits.
Th e recipient (debtor) records a decrease in the original debt liability and an increase in another liability—which may be debt or nondebt—to the paying unit.

If the claim of the paying unit on the debtor is in the form of a debt instrument, gross debt and net debt of the paying unit and recipient (debtor) do not change.
However, if the claim of the paying unit on the debtor is in the form of a nondebt instrument—for example, equity:  For the paying unit, gross debt remains un- changed, but net debt increases (due to the 9 Debt payments on behalf of others are diff erent from the case where debt may be considered to be assumed at inception when a guarantee has a very high likelihood to be called, as described in paragraph 7.258.
300 Government Finance Statistics Manual 2014 reduction in its fi nancial assets in the form of currency and deposits).

 For the recipient (debtor), gross debt and net debt decrease (due to the reduction in the debt liability).

A3.34 Although no transactions are recorded for a debt write-off or write-down under the cash basis of recording, the stock positions relating to these opera- tions would be reduced, refl ecting the debt write-off or write-down.
• If the paying unit does not obtain an eff ective fi - nancial claim on the original debtor, the paying unit records an expense in the form of a capital transfer—classifi ed according to the nature of the recipient—and a decrease in fi nancial assets in the form of currency and deposits.

Th e receiv- ing unit (debtor) records a revenue in the form of a capital transfer—classifi ed according to the nature of the paying unit—and a decrease in the original debt liability.
Other Debt-Related Issues Debt Write-Offs and Write-Downs A3.32 Debt write-off s or write-downs refer to unilateral reductions by a creditor of the amount owed to it.

Th is usually occurs when a creditor concludes that a debt obligation has no value or a reduced value because part or all of the debt is not going to be repaid (frequently because the debtor is insolvent).

For ex- ample, a public corporation that borrowed from the general government unit may be insolvent.
As a re- sult, the general government unit’s claim loses some, or all, of its value and is written down or written off on the balance sheet of the government unit (creditor).10 In contrast, a unilateral write-off by a debtor, or debt repudiation, is not recognized in the macroeconomic statistical systems.
A3.33 Unlike debt forgiveness (see paragraphs A3.7–A3.9), which is a mutual agreement and, there- fore, a transaction, a debt write-off or write-down is a unilateral action and, therefore, recorded as other changes in the volume of assets.
Th e fi nancial asset is removed from the balance sheet of the creditor and the corresponding liability should be removed from the balance sheet of the debtor, also through other changes in the volume of assets, to maintain consis- tency in the macroeconomic statistics.11 10 If a bankruptcy still allows some of the debt to be settled, it is possible that the creditor writes off only a part of the claim.
11 Provisions by the creditor for bad debts or expected losses (sometimes referred to as “write-down”) are not recorded in macroeconomic statistics.

New Money Facilities A3.35 In some arrangements that assist the debtor to overcome temporary fi nancing diffi culties, new money facilities are agreed with the creditor to repay maturing debt obligations.

Th e two debt instruments involved—the maturing debt obligation and the new money facility—are treated separately.
A3.36 Th e creditor records a reduction in the original claim on the debtor and an increase in a new claim on the debtor.

Similarly, the debtor records a re- duction in the original liability to the creditor and an increase in a new liability to the creditor.

If the terms of the new borrowings are concessional, the creditor could be seen as providing a transfer to the debtor.

(Debt concessionality is discussed in paragraphs A3.39–A3.41.)
Debt Defeasance A3.37 With defeasance, a debtor unit removes li- abilities from its balance sheet by pairing them with fi nancial assets, the income and value of which are suffi cient to ensure that all debt-service payments are met.

Defeasance may be carried out by placing the assets and liabilities in a separate account within the institutional unit concerned or by transferring them to another unit.
In either case, the macroeconomic statistical systems do not recognize defeasance as af- fecting the outstanding debt of the debtor.

Th us, no transactions with respect to defeasance are recorded in the GFS framework, as long as there has been no change in the legal obligations of the debtor.

When the assets and liabilities are transferred to a separate account within the unit, both assets and liabilities should be reported on a gross basis.
If a separate entity resident in the same economy is created to hold the assets and liabilities, that new unit should be treated as an ancillary entity and consolidated with the de- feasing unit.

A3.38 Th e sectorization of restructuring agencies (also referred to as “defeasance structures”) is dis- cussed in paragraphs 2.129–2.131.

Debt Concessionality A3.39 Th ere is no consistent defi nition or measure of debt concessionality in macroeconomic statistics.
However, it is generally accepted that concessional loans occur when units lend to other units and the contrac- tual interest rate is intentionally set below the market interest rate that would otherwise apply.

Th e degree of concessionality can be enhanced with grace periods,12 and frequencies of payments and maturity periods fa- vorable to the debtor.
A3.40 Since the terms of a concessional loan are more favorable to the debtor than market condi- tions would otherwise permit, concessional loans eff ectively include a transfer from the creditor to the debtor.

However, the means of incorporating the transfer impact within macroeconomic statis- tics have not been fully developed, although vari- ous alternatives have been advanced.
Accordingly, until the appropriate treatment of concessional debt is agreed, information on concessional debt should be provided in a memorandum item to the balance sheet (see paragraph 7.246) and/or in supplemen- tary tables.

A3.41 Th e case of Paris Club debt concessionality is discussed in Chapter 4 of the PSDS Guide.

Debt Arising from Bailout Operations A3.42 A bailout refers to a rescue from fi nancial distress.
It is oft en used when a government unit pro- vides either short-term fi nancial assistance to a corpo- ration to help it survive a period of fi nancial diffi culty, or a more permanent injection of fi nancial resources to help recapitalize the corporation.

A bailout may, in eff ect, constitute nationalization if the government acquires control of the corporation it is bailing out.

Bailouts of fi nancial institutions are a case in point.
Th ey are likely to involve highly publicized, one-time transactions oft en involving large amounts and are, therefore, easy to identify.

A3.43 Analysts generally refer to “capital injec- tions” made by government into corporations when some signifi cant fi nancial support is provided to capi- talize or recapitalize the corporation in fi nancial dis- tress.
Th e 2008 SNA uses “capital injections” to mean Debt and Related Operations 301 a direct intervention that is recorded in macroeco- nomic statistics either as a capital transfer, a loan, an acquisition of equity, or a combination of these.

Di- rect intervention by general government units may take various forms—for example: • Providing recapitalization through an injection of fi nancial resources (“capital injection”) or the assumption of a failed corporation’s liabilities.
• Providing loans and/or acquiring equity in the corporations in distress (i.e., “requited recapital- ization”) on favorable terms, or not.

• Purchasing assets from the fi nancially distressed corporation at prices greater than their true mar- ket value.

A3.44 Indirectly, general government may inter- vene by extending the range of guarantees it is pre- pared to off er.
A3.45 Broadly, two main issues arise with bailout operations: • Th e fi rst issue is the sectorization of the entity or unit created to fi nance or manage the sales of assets and/or liabilities of the distressed cor- poration.

Th e sectorization is important, in par- ticular, for determining whether its transactions, other economic fl ows, and stock positions (debt liabilities and other assets and liabilities) are within the general government sector or public corporations sector.
• Th e second issue is the appropriate statistical treatment of “capital injections.” The sectorization issue A3.46 A government might create a restructur- ing agency (or “defeasance structure”) in the form of a special purpose entity (SPE), or other type of public body, to fi nance or to manage the defeasance of impaired assets or repayment of liabilities of the distressed corporation.13 As is the case with all enti- ties in macroeconomic statistics, the sectorization of a restructuring agency should refl ect the underlying economic nature of the entity.
Th us, the sectorization rules, as outlined in Chapter 2, should be applied to 12 Th e grace period is the period from the disbursement of the loan until the fi rst payment due by the debtor.
13 In the case of banks with impaired assets, such entities are com- monly referred to as “bad banks.” 302 Government Finance Statistics Manual 2014 determine whether such an entity or unit should be treated as part of the general government sector or public fi nancial corporations sector: • If a public institutional unit is created by govern- ment solely to assume management of the assets or liabilities of the distressed corporation, and is not a market producer, the unit should be classi- fi ed in the general government sector because it is not involved in fi nancial intermediation.
• If the new unit has other functions and the man- agement of the assets or liabilities of the distressed corporation is a temporary task, its classifi cation as a government unit or a public fi nancial corpo- ration is made according to the rules described in the section on restructuring agencies in para- graphs 2.129–2.131.
Statistical treatment of “capital injections” A3.47 Th e assistance provided by government (or another public sector unit) to the unit suff ering fi - nancial distress is usually recorded as a loan, a capital transfer, or an equity injection.
Figure A3.2 provides a decision tree for the statistical treatment of “capital injections.” A3.48 When a public sector unit (investor unit), such as a government unit, intervenes by means of a capital injection that is legally in the form of a loan to the corporation in distress, the statistical treat- ment depends on whether the investor unit obtains an eff ective fi nancial claim on the corporation, as de- scribed in paragraph A3.27.
A3.49 When a public sector unit, such as govern- ment, intervenes by means of a capital injection other than a loan to the corporation in distress, the statisti- cal treatment depends on whether a realistic return14 can be expected on this investment: • If the public sector unit (investor unit) can expect a realistic return on the investment, the investor unit records an increase in fi nancial assets in the form of equity and investment fund shares, and a decrease in fi nancial assets (e.g., currency and deposits) or an increase in liabilities, depending on how the acquisition of equity is fi nanced.
14 A realistic rate of return on funds is indicated by the intention to earn a rate of return that is suffi cient to generate dividends or holding gains at a later date, and that is a claim on the residual value of the corporation.

Th e corporation in fi nancial distress records an increase in fi nancial assets (e.g., currency and de- posits), and an increase in nondebt liabilities in the form of equity and investment fund shares.
• Th e portion of the investment on which no real- istic return can be expected—which may be the entire investment—is treated as a capital transfer.
A3.50 A capital injection in the form of a capital transfer (full or partial) is recorded when the funds are provided: • Without receiving anything of equal value in exchange • Without a reasonable expectation of a realistic rate of return • To compensate for the impairment of assets or capital as a result of large operating defi cits accu- mulated over two or more years, and exceptional losses due to factors outside the control of the enterprise.
A3.51 Th e unit providing the assistance records expense in the form of a capital transfer and a de- crease in fi nancial assets (e.g., currency and deposits) or an increase in liabilities, depending how this capital transfer is fi nanced.

Th e recipient records revenue in the form of a capital transfer and an increase in fi nan- cial assets in the form of currency and deposits.
A3.52 In determining the magnitude of the capital transfers, the following points need to be taken into account: • If the government buys assets from the corpora- tion to be assisted, the amount paid may be more than the true market price of the assets.

• Th e purchase of assets should be recorded at the current market price, and, except for loans, a capital transfer should be recorded for the dif- ference between the market price and the actual amount paid.
• Governments oft en buy loans from fi nancial institutions during a bailout.

Unless a loan be- comes tradable and is traded at an established market value, it is always recorded in balance sheets at nominal value.

Only if a market for the loans develops and the loans are regularly traded, they are reclassifi ed as securities (see paragraphs 7.157 and 7.163) and also recorded at market value.
Figure A3.2 Decision Tree for the Statistical Treatment of “Capital Injections” Debt and Related Operations 303 A loan What is the legal form of the “capital injection”?

An equity injection Yes Does the investor unit obtain an effective financial claim1 on the corporation in distress?

No No Can the investor unit expect a realistic return2 on the investment?

Yes Is the value of this claim on the debtor equal to the present value of the amount expected to be received by the creditor (investor unit)?
No Yes Is the corporation in distress a going concern?

No The investor unit records an increase in financial assets in the form of loans, with the corporation in distress as the counterparty.

Is the corporation in distress a public corporation?

No Yes The investor unit records an expense in the form of a capital transfer/ grant to the corporation in distress.
The investor unit records an increase in financial assets in the form of equity owned in the corporation in distress (equal to the portion of the investment on which a realistic claim can be expected, in case of an equity injection).

No Is there a portion of the investment on which no realistic return can be expected?
Yes Yes • The investor unit records an expense in the form of a capital transfer/ grant to the corporation in distress for the (a) difference between the financial asset acquired and the present value of the amount expected to be received; OR (b) portion of the investment on which no realistic return can be expected; and The investor unit records an increase in financial assets in the form of equity owned in the corporation in distress (equal to the portion of the investment on which a realistic claim can be expected, in case of an equity injection).
1An “effective ﬁ nancial claim” is understood to be a claim that is supported by a contract between the new debtor and the original debtor, or (especially in the case of governments) an agreement, with a reasonable expectation to be honored, that the original debtor will reimburse the new debtor.
2A realistic rate of return on funds is indicated by the intention to earn a rate of return that is sufﬁ cient to generate dividends or holding gains at a later date, and that is a claim on the residual value of the corporation.

304 Government Finance Statistics Manual 2014 • When government buys a loan that has a fair value much less than its nominal value, no capital transfer for the diff erence in value is re- corded as loans are recorded at nominal value on the balance sheet.
Any diff erence between the price paid and the nominal value is recorded as a valuation change (see BPM6 paragraph 9.33).

However, if there is reliable information that some loans are irrecoverable, their value is reduced to zero in the balance sheet (with an “other volume change”) and a capital transfer is recorded equal to the value paid by the govern- ment to the corporation.
If some or all of these loans subsequently become recoverable, this is shown as a revaluation in the government’s bal- ance sheet.

• If government extends a guarantee as part of a bailout, the guarantees should be recorded ac- cording to whether this is a one-off guarantee or part of a standardized guarantee scheme (see paragraphs 7.254–7.260 for details on the statisti- cal treatment of guarantees).
A3.53 Additional factors should be taken into ac- count for borderline cases, such as the following: • If the capital injection is covering large operat- ing defi cits accumulated over two or more years or exceptional losses due to factors outside the control of the enterprise, the capital injection is, by defi nition, a capital transfer.

• If capital injection is made to a quasi-corporation that has negative equity (see Box 6.3), the capital injection is always a capital transfer.
• If the capital injection is undertaken for spe- cifi c purposes relating to public policy in order to compensate a bank in fi nancial distress for anticipated defaults/bad assets/losses within its balance sheet, the capital injection is a capi- tal transfer, unless a realistic return can be ex- pected, in which instance an equity investment is recorded.
• If there are private shareholders providing a signifi cant share (in proportion to their exist- ing shareholding) of equity during the injec- tion, then the capital injection is an equity investment since the assumption is that private investors would be seeking a return on their investment.

Debt of Special Purpose Entities A3.54 Special purpose entities (SPEs) are described in paragraphs 2.136–2.139.

For GFS, the appropriate units and institutional sectorization of the SPE must be determined.
If the SPE is part of the public sector, its debt should be part of the debt of the public sector or relevant subsector.

A3.55 As noted in paragraphs 2.41–2.45, govern- ments may establish public corporations that sell goods or services exclusively to government, without tendering for a government contract in competition with the private sector.

Such a public corporation is called an artifi cial subsidiary and should be classifi ed as part of the general government sector (its parent unit).
Oft en, such government artifi cial subsidiaries are set up as SPEs.

Th ese units, which are legally cor- porations, should be classifi ed as part of the general government sector and their debt liabilities are thus part of general government debt.

A3.56 A government may conduct fi scal activities through an entity that is resident abroad.

For example, a government may fund its outlays by issuing securities abroad through an SPE.
Th is SPE is not part of the gen- eral government sector in either home or host econ- omy.

Such entities are not treated in the same way as embassies and other territorial enclaves because they operate under the laws of the host economy.

Govern- ments may be direct investors in these units/entities.
However, special imputations of transactions and stock positions between the government and the SPE abroad must be used to ensure that any fi scal operations un- dertaken through nonresident entities are refl ected in the transactions and stock positions of the home gov- ernment concerned.15 As a result, the government will show an actual, or imputed, debt to its SPE arising from any debts the SPE incurs on behalf of the government.
A3.57 When an SPE entity resident in one econ- omy borrows on behalf of the government of another economy, and the borrowing is for fi scal purposes, the statistical treatment in the accounts of that govern- ment is as follows: 15 Th e reason for having a special approach for government enti- ties is that, unlike in the private sector, the nonresident entity undertakes functions at the behest of general government for public policy, not commercial purposes.
Without this approach, a misleading picture of government expenditure and debt could arise.

• At the time of borrowing—A transaction creat- ing a debt liability of the government to the bor- rowing entity is imputed equal to the amount borrowed.

Th e counterpart entry is an increase in the government’s equity in the borrowing entity.
• At the time funds or assets acquired with the funds (as applicable) are transferred to the government—A transaction for the fl ow of funds or assets is recorded, matched by a reduction of the government’s equity in the borrowing entity by the same amount.
• At the time expenses are incurred, or assets are transferred by the borrowing entity to a third party (i.e., are not transferred to the govern- ment), where applicable—A current or capital transfer between the government and the entity is imputed, with the matching entry of a reduc- tion in the value of the government’s equity.

A3.58 Th ese entries are made symmetrically for both the government and the borrowing entity.
Th e entries do not aff ect the transactions or stock posi- tions between the borrowing entity and its creditors or other third parties, which are recorded as they occur, with no imputations.

Debt Arising from Securitization A3.59 Securitization occurs when a unit, named the originator, conveys the ownership rights over fi - nancial or nonfi nancial assets, or the right to receive specifi c future fl ows, to another unit, named the secu- ritization unit.
In return, the securitization unit pays an amount to the originator from its own source of fi nancing.

Th e securitization unit obtains its own fi - nancing by issuing debt securities using the assets or rights to future fl ows transferred by the originator as collateral.16 When asset-backed securities are issued by a public sector unit, they form part of public sector debt.
A3.60 Securitization results in debt securities for which coupon or principal payments (or both) are backed by specifi c fi nancial or nonfi nancial assets or future revenue streams.

A variety of assets or future 16 For a detailed discussion of securitization, see Handbook on Securities Statistics, Bank for International Settlements, European Central Bank, and International Monetary Fund, May 2009, as well as the 2008 SNA, paragraphs 22.131–22.133.
Th e Handbook also considers that securitization can occur when there is no securitization unit or transfer of assets.

Debt and Related Operations 305 revenue streams may be used for securitization, includ- ing residential and commercial mortgage loans, con- sumer loans, government loans, and credit derivatives.

A general government unit may issue debt securities backed by specifi c earmarked revenue.
In macroeco- nomic statistical systems, the ability to raise taxes or other government revenue is not recognized as a gov- ernment asset that could be used for securitization.17 Nevertheless, the earmarking of future revenue, such as receipts from toll roads, to service debt securities issued by a general government (or public sector) unit may re- semble securitization (see paragraphs A3.64 and A3.66).

A3.61 Securitization schemes vary within and across debt securities markets.
At the broadest level, a distinction is made about whether a securitization unit is involved.

In securitization schemes where debt securities are issued by a securitization unit, the issu- ing institutional unit is a fi nancial intermediary in the fi nancial corporations sector.

Th e securitization unit is oft en an SPE.


However, as described in paragraph 2.137, resident SPEs functioning in only a passive manner relative to general government and carrying out fi scal activities are not treated as separate institu- tional units in the macroeconomic statistical systems.
Such SPEs are treated as part of the general govern- ment sector regardless of their legal status—therefore: • If a securitization unit is involved, four types of schemes may be distinguished from a macroeco- nomic statistics perspective:  True-sale securitization,18 which is schemes in- volving a true transfer (sale) of assets—from a macroeconomic statistics perspective19 —from the original asset owner’s balance sheet to that of the securitization unit 17 For example, future tax revenue has not yet accrued, presum- ably because the event that leads to the tax liability has not yet taken place, and consequently no asset exists on the government balance sheet.
18 “Type 2” schemes in the Handbook on Securities Statistics and the “fi rst case” of securitization in the 2008 SNA.

19 To be treated as a sale, the asset must already appear on the balance sheet of the public sector unit (e.g., central government) and there must be a full change of ownership to the securitization unit, as evidenced by the transfer of the risks and rewards linked to the asset.
Th e following must be considered: (i) Th e purchase price should equal the current market price, otherwise it is not a sale; and (ii) if the originator (e.g., central government) guaran- tees repayment of any debt related to the asset acquired by the se- curitization unit, it is unlikely that all of the risks associated with the asset have been transferred and there is, therefore, no sale.
306 Government Finance Statistics Manual 2014  No true-sale securitization,20 which is schemes that do not involve a true transfer of assets— from a macroeconomic statistics perspective— from the original asset owner’s balance sheet to that of the securitization unit (see footnote 19)  No asset securitization,21 which is schemes in- volving securitization of future revenue streams that are not recognized as assets in macroeco- nomic statistics  Synthetic securitization with a securitization unit,22 which is schemes involving the transfer of credit risk only (but not the transfer of as- sets), through a securitization unit.
• If no securitization unit is involved, two types of securitization are possible:  On-balance sheet securitization,23 which is schemes in which the original asset owner is- sues new debt securities and there is no transfer of assets  Synthetic securitization without a securitiza- tion unit,24 which is schemes involving the transfer of credit risk only (but not the transfer of assets), through the direct issue of debt secu- rities by the original asset owner.
A3.62 True-sale securitization involves debt secu- rities issued by a securitization unit where the under- lying assets have been transferred from the original asset owner’s (i.e., the originator’s) balance sheet to that of the securitization unit.

Th e securitization unit uses the proceeds from selling the debt securities to investors to fi nance the acquisition of the assets.
Th e revenue stream from the pool of assets (typically, interest payments and principal repayments on the loans) is used to make the coupon payments and principal repayments on the debt securities issued.

In case of a true-sale securitization by a public sec- tor unit, the original asset owner’s gross debt remains unchanged.

Th e gross debt of the securitization unit increases as a result of the securities issued.

If this unit is a public fi nancial corporation, its debt is part of public sector debt.
A resident securitization “unit” controlled by a government unit that is an SPE but 20 Derived from the “fi rst case” of securitization in the 2008 SNA.

21 Th e “second case” of securitization in the 2008 SNA.

22 “Type 3” schemes in the Handbook on Securities Statistics.

23 “Type 1” schemes in the Handbook on Securities Statistics.

24 “Type 3” schemes in the Handbook on Securities Statistics.
does not meet the requirements of an institutional unit is treated as part of general government re- gardless of its legal status.

Such an SPE’s debt is part of general government’s debt (see also paragraph A3.61).
A3.63 If no true sale had taken place from a mac- roeconomic statistics perspective (see footnote 19), the amount received from the securitization unit by the public sector unit as the originator is treated as borrowing, usually in the form of a loan.25 Th e debt securities issued by the securitization unit are part of public sector debt, if the securitization unit is part of the public sector.

A3.64 No asset securitization involves securiti- zation of future revenue streams.
As mentioned in paragraph A3.60, the ability to raise taxes or other government revenue is not recognized as a govern- ment asset that could be used for true-sale securitiza- tion.

In most cases, it is not the rights to the future revenue that are used as collateral, but the obligation of the public sector unit to use a suffi cient amount of the future income to repay the borrowing in full.

If more income is earned than is needed to repay the borrowing, the excess is retained by the public sec- tor unit.
So, if “rights” to future government revenue are transferred to a securitization unit, the amount re- ceived from the securitization unit by the public sector unit, arising from the proceeds of the debt securities issue, is treated as borrowing, usually in the form of a loan.26 Th e revenue stream continues to accrue to government and government uses these proceeds to repay the loan from the securitization unit.
Th e debt securities issued by the securitization unit are part of public sector debt if the securitization unit is part of the public sector.

A3.65 Synthetic securitization involves transfer of the credit risk related to a pool of assets without transfer of the assets themselves, either through a se- curitization unit or through the direct issuing of debt securities by the original asset owner.
• Synthetic securitization with a securitization unit: Th e owner of a pool of assets buys credit default 25 When both the originator and the securitization unit are in the public sector, this loan will be eliminated from public sector debt through consolidation.

26 When both the originator and the securitization unit are in the public sector, this loan will be eliminated from public sector debt through consolidation.
swaps (CDS) (protection buyer) from the securi- tization unit (protection seller) for a premium to obtain protection against possible default losses on the pool of assets.27 Th e protection seller is- sues a debt instrument.
Th e proceeds from the issue of debt securities by the securitization unit are invested in low-risk, low-return fi nancial as- sets (such as deposits), and the income accrued on this investment, together with the premium from the CDS, fi nances coupon payments on the debt securities due by the securitization unit to the investors.

On maturity, the holders of the debt securities are reimbursed, provided there has been no default on the pool of assets.
If there is a default, the protection buyer is compensated by the protection seller for the default losses re- lated to the pool of assets, while the holders of the debt securities (investors) suff er losses for the same value, a realized holding gain for the pro- tection seller.

Th e debt securities issued by the securitization unit are part of public sector debt if the securiti- zation unit is part of the public sector.
• Synthetic securitization without a securitization unit: Th e owner of the asset issues credit-linked notes (CLN).

CLN are debt securities that are backed by reference assets (such as loans and bonds), with an embedded CDS allowing credit risk to be transferred from the issuer to investors.

Th ere is usually a higher interest rate to com- pensate the investors for taking on higher risks.
Credit protection for the pool of assets is sold by the investors to the protection buyer (or issuer of the CLN) by buying the CLN.

Repayment of principal and interest on the notes is conditional on performance of the pool of assets.

If no de- fault occurs during the life of the note, the full redemption value of the note is paid to investors at maturity.

If a default occurs, investors receive the redemption value of the note minus the value of the default losses.
With synthetic securitization without a securiti- zation unit, the debt securities (CLN) issued by a public sector unit are part of that unit’s debt.

A3.66 On-balance sheet securitization involves debt securities backed by a future revenue stream 27 A credit default swap is a fi nancial derivative whose primary purpose is to trade credit default risk.

Debt and Related Operations 307 generated by the assets.
Th e assets remain on the bal- ance sheet of the debt securities issuer (the original asset owner), typically as a separate portfolio.

Th ere is no securitization unit involved.

Th e issue of debt se- curities provides the original asset owner with funds and the debt securities form part of the original asset owner’s debt.

Debt Arising from Off-Market Swaps A3.67 In macroeconomic statistics, swaps give rise to fi nancial derivatives, which are nondebt instru- ments (see paragraph 7.215).
However, off -market swaps have a debt component.

A3.68 An off -market swap is a swap contract that has a nonzero value at inception as a result of having reference rates priced diff erently from current market values—that is, “off -the-market.” Such a swap results in a lump sum being paid, usually at inception, by one party to the other.

Th e economic nature of an off - market swap is a combination of borrowing (i.e., the lump sum), in the form of a loan, and an on-market swap (fi nancial derivative).
Th e loan component of an off -market swap is debt and, if a public sector unit receives the lump-sum payment, this will be part of public sector debt.

Examples of swaps contracts that may involve off -market reference rates include inter- est rate and currency swaps.
A3.69 Because the economic nature of an off -market swap is equivalent to a combination of a loan and a fi - nancial derivative, two stock positions are recorded in the balance sheet: • A loan—a debt instrument—which is equal to the nonzero value of the swap at inception and with a maturity date equivalent to the expiration date of the swap • A financial derivative (swap) component—a nondebt instrument—that has a market value of zero at inception.
A3.70 Th e loan position is a liability of the party that receives the lump sum, while the derivative posi- tion may appear either on the fi nancial asset or liabil- ity side, depending on market prices on the balance sheet date.

A3.71 Future streams of fl ows relating to these stock positions are also partitioned between those re- lating to the loan and fi nancial derivative component, respectively.
308 Government Finance Statistics Manual 2014 On-Lending of Borrowed Funds A3.72 On-lending of borrowed funds refers to a resident institutional unit, A (usually central govern- ment), borrowing from another institutional unit(s), B (usually a nonresident unit), and then on-lending the proceeds from this borrowing to a third institu- tional unit(s), C (usually state or local governments, or public corporation (s)), where it is understood that unit A obtains an eff ective fi nancial claim on unit C. On-lending of borrowed funds is motivated by several factors—for example: • Institutional unit A may be able to borrow from unit B at more favorable terms than unit C could borrow from unit B • Institutional unit C’s borrowing powers are lim- ited by factors such as foreign exchange regula- tions; only unit A can borrow from nonresidents.
A3.73 On-lending results in (at least) two sepa- rate fi nancial claims.

Th ese claims should not be off set against each other in government fi nance and public sector debt statistics; institutional unit B has a debt claim on unit(s) A, and unit(s) A has a debt claim on unit C, which may be consolidated (see paragraph A3.76).
Depending on the residence of in- stitutional unit(s) B and C, respectively, these debt li- abilities (and the corresponding fi nancial claims) are classifi ed as domestic or external.
A3.74 Th e statistical treatment of the two claims to be recorded if the resident institutional unit (A), which on-lends the borrowed funds to unit(s) C, obtains an eff ective fi nancial claim on unit(s) C, depends on: • Th e residence of the creditor(s) from which unit A is borrowing (i.e., unit(s) B) • Th e residence of unit(s) C to which unit A is on- lending the borrowed funds (see Table A3.1).
A3.75 Th e classifi cation of the debt liability of in- stitutional unit A to unit(s) B depends on the type of instrument(s) involved: typically, such borrowing is in the form of loans and/or debt securities.

In such cases, institutional unit A’s debt liabilities in the form of loans and/or debt securities increase (credit) as a result of the borrowing from unit(s) B, with a corre- sponding increase (debit) in unit A’s fi nancial assets in the form of currency and deposits.
Th ese events result in an increase in the gross debt position of unit A, but no change in its net debt position.

Table A3.1 Summary of the Statistical Treatment of On-Lending of Borrowed Funds by Institutional Unit A 1.

Unit A borrows from unit(s) B 2.

Unit A on-lends to unit(s) C Depending on the residence of institutional unit(s) B, unit A has a domestic/external debt liability to unit(s) B.

(Institutional unit(s) B has a domestic/external ﬁ nancial claim on unit A.)
Depending on the residence of institutional unit(s) C, unit A has a domestic/external ﬁ nancial claim on unit(s) C. (Institutional unit(s) C has a domestic/ external liability to unit A.)

A3.76 Th e debt liability of institutional unit(s) C to unit A, as a result of the on-lending of the bor- rowed funds, is typically in the form of a loan.
In other words, institutional unit C’s debt liabilities in- crease (credit) as a result of the borrowing from unit A, with a corresponding increase (debit) in unit C’s fi nancial assets in the form of currency and deposits.

Institutional unit A’s fi nancial assets (e.g., loans) will increase (debit) as a result of the on-lending to unit C and its fi nancial assets in the form of currency and deposits will decrease (credit).
If institutional unit(s) C is classifi ed to the same sector, subsec- tor, or group of units as unit A, this debt liability (and corresponding fi nancial claim) is eliminated in consolidation.

A3.77 Th e amortization of each of the debt liabili- ties (and corresponding fi nancial assets) is recorded in the books of the unit in whose balance sheet the debt liability appears.
Th us, if institutional unit A has a debt liability to unit B, the amortization of this (usu- ally external) liability (debit) is recorded in the books of unit A, even if these borrowed funds were on-lent to unit C. A3.78 Similarly, the amortization of institutional unit C’s (usually domestic) debt liability (debit) to unit A is recorded in the books of unit C. Unit A would record a decrease (credit) in its (domestic) fi nancial claims on unit C. Th e amortization of institutional unit C’s debt liability to unit A improves unit C’s gross debt position, while its net debt position remains the same.
Stock Positions and Related Flows with the IMF A3.79 Th is section briefl y describes the stock po- sitions and fl ows in countries’ fi nancial assets and li- abilities arising from membership in the International Monetary Fund (IMF), as they relate to public sector debt statistics.

Debt data compilers fi rst have to deter- mine in which public sector unit(s) to record the stock positions and related fl ows with the IMF.
Stock positions and fl ows in fi nancial assets and liabilities of member countries with the IMF are usually recorded in the ac- counts of the public sector unit as determined by the legal and institutional arrangements in the member country.
A3.80 Th e IMF conducts its dealings with a mem- ber through the fi scal agency and the depository: • Each member country designates a fi scal agency to conduct fi nancial transactions with the IMF on behalf of the member.28 • Each member is also required to designate its central bank as a depository for the IMF’s hold- ings of the member’s currency.29 In most mem- ber countries, the central bank is both the fi scal agency and the depository.
A3.81 Th e next sections discuss member countries’ quotas in the IMF, their reserve positions in the IMF, remuneration (interest) receivable from the IMF, the account that is used for administrative payments (the “No.

2 Account”), and their Special Drawing Rights (SDRs) allocations and holdings.

Quotas A3.82 Member countries are assigned a quota on joining the IMF.
A quota is the capital subscription, expressed in SDRs, that each member must pay the IMF on joining and consists of two components: • Reserve asset component—A member is required to pay 25 percent of its quota in SDRs or in cur- rencies specifi ed by the IMF.
Th is 25 percent portion is a component of the member’s reserve assets and is known as the “reserve tranche.” In the public sector unit’s accounts, subscribing this 28 Th e fi scal agency may be the member’s treasury (ministry of fi - nance), central bank, offi cial monetary agency, stabilization fund, or other similar agency.

Th e IMF can deal only with, or through, the designated fi scal agency.
29 If the member has no central bank, it shall designate such other institution as may be acceptable to the IMF.

Debt and Related Operations 309 portion is shown as a transaction involving an increase in external fi nancial assets in the form of currency and deposits—that is, the reserve tranche position, which is a liquid claim on the IMF (debit), off set by an equal reduction in exist- ing external fi nancial assets30 (credit).
• Domestic currency component—Th e remaining 75 percent of the quota is payable in the mem- ber’s own currency at the designated depository.

Th e payment is made either in domestic cur- rency (IMF No.

1 Account) or if the member country so chooses, by issuance of a promis- sory note (in the IMF Securities Account).

Th e No.

1 Account is used for the IMF’s operational transactions (e.g., purchases and repurchases), and small transfers may be made from this ac- count to the No.
2 Account, which is used for the payment of local administrative expenses incurred by the IMF in the member’s curren- cy.31 Th e promissory notes are encashable by the IMF on demand.

Th e domestic portion of the quota payment is not recorded in the public sec- tor unit’s accounts, because it is considered in economic terms to be of a contingent nature.

No interest is payable on either the deposit account or the note.

A3.83 Th ere are periodic reviews of the size of member quotas.
Recording transactions that refl ect a change in a member’s quota is the same as the record- ing that takes place when the quota is initially paid.
Reserve position in the IMF A3.84 A member country’s reserve position in the IMF equals the sum of the reserve tranche plus any indebtedness of the IMF (under bilateral loan agreements, notes, or participation in standing bor- rowing agreements such as the General Agreements to Borrow and New Agreements to Borrow) in the General Resources Account that is readily available to the member country (for further details, see BMP6, paragraph 6.85).
Th e reserve tranche represents the member’s unconditional drawing right on the IMF, created by the foreign exchange portion of the quota subscription, plus increases (decreases) through the 30 Th e type of instrument varies.

31 When the IMF uses funds from the No.

2 Account to pay for the acquisition of goods and services, the member country shows a reduction in this account and an off set transaction in the use of goods and services.
310 Government Finance Statistics Manual 2014 IMF’s sale (repurchase) of the member’s currency to meet the demand for use of IMF resources by other members in need of balance of payments fi nancing.

A member’s reserve position in the IMF constitutes part of its reserve assets (external fi nancial assets).

A3.85 To utilize its reserve tranche in the IMF, a member must present a declaration of a balance of payments need and purchase foreign exchange from the IMF with its own currency.
Th e domestic cur- rency, equal to the value of the foreign exchange, is paid into the IMF’s No.

1 Account with the member’s depository or through the issuance to the IMF of a noninterest-bearing promissory note recorded in the IMF’s Securities Account.
Th e transaction is recorded in the public sector unit’s accounts as a reduction in the member’s external fi nancial assets in the form of currency and deposits (i.e., the reserve tranche po- sition in the IMF), which is off set by an increase in the member’s external fi nancial assets (i.e., foreign exchange).
Credit and loans from the IMF A3.86 A member may make use of IMF credit or concessional loans under the trusts administered by the IMF (for fi nancing for low-income countries) to acquire additional foreign exchange from the IMF.

Th e use of IMF credit and concessional loans results in the same outcome—that is, the member entering into these agreements has access to foreign exchange in return for agreeing to meet a set of conditions.
Both IMF credit and concessional loans are classifi ed in the public sector unit’s accounts as external liabilities in the form of loans, although the two types of arrange- ments are executed in diff erent ways: • When a member country uses IMF credit, it “purchases” foreign exchange from the IMF in return for its domestic currency deposited in the IMF No.

1 Account (or backed by the issuance of a promissory note).
Use of IMF credit is shown as the member’s loan liability (denominated in SDRs) in the accounts of the public sector unit, refl ecting the economic nature of the transac- tion.

Liabilities under IMF credit arrangements are extinguished when the member uses foreign exchange to “repurchase” its domestic currency.

• Th e concessional loans, also denominated in SDRs, result in the member borrowing foreign exchange with a commitment to repay.

Such loans do not aff ect the IMF No.

1 Account.


Re- payments must be made in SDRs or freely use- able currencies.

A3.87 If the value of the member’s domestic cur- rency changes in relation to the SDR, “maintenance of value payments” are made once a year in the No.

1, No.

2, and Securities Accounts in domestic currency to maintain a constant SDR liability.
Because the li- ability is denominated in SDRs, the maintenance of value payments are not entered as transactions in the central bank’s accounts, but as holding gains/losses (revaluations) when the domestic currency is used as the unit of account.
A3.88 When the central bank passes on proceeds from IMF borrowing to a general government unit: • Th e central bank has a domestic fi nancial claim (loan) on the general government unit and the general government unit has a domestic debt li- ability to repay (principal and interest).

• Th e central bank has an external debt liability to repay, and may use the debt service payments received from the general government unit to do so.
Remuneration A3.89 Th e IMF pays its members “remunera- tion” quarterly (in SDRs) on the basis of their reserve tranche position, except for a small portion related to prior quota payments in gold that are interest-free resources to the IMF.

Th is remuneration should be recorded on an accrual basis as interest income (rev- enue) of the public sector unit, which is realized as an increase in its external fi nancial assets in the form of currency and deposits.

IMF No.
IMF No.

2 Account A3.90 As discussed in paragraph A3.82, the IMF No.

2 Account is used by the IMF for administrative payments and is refl ected as a liability in the public sector unit’s accounts.

Transactions involving the No.

2 Account are recorded as increases or decreases in this liability and are off set by the source of funds (in the case of an increase) or the use of funds (in the case of a decrease).

When the IMF transfers funds from the No.

1 Account to the No.


2 Account, the public sector unit’s accounts will show an increase in its reserve tranche (i.e., currency and deposits).

Th e increase refl ects the reduction in IMF holdings of the member’s currency in the No.

1 Account and is off set by an increase in the member’s liabilities relating to currency and deposits.

Speci al Drawing Rights (SDRs) A3.91 Th e SDR is an international reserve asset created by the IMF in 1969.
Th e SDR is administered by the IMF’s SDR Department, which is required by the IMF’s Articles of Agreement to keep its accounts strictly separate from those of the General Depart- ment.

Members participating in the SDR Department incur the fi nancial asset or liability position unto it- self.
Given that fi nancial claims on and liabilities to members in the SDR system are attributed on a co- operative basis, a residual partner category—other nonresidents—is used as the counterparty to SDR holdings and allocations.32 A3.92 SDR allocations received by a country are recorded as a liability in the form of SDRs (part of gross debt of the public sector unit) with a corre- sponding entry for SDR holdings as a fi nancial asset.
Th e calculation of a public sector unit’s net debt takes into account SDR holdings and SDR allocations.

In- terest income on SDR holdings (revenue) and inter- est expense on SDR allocations are accrued on a gross basis to the outstanding fi nancial asset and liability, respectively.

A3.93 Th e SDR allocation is debt of the recipient (i.e., the participant in the SDR Department), and forms part of public sector debt.

Th e SDR holdings are part of the public sector’s fi nancial assets.
However, the international statistical systems do not specify on which balance sheet SDR holdings and allocations should be recorded (e.g., the central bank or a general Debt and Related Operations 311 government entity such as the ministry of fi nance or treasury).
Th is is because SDR allocations are made to IMF members that are participants in the SDR De- partment of the IMF, and it is for those members to follow domestic legal and institutional arrangements to determine the ownership and recording of SDR al- locations and SDR holdings in the public sector.

A3.94 For GFS and public sector debt statistics, it is particularly relevant in which public sector unit’s accounts the SDR holdings and allocations are re- corded.
If the SDR allocation is recorded on the government’s balance sheet, the allocation is part of general government debt.

If the SDR allocation is on the central bank’s balance sheet, the allocation is not part of general government debt but still part of public sector debt.

A3.95 SDRs are held exclusively by participants, the IMF, through the General Resources Account, and prescribed holders,33 and are transferable among them.
At the time of the SDR allocation, the amounts recorded as SDR allocations (liabilities) and holdings (fi nancial assets) are identical and on the same public sector unit’s balance sheet.

Th is public sector unit— as offi cial holder—may, subsequently, exchange some or all of its SDR holdings (fi nancial asset) with other offi cial holders for freely usable currency(ies).
In this case, the SDR allocations and holdings on the balance sheet of the public sector unit are no longer identical; the SDR holdings are less than the allocations because they have been converted into freely usable currencies (i.e., currency and deposits).

As a result, interest pay- able on the SDR allocation of public sector unit will be larger than interest receivable on its SDR holdings.

In- terest receivable on the SDR holdings exchanged will accrue to the new holder.
32 See paragraph 7.264 for a discussion of the classifi cation of the counterparty by institutional sector.

33 Th e IMF has prescribed a limited number of international fi nancial institutions as holders of SDRs.

APPENDIX 4 Some Cross-Cutting Issues Th is appendix applies government fi nance statistics principles to illustrate the recording of: leases, licenses, permits, and contracts; public-private partnerships; and insurance and standardized guarantee schemes.
Introduction A4.1 Some cross-cutting issues relate to the re- cording of the impact of specifi c events on revenue, expense, and fl ows and stock positions of assets and liabilities.

Aspects of recording these events are de- scribed in various chapters of this Manual.

However, bringing all of these together enhances the clarity of recording these events.
Th is appendix deals with three such issues:1 • Leases, licenses, permits, and contracts • Public-private partnerships (PPPs) • Insurance and standardized guarantee schemes.

Leases, Licenses, Permits, and Other Contracts Introduction A4.2 Many transactions are specifi ed in terms of a contract between two institutional units.
Th e majority of contracts are such that one unit provides a good, ser- vice, or asset to the other unit for an agreed pay ment at an agreed time (possibly immediately aft er agreeing on the price).

Such contracts may be written and le- gally binding or may be informal or even only implicit.

However, these contracts are simply agree ments about the terms under which goods, services, and assets are provided to the recipient along with the ownership of the item.
In particular, these contracts can help to de- termine the point at which the trans actions should be recorded in GFS in accordance with the accrual prin- ciples described in paragraphs 3.69–3.75.

1 While social protection and debt operations can also be re garded as cross-cutting issues, these issues are described sepa rately in Appendixes 2 and 3.
A4.3 For certain types of contracts and legal agree- ments, variously described as leases and licenses (or permits), the terms of the agreement may aff ect not only the time of recording of transactions but also the classifi cation of transactions and the ownership of the item subject to the agreement.

Th e purpose of this section is to provide guidance on how transactions entered into under these more complex arrangements should be recorded in GFS.
Leases A4.4 Th ree types of leases are recognized in macro economic statistics: operating leases, fi nancial leases, and resource leases.

Each of these leases relates to the use of a nonfi nancial asset.

Fundamental to the dis tinction between the diff erent types of leases is the diff erence between legal and economic owner- ship.

Th e legal owner of resources is the institutional unit entitled by law and sustainable under the law to claim the benefi ts associated with the asset.
By con- trast, the economic owner of resources is entitled to claim the benefi ts associated with the use of the asset in the course of an economic activity by virtue of ac- cepting the associated risks.

Th is distinction between legal and economic ownership is elaborated upon in paragraphs 3.37–3.41 and 7.5.

Th e legal owner is oft en the economic owner as well.
When they are diff erent, the legal own er has divested itself of the majority of risks in return for agreed payments from the eco- nomic owner.

Th us: • In the case of operating leases and resource leases, there is no change of economic owner- ship: the legal owner continues to be the eco- nomic owner.

Resource leases are agreements for the use of natu ral resources, such as land and radio spectrum.

Operating leases are agree- ments for the use of all other nonfi nancial assets.
• In the case of fi nancial leases, there is a diff er- ence between economic ownership and legal ownership of the asset.

Financial leases can apply to all non fi nancial assets, including natural re- sources under some circumstances.

A4.5 Th e following paragraphs discuss the treat- ment of operating leases, fi nancial leases, and re- source leases in detail.
Operating leases A4.6 Operating leasing is the activity of renting out produced assets under arrangements that pro- vide use of a tangible asset to the lessee, but do not in volve the transfer of the bulk of risks and rewards of ownership to the lessee.

Th e legal and economic owner is called the lessor.

One indication that an op- erating lease exists is that the responsibility for repair and maintenance of the asset lies with the legal owner.
Under an operating lease, the asset remains on the balance sheet of the lessor.

A4.7 Amounts payable under an operating lease for the use of the asset are referred to as rentals and are recorded as payments for a service.

In principle, any fi xed asset may be subject to an operating lease.
Th e character of operating leases may most easily be de scribed in relation to fi xed assets since operating leases oft en concern vehicles, offi ce equipment (e.g., photocopiers), construction equipment, buildings, etc.

Th e service provided by the lessor to the lessee goes beyond the mere provision of the asset.

It in- cludes other elements, such as the convenience for the lessee that the lessor takes responsibility for the maintenance and security of the asset—an important point from the user’s view.
In the case of equipment, the lessor, or owner, normally maintains a stock of equipment in good working order that can be hired on demand or at short notice.

Th e lessor is normally a specialist in the operation of the equipment, a fac- tor that may be important in the case of highly spe- cialized equipment, where the lessee may not have the neces sary expertise or facilities to maintain the equipment properly.
Th e lessor may also undertake to replace the equipment in the event of a serious or prolonged breakdown.

In the case of a building, the lessor is responsible for the structural integrity of the building, and would usually be responsible in the case of dam age—for example, due to a natural disaster.

Th e lessor is usually also re sponsible for ensuring that elevators, heating, and ven tilation systems function adequately.
Some Cross-Cutting Issues 313 A4.8 Operating leases oft en aim at meeting the needs of users who require certain types of equip- ment only intermittently.

Many operating leases are for short periods, although the lessee may renew the rental when the period expires and the same user may hire the same piece of equipment on several occasions.
Be cause of the evolution of increasingly complicated types of machinery, especially in the electronics fi eld, the servicing and backup facilities provided by a les- sor are important factors that may infl uence a user to rent.

Other factors that may persuade users to rent over long periods rather than purchase are consider- ations regarding the lessor’s balance sheet, cash fl ow, or tax liability.
A4.9 Th e service provided under an operating lease should be recorded as use of goods and services (22) for the lessee and sales of goods and services (142) for the lessor.

Consumption of fi xed capital (23) on the fi xed asset involved is recorded in the accounts of the lessor.

Financial leases A4.10 A fi nancial lease is a contract under which the lessor, as legal owner of an asset, conveys sub- stantially all risks and rewards of ownership of the asset to the lessee.
Th e economic nature of the ar- rangement is such that the lessor is deemed to provide a loan to allow the lessee to acquire the majority of risk and re wards of ownership, but the lessor retains legal title (ownership) as collateral for the loan.

In other words, the lessee becomes the economic owner of the asset.

Under a fi nancial lease, the lessor records a loan to the lessee with which the lessee acquires the asset.
Th ere aft er, the leased asset is shown on the bal- ance sheet of the lessee and not of the lessor; the cor- responding loan is shown as an asset of the lessor and a liability of the lessee.

A4.11 Financial leases are distinguished from other types of leases because substantially all risks and re wards of ownership are transferred from the legal owner of the nonfi nancial asset (the lessor) to the user of the nonfi nancial asset (the lessee).
Th e following provisions in the lease contract would normally lead to a lease being classifi ed as a fi nancial lease: • Th e lease contract transfers legal ownership of the asset to the lessee at the end of the lease term, or • Th e lease contract gives the lessee the option to acquire legal ownership of the asset at the end of 314 Government Finance Statistics Manual 2014 the lease term at a price that is suffi ciently low that the exercise of the option is reasonably cer- tain, or • Th e lease term is for the major part of the econo- mic life of the asset, or • At inception, the present value of the lease pay- ment amounts to substantially all of the value of the asset, or • If the lessee can cancel the lease, the losses of the lessor are borne by the lessee, or • Gains or losses in the residual value of the asset accrue to the lessee, or • Th e lessee has the ability to continue the lease for a secondary period for a payment substantially lower than market value.
A4.12 Th ese provisions in the lease contract may not be conclusive that substantially all of the risks have been conveyed.

For example, if the asset is con- veyed to the lessee at the end of the lease at its fair value at that time, the lessor holds substantial risks of owner ship.

Th e lease is then considered to be an operating lease.
Financial leases are also called “fi - nance leases” or “capital leases,” highlighting that the motivation (paragraphs A4.10–A4.11) is to fi nance the acquisition of a nonfi nancial asset.

Internation- ally accepted ac counting practices generally recog- nize fi nancial leases in the same manner as in GFS.2 A treatment akin to fi nancial leases is also adopted for some public-private partnerships3 (PPPs) (see para- graphs A4.58–A4.65 and the 2008 SNA, paragraphs 22.154–22.163).
A4.13 Th e statistical treatment of fi nancial leases is designed to capture the economic reality of such ar- rangements, by treating assets under a fi nancial lease as if they were purchased and owned by the user.

Th e lessee (economic owner) records the acquisition of the asset that is fi nanced by an imputed loan.
Th e loan is redeemed through payments during the con- tract (consisting of interest and original principal el- 2 At the time of publication of this Manual, the treatment of fi nancial and operating leases is under review by international accounting standard setters.

3 For example, a build, own, operate, transfer scheme could be established to assign the risks and rewards of ownership to the government, and the private partner would be treated as the provider of a fi nancial lease.
ements) and any residual payment at the end of the contract (or alternatively, by the return of the good to the lessor).

If the lessor is a fi nancial intermediary, part of the pay ment is also treated as a service charge (see paragraph 6.81).

A4.14 It is common, but not necessary, for a fi nan cial lease to cover the whole economic life of the asset.
Regardless of whether the lease is for the whole economic life of the asset or for less, the value of the imputed loan, at inception, corre sponds to the mar- ket value of the asset, and is valued at nominal value throughout its life, in the same way as other loans.

Th e value of the loan consists of the present value of the future payments due to the legal owner plus the value of the asset at the end of the lease, as specifi ed in the lease agreement.
A4.15 At the inception of the lease, the value of the asset appearing on the balance sheet of the lessee should be equal to the value of the loan owed to the lessor at that time.

At the end of the lease term, the asset may be returned to the lessor to cancel the loan, or a new arrangement, including the outright pur- chase of the asset, may be reached between the lessor and lessee.
If the lease is for less than the expected eco- nomic life of the asset, the lease usually specifi es the value to the lessor at the end of the lease or the terms under which the lease can be renewed.

Any variation in the price of the asset from the value specifi ed in the lease agreement is borne by the lessee.
Resource leases A4.16 A resource lease is an agreement whereby the legal owner of a natural resource that macro economic statistics treat as having an infi nite life makes it avail- able to a lessee in return for a regular payment re- corded as property income and described as rent.

In the case of resource leases, there is no change of economic ownership and, therefore, the re source continues to be recorded on the balance sheet of the lessor, even though it is used by the lessee.
Payments due under a resource lease are recorded as revenue or expense in the form of rent (1415 or 2814).

By con- vention, no consumption of fi xed capital is applied to natural resources.

Depletion of a natural resource is instead recorded as an other change in the volume of assets (see paragraph 10.52).

Figure A4.1 Illustrating the Treatment of Licenses and Permits to Use a Natural Resource Some Cross-Cutting Issues 315 Does the owner allow the use of the natural resource to extinction?
Yes No For the owner, classify the amounts receivable as the disposal of a nonproduced asset in the form of natural resources (or an expropriation—an other change in the volume of assets and liabilities) The owner can extend or withhold continued use of the asset from one year to another—it corresponds to a resource lease No Does the owner allow the use of the natural resource for an extended period, with little or no intervention?
Yes For the owner, classify the amounts receivable as the disposal of an intangible nonproduced asset in the form of contracts, leases, and licenses For the owner, classify the amounts receivable as revenue in the form of rent (1415) A4.17 Land is the classic case of an asset subject to a resource lease, but all other natural resources are also treated this way.
An exception, when a long-term lease of land may be recorded as the sale of land, is described in paragraph A4.26.4 could also issue these licenses and permits if the re- sources are privately owned.
A4.19 As illustrated in Figure A4.1, there are three diff erent sets of conditions that may apply to the use of a natural resource: Licenses and Permits to Use a Natural Resource A4.18 In many countries, licenses and permits to use natural resources are issued by government be- cause government claims ownership of the resources on behalf of the community.
However, government 4 Further discussions of natural resources in the next section also indicate other cases where the use of a resource should be taken as the sale of the resource.

• Th e owner may permit the resource to be used to extinction.

Th is option results in the sale (or possi bly an expropriation) of the nonproduced resource asset itself.
• Th e owner may permit the resource to be used for an extended period of time in such a way that, in eff ect, the user controls the use of the resource during this time with little if any inter- vention from the legal owner.
Th is permit leads to the creation of an intangible nonproduced asset classifi ed as contracts, leases, and licenses 316 Government Finance Statistics Manual 2014 (31441) for the user, distinct from the resource itself; however, the value of the resource and the value of the nonproduced asset in the form of contracts, leases, and licenses are link ed.
An in- verse relationship will exist between the value of the resource itself and the value of the intangible asset.5 • Th e owner can extend or withhold permission to continued use of the asset from one year to the next.

Th is option corresponds to a resource lease on which rent is payable/receivable (see para- graphs A4.16–A4.17).
A4.20 Th e diff erences in treatment between the vari ous options are not clear-cut.6 Th ere is no sin- gle, uni versal, and clear-cut criterion to distinguish between rent and asset sales, so a range of criteria should be considered in making the decision (see Box A4.1).

A4.21 Th e considerations listed in Box A4.1 can be seen as a more specifi c parallel to the distinction of economic ownership from legal ownership used in distinguishing between operating and fi nancial leases described earlier.
Th e conditions for treatment of the payment as the acquisition of an asset or rent are in- dicative rather than prescriptive.

A decision on the appropriate treatment when some of the conditions are not met will necessitate consideration of how to record those transactions.

For example, if, on balance, the decision is to treat the payment as rent, but a large upfront payment was made, this should be treated as a prepayment, recorded on an accrual basis.
However, if the recipient is not willing to consider a refund if the contract is suspended, this is indicative of the sale of an intangible nonproduced asset rather than the pay- ment of rent.

A4.22 Th e application of these principles to the main types of natural resources is described in the following text.
Radio spectrum A4.23 Payment for a mobile phone license consti- tutes the sale of an asset rather than a payment for rent when the licensee acquires eff ective economic owner- ship rights over the use of the spectrum.7 A4.24 If the sale of such a license constitutes the sale of an asset, two possible treatments may apply: the sale of the spectrum itself or the sale of a permit to use the spectrum.
• When the life spans of the license and of the spec trum coincide, the payment for a license is treated as the sale of the spectrum itself (other natural re sources: radio spectrum (314331)).

Th e latter situa tion applies always when licenses are granted indefi nitely.
• When the life span of the license is diff erent from the life span of the spectrum, the payment for a license is treated as the sale of an intangible non- produced asset classifi ed as permits to use natural resources (314412) by the legal owner (licensor) to the economic owner (licensee).

A4.25 When the license agreement is treated as the sale of an intangible asset, in its own right, its value is established at the time of its sale.
Th e value of the license declines with the remaining period of validity to a value of zero when the license expires.

Symmetri cally, the value of the spectrum to the lessor falls when the license acquires a value and progres- sively increases as the license expires.
Th is refl ects the potential for a further sale of the right to use the spec- trum for another period.8 Land A4.26 Land may be sold outright (i.e., when the legal ownership is transferred from one institutional unit to another)9 or may be subject to a resource lease (e.g., tenant farmers usually pay regular rent to their landlord).
A resource lease on land may in- stead be considered as a sale of the land (3141) if the 5 Th e encumbered value of the resource is based on the present value of future rental payments taking the existence of the lease into account.

Th e value of the resource increases as the contract winds down, while the value of the contract decreases over the same period.

Also see Box A4.3.
Also see Box A4.3.

6 Also see this issue articulated in the context of the case of mobile phone licenses in SNA News and Notes, Volume 14, United Na- tions, 2002.

7 To decide whether ownership is eff ectively transferred, the six criteria presented in Box A4.1 are to be considered.

8 Th is recording ensures a neutral eff ect on the net worth of the overall economy during the life of the license.

9 As described in paragraph 2.13, land may not be recorded as being sold to a nonresident unit.
In such cases, a notional resident unit is created that holds title to the land; the nonresident unit then owns the equity in the notional resident unit.
Some Cross-Cutting Issues 317 Box A4.1 Criteria to Determine Whether a License Represents an Asset Sale or Rent Several criteria need to be considered: • Costs and beneﬁ ts assumed by licensee—The greater the extent of the risks and beneﬁ ts associated with the right to use an asset incurred by the licensee, the more likely the classiﬁ cation of a transaction as the sale of an asset as opposed to rent.
Pre-agreement on the value of payments (whether by lump sum or by installments) effectively transfers all economic risks and beneﬁ ts to the licensee and points, therefore, to the sale of an asset.

If, on the other hand, the value of payment is contingent on the results from using the license, risks and beneﬁ ts are only partially transferred to the licensee and the situation is more readily characterized as payment of rent.
In the case of mobile phone licenses, the total amount payable is often pre-agreed.

An additional indication of the degree to which commercial risks have been passed to the licensee is to examine the hypothetical case where a licensee goes bankrupt.

If, in such a case, the licensor reimburses none of the upfront payment made by the licensee, this would constitute a strong case against a characterization of the transaction as rent, as apparently the licensee has incurred all the risks involved.
• Upfront payment or installment—As with other indicators, the mode of payment is in itself not conclusive for a characterization as a transaction in assets or rent payment.

Generally, the means of paying for a license is a ﬁ nan- cial issue and not a relevant factor in determining whether it is an asset.

However, business practice shows that upfront payments of rent for long periods (15–25 years in the case of mobile phone licenses) are unusual and this favors an interpretation as sale of an asset.
• Length of the license—Licenses granted for long periods suggest the transaction should be treated as the sale of an asset, and for shorter periods treated as payments for rent.

The timeframe involved in mobile phone licensing (15–25 years) is considered rather unusual as a period for which to conclude a ﬁ xed payment of rent and there- fore a further indication favoring an interpretation as sale of an asset.
• Actual or de facto transferability— The possibility to sell the license is a strong indication of ownership and if transferability exists, this is considered a strong condition to characterize the licensing act as the sale of third-party property rights.

In practice, mobile phone licenses are often transferable either directly (by the corporation selling the license to another corporation) or indirectly (through the corporation being acquired through a takeover).
• Cancellation possibility— The stronger the restrictions on the issuer’s capacity to cancel the license at its discre- tion, the stronger the case for treatment as a sale of an asset.

Conversely, when licenses can easily be cancelled at the discretion of the issuer, ownership over beneﬁ ts and risks has not been fully transferred to the licensee and the transaction qualiﬁ es more readily as rent.
• Conception in the business world and international accounting standards— Businesses, in accordance with international accounting standards, often treat a license to use the spectrum as an asset.

Again, in itself this does not lead to treatment as an asset in the national accounts, and there are other areas where companies choose to present ﬁ gures in their accounts in ways that are not consistent with the national accounts.
But the treatment of the acquisition of mobile phone licenses as capital investment in company accounts provides an added incentive to treat them in a similar way in the national accounts.

Not all or a majority of these considerations have to be satisﬁ ed to characterize the license as a sale of an asset.
How- ever, to qualify as rent (1415 or 2814) of a natural resource asset (rather than the sale of an asset), at least some of the following conditions should hold: • The contract is of short-term duration, or renegotiable at short-term intervals.

Such contracts do not provide the lessee with a beneﬁ t when market prices for the leased asset go up in the way that a ﬁ xed, long-term contract would.

Such beneﬁ ts are holding gains that typically accrue to owners of assets.

• The contract is nontransferable.


Nontransferability is a strong but not a sufﬁ cient criterion for the treatment of license payments as rent, because, although it precludes the lessee from cashing in on holding gains, it does not preclude the lessee from reaping comparable economic beneﬁ ts (e.g., using the license in a business).

• The contract contains detailed stipulations on how the lessee should make use of the asset.
Such stipulations are often seen in cases of rent of land, in which the owner wishes to retain control over the usage of the land.

In the case of licenses, examples of such stipulations would be that the contract states what regions or types of custom- ers should be served, or that it sets limits on the prices that the lessee may charge.
• The contract includes conditions that give the lessor the unilateral right to terminate the lease without compensation—for instance, for underuse of the underlying asset by the lessee.

• The contract requires payments over the duration of the contract, rather than a large, upfront payment.

Al- though this condition is essentially ﬁ nancial in character and thus cannot be decisive on the type of the lease, it may indicate a degree of control for the lessor to direct the use of the nonproduced asset.
The case for a treat- ment as rent is further supported if the payments are related to the revenue the lessee derives from the license.

318 Government Finance Statistics Manual 2014 lease satisfi es most or all of the criteria to be consid- ered a sale of an asset in Box A4.1.

When the land is leased in other circumstances, the payments are re- corded as rent (1415 or 2814) under a resource lease agreement.
A4.27 In some jurisdictions, the land under build- ings remains in the legal ownership of a landlord other than the owner of the buildings.

If regular pay- ments are made to the landlord, these are recorded as rent (1415 or 2814).

However, it is sometimes the case that, even though the land legally belongs to another unit, the right to occupy it for an extended period is payable in a single upfront payment oft en when the building is acquired.
In such a case the pay- ment is recorded as the acquisition of a nonproduced asset, classifi ed as land (3141) if the value of the land can be established sepa rately from that of the build- ing.

If not, the composite asset should be classifi ed in the category representing the greater part of the value (see paragraphs 7.94 and 8.51).

In such a case, when the building changes own ership, the purchase price includes an element repre senting the present value of future rent payments.
Th erefore, the land is recorded as if the ownership is transferred along with the building above the land.

If, at the end of the land lease, a further payment is liable for extension of the lease for another long-term period, this should be recorded as an acquisition of another nonproduced asset, as described earlier.
Timber A4.28 For timber, four possibilities are distin- guished: the sale of a natural resource asset, the sale of a permit, rent of a natural resource asset, or sale of forests that are produced assets.
• Sale of a natural resource asset—If government gives a unit permission to clear an area of natu- ral forest, or to fell at its discretion without any restriction in perpetuity, the payments made to government (the owner) constitute the sale of the natural resource asset, classifi ed as noncultivated biological resources (31431).10 • Sale of a permit—When licenses or permits is- sued to use the natural resource, such as timber, 10 Th e sale of forested land may be recorded as the sale of the tim- ber and the land separately, depending on the intended use of each.
satisfy the criteria to be a separate asset, the as- sets are classi fi ed as contracts, leases, and licenses (31441).

• Rent of a natural resource asset—It is common for timber felling to be allowed, subject to strict limits with a fee payable per unit volume of tim- ber felled (stumpage).

Th e limits are usually such that the harvest of timber is sustainable and so the pay ments are recorded as rent (1415 or 2814) in the case of a natural forest.
Th e option to have a lease permitting felling at the lessee’s discretion but sub ject to the restoration of the land, in an acceptable forested state, at some time in the fu- ture is improb able.

• Sale of goods and services—When cultivated forests are produced assets in the form of inven- tories, the extraction of timber is treated as the sale of goods and services (142).

A4.29 Illegal logging is prevalent in some coun- tries.
In such cases, the quantity of timber extracted should be recorded as other changes in the volume of assets (i.e., uncompensated seizure).
Fish A4.30 Natural stocks of fi sh with an economic value are an asset, and the same considerations apply to them as to other natural resources.11 Two possibili- ties exist for commercial fi shing: • Fishing quotas are permits that may be allocated in perpetuity or for extended periods to par- ticular institutional units—for example, where fi shing is an established way of life and there may be little alternative economic employment.
In such circum stances, the quotas may be trans- ferable and, if so, there may be a well-developed market for them.

Fishing quotas may, therefore, be considered as transferable permits to use a natural resource.

Such permits are assets in macroeconomic statistics and classifi ed as per- mits to use natural resources (614412) in the bal- ance sheet.
11 It is not realistic to consider that permission would be given to exhaust fi sh stocks, but illegal fi shing may either reduce the stock position below the point of sustainability or exhaust it altogether.

In these cases, an other volume change in the stock position should be recorded.

• An alternative regime is to issue a permit for a strictly limited period of time, less than a year, to a nominated institutional unit, oft en a non- resident.
Th is is a common practice in some is- lands in the South Pacifi c, for example.

In these cases, the revenue from the licenses should be recorded as rent (1415) because it is a resource lease.

A4.31 A license for recreational fi shing has long been considered, by convention, as payment of a tax under other taxes on the use of goods and on permis- sion to use goods or perform activities (11452).

Th is treatment is not changed by the wider considerations for com mercial fi shing.
Water A4.32 A natural body of water with an economic value can be sold in its entirety either as part of the land that surrounds it or as a separate entity.

A4.33 As is the case for fi sh, it is unlikely that eco- nomic ownership would be ceded under a long lease with no preconditions on the quantity and state in which a similar amount of water should be returned to the owner.

However, it is possible that surface water could be leased under a long lease for recre- ational purposes, for example.
Th e treatment of such leases should be the same as for land (see paragraphs A4.26–A4.27).

A4.34 Regular payments for the extraction of water from natural water bodies (as opposed to the delivery of it) should be treated as rent (1415 or 2814).

How- ever, extraction of water as a produced commodity (e.g., purchases from a reservoir) should be recorded as the sale of goods and services.
Mineral and energy resources A4.35 Mineral and energy resources diff er from land, timber, and fi sh in that, although they also con- stitute a natural resource, they cannot be used sustain- ably.

All extraction necessarily reduces the amount of the resource available for the future.

Th is consider- ation necessitates a diff erent set of recom mendations for how transactions relating to their use should be recorded.
• When a unit, such as government, owning a min eral or energy resource cedes all rights over Some Cross-Cutting Issues 319 it to another unit, this constitutes the sale of the re source classifi ed as mineral and energy re- sources (3142).

Like land, mineral resources can be owned only by resident units; if necessary, a notional resident unit must be established to pre- serve this convention.
• When a unit extracts a mineral or energy re- source under an agreement where the payments made each year are dependent on the amount extracted, the payments (sometimes described as royalties) are recorded as rent (1415 or 2814).
Th e depletion of the resource itself is recorded as other changes in the volume of assets.12 Sharing Assets A4.36 Th ere are two ways in which assets may be shared, and the two cases require diff erent treatments: • Th e asset may be wholly legally owned by two or more units, each at diff erent points in time.

• Alternatively, the risks of and benefi ts from the asset may be shared by two or more units at a single point in time.
A4.37 In macroeconomic statistics, even though the asset may be owned by diff erent units at diff erent times, when a balance sheet is drawn up, the whole of the value of the asset is attributed to one unit.

• For an asset subject to an operating lease, there is no ambiguity.

Th e legal owner is also the econo- mic owner and is the unit that shows the asset on its balance sheet.

• An asset subject to a fi nancial lease is shown on the balance sheet of the economic owner.
Th is is consistent with the views that the value of the asset represents the stream of future benefi ts coming from the asset and the economic owner is the unit entitled to receive these benefi ts in re- turn for accepting the risks associated with using the asset in production.

• For an asset subject to a resource lease, the value is shown on the balance sheet of the legal owner.
12 Th e reasons for recommending the simple recording of pay- ments each year from the extractor to the owner as rent and changes in the size and value of the resource as other changes in the volume of assets of the legal owner are given in the 2008 SNA, paragraph 17.343.
320 Government Finance Statistics Manual 2014 A4.38 When licenses to use natural resources such as radio spectrum, land, timber, and fi sh satisfy the crite ria to be classifi ed as intangible assets under per- mits to use natural resources (314412), they are part of the subclass of nonfi nancial assets in the form of con tracts, leases, and licenses (31441) and are shown on the bal ance sheet of the licensee.
A4.39 Sharing the risks and rewards of an asset be tween diff erent units at a point in time is unusual.

Th e most common occurrence is that a single unit under takes the activity in which the asset is used and that unit shares the returns among the owners in the form of distributed property income.

However, occa- sionally it is possible that such a single unit does not exist and it is not meaningful to try to create it statis- tically.
Th is is most common when the participating units are resi dent in diff erent economies, as may be the case with an airline, or in the case of some un- incorporated joint ventures.

Th e terms under which unincorporated joint ventures are established are di- verse, but one form allows that all members share the assets equally.

In such cases, macroeconomic statistics record the assets shared between the owners in pro- portion to their own ership shares.
A4.40 In some joint ventures that are recognized as institutional units, one party may contribute an asset as its share of the costs.

If this happens, an injec- tion of equity equal to the value of the asset should be rec orded along with the acquisition of the asset in ques tion by the joint venture.
Permits to Undertake a Speciﬁ c Activity A4.41 In addition to leases and licenses to use an asset as described in the previous sections, permission may be granted by government to engage in a particu- lar activity, independently of any assets involved in the activity.

Permission to extract minerals in return for the payment of rent, for example, is not covered by this type of permit because the permit derives from the government’s ownership of the assets.
Th e permits that give permission to engage in a particular activity are designed to limit the number of individual units entitled to engage in the activity.

Such permits may be issued by government or by private institutional units and diff erent treatments apply to the two cases.

Th is section deals only with permits issued by govern- ment.
Permits issued by units other than government are not discussed here because their treatment does not aff ect the government accounts.13 Permits issued by government A4.42 When governments restrict, for example, the number of cars entitled to operate as taxis or limit the number of casinos permitted by issuing licenses, they are, in eff ect, creating monopoly profi ts for the ap proved operators and recovering some of these profi ts as the “permission fee.” Such fees are recorded as other taxes on the use of goods and on permission to use goods or perform activities (11452).
Th is principle applies to all cases where government issues licenses to limit the number of units operating in a particular fi eld where the limit is fi xed arbitrarily and is not de- pendent only on qualifying criteria.

A4.43 In principle, if the license is valid for sev- eral reporting periods, the payment should be re- corded on an accrual basis with an entry in other accounts re ceivable (3208) or other accounts payable (3308) for the amount of the license fee covering fu- ture reporting periods.
However, if government does not recognize a liability to repay the licensee in the case of a cancel lation, the whole of the fee payable should be recorded as a single tax payment at the time it is paid.

A4.44 Th e incentive to acquire such a license is the licensees’ expectation that they acquire the right to make monopoly profi ts at least equal to the amount payable for the license.
For the license holder, this stream of future income is treated as an asset if the licensee can realize this by on-selling the asset.

Th e asset fi rst appears in the accounts of the licensee as an other change in the volume of assets.

Subsequent in creases and decreases in its value are recorded as hold ing gains or losses.

Th ese types of assets are de- scribed as permits to undertake a specifi c activity (614413).
Th e value of the asset is determined by the value at which it can be sold or, if no such information is available, is estimated at the present value of the fu- ture stream of monopoly profi ts.

A4.45 If the payment for the license is being record ed on an accrual basis, the licensee has in the 13 See the 2008 SNA, paragraphs 17.360–17.362.

Similarly, contracts for time share arrangements are not discussed in this Manual (see the 2008 SNA, paragraphs 17.344–17.348).
balance sheet an asset under other accounts receivable equal to the value of the license fee covering future report ing periods and an asset recorded as permits to under take specifi c activities (614413) for the value of the license covering the excess of the monopoly prof- its over the cost.
If the license is on-sold, the price paid by the new owner refl ects both the value of the right to receive a refund from the govern ment if the license is cancelled and the present value of the fu- ture stream of monopoly profi ts.

If the license was re- corded as a single reporting period tax payment, the value of the asset for the licensee is the value at which it can be sold or, if no such information is available, is esti mated as the present value of the future stream of monopoly profi ts.
Box A4.2 outlines the statisti- cal treatment of permits issued by government using four examples.
Conditions for government permits recognized as assets A4.46 A permit issued by government to undertake a specifi c activity may be treated as an asset (permits to undertake specifi c activities (614413)) only when all the following conditions are satisfi ed: • Th e activity concerned does not utilize an asset be longing to government; if it does, the permis- sion to use the asset is treated as an operating lease, a fi nancial lease, a resource lease, or pos- sibly the acquisition of an asset representing per- mission to use the asset at the discretion of the licensee over an extended period.
• Th e permit holder must be legally and practically able to sell the permit to a third party.

• Th e number of permits is limited, thereby allow- ing the holder to make monopoly profi ts when under taking the activity concerned.

• Th e permit is not issued subject to a qualify- ing cri terion.
Revenue raised from the issuance of permits that are subject to qualifying criteria are treated as either taxes on the use of goods and on permission to use goods, or perform activities (11452) or payments for services under admin- istrative fees (1422).

A4.47 Even if all these conditions are satisfi ed, if in practice the permits are not on-sold, it is not rel- Some Cross-Cutting Issues 321 evant to record the permits as assets.
If any of the conditions is not satisfi ed, the payments are treated as taxes on the use of goods and on permission to use goods or perform activities (11452)—that is, without the creation of an asset in the form of permits to un- dertake specifi c activities (614413).

(Th ere may be an account payable in cases when the permit holders make payments that will accrue over more than one reporting period.)
Permits to use natural resources as sinks A4.48 Governments may issue emission permits as a means of controlling total emissions.

Th ese per- mits do not involve the use of a natural asset (there is no eco nomic value placed on the atmosphere so it cannot be considered an economic asset).

However, it is inherent in the concept that these permits will be tradable and that there will be an active market for them.
A4.49 Th e payments for emission permits issued by government are treated as taxes on the use of goods and on permission to use goods or perform activities (11452), at the time the emissions occur.
Th e timing diff erence between the payments received by govern- ment for the permits and the time the emission oc- curs gives rise to a transaction in fi nancial liabilities classi fi ed as other accounts payable (3308) for gov- ernment and a fi nancial asset classifi ed as other ac- counts re ceivable (3208) for the holder.

Th e diff erence between the prepaid tax value of the permit and the market value of the permit represents a marketable contract (nonproduced nonfi nancial asset) for the holder.
Th e creation and disappearance of the non- produced non fi nancial asset are recorded as an other change in volume of assets.

A4.50 Th e case of payments for discharging water may be considered as an example of the diff erent pos- sible ways of treating the payments: • If a payment to discharge water is a fi ne imposed by government intended to inhibit discharge, the fi ne should be treated as revenue for government classifi ed as fi nes, penalties, and forfeits (143).
If such a fi ne is imposed on government or public sector units by another institutional unit, the fi ne is included in expense, classifi ed as current trans- fers not elsewhere classifi ed (2821).

322 Government Finance Statistics Manual 2014 Box A4.2 Statistical Treatment of Permits Issued by Government: Examples Suppose unit A contracts with government to buy a permit to operate a casino for three years at a total cost of 12.
A expects to make monopoly proﬁ ts of 7 per year because the permit excludes other casinos from operating.

The govern- ment may or may not be prepared to make a refund if A relinquishes the permit.

A may utilize the permit for the three years for which it is valid or may sell it to unit B at the end of year 1.

The recordings under these four possibilities are examined as follows.
Case 1: Government does not offer a refund and A keeps the permit for three years At the start of year 1, A pays tax of 12 and through an other change in the volume of assets recognizes an asset worth 21 initially.

Government records only tax revenue of 12.

Assuming no market price changes or discount factor, by the end of the year the value of the asset has reduced by 7 as an other volume change, because one of the three years for which the permit was initially valid has expired.
At this point the asset is contributing 14 to A’s net worth.

By the end of the second year A writes off an additional 7 as an other volume change, leaving a contribution to net worth of 7.

By the end of the third year the asset is worth zero.

Case 2: Government does not offer a refund and A sells the permit to B after one year At the start of year 1, A pays tax of 12 and through an other change in the volume of assets recognizes an asset worth 21 initially.

Government records only tax revenue of 12.


Assuming no market price changes or discount factor, by the end of the year the value of the asset has reduced by 7 as an other volume change, because one of the three years for which the permit was initially valid has expired.

At this point, the value of the asset is 14.

However, B is prepared to pay only 13 for the asset and A accepts this offer.
A therefore reduces the value of the asset by 1 through a holding loss (revaluation change), before selling it for 13.

B acquires the asset for 13 and, assuming no further market price changes, its value reduces by 6.5 in the other change in volume of assets account in each of the two following years.
Case 3: Government offers a possibility to refund and A keeps the permit for three years At the start of year 1, A makes a payment of 12 to government, which is recorded as a payment of tax of 4 for the year.

The remainder of the amount is a prepayment of a tax and, therefore, at the end of the year government has an other- account payable to A of 8.

The value of the permit to A is only the excess of the monopoly proﬁ t over the total amount that A will have to pay to government.
At the start of year 1, A recognizes an asset with a value of 9 (the difference between 7 and 4 for three years) through an other change in the volume of assets.

Assuming no market price changes or discount factor, by the end of year 1 this permit asset is worth only 6.

At the end of that year, A’s net worth includes an other account receivable from government of 8 and the remaining value of the permit of 6.

The total value of A’s assets is 14 as in case 1.


During the second year, A’s other account receivable from government reduces by 4 which is used to pay the accrued tax in year 2.

In that year, the value of the permit also reduces by 3 from 6 to 3.

At the end of the second year, A’s net worth includes an other account receivable from government of 4 and, assuming no further market price changes, a permit worth 3, bringing A’s total assets to 7 as in case 1.
At the end of year 3, A’s other account receiv- able and the value of the permit are reduced to zero.

Case 4: Government offers a possibility to refund and A sells the permit to B after one year At the start of year 1, A makes a payment of 12 to government which is recorded as a payment of tax of 4 for the year.

The remainder of the amount is a prepayment of a tax and, therefore, at the end of the year government has an other account payable to A of 8.
The value of the permit to A is only the excess of the monopoly proﬁ t over the other account payable.

At the start of year 1, A recognizes an asset with a value of 9 (the difference between 7 and 4 for three years) through an other change in the volume of assets.

Assuming no market price changes or discount factor, by the end of the year, this permit asset is worth only 6.
At the end of the year, A’s net worth includes an other account receivable from government of 8 and the remaining value of the permit of 6.

The total value of A’s assets is 14, as in case 1.

However, B is prepared to pay only 13 for the asset and A accepts this offer.

As in case 2, A has to reduce the value of the permit by 1 through a holding loss (revaluation change) before selling the asset to B for 13.
The other account receivable from government of 8 is transferred to B and the asset (permit) is sold for 5.

B’s net worth is unchanged because B has paid A 13 but received the other account receivable of 8 and an asset (permit) valued at 5 in return.

In year 2, B’s other account receivable is reduced by 4 due to the tax payment of 4 that accrued and, assuming no further market price changes, the permit declines in value from 5 to 2.5.
At the end of year 3, B’s other account receivable and the value of the permit are reduced to zero.

• If a limited number of permits are issued with the intent to restrict discharges, the payment should be treated as taxes on the use of goods and on permis sion to use goods or perform activities (11452) if the medium into which the water is discharged is not regarded as an asset in macro- economic statis tics.
• If the medium into which the water is dis- charged is an asset and the necessary conditions are met con cerning the terms on which the dis- charge is permit ted, then the payment for the permit should be treated in the same way as the payment for a li cense to use the radio spectrum for mobile phones.
If the payment is linked to remedial action, the payment is a payment for a service, unless the amount levied is out of proportion to the costs involved in subsequent water treatment, in which case the payment should be treated as other taxes on the use of goods and on permission to use goods or perform activities (11452).
Contracts for future production A4.51 Although human capital is not recognized as an economic asset, there are cases where a con- tract that entitles the holder to limit the ability of a named individual to work for others may be regarded as an asset.

Prolifi c and lucrative contracts may be for sports players where, for example, one football club can “sell” a player to another.

In fact, the club is not sell ing the person, but rather the exclusive rights to have that person working for it.
Similar contracts exist for the rights to publish literary works or musical per- formances.

Such contracts are treated as assets, classi- fi ed as entitlement to future goods and services on an exclusive basis (614414) within the asset class of con- tracts, leases, and licenses.

A4.52 Similar contracts may exist for the produc- tion of nonfi nancial assets in future.
An examination of the practice of purchasing the options of future air- craft production revealed, however, that in this case there is no transferable asset and a change of mind on the part of the potential purchaser or failure to deliver on the part of the supplier is settled by a change in the ar rangements between the two parties and does not lead to the sale of the option to a third party.
If an instance arises where the option to purchase nonfi - Some Cross-Cutting Issues 323 nancial assets is treated in the same way as a contract for a named individual’s performance, the same clas- sifi cation would apply.

Leases as Assets A4.53 As stated in paragraph A4.2, contracts un- derlie many transactions recorded in macroeconomic statistics and it is important to understand what the implications are for the time of recording and classifi - cation of transactions arising from a contract.
Permits or licenses to use natural resources may constitute an asset, as may permits to undertake specifi c activities and contracts for future production.

A4.54 As indicated in paragraphs 7.105–7.106, a con- tract may be considered an asset when it is trans ferable to a third party (i.e., a unit other than the two specifi ed in the original contract)—for exam ple, a mar ketable op- erating lease acquiring a value as an asset.

An example is given in Box A4.3.


Assets re fl ecting such third-party property rights are always transitory: they exist only for the length of the lease and where there is a diff erence between the encumber ed and unencumbered values.

A4.55 Permits to use natural resources and con- tracts for future production may also give rise to these types of third-party property rights assets.
Similarly, permits to undertake specifi c activities may give rise to these types of assets even though the original pay- ment, if payable to government, was treated as a tax.

Financial leases do not give rise to these types of as- sets.

If the value of the asset being leased increases by more than the payments due under the fi nancial lease, the lessee may have the option of selling the asset, re- paying the loan, and keeping the diff erence.
A4.56 In the case of marketable operating leases, the lease may be treated as an asset only when the two following conditions are satisfi ed: • Th e lease specifi es a predetermined price for the use of an asset that diff ers from the price the asset could be leased for at the current time.

• Th e lessee is able legally and practically to realize this price diff erence by subcontracting the lease to a third party.
A4.57 In practice, it is recommended that such as- sets should be recorded only when the value of the asset is signifi cant and the lessee can actually exercise the right to realize the price diff erence.

324 Government Finance Statistics Manual 2014 Box A4.3 Practical Example of Leases as Assets Suppose a lease on an apartment agreed some time ago speciﬁ es the rental at 100 per month but its current market rent is 120 per month.
From the lessor’s point of view, the apartment is “encumbered” by the existing lease; that is, it carries a penalty (in this case of 20 per month) because of the existence of the lease.

The encumbered value of the apartment is based on the present value of future rental payments taking the existence of the lease into account; that is, the future income stream is 100 for the remaining period of the lease and 120 thereafter (ignoring any allowance for inﬂ ation).
The unencumbered value of the apartment is a present value based on an income stream of 120 per month from the current period forward.

The value to be entered in the landlord’s balance sheet is the encumbered value, which is also all the landlord (lessor) can hope to realize if he sold the apartment while the tenant has the right to maintain the lease.
To realize the unencumbered value, the lessor would have to pay the tenant the difference between the unencumbered value and the encumbered value to be free of the lease.

This amount, the encumbrance, can in some circumstances be treated as an asset of the tenant.

The circumstances are that it is both legally possible and is prac- ticable for the tenant to sublet the apartment to a third party.
Because of the difﬁ culty of identifying when such assets may exist, it is recommended that in practice these assets be recorded only when there is evidence that they have been realized.

The encumbered value of the apartment may be higher than the unencumbered value if rentals have fallen since the lease was agreed.
In this case, it is the landlord who beneﬁ ts from the discrepancy between the contract price and the market price because the value of the apartment in his balance sheet is still the encumbered value.

If the tenant wishes to cancel the lease, he may have to pay the landlord the difference between the encumbered value and the unencum- bered value.
Only in the exceptional case where the tenant pays a third party to assume the lease at the price speciﬁ ed in the lease does this payment represent an asset of negative value to the tenant.

Once the lease expires or is cancelled, the value of the apartment returns to its unencumbered value.
Public-Private Partnerships Introduction A4.58 Public-private partnerships (PPPs) are long- term contracts between two units, whereby one unit acquires or builds an asset or set of assets, operates it for a period, and then hands the asset over to a second unit.

Governments engage in PPPs for a varie ty of rea- sons, including the expectation that private manage- ment may lead to more effi cient production and that access to a broader range of fi nancial sources can be obtained.
Such arrangements are usually be tween a private corporation and government, but other com- binations are possible, with a public corporation as either party or a private nonprofi t institution as the second unit.

For ease of reference, the second unit will be referred to as the private corporation.

Th ese schemes are referred to by diff erent names depending on the type of contracts that are in place.
Examples are: private fi nance initiatives (PFIs); design, build, op- erate, and transfer schemes (DBOT); build, own, and transfer schemes (BOTs); or build, own, operate, and transfer schemes (BOOTs).

For ease of reference, the remainder of this section will refer to PPPs.

A4.59 Th e nature of activities that PPPs are involved with varies greatly.
Generally, the private corporations construct and operate assets of a kind that are usu- ally the responsibility of the general government or public corporations.

Th ese commonly include roads, bridges, water supply and sewerage treatment works, hospitals, prison facilities, electricity genera tion and distribution facilities, and pipelines.

A4.60 Th e private corporation expects to recover its costs and to earn an adequate rate of return on its invest ment.
Th e government may make periodic pay- ments during the contract period,14 or, alternatively, the pri vate corporation may sell the services to the pub- lic (e.g., a toll road), or a combination of the two.

Th e price is oft en regulated by the government and set at a level that will allow the private corporation to recover its costs and earn a return on its investment (bench- mark price).
If the regulated price is set at a level below such a benchmark price, the government will have to compensate the private partner, usually through sub- sidies or other transfers.

Th ere can be many variations in PPP contracts regarding aspects such as the dispo- sition of the assets at the end of the contract, the re- quired operation and maintenance of the assets during the contract, and the price, quality, and volume of ser- vices produced.
At the end of the contract period, the 14 Th e contract period refers to the length of the contractual agreement between the parties involved in the PPP.

Some Cross-Cutting Issues 325 Box A4.4 Determining the Economic Ownership of PPP-Related Assets The economic owner of the assets related to a PPP is determined by assessing which unit bears the majority of the risks and which unit is expected to receive a majority of the rewards of the asset.
The factors that need to be considered in assessing economic ownership of PPP-related assets include those associated with acquiring the asset and those associated with using the asset.
Some of the risks associated with acquiring the asset are: • The degree to which the government controls the design, quality, size, and maintenance of the assets • Construction risk, which includes the possibility of additional costs resulting from late delivery, not meeting speciﬁ cations, or building codes, and environmental and other risks requiring payments to third parties.
Some of the risks associated with operating the asset are: • Supply risk, which covers the degree to which the government is able to control the services produced, the units to which the services are provided, and the prices of the services produced • Demand risk, which includes the possibility that the demand for the services, either from government or from the public at large in the case of a paying service, is higher or lower than expected • Residual value and obsolescence risk, which includes the risk that the value of the asset will differ from any price agreed for the transfer of the asset to government at the end of the contract period • Availability risk, which includes the possibility of additional costs or the incurrence of penalties because the volume and/or quality of the services do not meet the standards speciﬁ ed in the contract.
The relative importance of each factor is likely to vary with each PPP.

It is not possible to state prescriptive rules that will be applicable to every situation.

The provisions of each PPP arrangement must be evaluated to decide which unit is the economic owner.

government may gain legal and economic ownership of the assets, possibly without payment.
Determining Economic Ownership of PPP-Related Assets A4.61 Th e decision about economic ownership of the asset and whether to record PPP-related assets and liabilities in the government’s or the private corpora- tion’s balance sheet is not straightforward.

Th e private corporation is responsible for acquiring/constructing the fi xed assets, although the acquisition/construction is oft en supported by the backing of the government.
Th e contract oft en allows government to specify the design, quality, capacity use, and maintenance of the asset in accordance with government standards.

Typi cally, the assets have service lives much longer than the contract period so that, for this reason alone, the government will control the assets, bear the risks, and receive the rewards for a major portion of the assets’ service lives.
Th us, it is frequently not obvious whe ther the private corporation or the government controls the assets over their service lives or which party bears the majority of the risks and benefi ts from the major ity of the rewards.15 A4.62 Th e statistical treatment depends on the eco- nomic ownership of the asset(s) involved.

In macro- economic statistics, a distinction is made between legal ownership and economic ownership (see para- graphs 3.38–3.41) based on risks and benefi ts.
With a PPP, the legal and economic owner may be diff erent parties.

Box A4.4 summarizes the associated risks to be considered.
A4.63 Th e macroeconomic statistics approach is broadly consistent with considerations listed by the In ternational Public Sector Accounting Standards Board (IPSASB) for the recognition and measurement of a service concession asset.16 While it is not pos- sible to prescribe rules applicable to every PPP type of ar rangement, the considerations presented in Box A4.4 should guide the decision on which party is the econo mic owner of the asset(s) during and at the end of the PPP contract period.
Th e International 15 “Majority” should be assessed from an economic point of view.

A single risk and reward may imply the “majority” in some cases, while in other cases, a number of separate risks and rewards combined may do so.

16 IPSAS 32 spells out some guidelines for recognizing and mea- suring assets and liabilities relating to service concession assets (i.e., PPP-related assets).
326 Government Finance Statistics Manual 2014 Box A4.5 Practical Applications of the Economic Ownership Concept To operationalize the criteria for economic ownership—that is, whether the majority of risks and rewards accrue to government or to the private corporation—countries have followed different approaches.
Under Eurostat’s guidelines to its member states, a sufﬁ cient condition for a PPP to be excluded from government’s accounts has been that the private corporation bears the construction risk in the project and either the availability or the demand risks in using the asset in production.
In 2010, Eurostat clariﬁ ed how other elements, in addition to these three principal risk categories, should be analyzed to deter mine the distribution of risks between the public and private sectors—notably: the existence and scope of grantor guaran tees; majority ﬁ nancing by the grantor of capital cost dur- ing the construction phase; and ﬁ nancial aspects of termination clauses (see Manual on Government Deﬁ cit and Debt – Implementation of ESA 95, 2012 Edition, section VI.5).
Some countries are following internationally accepted ac counting standards (e.g., IPSAS) applicable to ﬁ nancial leases (see paragraphs A4.10–A4.15).

If a PPP con tract is deemed to be a ﬁ nancial lease, an asset and liability are recorded on the public sector unit’s balance sheet, inte rest and depreciation are recorded as operating expenses, and amortization is recorded as a transaction in ﬁ nancial assets and liabilities.
IPSASs treat a lease as a ﬁ nancial lease to the extent that the following criteria are met: (i) the con tract period covers most of the useful life of the asset; (ii) the asset is transferred to the lessee (the public sector unit in this case) at the end of the contract; (iii) the lessee can purchase the asset at a bargain price at the end of the contract; (iv) the present value of payments pre scribed in the contract is close to the fair market value of the asset; and (v) the asset is useful mainly to the lessee.
Public Sector Accounting Standards (IPSASs) con- siderations of control of the asset include aspects of risks and rewards, and should, in principle, lead to the same conclusions on economic ownership.

Box A4.5 pre sents a brief discussion on how some countries apply, in practice, the concept of economic ownership related to PPPs.
Statistical Treatment A4.64 Th e following description of the statistical treatment of PPPs is based on the guidelines prescrib ed in the 2008 SNA.17 If the government is considered the economic owner of the asset(s) during the con- tract period but does not make any explicit payment at the beginning of the contract, a transaction must be im puted to cover the acquisition of the asset(s).
Th e rec ording of these depends on the specifi c con- tract pro visions, how they are interpreted, and possi- bly other factors.

Most frequently, these contracts will be rec orded as the acquisition of the asset through an imputed fi nancial lease because of the similarity with actual fi nancial leases.
In other cases, for example, a loan that equals the market value of the asset at acqui- sition could be imputed, the actual govern ment pay- ments to the private corporation could be partitioned, 17 Th e PSDS Guide presents examples of the recording of fi nan cial leases (see Box 4.11) and the recording of debt and fl ows arising from PPPs (see Box 4.16).
so that a portion of each payment repre sents the re- payment of the loan (see paragraphs A4.10–A4.15), and the remainder could represent an expense for use of goods or services, subsidies, etc., in accordance with the contract.

A4.65 If the private corporation is considered the economic owner of the asset(s) during the contract period, any debt associated with the acquisition of the asset(s) should be attributed to the private corpo- ration.
Normally, the government obtains legal and economic ownership of the assets at the end of the contract without any signifi cant payment.
However, two ap proaches are possible to account for the acqui- sition of the asset(s) by government: • Over the contract period, government gradually builds up a fi nancial claim (e.g., other accounts receivable) and the private corporation gradually accrues a corresponding liability (e.g., other ac- counts payable), such that both values are equal to the residual value of the assets at the end of the contract period.
At the end of the contract period, government records the acquisition of the asset, with a reduction in the fi nancial claim (other ac- counts receivable) as the counterpart entry.

Th e other unit records the disposal of the asset, with a reduction in the liability (other accounts payable) as the counterpart entry.

Implementing this ap- proach may be diffi cult because it requires new transactions to be constructed using assumptions about expected asset values and interest rates.
• An alternative approach is to record the change of legal and economic ownership from the private unit to government as a capital transfer at the end of the contract period.

At the end of the contract period, government records revenue in the form of a capital transfer that fi nances the acquisition of the asset and the private unit records an ex- pense in the form of a capital transfer payable to govern ment, fi nanced by the disposal of the asset.
Th e capital transfer approach does not refl ect the underlying economic reality as well as the fi rst al- ternative, but data limitations, uncertainty about the expected residual value of the assets, and con- tract provisions allowing various options to be exercised by either party make recording a capital transfer in GFS acceptable on pragmatic grounds.
Insurance and Standardized Guarantee Schemes Introduction A4.66 An insurance policy is an agreement between an insurer and another institutional unit, the policy- holder.

Under the agreement, the policyholder makes a payment (premium) to the insurance corporation, which makes a payment (claim) to the policyholder if or when a specifi ed event occurs.

Th e policyholder protects itself against certain forms of risk.
By pooling the risks, the insurer aims to receive more from the receipt of pre- miums than it has to pay out as claims to the insured.

A4.67 Th is section describes types of insurance and standardized guarantee schemes.

It fi rst defi nes some terminology and then provides statistical guid- ance on the recording of the relevant fl ows and stock positions related to nonlife insurance and standard- ized guaran tee schemes.
Types of Insurance and Standardized Guarantee Schemes A4.68 Th e most common form of insurance is called direct insurance, whereby the policy is issued by an insurer to another type of institutional unit.18 Th ere are two types of direct insurance—namely, life and nonlife insurance.

Both types of insurance in- volve pooling risks.

Insurers receive many (relatively) 18 Another form of insurance is provided by one insurer to an- other insurer, which is referred to as reinsurance.
Some Cross-Cutting Issues 327 small regular payments of premiums from policy- holders and pay much larger sums to claimants when the contingencies covered by the policy occur.

During the interval be tween the receipt of premiums and the payment of claims, the insurance corporation earns income from investing the premiums received.

Th is investment income aff ects the levels of premiums and benefi ts set by the insurer.
A4.69 Life insurance is an activity whereby a poli- cyholder makes regular payments to an insurer, in re- turn for which the insurer guarantees to provide the policyholder (or in some cases another nomi nated person) with an agreed sum, or an annuity, at a given date or earlier if the policyholder dies before hand.

For life insurance, an important relationship exists between premiums and benefi ts during the policy pe- riod.
For policyholders, the benefi ts receiv able are ex- pected to be at least as great as the premi ums payable, and this type of insurance can be seen as a form of sav- ing.

Th e insurer combines this aspect of a single pol- icy with the actuarial calculations about the insured population concerning life expectancy (includ ing the risks of fatal accidents) when determining the rela- tionship between the levels of premiums and benefi ts.
Life insurance mainly redistributes premiums payable over a period of time as benefi ts payable later to the policyholders or his/her benefi ciaries.

Essential ly, life insurance premiums and benefi ts are trans actions in fi nancial assets and liabilities and not trans actions in revenue and expense.
Public sector units’ involvement in life insurance is most oft en provided in the con- text of social protection in the form of employ ment- related pension schemes and other social pro tection schemes, such as compulsory saving schemes.

Th e GFS treatment of these types of schemes is elabo rated in Appendix 2.

A4.70 Nonlife insurance is an activity similar to life insurance except that it covers all other risks, acci dents, sickness, fi re, etc.
For nonlife insurance, the risks are spread over all policyholders, and the number of claimants is typically much smaller than the num ber of policyholders.

Nonlife insurance in- cludes poli cies that provide a benefi t in the case of death within a given period but in no other circum- stances, usually called term insurance.

With nonlife insurance, a claim is payable only if a specifi ed con- tingency occurs and not otherwise.
Th is type of insur- ance consists of re distribution in the current period 328 Government Finance Statistics Manual 2014 between all policy holders and a few claimants.

While public corpora tions may be involved in various types of insurance schemes, general government units are usually not in volved in nonlife insurance other than social insur ance, as discussed in Appendix 2.
A4.71 Standardized guarantees are those kinds of guarantees that are issued in large numbers, usually for fairly small amounts, along identical lines.

Th ere are three parties involved in these arrangements, the borrower (debtor), the lender (creditor), and the guar antor.

Either the borrower or lender may contract with the guarantor to repay the creditor if the debtor de faults.

Similar to nonlife insurance, it is not possible to determine the likelihood of any particular debtor de faulting.
Nevertheless, because the guarantees are very similar and numerous, it is possible to estimate the general likelihood of defaults the guarantor will have to cover.

It is standard practice to estimate how many out of a batch of similar debts will default.19 Th ere fore, standardized guarantees are based on the same para digm as that for nonlife insurance, and a similar treat ment is adopted for these guarantees.
Stand ardized guarantees are distinguished from one- off guarantees based on two criteria: • Th ey are characterized by oft en repeated trans ac- tions with similar features and pooling of risks.

• Guarantors are able to estimate the average loss based on available statistics by using probability- weighted concepts.

A4.72 Standardized guarantees may be provided by a fi nancial institution, including, but not limited to, insurance corporations.
It is possible (but unlikely) that nonfi nancial corporations provide these kinds of guarantees.

However, govern ment units are oft en involved as the guarantor in standardized guarantee schemes.

Th e most common examples are export credit guarantees, deposit insur ance schemes,20 and student loan guarantees.
Specifi cally, when a govern ment unit provides standardized guarantees without fees or at such low rates that the fees are signifi cantly less than 19 Th is default risk establishes the liability arising from standard- ized guarantees.
20 If participation in such a deposit insurance or other guar- antees is compulsory—that is, if benefi ciaries cannot opt out of the scheme and the payment is clearly out of proportion to the service provided—it will not constitute a standardized guarantee scheme, but should be recorded as taxes on use of goods and on permission to use goods or perform activities (1145) as describ ed in paragraphs 5.73–5.76.
the calls and adminis trative costs, the unit should be treated as a nonmarket producer within the general government.

If government recognizes the probability of having to fi nance some of the calls under the guar- antee scheme to the extent of including a provision in its accounts, a transfer of this size from government to the units concerned and a liability of this amount (under provisions for calls under standardized guar- antee schemes) should be recorded.
If a standardized guarantee scheme is operated by a corporation or quasi-cor por ation on behalf of government, any trans- fers to cover recurrent losses are classifi ed as subsidies (see para graph 6.89) and any transfers to cover large operating defi cits accumulating over two or more years or ex ceptional losses due to factors outside the control of the corporation/quasi-corporation are recorded as cap ital transfers (see paragraphs 6.91–6.124).
Deﬁ ning Terminology Used in Insurance A4.73 Defi ning some of the terms peculiar to the insurance industry is helpful in clarifying the discus- sion on the statistical treatment of insurance and stan- dardized guarantees.

Th e term “premiums” is used for payment to the insurer, while the term “fees” is used to describe the payment to the guarantor in the case of standardized guarantees.
Payments by the in surer are called “claims” in the case of nonlife insur ance policies and “benefi ts” in the case of life insur ance policies.

In the case of standardized guarantees, “calls” relate to expected defaults on the guarantees.

A4.74 Th e actual premium (fee) is the amount pay- able to the insurer (guarantor) to secure insurance coverage for a specifi c event over a stated time pe- riod.
Coverage is frequently provided for one year at a time, with the premium payable at the outset, though coverage may be provided for shorter (or long er) periods and the premium (fee) may be payable in installments—for example, monthly.

A4.75 Th e premium earned is the part of the actual premium that relates to coverage provided in the re- porting period.
For example, if a new annual policy with a premium of 120 units comes into force on April 1, and GFS are being prepared for a calendar year, the premium earned in the calendar year is 90.

Th e un earned premium is the amount of the actual pre mium received that relates to the period past the re porting period.

In the example just given, at the end of the reporting period there will be an unearned pre mium of 30, intended to provide coverage for the fi rst three months of the next reporting period.
A4.76 Net premiums are defi ned as actual premi- ums plus premium supplements minus the insurance service charge payable by the policyholders.

Premi- ums are usually payable regularly, oft en at the start of an insurance period, whereas claims fall due later, in the case of life insurance, oft en many years later.

Th e amounts accumulating between the periods the premi ums were payable and when a claim becomes payable create a liability (reserves) for the insurer.
Th ese amounts are at the disposal of the insurer to invest in assets and earn income from it.

Th e income allows the insurance corporation to charge lower pre- miums than would be the case otherwise.

Th e prop- erty income earned in this way is attributed to the policyholders and is subsequently recorded as pre- mium supple ments from the policyhold ers.
A4.77 A claim (benefi t or call) is the amount pay- able to the policyholder by the insurer in respect of an event covered by the policy occurring in the period for which the policy is valid.

Claims generally become due when the event occurs, even if the payment is made some time later.

An exception is made in cases where making a claim is possible only long aft er the event has happened.21 In such a case, the claim is re- corded at the time the insurance company accepts the liability.
Claims that become due are described as claims incurred.

In some contested cases, the time between the occurrence of the event giving rise to the claim and the settlement of the claim may be several years.

Claims on an accrual basis are recognized as due when an event takes place that gives rise to a valid claim, regardless of whether paid, settled, or reported during that period.
Statistical Treatment of Nonlife Insurance and Standardized Guarantees A4.78 Under a nonlife insurance policy (or stand- ardized guarantee), the insurer (or guarantor) accepts a premium (or fee) from a client and holds it in reserve (liability) until a claim (or call) is made or the period of the insurance expires.
In the meantime, the insurer (guarantor) invests the amounts available due to pre- 21 For example, an important series of claims were recognized only when exposure to asbestos was established as a cause of serious illness and was judged to give rise to claims under an insurance policy valid at the time of the exposure.

Some Cross-Cutting Issues 329 payments of premiums, reserves held against out- standing claims, and actuarial reserves held against outstanding risks.
Th ese assets generate investment in- come.

Th e property income represents income forgone by the client, and so is treated as property expense at- tributed to the policyholders.

It is therefore rerouted and subsequently recorded as an implicit sup plement to the actual premiums.
Th e insurer (guaran tor) sets the level of the actual premiums (fees) to be such that the sum of the actual premiums plus the property in- come earned on assets, minus the expected outstand- ing claims will leave a margin that the insurer can retain.
As an insurer or guarantor, the general gov- ernment or public sector unit incurs liabilities equal to the present value of the expected claims or calls on out- standing guarantees, net of any recoveries.22 Th e statis- tical treatment of nonlife insurance and standard ized guarantee schemes in GFS will depend on whe ther the general government or public sector unit acts as the insurer (guarantor), or whether they are policyholders.
Flows and stock positions recorded by public sector units as nonlife insurers or guarantors A4.79 General government units are not likely to operate an insurance scheme, but if they do and if they maintain separate reserves, they would record trans actions related to the nonlife insurance in the same way as other insurers.

On the other hand, gen- eral government units are oft en involved as the guar- antor in standardized guarantee schemes.
For general gov ernment or pub lic sector institutional units acting as an insurer or guarantor of standardized guarantees, re cording these events would require recording the fol lowing entries in GFS: • Actual premiums (fees) receivable—Th e amount of actual premiums (fees) receivable represents premiums earned and prepayment of premi- ums.23 Th e portion of actual premiums (fees) receivable representing premiums (fees) earned for the report ing period represents revenue, clas- sifi ed as premi ums (14511) or fees for standard- ized guarantees (14512), respectively.
Prepaid 22 Th ese recoveries could include recoveries from the insured, reinsurance, defaulting borrowers, or third parties.

23 An implicit service charge is implied by nonlife premiums.

However, these charges can be calculated only in the context of an analysis of the whole of the economy.

Th erefore, the implicit service charge is not recognized in GFS.
330 Government Finance Statistics Manual 2014 premiums (fees) re present a transaction in fi nan- cial asset and lia bilities, and are recorded as an increase in liabili ties for nonlife insurance techni- cal reserves (33061) or provisions for calls under standardized guarantee schemes (33065).
• Property income earned on the investment of reserves—Usually, the reserves related to insur- ance or standardized guarantees are invested in fi - nancial assets and the revenue generated by these invest ments is generally in the form of interest (1411) or dividends (1412).

Sometimes, however, the re ser ves may be used to generate net operat- ing sur pluses either in a separate establishment or as a sec ondary activity.

Th e most common exam- ple is rent (1415) gener ated from real estate assets.
• Property income attributed to policyholders— Property income generated by the investment of reserves is deemed to be an implicit premium sup plement.24 Th erefore, the insurer or guaran- tor should attribute the property income to the policyholders25 by recording an expense, clas- sifi ed as property expense for investment income dis burse ments (2813).
Th e counterpart entry to this ex pense is a transaction resulting in an in- crease in liabilities for nonlife insurance technical reserves (33061) or provisions for calls under stan- dardized guarantee schemes (33065).
• Claims (calls) payable—An expense for expected claims (calls) should be recognized in premiums, fees, and current claims (2831) or capital claims (2832), as relevant, and with a counterpart entry as an increase in the liability related to nonlife insurance technical reserves (33061) or provisions for calls under standardized guarantee schemes (33065).
For standardized guarantee schemes, the expense recorded is the expected level of calls (minus any expected asset recoveries) on the stand ardized guarantees provided in the re- cording pe riod.

When claims (calls) are paid, transactions are re corded reducing liabilities 24 Th e attribution should, in principle, be made according to the proportion of reserves (stock of reserves) attributed to the diff erent classes of insurance and policyholders.
In practice, the usual method is to distribute the investment income in propor- tion to the actual premiums.

25 In the case of standardized guarantees, the institutional unit that benefi ts from the guarantee may not be the same as the unit paying the fee for the guarantee.

In this case, the property income is distributed to the unit paying the fee.

Th e distributed property income is treated as a supplementary fee.
related to nonlife in sur ance technical reserves or provisions for calls under standardized guar- antees with a corresponding reduction in assets or an increase in other liabilities.

• Holdings gains and losses—In some exceptions, if an amount for a claim outstanding has been agreed upon and it has been agreed that it will be indexed pending payment, there may be a hold- ing gain or loss recorded for it.
• Other changes in volume of assets and liabili ties— Changes to provisions for calls under stand ar d ized guarantee schemes not resulting from trans actions and holding gains and losses are shown as other changes in volume of assets—for example, when- ever a signifi cant change to the expected level of calls is recog nized, beyond any asset re covery.
Flows and stock positions recorded by public sector units as nonlife policyholders and holders of standardized guarantees A4.80 Th e recording of fl ows and stock positions re lated to standardized guarantees diff ers from the rec ording of one-off guarantees (see paragraph 7.256).
For general government or public sector institutional units as nonlife insurance policyholders, or holders of standardized guarantees, the recording of their activi- ties would require the following entries in GFS: • Actual premiums (fees) payable — Th e amount of actual premiums payable represents premi- ums incurred, prepayment of premiums, and an implicit services charge payable.
Because the implicit ser vice charge can be calculated only in the context of an analysis of the whole of the economy, it is not recognized in GFS as an ex- pense.

Th e portion of actual premiums payable representing premiums incurred for the report- ing period is an expense, classifi ed as premi- ums (28311) or fees for stand ardized guarantees (28312), respectively.
Prepaid premiums repre- sent a transaction in fi nancial assets and liabili- ties, and should be recorded as an increase in the fi nancial assets in the form of non life insurance technical reserves (32061) or provi sions for calls under standardized guarantee schemes (32065).
• Property income attributed to policyholders—As explained in paragraph A4.78, property income generated by insurers (guarantors) on the invest- ment of reserves is deemed to be an implicit premi um supplement, attributed to the policy- holders.

Conceptually, general government or public sector institutional units as policyholders might potential ly record property income reve- nue, classifi ed as property income from investment income disburse ments (1414).
Th e counterpart entry to this revenue is an increase in the fi nan- cial asset for nonlife in surance technical reserves (32061) or provisions for calls under standard- ized guarantee schemes (32065).

However, the revenue related to this item is not always known to GFS compilers.

Th erefore, this revenue is not recorded in GFS and remains an adjustment item between GFS and national ac counts.
• Claims receivable—Claims become due when the event that gives rise to a valid claim occurs, Some Cross-Cutting Issues 331 regardless of whe ther paid, settled, or reported during the reporting period.

Th e policyholder recognizes revenue for the claim at the time an event giving rise to a claim occurred, or in the case of a standardized guarantee, at the time a call can be made in terms of the contract.
Th ese claims receivable should be recognized as revenue classifi ed as premiums, fees, and current claims (1451) or capital claims (1452), as relevant, and with a counterpart entry as an increase in a fi nan- cial asset in the form of non life insurance technical reserves (32061) or pro visions for calls under stan- dardized guarantee schemes (32065).
Upon actual payment of the claims, a decrease is recorded in the relevant insurance reserve, with a correspond- ing increase in cash or other fi nancial assets.

APPENDIX 5 Regional Arrangements Th is appendix describes various regional arrangements for monetary and economic cooperation and the impli- cations of these arrangements for government fi nance statistics.

Introduction A5.1 Th is appendix addresses the main issues for GFS that arise from regional arrangements.
Regional arrangements involve coordination of institutional units in several countries for a particular monetary or economic purpose.

Th ese arrangements are oft en supported by regional organizations that operate across borders that need harmonized macroeconomic statistics to monitor economic development and the progress toward meeting the goals of the regional arrangement.
Th e statistical issues that may arise in compiling harmonized data tend to be the same as those addressed in the GFS framework: defi nitions, coverage, time of recording, frequency, classifi cations, and presentation formats.

An eff ective way of achiev- ing this harmonization is by using a common meth- odology, such as the GFSM 2014.
A5.2 Where regional arrangements create regional organizations by means of an intergovernmental legal arrangement (e.g., a treaty), these institutions are classifi ed as an international/regional organization if they satisfy the criteria to be an institutional unit and satisfy the criteria to be an international organi- zation.1 Regional organizations are created for many purposes, including supporting, guiding, and even governing aspects of the economic relationships or integration processes among the region’s economies.
Regional organizations can be fi nancial (e.g., regional central or development banks) or nonfi nancial (e.g., administrative or economic organizations).

1 International organizations are discussed in paragraphs 2.16–2.21.

A5.3 Regional arrangements tend to strengthen economic relations among the governments of the participating countries and between the regional organizations and the governments of the partici- pating countries.
As these economic relations can lead to significant flows and stock positions, it is important to have guidelines on their recording in GFS.

A5.4 Th is appendix presents the major types of regional arrangements, and points out the main GFS issues observed in each case.

Th e appendix then ex- amines using GFS under regional arrangements and, fi nally, it analyzes the requirements for harmoniza- tion to promote optimal coordination of policies and consistency in data.
Types of Regional Arrangements A5.5 In the course of the last decades, numerous regional arrangements have been set up with various degrees of cooperation and integration between the participating countries.
Such regional arrangements include: • Customs unions, which have common tariff and other trade policies with nonmember economies • Economic unions, which harmonize certain economic policies to foster greater economic integration • Monetary and currency unions, which provide for a single monetary policy and the use of a sin- gle currency across an area.
Custom Unions A5.6 A custom union is a form of regional arrange- ment whereby agreement exists on a common tariff (custom duties) vis-à-vis the other economies, while the movement of goods within the arrangement tends to be duty-free, although it may exclude exemptions in certain sectors.2 Th is type of arrangement is diff er- ent from bilateral cooperation agreements between two countries in commercial areas that have little im- pact, if any, on GFS.3 A5.7 In compiling GFS for members of a customs union, the main issue is the recording of custom duties in the accounts of the member governments partici- pating in the union.
Duties on imports from countries outside the customs union are usually collected on a mutually agreed basis at custom union entry points.

As these entry points may be concentrated in one or a small group of members of the customs union, revenue-sharing formulas among member countries are implemented.

Recording customs duties in the GFS of individual members of the customs union is thus aff ected by the institutional and administrative organization of the customs union.
A5.8 Th e following paragraphs set out four pos- sible types of regional arrangements:4 • A designated agency levies,5 collects, and distrib- utes the proceeds from the duties.

• A designated agency levies and distributes du- ties, but member governments collect duties on behalf of the designated agency.

• Member governments have collective rights (i.e., the right is shared by everyone in the group) to levy, collect, and distribute the duties.
• Member governments have collective rights to levy the duties, but only one member collects and distributes the duties.

2 Examples of such arrangements are: the Mercosur, which com- prises Argentina, Bolivia, Brazil, Paraguay, Uruguay, and Venezu- ela; and the Southern African Customs Union, which comprises Botswana, Lesotho, Namibia, South Africa, and Swaziland.

3 Bilateral trade agreements may also be observed between a regional arrangement and third countries or between regional arrangements.
“Free trade agreements” generally fall under this category.

4 Th ere could be other, less formal or less complete arrangements.

In the case of Mercosur countries, for instance, duties have so far been recorded for each individual country as taxes on interna- tional trade and transactions, as goods from third countries tran- siting from one union member to another are regarded as imports and exports among diff erent custom union members.
In 2010, Mercosur members agreed on a customs code that will allow the fi nal confi rmation of a genuine customs union and the redistribu- tion of customs duties among members.

5 To levy a tax implies that the agency has the authority to impose the tax, either as principal or through the delegated authority of a principal, and the agency has fi nal discretion to set and vary the rate of the tax.
Regional Arrangements 333 A5.9 In all four scenarios where there are eco- nomic arrangements involving a small group of economies, it is recommended that the governments involved agree on common, appropriate recording procedures to avoid bilateral asymmetries.6 Th e re- quired information should be readily available from customs services.
If a portion of the amount of cus- toms duties is retained as collection fees (regardless of how the amount is calculated by the collecting agency or government), these fees should be recorded gross of the grants expense when the customs pool is dis- tributed to the members.
Th e retained amount should be recorded as incidental sales by nonmarket establish- ments (1423) in the accounts of the collecting agency or government, and use of goods and services (22) in the accounts of the member government receiving the grants.

A5.10 Tax attribution rules (see paragraphs 5.33– 5.38) should be used to determine the attribution of customs duties revenue and the transfers associated with sharing the revenue pool among the members.
Th e recording of such customs duties and grant trans- fers for four types of arrangements are discussed in paragraphs A5.11–A5.18.

A designated agency levies, collects, and distributes the proceeds from the duties A5.11 In this case, the designated agency has the right to levy and collect the customs duties and distribute the proceeds.
If the designated agency is recognized as an institutional unit, it may sat- isfy the criteria to be an international organiza- tion (see paragraphs 2.16–2.21), in which case all the transactions described should be between this international organization and the member gov- ernments.

Otherwise it would be a resident of one member country, in which case all the transactions described should be between that government and all the other member governments.
If the desig- nated agency is not a separate institutional unit, it should be classified with the government unit that controls it.

6 Member countries of the Central American Common Market (CACM) (Costa Rica, El Salvador, Guatemala, Honduras, Nicara- gua) apply a common external tariff for products manufactured and imported from outside of the CACM.

However, each CACM member is allowed to determine any product exceptions.
334 Government Finance Statistics Manual 2014 A5.12 Th e customs duty revenue is attributed to the designated agency and should be recorded as cus- toms and other import duties (1151) at the time the underlying economic event occurs (e.g., imports of goods or services) that gives rise to the customs du- ties, along with a counterpart entry increasing cur- rency and deposits (3202) or other accounts receivable (3208).
A5.13 A revenue-sharing agreement may deter- mine that the designated agency is to distribute the revenue pool to the participating national govern- ments on the basis of an underlying economic event (e.g., imports of goods or services).

In this case, rev- enue in the form of a grant (13), with a counterpart entry in other accounts receivable (3208), is recorded in the accounts of the member countries at the time the underlying economic event occurs.
In the accounts of the designated agency, an equal amount of expense in the form of a grant (26) with a counterpart entry in other accounts payable (3308) should be recorded.
De- pending on the sector classifi cation of the designated agency, the grant revenue should be recorded as either current grants from international organizations (1321) or current grants from foreign governments (1311), while the grant expense should be classifi ed as grants to foreign governments (261) or grants to other general government units (263).

Th e size of the grant depends on the nature of the revenue-sharing agreement.
How- ever, these revenue distributions may display an ele- ment of income redistribution among the members of a regional arrangement.

Th at is, the distributions are not based on underlying economic events but are rather made to an agreed and negotiated formula.

In this case, the grant should be recorded at the time the member economy acquires an unconditional claim on the designated agency.
At the time of distribution, the member economies extinguish the other accounts receivable (3208), with a corresponding increase in the fi nancial asset currency and deposits (3202).

Con- versely, the designated agency would record a de- crease in other accounts payable (3308) and a decrease in the fi nancial asset currency and deposits (3202).
A designated agency levies and distributes duties but member governments collect duties on behalf of the designated agency A5.14 If national governments act as collecting agents on behalf of the designated agency for the cus- toms duties from importers in their own economy, the collecting national government should record only transactions in fi nancial assets and liabilities when the economic event occurs.
A liability in the form of other accounts payable (3308) to the designated agency should be recorded, with a counterpart entry in cur- rency and deposits (3202) or other accounts receivable (3208).

Because the customs duty revenue is attrib- uted to the designated agency, they should record a fi nancial claim on the member collecting the customs duties, in the form of other accounts receivable (3208) as the revenue in the form of customs duties accrues.
When the collecting national government makes the payment to the designated agency, this member gov- ernment records a reduction in fi nancial assets in the form of currency and deposits (3202), with a counter- part entry to extinguish the liability in the form other accounts payable (3308).

A5.15 Distributions of the revenue pool by the designated agency are treated as described in para- graph A5.13.
Member governments have collective rights to levy, collect, and distribute the duties A5.16 If member governments have collective rights to levy the customs duties under the customs union agreement, the custom duty revenue is attrib- uted to the member governments according to the underlying economic activity that gives rise to the customs duties.
Th e total customs duty revenue attrib- uted to each member government is in proportion to the respective underlying economic activity that gives rise to the customs duties.

Each member government records customs duties due on their imports on an accrual basis (i.e., when the underlying economic event occurred), regardless of how the revenue pool is to be shared or where the customs duties are col- lected.
Should the customs union agreement provide for any member government to receive a larger share of the customs pool than is evidenced by the underly- ing economic activities, a grant revenue (131)/expense (261) should be recorded between member govern- ments at the time the unconditional claims are estab- lished, with a corresponding entry in other accounts receivable (3208)/payable (3308).
A5.17 It is possible that the ports of entry for the customs union are situated in one or a small group of member economies.

If so, there could be a discrepancy between the customs duty revenue col- lected by a member state and that member’s share of the customs pool.
In these circumstances, an increase in liabilities in the form of an other accounts payable (3308) is recorded for the collecting government at the time that such a claim can be established, with the corresponding increase in fi nancial assets in the form of currency and deposits (3202) for the collect- ing government.
Th e diff erences between the cus- toms revenue collected by each of the customs union members and the total of each member’s share of the customs pool should sum to zero across the customs union, as the customs revenue collected by the cus- toms union equals the revenue to be shared among member governments.
Member governments have collective rights to levy the duty, but only one member collects and distributes the duties A5.18 If member governments have collective rights to levy the duty, the tax revenue is attributed to the member governments according to the underly- ing economic activity that gives rise to the customs duties.

If one of the member governments collects all the customs revenue, the recording is as described in paragraphs A5.16–A5.17.
In this case, however, only the collecting government will record an increase in liabilities in the form of other accounts payable (3308), as all other economies will have claims in the form of other accounts receivable (3208) on the collecting economy for their share of the customs revenue.

Economic Unions Introduction A5.19 For statistical purposes, an economic union is a union to which two or more economies belong.
Economic unions are established by means of an in- tergovernmental legal agreement among sovereign countries or jurisdictions with the intention of fos- tering greater economic integration.

In an economic union, some of the legal and economic character- istics associated with a national economic territory are shared among the diff erent countries or jurisdic- tions.
Th ese elements include: (i) the free movement of goods and services within the economic union and a common tax regime for imports from nonmember economies (free trade zone); (ii) the free movement of fi nancial resources within the economic union; and (iii) the free movement of (individual and legal) Regional Arrangements 335 persons within the economic union.7 Also, in an economic union, specifi c regional organizations are created to support the functioning of the economic union.
Some form of cooperation and coordination in fi scal and monetary policy usually exists within an economic union.

A5.20 Th is type of regional arrangement represents greater cooperation than in a customs union agree- ment (which may have been a fi rst step) because the members agree to harmonize a signifi cant part of the conditions in which economic activity is undertaken over the whole union territory.

Th e main example is the European Union (EU).


Th e EU takes the form of com- mon legislation in some areas, most notably in compe- tition or product norms.

Harmonization of taxes is also being envisaged in some areas.

Th e aim of such unions is to unify markets by enlarging their size, improving effi ciency, and developing specialization.
Economic unions usually achieve a large, if not total, freedom of circulation for goods, services, capital, and individuals by removing the obstacles to such movements.

A5.21 Economic unions may also cover common policies in other fi elds.

Th ese may take a range of forms, from simple coordinated policy measures to a strongly harmonized framework and even to a cen- tralized, direct management by supranational bodies having an autonomous budget and strict policy rules.
A5.22 An economic union requires specifi c enti- ties endowed with the authority to manage an auton- omous budget.

Th ese entities may have more or less autonomy to perform their tasks, in accordance with the institutional arrangements agreed between the members of the union.

A5.23 Th ere may be signifi cant grants payable and receivable between member states of an economic union to support certain economic activities or to develop the region.
Nevertheless, the size of com- mon budgets observed in existing economic unions is much smaller than member states’ budgets.

Th e fl ows involved are a small portion of total revenue and ex- pense of the individual member states.8 All require- ments related to fi scal policy are generally seen as 7 As noted in paragraph 2.11, an economy and, by extension, an economic union can include physical or legal (special) zones to which, to some extent, separate laws are applied.
8 In the European Union, the common budget amounted to about 1 percent of GDP of the union at the time of draft ing this Manual.

336 Government Finance Statistics Manual 2014 cooperation/coordination arrangements rather than eff ective common fi scal policies.
Residence in an economic union A5.24 Th e economic territory of an economic union consists of the economic territory of the mem- ber countries or jurisdictions, and the regional institu- tions that comprise the same, or a subset of the same, economies and are set up to manage the functioning of the economic union.

A5.25 Being a resident of an economy of an eco- nomic union implies being a resident of the economic union.
Regional organizations that operate within the boundaries of the economic union territory are also residents of the union.

However, regional organiza- tions whose membership of economies is not the same as, nor a subset of, those in the economic union should be regarded as nonresidents of the economic union.9 Recording some speciﬁ c transactions related to regional organizations A5.26 Th e common budget of the union that is man- aged by a regional organization may be funded by dif- ferent types of sources.
Th e main sources are taxes and grants.

For example, in the EU, the majority of EU bud- get resources is based on gross national income (GNI) and value-added tax revenues of individual countries.

A5.27 Direct levies for the account of the com- mon budget—in practice oft en collected by member governments—are recorded as taxes of the common budget in accordance with the tax attribution princi- ple (see paragraphs 5.33–5.40).
Such revenue cannot be considered as part of government revenue of the member economy because they are collected by the member economy on behalf of the union.

In accor- dance with the accrual basis of recording, the collec- tion of the taxes will give rise to other accounts payable (3308) for the collecting member government, and other accounts receivable (3208) in the accounts of the regional organization, at the time the taxes accrue to the international organization.
Th ese tax fl ows must be recorded gross of any collection fees.

If there are specifi c provisions related to collection fees (based on actual expenses, a forfeited amount, or a percentage), the latter should be considered as revenue generated 9 See paragraphs 2.6–2.21 for a description of the use of the resi- dence criteria in GFS.
by incidental sales by nonmarket establishments (1423) in the accounts of the member government, and an expense for use of goods and services (22) in the ac- counts of the regional organization.

A5.28 Th e union agencies may also be fi nanced di- rectly by contributions from the members, according to agreed criteria.

Such contributions may be agreed portions of certain taxes and fees.
Th ese taxes and other revenues are attributed to the member govern- ments and are not collected on behalf of the union, but for their own account.

Th erefore, the respective mem- ber governments record the full collectable amount as taxes and other revenues in their accounts, and a sub- sequent grant payable to the regional organization.
A5.29 Expense of the regional organization cov- ers its administrative and operating costs, but also costs associated with executing common policies for the benefi t of the members of the union.

Administra- tive and operating costs impact mainly the economy where the regional organization is physically located.

Th ese amounts are usually not signifi cant and, where a common budget is developed, they represent a small portion of total expense of the regional organization.
Of these, a small part could possibly be transactions with the host government and should be recorded in the government accounts of the member in accor- dance with the economic nature of the transaction.

A5.30 Expense associated with executing common policies for the benefi t of the members of the eco- nomic union impacts specifi c categories of benefi cia- ries in the respective member countries.
To accurately record these transactions, the ultimate benefi ciary and nature of the expense should be identifi ed regard- less of the practical and/or institutional arrangements for channeling the amounts payable from union agen- cies to these economic benefi ciaries.
• Where such expenses from the union budget managed by the regional organization cover costs directly benefi ting the recipient member govern- ment units (in the context of a given program— e.g., projects for infrastructures, research and development), revenue in the form of grants from international organizations (132) should be recorded in the member government accounts when all conditions have been met.
• Where member government units act as agents on behalf of the union, all transactions conducted on behalf of the union should, over time, be neu- tral on the member government revenue and expense.10 For example, if the member govern- ment receives amounts from the regional orga- nization to distribute on behalf of the union to benefi ciaries, only transactions in fi nancial assets and liabilities should be recorded in the member government accounts.
Th e national government records the incurrence of a liability for amounts received, classifi ed as other accounts payable (3308) that are distributable to other economic benefi ciaries.

Th e actual distribution to the ulti- mate benefi ciary reduces this account payable by the government unit.
For the benefi ciary, these amounts should be recorded as the appropriate category of revenue receivable—usually some kind of transfer receivable such as grants (13), subsidies (14411), or transfers not elsewhere clas- sifi ed (144).

Th e regional organization would re- cord the amounts payable in the corresponding categories of expense such as grants (26), subsidies (25), or transfers not elsewhere classifi ed (282).
• Amounts distributable by government, acting as an agent for the union, may take the form of reimbursements claimed by the fi nal benefi ciary.

Th ese claims are usually on the basis of docu- ments evidencing spending by the benefi ciaries.
Any amounts distributed by government on the basis of such claims by the benefi ciaries give rise to a fi nancial claim of government on the regional organization, notably other accounts receivable (3208), while the regional organization incurs a liability, other accounts payable (3308).

Where the member government is acting on behalf of non- government units, it is possible that the member government anticipates repayments from the common union budget.
Such anticipated repay- ments are also recorded as transactions in fi nan- cial assets and liabilities, notably other accounts receivable/payable (3208/3308) between the gov- ernment and the regional organization.
• When governments’ claims on the regional orga- nization for amounts reimbursed on the regional organization’s behalf are not fully redeemed by the regional organization, the member govern- ment’s recording depends on the circumstances: 10 In some cases, by agreement, a part of the expense, in the context of programs managed at the union level, may be fi nanced by the member government; for this portion of the expense the impact on the member government fi nances will not be neutral.
Regional Arrangements 337  Th e member government could decide to cover the expense made by fi nal benefi ciaries from the member government budget sources.

Th e expense is recorded with a counterpart entry in the reduction of the claims on the regional organization.

Such an expense should be clas- sifi ed according to the economic nature of the transfer—usually some type of transfer payable such as grants (26), subsidies (25), or transfers not elsewhere classifi ed (282).
Th e time of recording the expense is determined by the time of the gov- ernment decision to cover the expense.

 Th e regional organization could indicate that a reimbursement by the member country should not have been made.

Th e member government could recover the funds from the benefi ciaries, or record the amount as expense of the member country.

A5.31 Full coverage of data for an economic union requires that these data include data from member countries as well as from the union agencies.
Further- more, to consolidate the accounts of the union—that is, eliminating all the fl ows and stock positions among member countries and the union agencies—sectors of the counterparties should be available for data on transactions, stock positions, and other economic fl ows.

Compiling union accounts will allow an analy- sis of the whole union’s fl ows and stock positions.
Th is will also allow monitoring of the contributions of in- dividual members to the union and measure the im- pact of the union on each member economy through redistribution mechanisms.

Monetary and Currency Unions A5.32 A monetary union exists where there is the presence of a single monetary policy among econo- mies, established by an intergovernmental legal agree- ment.

In a monetary union, the decision-making related to monetary policy is transferred to a central- ized body.
Th ere are diff erent models—for instance, a single central bank for the whole union (possibly having only branches in the national economies)11 or a federal-like system where national central banks 11 Th is arrangement is applied in the case of the West African Eco- nomic and Monetary Union (WAEMU) and the Economic and Monetary Community of Central Africa (CEMAC).

WAEMU includes Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.
CEMAC includes Cameroon, the Cen- tral African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon.

338 Government Finance Statistics Manual 2014 still exist, keeping some specifi c activities not directly linked to monetary policy.12 A5.33 However, the core characteristic of a mon- etary union is that the monetary policy is exclusively conducted at the union level.
Th ere is a single set of intervention rates, and the national central banks (or branches) may in no way autonomously adjust the monetary policy to national conditions.
Th ey may, however, perform some specifi c tasks in the imple- mentation process of the monetary policy, such as the management of collaterals that may be required for access to central bank liquidity and the delivery of banknotes in the diff erent economies.13 A5.34 If a monetary union replaces national cur- rencies with a common currency, they form a currency union.
For statistical purposes, a currency union is de- fi ned as a union to which two or more economies be- long and that has a regional central decision-making body, commonly a currency union central bank, en- dowed with the legal authority to conduct a single mon- etary policy and issue the single currency of the union.
A5.35 Monetary and currency unions do not raise specifi c issues for GFS, even in cases where a single, common central bank is a substitute for a domestic central bank in the context of the relationships be- tween central bank and government.

Th e currency union central bank is an institutional unit in its own right, owning assets and incurring liabilities, and is nonresident of any currency union member econ- omy but resident in the currency union (see para- graph 2.21).
Distributions of profi ts of such regional central banks should be classifi ed as income on the fi nancial asset to which member economies’ subscrip- tions are attributed.

Using the GFSM Statistical Framework under Regional Arrangements A5.36 Participation in regional economic arrange- ments may require some cooperation and coordina- tion of fi scal policies.
However, it is only in the context of monetary unions where such cooperation and co- ordination are generally viewed as an indispensable element for ensuring its optimal functioning.

A5.37 In a monetary union, there is one single monetary policy that interacts with fi scal policies pri- marily carried out at the national level of each mem- ber country.

At the same time, fi scal conditions may impact monetary policies.
A5.38 Th erefore, to conduct proper monetary pol- icies, monitor macroeconomic imbalances in member economies, and consolidate accounts for the union, fi scal statistics should be compiled in a consistent manner for all members of the union.
Consistency in compiling fi scal data will allow the accurate mea- surement of diff erences in aggregates such as the tax burden, the share of government expense to GDP, the respective weight of diff erent types of taxes in the total tax burden, the composition of expense, the imple- mentation of budgetary rules, etc.

A5.39 Where coordinated fi scal policies are agreed in a union, the scope of such fi scal cooperation/ coordination has consequences for the statistical re- porting framework.
Fiscal targets may be defi ned and monitored at the union level.

Examples of such key variables are the level of gross/net debt, operating bal- ance, net lending/net borrowing, or, in the case of the cash basis of recording, the cash surplus/defi cit.

Quan- titative targets (or “reference values”) may be set at the union level, and these targets may be expressed as nominal amounts or ratios to gross domestic product.14 A5.40 Coordinated fi scal policies may also call for more disaggregated data.
For instance, the calculation of primary balances requires that data on interest in- come and expense are available.

Similarly, eliminating the infl uence of the business cycle on the level of reve- nue and expenditure by calculating the structural bal- ance may require additional information (see annex to Chapter 4).
In addition, measuring the outcome of specifi c economic objectives may require data on very detailed types of expenses, such as those related to so- cial development goals or the government employee wage bill.
Th e statistical framework for a union should be designed with a suffi cient degree of detail, and should be applied by all members in a fully consistent manner, in order to capture the relevant information 12 Th is arrangement is applied in the case of the European Monetary Union with the “Euro system” made up of the national central banks of the EU member states.

13 See the BPM6, Appendix 3.


14 In the case of the West African Economic and Monetary Union (WAEMU), these quantitative targets, called “convergence criteria,” are important for the multilateral surveillance exercised by the WAEMU Commission to ensure the convergence of the economic performance and policies of the member countries.

needed to monitor the progress with the implementa- tion of fi scal coordination objectives.
Harmonization Requirements for GFS in Economic or Monetary Unions A5.41 Th e harmonization of GFS in the context of economic and monetary unions is important.

It may be useful to introduce guidelines additional to the GFSM for economic and monetary unions.

Ad- ditional guidelines could provide “rulings” or “fi scal policy rules” on specifi c transactions, aggregates, or balancing items that may occur in the member coun- tries of the regional arrangement.
It may also be use- ful to further clarify existing guidelines on concepts and defi nitions where it is observed that countries in a union interpret these guidelines diff erently, or appli- cation of these guidelines poses practical problems for members.

Some examples of harmonizing regional arrangements are presented in Box A5.1.

A5.42 A common reason for fi scal data not being comparable across countries is the delineation of the general government sector.
In most countries, there are borderline cases relating to units selling goods or service as their principal activity with various levels of fi nancial support from government units (in the form of subsidies, grants, and other current transfers).

Agreement on precise guidelines for the classifi cation and sectorization of such units is an important factor in ensuring comparable data.

When in doubt about these classifi cations, an appropriate dispute resolution mechanism should exist.
In this context, the concept of economically signifi cant prices might be clarifi ed with a practical perspective.

It is also recommended to publish institutional lists of general government and public sector units of individual countries to show transparently which units are included in the general government and public sectors.

Regional Arrangements 339 A5.43 Another possible reason for data not being comparable across countries is the time of record- ing of economic events.
In many countries, govern- ment units still apply the cash basis of accounting.

International statistical guidelines and accounting standards have adopted the accrual basis of record- ing.

Although an increasing number of governments have adopted accrual recording, many countries still use various mixes of source data based on cash- and accrual-based accounts.
Th e diff erences in time lags between the economic events and the associated cash fl ows could distort the assessment of fi scal stance during a given year if a cash basis of accounting is mainly used.

It is, therefore, preferable that fi scal tar- gets include both cash and accrual measures.

If no accrual source data are available, the countries in a union should agree on the methodology used to es- timate the adjustments to convert cash data into ac- crual data.
In practice, the adjustments required are especially relevant for taxes, social contributions, and interest.

A5.44 Attaining comparability in the measure- ment of gross and net debt across all countries in an economic or monetary union may be diffi cult in practice.

In this Manual and the PSDS Guide, all debt instruments issued by government units are consid- ered to be part of the coverage of debt (see paragraphs 7.236–7.245).
Where the defi nition of gross and net debt in a union departs from international agreed defi nitions of debt, the data should be clearly labeled, and any departure from the required coverage and standard defi nition should be disclosed to the users of the data.

Debt instruments excluded from the union defi nition of debt could be shown in memorandum items to allow comparability between data of the union members and other countries and to avoid the problem of “hidden” liabilities.
340 Government Finance Statistics Manual 2014 Box A5.1 Regional Arrangements in the Harmonizing of GFS Customs Union of Belarus, Kazakhstan, and Russian Federation The Customs Union between Belarus, Kazakhstan, and Russia came into existence in 2010.

Common trade controls and external tariffs exist, and two regional organizations make decisions related to the union.

These agencies are ﬁ nanced by transfers from member countries.
Customs duties collected at the ﬁ rst point of entry are redistributed to members via special accounts of members in the respective treasuries and the central banks.

While no speciﬁ c harmonization effort for ﬁ scal data was implemented, the importance of consistency in recording trade data and valuations, and recording collection and redistributions related to customs collections is being considered by the member countries.
Eastern Caribbean Currency Union In 2012, a proposal to migrate from the existing reporting format (based on the GFSM 1986) to a presentation high- lighting the integration of stocks and ﬂ ow as recommended by the GFSM 2001 was endorsed by the Eastern Caribbean Central Bank and the member countries.
European Union The excessive deﬁ cit procedure, deﬁ ned by the Maastricht Treaty (article 104) and in force in the European Union since 1994, is a well-known regional arrangement in the compilation of ﬁ scal data.

The conceptual references for the debt and deﬁ cit aggregates are based on the European System of Accounts (ESA).

The compilation practices and reporting requirements are legally binding in the European Union; regulations adopted by the European Commission form the basis for reporting.
Eurostat issued the Manual on Government Deﬁ cit and Debt to aid member states in the application of ESA principles.

This Manual addresses the most common statistical issues raised in the EU.

Mercosur At the 40th meeting of Mercosur economy ministers and central bank chairmen in December 1998, the need to have sta- tistical data based on a common methodology in Mercosur was acknowledged.
This common methodology materialized in 2000, as a result of the member countries’ decision to coordinate their macroeconomic policies with joint convergence targets.
The preparation of harmonized statistics was agreed on, starting with six indicators: nominal ﬁ scal balance of the national government, primary ﬁ scal balance of the national government, net debt of the national government, net debt of the consolidated public sector, change of net debt of the consolidated public sector, price level, and the construction of a new indicator of the structural ﬁ scal balance.
Further efforts have been made since then in order to harmonize the Mercosur statistics according to international standards.

South African Development Community (SADC) In 2010, participants from member countries of SADC endorsed a proposal by the SADC Secretariat to adopt the GFSM 2001 presentation of ﬁ scal statistics, beginning in 2012.
Preliminary work on converting the historical SADC ﬁ scal data- base (based on the GFSM 1986) was completed, and countries made a commitment to begin compiling a Statement of Sources and Uses of Cash and a ﬁ nancial balance sheet.

West African Economic and Monetary Union (WAEMU) and Economic and Monetary Community of Central Africa (CEMAC) In June 2009, the Council of Ministers of WAEMU adopted ﬁ ve regulations (directives) related to public ﬁ nance man- agement.
One of the directives is related to the common reporting format of government ﬁ scal operations known as Tableau des operations ﬁ nancières de l’État (TOFE).

The TOFE directive is based on the GFSM 2001 methodology.

The long-term objective of this directive is for member countries to produce comparable general government data for both ﬂ ows and stocks.

In December 2001, similar directives, including a TOFE directive, were adopted by the Council of Min- isters of the CEMAC.
In both monetary unions, a transition period was determined to fully implement the directives.

(At the time of publishing this Manual, CEMAC was undertaking a revision of its public ﬁ nance directives, one of which is related to common reporting formats for government ﬁ scal operations.)
APPENDIX 6 GFS and International Public Sector Accounting Standards Th is appendix provides a generalized description of the relationship between the government fi nance statistics reporting guidelines and the International Public Sector Accounting Standards.

Introduction A6.1 Th is Manual recognizes the close relationship between guidelines for reporting GFS and accruals- based public sector accounting standards.
Many of the accounting rules, concepts, and procedures used in macroeconomic statistics are based on those used in public sector accounting.

International develop- ments in statistical methodology and accounting standards for the public sector have been coordinated over recent years, to improve government reporting and fi scal transparency.
A government’s preparation of fi scal statistics that meet the guidelines set out in this Manual is facilitated by application of high- quality accrual accounting standards, such as Interna- tional Public Sector Accounting Standards (IPSASs).

Th is is because a comprehensive accruals accounting system greatly improves the source data necessary for compilation of GFS.
Governments should be aware of the scope that exists for them to design their Chart of Accounts so that data capture works effi ciently for the dual purpose of generating GFS and accounting information.

A6.2 Th e Task Force on Harmonization of Pub- lic Sector Accounting, created in 2003, was the fi rst formal initiative at the international level with the objective to harmonize statistical guidelines and ac- counting standards.
Th e Task Force’s major outputs were: (i) guidance in the area of public sector statis- tics that informed the update of the 2008 SNA, and (ii) a research report that systematically documented similarities and diff erences between the two reporting systems.

International organizations and the Inter- national Public Sector Accounting Standards Board (IPSASB) continue eff orts to align guidelines as far as possible, while identifying and reconciling unavoid- able diff erences that may continue to exist.
A6.3 Because both IPSASs and statistical report- ing guidelines are dynamic and change over time, this appendix focuses only on the basic principles that explain why the two reporting frameworks dif- fer.

Detailed information on specifi c diff erences can be found on the IPSASB’s website and through refer- ence to individual IPSASs and detailed chapters of the GFSM 2014.
A6.4 Th is appendix focuses specifi cally on the links between GFS and IPSASs, because IPSASs are international standards and recognized as best prac- tice for public sector fi nancial reporting.

IPSASs form a comprehensive set of full accruals accounting stan- dards.

Public sector accounting standards developed in many national jurisdictions are based on IPSASs.
Th is means that comparison with IPSASs provides a clear, comprehensive basis for a GFS reporting guide- lines comparison with accounting standards, while leaving scope for those who apply other, non-IPSAS- based, full accruals accounting standards to adjust this overview for their own national diff erences.

Comparison of IPSASs and GFS Reporting Guidelines A6.5 Th ere is considerable overlap between IPSASs and GFS reporting guidelines.
Th is section provides a generalized description of the relationship between IPSASs and the GFS reporting guidelines, focusing on the conceptual diff erences that explain why the two reporting frameworks diff er in certain areas.

It provides a summary of how to reconcile these two very similar yet—in important ways—diff erent sets of information.
If suitable adjustments are made to address the diff erences described here, IPSAS-based 342 Government Finance Statistics Manual 2014 fi nancial reporting information can be used as a high- quality source for the data necessary for GFS reports.

Independent audit of IPSAS-based fi nancial reports enhances their reliability for GFS purposes.
A6.6 Th e description in this appendix is the same as the one included in Section 2 of the IPSASB Con- sultation Paper, IPSASs and Government Finance Sta- tistics Reporting Guidelines.1 Readers are referred to the GFSM 2014 or the latest edition of the Handbook of International Public Sector Accounting Pronounce- ments for more detailed explanations of the applicable reporting guidelines and standards.
A6.7 Th e information provided here is at a high level, and focuses on identifi cation of diff erences between the two frameworks.

It is not designed to provide detailed current information about either IPSASs or GFS reporting guidelines.

Detailed infor- mation on specifi c topics can be found through ref- erence to individual IPSASs, the 2008 SNA, the ESA 2010, and the GFSM 2014.

Both IPSASs and GFS re- porting guidelines are dynamic and change over time.
IPSASs, for example, have annual improvements, which typically impact on a number of diff erent stan- dards.

Th e IPSASB’s Conceptual Framework Project may also result in changes to IPSASs.

For the most current IPSASs and detailed information on them, it is important to refer to the Standards themselves.

A6.8 Diff erences between IPSASs and GFS report- ing guidelines are of two main types: (i) underlying conceptual diff erences, and (ii) presentation and ter- minology diff erences.
Conceptual Differences between IPSASs and GFS Reporting Guidelines A6.9 Th e conceptual diff erences between IPSASs and GFS reporting guidelines are discussed under the following headings: • Objectives • Reporting entity • Recognition criteria for some assets, liabilities, revenue, and expense • Valuation (measurement) diff erences for certain types of assets and liabilities • Revaluations and other volume changes.
1 See www.ifac.org/publications-resources/ipsass-and-government- fi nance-statistics-reporting-guidelines.

A6.10 Box A6.1 compares IPSASs and GFS report- ing guidelines in these areas.

Objectives A6.11 GFS reporting guidelines and IPSASs have diff erent objectives for the two sets of fi nancial infor- mation produced.
GFS reports are used to: (i) analyze fi scal policy options, make policy, and evaluate the impact of fi scal policies, (ii) determine the impact on the economy, and (iii) compare outcomes nationally and internationally.

Th e focus is on evaluating the impact of the general government and public sector on the economy, and the infl uence of government on other sectors of the economy.
Th e GFS reporting framework was developed specifi cally for public sec- tor input to other macroeconomic accounts, although a range of countries adopt GFS reporting for their fi scal reporting, and for measuring compliance with fi scal rules.

By contrast, IPSAS-based fi nancial state- ments are used to: (i) evaluate fi nancial performance and position, (ii) hold management accountable, and (iii) inform decision-making.
A6.12 Although the two sets of fi nancial informa- tion necessary to meet these diff erent objectives have many similarities, the diff erent objectives do result in some fundamental diff erences in how and what infor- mation is reported.

For example, in GFS reports, one distinction for transactions in fi nancial assets and lia- bilities is whether the counterparty of the transactions is a resident or nonresident.
In contrast, IPSAS-based fi nancial statements report these transactions accord- ing to whether they are current or noncurrent assets or liabilities, with classifi cation also in terms of their maturities and supplementary information provided on risks.
Reporting entity A6.13 One of the fundamental diff erences between GFS reporting guidelines and IPSASs relates to the defi nition of the reporting entity and the process of consolidation (collectively oft en referred to as “iden- tifi cation of the reporting entity boundary”).

Under GFS reporting guidelines, as described in Chapter 2 of the GFSM 2014 and in Chapter 4 of the 2008 SNA, in- stitutional units are aggregated and consolidated into statistical sectors and subsectors.
Th e focus of statis- tical reporting is primarily on consolidated sectors and subsectors.

Although it is theoretically possible to GFS and International Public Sector Accounting Standards 343 Box A6.1 Summary Comparison of GFS and IPSASs There is considerable commonality between IPSAS and GFS reporting guidelines.

There are also some important concep- tual differences within each area.

Presentation and terminology differences are described in paragraph A6.34.
Government Finance Statistics IPSASs Objectives Evaluate economic impact: Government ﬁ nance statistics are used to (i) analyze and evaluate the outcomes of ﬁ scal policy decisions, (ii) determine the impact on the economy, and (iii) compare national and international outcomes.

The GFS reporting framework was developed speciﬁ cally for public sector input to other macroeconomic datasets.
Evaluate ﬁ nancial performance and position: General purpose ﬁ nancial statements are used to (i) evaluate ﬁ nancial performance and ﬁ nancial position, (ii) hold management accountable, and (iii) inform decisionmaking by users of the general purpose ﬁ nancial statements.
Reporting entity Institutional units and sectors: The statistical reporting unit is an institutional unit, deﬁ ned as an entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities in its own name.

The reporting entity may be an institutional unit, but the primary focus is on a group of institutional units (consolidated sector or subsector).
Control and the nature of economic activities determine consolidation and the scope of the reporting entity.

The general government sector does not include institutional units primarily engaged in market activities.

Economic entity and consolidation: The reporting unit for ﬁ nancial statements is an economic entity, deﬁ ned as a group of entities that includes one or more controlled entities.

Control is the main criterion that determines consolidation.
The whole of the government reporting entity, at the highest level of consolidation, may include, in addition to government departments, subnational bodies such as state governments, and government- owned businesses that primarily engage in market activities.

Recognition criteria The key difference relates to some liabilities.

Economic events recognized: GFS recognize economic events on the accrual basis of recording when economic value is created, transformed, exchanged, transferred, or extinguished.
To maintain symmetry for both parties to the transaction, some provisions recognized in IPSAS reporting may not be recognized under GFS reporting.

While not recognized, those provisions may instead be disclosed as GFS memorandum items, as is the case, for example, with exposures to explicit one-off guarantees and provisions for doubtful debts.
Past events with probable outﬂ ows recognized: IPSASs recognize liabilities, including provisions, when a past economic event has taken place; the amount can be reliably estimated; and future outﬂ ows are probable.

These factors allow, in certain cases, recognition of items that do not involve a counterparty recognizing a symmetrical amount.

For example, so long as criteria are met, IPSASs require recognition of restructuring provisions.
Valuation (measurement) Current market prices: Current market prices are used for all ﬂ ows and stocks of assets/liabilities, but allowance is made for the use of alternative valuation methods where an active market does not exist.

Fair value, historic cost, and other bases: Fair value, historic cost, or other bases are used for the measurement of assets and liabilities.

Similar assets and liabilities must be valued consistently and the bases disclosed.
Where an entity reports an item using historic cost, IPSASs often encourage disclosure of fair value if there is a material difference between the reported cost and the item’s fair value.

Often IPSASs also allow entities to choose between fair value and historic cost.
Revaluations and other volume changes Record all revaluations and changes in volume in the Statement of Other Economic Flows: Separating all these “other economic ﬂ ows” is viewed as useful for ﬁ scal analysis, on the basis that revaluations and changes in volume do not represent ﬁ scal policy decisions directly within the control of government.

GFS distinguishes between value changes and volume changes.
Realized and unrealized gains and losses: Some gains or losses due to revaluations or changes in volume of assets are reported in the Statement of Financial Performance, while others are reported directly in the Statement of Changes in Net Assets/Equity.

Some other gains and losses—for example, market value changes for property, plant, and equipment carried at historic cost—are not reported at all.

Note: IPSASs = International Public Sector Accounting Standards.
344 Government Finance Statistics Manual 2014 create GFS reports for individual institutional units, separate statistical reports for individual units are usually not disseminated.

Each individual entity in the economy is analyzed with respect to its ability to hold assets and liabilities and exercise full economic ownership over them, to determine if it can be con- sidered an institutional unit.
A6.14 Th ose government-controlled units that are primarily engaged in nonmarket (including redis- tributive) activities are included within the general government sector.

Although all resident government- controlled entities, including public corporations en- gaged in market activities, are included within the public sector, nonmarket activities determine the de- lineation of the general government sector, as a dis- tinct subsector within the public sector.
Th e general government sector does not include institutional units primarily engaged in market activities.

Th e general government sector presents consolidated data, which means that transactions and stock positions between general government sector units are eliminated.

A6.15 In IPSASs, the “reporting entity” is a gov- ernment or other public sector organization, pro- gram, or identifi able activity that prepares general purpose fi nancial reports (GPFRs).
Within a jurisdic- tion, reports may be prepared on either a compulsory or voluntary basis.

A key characteristic of a reporting entity is that there are users who depend on GPFRs for information about the entity.

A reporting entity may be a “group reporting entity.” A6.16 A group reporting entity consists of two or more separate entities that present GPFRs as if they are a single entity.
A group reporting entity is identi- fi ed where one entity has the authority and capacity to direct the activities of one or more other entities so as to benefi t from the activities of those entities.

It may also be exposed to a fi nancial burden or loss that may arise as a result of the activities of entities whose activities it has the authority and capacity to direct.
If these conditions are met, then the entity is described as a “controlling entity,” with control defi ned accord- ing to the principle of exercisable power to govern the fi nancial and operating policies of another entity so as to benefi t from its activities.

A6.17 Th e requirement to consolidate entities dif- fers in IPSASs and GFS.
Under IPSAS 6, Consolidated and Separate Financial Statements, consolidated fi - nancial statements are the fi nancial statements of a group of entities presented as those of a single entity.

Th is means that a controlling entity will consolidate the fi nancial statements of all of its controlled entities, irrespective of whether they are: (i) resident units, (ii) market/nonmarket entities, or (iii) the IPSAS equivalent of a market entity—that is, a “government business enterprise” (GBE).
Th is contrasts with the general government sector consolidation approach, described earlier, where nonresident and resident market institutional units are included as a single line showing net investment, rather than fully consoli- dated into the general government sector.

A6.18 Nevertheless, IPSASs provide for the dis- closure of fi nancial information about the general government sector.
IPSAS 22, Disclosure of Finan- cial Information about the General Government Sec- tor, specifi cally sets aside the application of IPSAS 6 while retaining the application of all other IPSASs.

Th is allows—though does not require—an aggregate presentation that does not consolidate controlled in- terests in entities in other sectors.

A6.19 IPSASs also have a requirement (see IPSAS 18, Segment Reporting) that a reporting entity pro- vides disaggregated fi nancial information about each of its segments.
Th e information provided includes segment assets, liabilities, revenue, and expense.

Segments are usually defi ned either in terms of geo- graphical regions or services.

GFS include data on ex- penditure by function of government.

Recognition criteria A6.20 GFS reporting guidelines and IPSASs both aim to recognize economic events in the period in which they occur.
Neither GFS reporting guidelines nor IPSASs allow the application of precaution or prudence to justify the reporting of provisions that anticipate future possible events.

However, they diff er in their recognition criteria for certain liabilities, be- cause GFS treats uncertainty about future economic outfl ows diff erently from IPSASs.

Th e eff ect of this diff erence is that IPSASs require more items to be rec- ognized as liabilities than does GFS.
A6.21 In macroeconomic statistics, a liability is not recognized until a claim by the counterparty exists.

Maintaining symmetry in the macroeconomic sta- tistical system is a fundamental principle.

Th erefore, GFS and International Public Sector Accounting Standards 345 GFS guidance is that probable exposures such as con- tingencies and one-off guarantees should be disclosed in memorandum items, until such time as these are called.
Some liabilities for government employee ben- efi t payments and certain guarantee schemes are not contingencies, but instead are recognized as liabilities.

IPSASs require that where there is a present obliga- tion and an outfl ow will probably occur, the amount should be estimated and, if it can be reliably estimated, should be recognized as a liability in the statement of fi nancial position (balance sheet).
A6.22 Th e key area of diff erence is that of “provi- sions,” which IPSASs defi ne as liabilities of uncertain timing or amount (see IPSAS 19, Provisions, Contin- gent Liabilities and Contingent Assets, paragraph 18).

Provisions include obligations for which there is no counterparty—for example, provisions for restructur- ing and environmental restoration.
Provisions may also involve an estimate of economic outfl ow for a group of obligations (e.g., warranties), on the basis that it is probable that the entity will have to meet a claim by a proportion of the overall group.

A6.23 Th is diff erence with respect to liability recog- nition will have consequential diff erences for expense and asset recognition.
For example, recognition of a provision for restructuring will, under IPSASs, require recognition of a related expense, because there is no compensating increase in asset value.

Recognition of a provision for eventual site restoration during construc- tion of a landfi ll will, under IPSASs, be capitalized, adding to the overall investment in the asset.

Under IPSASs, it is also possible for an increase or decrease in the amount of a provision to occur due to an improved estimate.
An increase could result in expense recogni- tion, while a decrease could result in revenue recogni- tion.

GFS would not recognize either these changes in assets/liabilities or the resulting revenue/expense until a point in the process where another party can be iden- tifi ed as receiving value.
A6.24 GFS and IPSASs apply the same broad rec- ognition criteria to assets, with the result that, with a few exceptions such as assets arising from oil and gas exploration, the same fi nancial and nonfi nancial as- sets are recognized.

Revenue related to asset recogni- tion is generally also reported at the same point.

But other diff erences, such as asset measurement diff er- ences, can aff ect the asset value recognized and there- fore the amount of revenue recognized.
Th e timing of revenue recognition may diff er due to diff erences between when GFS and IPSASs consider either that related obligations have been discharged or that re- lated conditions have been removed.

Valuation (measurement) bases A6.25 Th e valuation principles in GFS and IPSASs provide scope for the majority of assets and liabilities to be valued on the same basis—that is, at current market values, except where IPSASs require the use of historic cost or some other measurement basis.
Both GFS and IPSASs allow proxies for current market value.

For example, depreciated replacement cost can be used as a proxy for the current value of specialized assets, if no market price information is available.

A6.26 Th e general valuation principle of GFS is to use current market prices for all assets, liabilities, and related value changes—that is, for all stocks and fl ows.
As explained in Chapter 3 of the GFSM 2014, where an active market does not exist, the GFS reporting guidelines recommend the use of nominal values for fi nancial instruments, and an estimate of the value of other assets/liabilities.

Th ese estimates could be based on: (i) prices of similar products in similar markets, (ii) the costs of production of similar assets at the re- porting date, or (iii) the discounted present value of expected future returns on the asset.
(See also para- graphs 3.107–3.129 for a complete discussion of the valuation principles of GFS.)

A6.27 IPSASs allow, but generally do not require, the use of “fair value” for many, but not all, assets, lia- bilities, and related value changes.

IPSASs defi ne “fair value” as the amount for which an asset could be ex- changed, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction.

Th is is similar to the basis for market price used in GFS.
IPSASs also allow assets and liabilities to be valued at historic cost.
A6.28 Under IPSASs, fi nancial liabilities (with some exceptions) and fi nancial assets that are (i) held- to-maturity investments, (ii) loans and receivables, or (iii) investments in equity instruments that cannot be measured at fair value because fair value cannot be determined reliably are measured at either cost or amortized cost, usually minus impairment losses (see IPSAS 29, Financial Instruments: Recognition and 346 Government Finance Statistics Manual 2014 Measurement).
Other marketable fi nancial instruments are measured at fair value.

Employee-related liabilities and long-term provisions other than fi nancial instru- ments are measured at net present value, which may approximate market price.

Property, plant, and equip- ment (PP&E) and intangible assets can be valued either at fair value or at depreciated historic cost.

Inventory is valued at cost, with a requirement to reduce to net real- izable value, if the inventory’s net realizable value falls below cost.
IPSASs allow investment properties to be measured at fair value, except for those for which a fair value is not reliably determinable on a continuing basis (see IPSAS 16, Investment Property, paragraph 62).

Biological assets are valued at fair value minus costs to sell, provided that fair value can be reliably measured.
A6.29 Where an item is reported at its historic cost, IPSASs oft en encourage or require disclosure of fair value, if there is a material diff erence between the item’s historic cost and its fair value.

For example, this is the case for property, plant, and equipment, intan- gible assets, and investment properties.

In these three cases, the use of historic cost is optional under IPSASs.

Th is means that governments can choose to value such assets at fair value.
If an entity chooses fair value, then an initial valuation is made at cost, followed by sub- sequent measurements at fair value.

Fair value mea- surement is not necessarily done annually.

Interim measurements will be at the fair value determined at the most recent revaluation minus accumulated de- preciation or amortization.

While the choice of fair value should, theoretically, align IPSAS measurement with GFS measurement, other factors can, in practice, result in diff erences.
Statisticians’ measurement prac- tices can involve sampling, indexing to infl ation, and other estimation techniques that can generate diff erent values from those produced by fi nancial accountants.

A6.30 IPSASs require disclosure of the valuation basis for assets and liabilities.

Th is means that IPSAS information makes clear whether a current market price has been used to value assets and liabilities.
If historic cost has been used to value assets or liabilities, then the IPSAS source data will need to be adjusted from historic cost to current market price before it can be used for GFS.

Th e adjustment will be straight- forward where IPSASs already require disclosure of a market price valuation, which may be the case for some types of assets and liabilities where fair value is materially diff erent from cost.
Treatment of revaluations and other volume changes A6.31 GFS diff erentiates between transactions (economic fl ows by mutual agreement) and other economic fl ows.

GFS records all holding gains and losses (revaluations) and other changes in the volume of assets and liabilities in the Statement of Other Eco- nomic Flows, which separates them from transactions.

Th is distinction is useful for fi scal analysis.


Other eco- nomic fl ows represent economic value gained or lost due to events that are not directly under the control of the government.

A6.32 IPSASs require the majority of changes in value to be recorded in the Statement of Financial Performance.
Gains and losses recorded in the State- ment of Financial Performance are then included in the total net amount that fl ows from the Statement of Financial Performance into the Statement of Changes in Net Assets/Equity.

As a result, the Statement of Changes in Net Assets/Equity reports the total impact of all recognized value changes.
Some unrealized gains and losses are not allowed to be recorded in the State- ment of Financial Performance and must, instead, be recorded directly in the Statement of Changes in Net Assets/Equity.

Th e main items are foreign exchange gains and losses related to foreign subsidiaries, and revaluations of property, plant, and equipment.
A6.33 Traditionally, the distinction between real- ized and unrealized gains/losses was viewed as the main diff erence between items recorded in the State- ment of Financial Performance versus those excluded from this statement and, instead, recorded only in the Statement of Changes in Net Assets/Equity.

Th e State- ment of Financial Performance was viewed as showing realized gains/losses, while the Statement of Changes in Net Assets/Equity showed unrealized gains/losses.
However, IPSASs now require many unrealized value changes to be included in the Statement of Financial Performance.

For example, value changes due to un- realized revaluations of employee liabilities and im- pairments are included in the Statement of Financial Performance.
Th e two main exceptions recorded in the Statement of Changes in Net Assets/Equity (foreign ex- change fl uctuations and revaluations of property, plant, and equipment, and intangible assets) are both unreal- ized, but they are also viewed as potentially obscuring an entity’s fi nancial performance, partly because they are viewed as outside of management’s control, and GFS and International Public Sector Accounting Standards 347 partly because gains in one year may be reversed in subsequent years.
Presentation and Terminology Differences A6.34 Presentation and terminology diff erences between IPSASs and GFS reporting guidelines also exist.

As a result, the GFS and IPSAS fi nancial state- ments and disclosures look diff erent, even though the information reported is largely the same, apart from the recognition and measurement diff erences discussed elsewhere in this paper.

Th is subsec- tion describes the main presentation and terminol- ogy diff erences between GFS guidance and IPSAS requirements.
A6.35 Th e main presentation and terminology dif- ferences are as follows: • Diff erent names for the IPSAS equivalents of the GFS statements.

• Th e types of classifi cation structures included in the balance sheet (statement of fi nancial posi- tion), operating statement (statement of fi nancial performance), and cash fl ow statement for the two reporting frameworks diff er, which, in some cases, also necessitate diff erences in terminology.
• GFS sets out a minimum level of detail for a com- prehensive list of standard line items that all enti- ties must report in their GFS statements, while IPSASs establish a minimum set of standard line items, while providing principles and guidance on further line items that a reporting entity may need to report.

• Th e way in which additional information about the data is disclosed diff ers in the two frameworks.
• Th e defi nition and/or value of key statement to- tals (such as total assets, net worth, total revenue, and surplus/defi cit) may diff er.

A6.36 Each of these main diff erences is discussed in paragraphs A6.37–A6.46.

Different names for statements A6.37 Th e IPSAS equivalents to the GFS statements have diff erent names (see IPSAS 1, Presentation of Fi- nancial Statements).
Th e IPSAS equivalent to the GFS Balance Sheet is a “Statement of Financial Position,” although “Balance Sheet” and “Statement of Assets and Liabilities” are acceptable alternatives under IP- SASs.

Th e IPSAS equivalent to the GFS Statement of Operations is a “Statement of Financial Performance,” although “Income Statement,” ”Statement of Revenues and Expenses,” “Operating Statement,” and “Profi t and Loss Statement” are acceptable alternatives under IPSASs.
Th e GFS Statement of Other Economic Flows is partly captured in the IPSAS “Statement of Changes in Net Assets/Equity” and partly in the IPSAS “State- ment of Financial Performance.” Th e IPSAS equiva- lent to the GFS Statement of Sources and Uses of Cash is called a “Cash Flow Statement.” A6.38 IPSAS fi nancial statements may also include a “Comparison of Budget and Actual Amounts,” for which there is no GFS equivalent.
Th is information must be provided by all entities that publish an ap- proved budget (see IPSAS 1, Presentation of Financial Statements and IPSAS 24, Presentation of Budget In- formation in Financial Statements).

It is presented ei- ther as a separate fi nancial statement or as additional columns in the fi nancial statements.

A separate state- ment must be used when the budget is on a diff erent basis from the actual reported results.
For example, if the budget is prepared on a cash basis, while the results reported in fi nancial statements are prepared on an accrual basis, the Comparison of Budget and Actual Amounts Statement is separate.

If they are pre- pared on the same basis, the budgeted amounts can be fully integrated into the fi nancial statements through the use of additional columns, and a separate state- ment is not necessary.
Classiﬁ cation structures A6.39 Th e GFS reporting guidelines classify and group items in its statements diff erently from IPSASs.

At the highest level, the terminology used for classi- fi cations is the same—for example, assets, liabilities, revenue, and expense.

However, within these items there are conceptual diff erences and diff erences in the structure of subclassifi cations.

Th e diff erences refl ect the diff erent objectives of the two information sets.
For example, IPSASs require that assets and liabilities be presented as current or noncurrent, or that a liquidity structure be followed.

Th is is important for assessing an entity’s liquidity and solvency.

GFS does not make this distinction in its core statements, but allows a sup- plementary table on the maturity structure of govern- ment’s fi nancial assets and liabilities to be compiled.

However, GFS requires that assets be presented as fi - nancial or nonfi nancial, which IPSASs do not require.
348 Government Finance Statistics Manual 2014 A6.40 For GFS, standardized economic and func- tional classifi cations serve the specifi c objectives of: (i) comparability of the accounts of various govern- ment entities and subsectors, and (ii) international comparability.

Th ese classifi cations are devised to evaluate the impact of the general government and public sector on the economy as a whole, and to iden- tify government’s involvement with other sectors.
For example, fi nancial assets and liabilities are classifi ed and presented according to whether they are domestic or foreign instruments, to allow an assessment of the government’s interaction with the rest of the world.

Such a classifi cation is important because fi scal pol- icy decisions on domestic versus foreign instruments are based on diff erent criteria, and also because this classifi cation allows the derivation of a government’s impact on the balance of payments of the country.
IPSASs do not require this distinction.

Th e standard- ized GFS presentation also allows the calculation and comparison of analytical measures of fi scal policy, such as the primary balance, tax incidence ratio, ex- penditure by function, etc.

A6.41 Counterparty information is collected for both GFS and IPSAS reporting.

Th e GFS economic classifi cation requires counterparty information for fl ows and stocks (balance sheet) to be reported as standard line items.
Th ese identify items for consoli- dation, and establish the linkages with other sectors of the economy.

IPSASs generally do not require coun- terparty information to be reported on the face of the fi nancial statements or their related notes.
However, IPSASs do require counterparty information to be collected: (i) by a parent entity to identify intra-group transactions, so that the entity can eliminate those in preparing the consolidated fi nancial statements, and (ii) by a subsidiary to identify transactions with the parent entity and other entities that are under com- mon control, so that information about those trans- actions can be disclosed in the notes.
Counterparty information can also be important for risk-related note disclosures and related party disclosures.

Minimum level of detail A6.42 GFS requires a minimum level of detail to be reported according to a comprehensive list of standard items.

Th e level of detail is presented in standardized items to facilitate consistency over time, comparability, and consolidation of data across units and sectors.

However, preparers may choose to pro- vide additional detail.
A6.43 IPSASs also require some minimum items to be reported.

However, presentation is less prescriptive compared to GFS reporting, with preparers required to make decisions about what items are shown, with reference to the purposes and understandability of statements, information relevance, and the principle that material items should be presented separately in the fi nancial statements (see IPSAS 1).

For example, preparers may choose between a presentation based on nature or function.
Disclosure of additional information A6.44 To facilitate the correct interpretation of their GFS reports, compilers are encouraged to present information on the sources, methods, and procedures of the statistics as metadata or footnotes to statistical reports.

In particular, information that may have an impact on assessing the statistics should be disclosed in the statistical reports.
GFS also uses standard cat- egories of memorandum items to report on items that are not reported in the body of the statements.

A6.45 IPSASs require that information that may have a signifi cant impact for users be disclosed in notes to the fi nancial statements.

Notes include a summary of signifi cant accounting policies.
Th ey also include further detailed information about individual items reported on the face of a statement—for example, (i) a break- down of property, plant, and equipment into classes, (ii) information about items that are not recognized but nonetheless important (e.g., contingencies), and (iii) risk information related to fi nancial instruments.

A6.46 GFS information is usually presented as a time series of data, so that comparative data for multiple years are presented at the same time.
Th e periodicity of these data could be monthly, quar- terly, or annually.

IPSASs require only annual report- ing, but allow more frequent reporting.

Consistent GFS time series may be very long, decades for some countries.

Following from this, corrections to data will be required to be made in the period in which errors occurred, irrespective of when the need for such corrections is determined.
Financial statements presented according to IPSASs require comparative information for only one previous year, though the number of years involved in calculating adjustments GFS and International Public Sector Accounting Standards 349 of prior year fi gures for policy changes and errors is not specifi ed.
Mapping from IPSAS ﬁ nancial statement aggregates to GFS aggregates Total assets and total liabilities A6.47 Some broad classifi cation diff erences exist between the classifi cation of assets and liabilities in GFS and IPSASs.

• GFS classify assets and liabilities in terms of whether they are fi nancial or nonfi nancial.

IP- SASs do not require assets and liabilities to be grouped in these terms, nor do they require summary totals for fi nancial and nonfi nancial assets.
However, they do require fi nancial and nonfi nancial assets and liabilities to be separately disclosed, which means that there is suffi cient information in an IPSAS statement of fi nancial position (balance sheet) to determine totals for fi nancial and nonfi nancial assets and liabilities.

• GFS classify fi nancial assets and liabilities into domestic and foreign.
IPSASs do not use this classifi cation, although some of these disclosures may be included in an entity’s risk management disclosures related to fi nancial instruments.

• GFS classify assets and liabilities according to standardized GFS characteristics and purposes, which can diff er from the classifi cations required by IPSASs.
For example, in IPSASs, the classifi ca- tion of property is determined by whether it is an investment property, while GFS distinguishes property according to whether it is a produced/ nonproduced asset and whether it is a dwelling, other building, other structure, or land improve- ment.
IPSASs classify fi nancial instruments into whether they are for trade or to be held until maturity, whether liabilities are employee li- abilities, and whether provisions relating to en- vironmental restoration all diff er from the GFS classifi cation.

Net worth A6.48 Th e GFS concept of net worth plus equity (also referred to as own funds) is equal to IPSASs’ net assets/equity: • In GFS, net worth for a specifi c period is defi ned as total assets minus total liabilities.
Th e balance sheet opening net worth + operating balance + changes in all assets and liabilities due to other economic fl ows = balance sheet closing net worth.

• According to IPSASs, net assets/equity is calcu- lated as the opening net assets/equity + surplus/ defi cit + items shown directly on changes in eq- uity statement = closing net assets/equity.

Net assets/equity is also equal to the net of all assets minus liabilities, excluding equity.
A6.49 Th ese diff erences in the calculation of the net balancing item primarily result from the diff er- ences between how GFS and IPSASs allocate items to their respective statements (GFS showing other economic fl ows separately).
In addition, it should be noted that, in the GFS net worth concept, equity is treated symmetrically as part of fi nancial assets and liabilities—that is, equity investments within assets, and any equity of the government entity held by nongovernment units—usually rare for government entities—within liabilities.

In contrast, the IPSAS net assets/equity concept includes equity that GFS treats as a liability, whereas investments in another entity’s equity are recognized as fi nancial assets.
A6.50 In addition to these presentational diff er- ences, the values of these items can also diff er due to valuation and recognition diff erences.
Revenue and expense A6.51 Although the GFS and IPSAS accrual con- cepts of revenue and expense are diff erent, they can be reconciled as follows: • GFS revenue + other economic infl ows = IPSAS revenue + economic infl ows recognized directly in Statement of Changes in Net Assets/Equity • GFS expense + other economic outfl ows = IPSAS expense + outfl ows recognized directly in State- ment of Changes in Net Assets/Equity.
A6.52 IPSASs refer to materiality as a classifi cation criterion for revenue and expense.

In this context, GFS requires reporting on standard items.

In addition to the economic classifi cation (as shown), the GFSM 2014 and the SNA/ESA also have a Classifi cation of Func- tions of Government (COFOG).

A6.53 Under IPSASs and GFS, cash fl ows result- ing from acquisitions or disposals of assets are recog- nized in the Cash Flow Statements.
However, in the accrual-based accounts, the time of recording asset 350 Government Finance Statistics Manual 2014 revaluations and the statement in which changes in valuations are recorded may diff er.

Under IPSASs, as- sets may be recorded at historical cost or fair value, depending on their nature.

Any gain or loss on dis- posal is a realized holding gain or loss recorded in revenue and expense at the time of disposal.
As such, these gains/losses are shown as part of the surplus/ defi cit that is recognized in the Statement of Finan- cial Performance.

Under GFS, assets are valued at current market prices and any holding gains or losses are recognized as they occur.

Th ese valuation changes are refl ected in the Statement of Other Economic Flows.
For assets disposed of at prices diff erent from the valuation of the asset, it is deemed that such an other economic fl ow occurred right before disposal, so that at disposal there is no gain or loss refl ected in the Statement of Operations.

Th erefore, the amounts of revenue/expense recognized will diff er from that recorded under IPSASs.
Consumption of ﬁ xed capital (assets) A6.54 In theory, the GFS concept of consump- tion of fi xed capital diff ers from the IPSAS concept of “depreciation.” Th e IPSAS concept of “depreciation” involves allocating changes in an asset’s historic cost or current value to the reporting period in which the asset is used, as a measure of the asset’s consumption.
Th e GFS concept of consumption of fi xed capital is based on a current value concept—described in the 2008 SNA (paragraph 6.240) as the decline, during the course of the accounting period, in the current value of the stock of fi xed assets owned and used by a producer as a result of physical deterioration, normal obsolescence, or normal accidental damage.
Consumption of fi xed capital is a forward-looking measure that is determined by the benefi ts that in- stitutional units expect to derive in the future from using the asset in production over the remainder of its service life.

In practice, consumption of fi xed capi- tal is usually calculated according to aggregated asset groups using a model approach.
A6.55 In practice, depreciation would approximate GFS consumption of fi xed capital, if similar valuation methods and service lives are assumed for assets, and IPSAS-based asset values are close to replacement val- ues through revaluations.

Where IPSAS asset values are based on historic cost values, depreciation would usually represent an underestimate of consumption of fi xed capital.

Th e diff erence will be large for govern- ments that have a large stock of fi xed assets, as many governments do.
Operating balance A6.56 Th e GFS net operating balance is calculated in the same way as the IPSAS “surplus/defi cit.” Both are calculated as revenue minus expense.

However, the value of these two balancing items is likely to diff er, because there may be diff erences between items in- cluded in the GFS revenue and expense and those in- cluded in IPSAS revenue and expense.

Th is diff erence can be mainly attributed to the conceptual diff erence in the treatment of other economic fl ows.
APPENDIX 7 GFS and Other Macroeconomic Statistics Th is appendix describes the relationships between gov- ernment fi nance statistics and national accounts, bal- ance of payments and international investment position, monetary and fi nancial statistics, and the System of Environmental-Economic Accounting (SEEA) Central Framework.
Th is appendix is intended to provide an overview of the major similarities and diff erences between government fi nance statistics and other major datasets, as well as an indication of how to reconcile the data in cases where there are diff erences in presentation.

Th e text of this appendix is not intended to take preference over the meth- odological guidance provided elsewhere in this Manual.
Introduction A7.1 It is important for compilers and users of GFS data to understand how GFS relate to the other macro- economic datasets.

More specifi cally, an understand- ing of the linkages fosters consistency in the respective datasets and supports whole-of-economy analysis.

A7.2 Th e institutional arrangements for compil- ing and producing macroeconomic statistics diff er from country to country.
Th ese could range from a single entity being responsible for the compilation of source data and the fi nal GFS to several national agencies being involved in the compilation of various components of the data.

Agencies such as ministries of fi nance (MOFs), national statistics offi ces (NSOs), central banks (CBs), and other government agencies may be involved.
Th e MOFs are oft en involved in compiling budget data from accounting and other administrative records to monitor implementation of the government budget.

NSOs are oft en respon- sible for compiling, producing, and disseminating macroeconomic statistics in line with the 2008 SNA1 1 In this appendix, most references to the SNA concern the general content of the volume rather than the citation of a specifi c por- tion of the text.
Th e expression “in the SNA” is used to refer to the national accounts compiled in accordance with the 2008 SNA as a body of thought.

principles.

Th ey may use source data from MOFs that are based on national classifi cations and make necessary adjustments according to the require- ment of the statistical guidelines.

CBs are primarily involved in compiling monetary and fi nancial data to allow them to monitor fi nancial conditions and the implementation of monetary policies.
All these data should be based on consistent methodological guidance, and where multiple agencies are involved in compiling macroeconomic data compilation, it is essential that these national agencies coordinate ef- forts to best ensure consistency in data outputs.2 A7.3 A clear understanding of the linkages be- tween datasets will assist countries in producing com- parable and consistent statistics needed for economic analysis and policy decisions.
Th e primary purpose of GFS is to provide a comprehensive conceptual and statistical reporting framework for analyzing and evaluating fi scal policy.

In addition, detailed GFS also provide a measurement of the impact of government on other sectors of the economy.

Th erefore, these fi s- cal data serve as input for other datasets, while other datasets may be used to derive and/or verify GFS data.
Harmonization in practice allows compilers to share source data, where appropriate, and also fosters co- herent developments in the source data systems.

A7.4 Th e remainder of this appendix provides an overview of the important similarities and diff er- ences between the GFS and other major datasets.
It describes the similarities related to coverage and ac- counting rules and then provides a comparison of the analytical framework of GFS with that of the national accounts, balance of payments and international in- vestment position, and the monetary and fi nancial statistics.

Last, the appendix describes how the GFS 2 See Dziobek and Tanase, Institutional Cooperation between Cen- tral Banks and the Statistical Offi ces for Producing Macroeconomic Statistics, IFC Bulletin No 28, August 2008.
352 Government Finance Statistics Manual 2014 framework relates to the System of Environmental- Economic Accounting (SEEA) Central Framework.

Where there are diff erences in presentation, the ap- pendix provides an indication of how to reconcile the data.

Overview of Similarities and Differences A7.5 Th is Manual is harmonized with the 2008 SNA, which provides the conceptual basis for national accounts.
Th e BPM6 serves as the standard frame- work for statistics on the transactions and positions between an economy and the rest of the world.

Th e Monetary and Financial Statistics Manual (MFSM) provides guidelines on compiling statistics for the fi - nancial corporations sector.

Th ese manuals are also harmonized with the 2008 SNA.3 A7.6 Broadly, the principles and concepts are de- fi ned in a consistent manner in all these statistical manuals.
Th e delineation between resident and non- resident entities, sectorization of the domestic econ- omy, and defi nitions and classifi cations of fi nancial instruments are the same.

Th e accounting rules used are the same with respect to basis of recording and val- uation.

While the accrual basis of recording fl ows and stock positions is used consistently in all data-sets, GFS also include the compilation of a Statement of Sources and Uses of Cash.
With a few exceptions, as described in the detailed comparisons, the fl ows and stock posi- tions of GFS are defi ned and valued in the same way.

A7.7 For analytical reasons, the structure and pre- sentation of the GFS framework in Chapter 4 and the GFS treatment of a few activities diff er from the framework and presentation of the data of the general government sector in the 2008 SNA and other data- sets.
While all the datasets have balancing items, the aggregation and consolidation rules are not exactly the same.

A7.8 GFS focus on measuring the impact of eco- nomic events on the fi nances of government, and the impact of government activities on the economy through taxing, spending, borrowing, and lending.

Th e SNA focuses on the linkages between sectors of the economy, and the economic processes of produc- tion, income generation and distribution, consump- tion of goods and services, and accumulation.
Th e balance of payments summarizes economic transac- tions between residents and nonresidents during a specifi c period, while the international investment position shows the value of the fi nancial assets and li- abilities stock positions between the residents of an economy and nonresidents at a reporting date.

Mon- etary statistics focus on assessing monetary condi- tions and the impact of monetary policy decision on the money and capital markets.
Th ese diff erences in focus require that the recording of government activi- ties in GFS occasionally diff er from the recording of those activities in the other macroeconomic datasets.

However, such diff erences are the exception to the general principle, as consistent application of concep- tual standards applies across related datasets.

Where there are diff erences in presentation, reconciliation of the diff erences should routinely be made to ensure consistency in the macroeconomic data.
Coverage and Accounting Rules A7.9 Th e identifi cation of institutional units and their sectorization are conceptually the same in all macroeconomic datasets.

Where analytically useful, certain datasets may require that the primary sectors be further divided into subsectors according to need.

For example, GFS present data for the subsectors of the general government as separate datasets, while mon- etary statistics present data for subsectors of the fi - nancial corporations.
As described in paragraph 2.58, the general government sector in GFS is defi ned iden- tically to the general government sector in the na- tional accounts, balance of payments, and monetary statistics.

Although the public sector is not one of the fi ve primary sectors in the SNA, it is recognized as an additional grouping.4 Th e residence concept used to delineate resident and nonresident entities and the sectors used in identifying counterpart transactions are the same across all datasets.
Compilers of macro- economic data should therefore ensure that the actual coverage used in their statistics is identical.

A7.10 Most of the accounting rules employed in these macroeconomic frameworks are identical.

In 3 Revision of the MFSM, 2000 edition, to align with the 2008 SNA, is pending at the time of publication of this Manual.

4 Th e defi nition of public sector as defi ned in the 2008 SNA, Chapter 22, Section B, is identical to the defi nition in paragraph 2.63 of this Manual.
GFS and Other Macroeconomic Statistics 353 particular, the rules for time of recording, the valu- ation of fl ows and stock positions, and the rules gov- erning the gross or net recording of fl ows and stock positions are identical.

public sectors, although the arrangement of the data diff ers and the actual fl ows recorded diff er in some instances.
Th ese diff erences could be summarized as follows (see Table A7.1): A7.11 Th e principal diff erence between GFS and the SNA regarding accounting rules concerns consoli- dation (see paragraph 3.167 of this Manual).

In prin- ciple, GFS requires the elimination of all intra- and intersector fl ows and stock positions between units of the same sector and subsectors.
Consolidation can be applied to the statistics of any group of units, includ- ing subsectors of the general government sector, the entire public sector, or any other grouping depending on analytical interest.

A7.12 As a matter of principle, consolidation is not used in the SNA, although it is acknowledged that consolidation may be useful for the general gov- ernment sector (see the 2008 SNA, paragraphs 2.69, 3.197, and 22.79).
Even when used in the national ac- counts, transactions appearing in diff erent accounts are never consolidated so that balancing items are not aff ected.

For example, in national accounts, interest receivable by one government unit that is payable by another government unit is shown as both revenue and expense in the accounts of the general govern- ment sector.

In contrast, full consolidation is used in GFS.


Such interest is recorded neither as an expense nor as revenue in the data for the consolidated general government sector as a whole, although such inter- est could appear in the subsector accounts of general government if the two parties involved are in diff er- ent subsectors of the general government.

Because SNA statistics are not consolidated, the GFS compiler should preserve the unconsolidated statistics for use by the national accounts compiler.
Comparison of the Analytical Frameworks of GFS and the SNA A7.13 Both GFS and the SNA can be described as the systematic recording and presentation of fl ows and stock positions, with the fl ows comprising transac- tions and other economic fl ows.

While the recording of fl ows and stock positions are generally the same in the two datasets, the accounts in which these are re- corded diff er because of the unique objectives of the two datasets.
In general, both datasets have the same interest in the activities of general government and • Th e GFS framework primarily records the opera- tions of the general government or public sector according to revenue, expense, and transactions in nonfi nancial and fi nancial assets, and liabili- ties.

Th ese transactions and other economic fl ows are integrated with balance sheets.
Th e SNA re- cords general governments’ transactions accord- ing to their involvement in the measurement of production, generation, distribution and use of income, and capital and fi nancial account trans- actions.

Th ese transactions and other economic fl ows are also integrated with balance sheets.
• Th e SNA reconciles the current accounts, accu- mulation accounts, and balance sheet positions across all institutional sectors, whereas GFS un- dertake such reconciliations only for the general government and public sectors.

• Th e two datasets diff er in recording practices.

GFS are based on the principle of double-entry recording, similar to business accounting, but the SNA is based on the principle of quadruple- entry accounting, because most transactions in- volve two institutional units.
Each institutional unit involved in a transaction must record the transactions according to the double-entry sys- tem for the accounts to be in balance.

• Th e focus of the SNA is on various kinds of eco- nomic processes.

Th erefore, where the recording of a single transaction is suffi cient in GFS, mul- tiple entries may be required in the SNA to cor- rectly refl ect all the relevant economic processes.
Comparison of the Accounts in GFS and the SNA A7.14 Th e GFS analytic framework consists of four statements (see Chapter 4).

Th e Statement of Opera- tions is a presentation of all transactions recorded in the GFS framework.

Other economic fl ows are pre- sented in the Statement of Other Economic Flows,5 and the stock positions are presented in the Balance Sheet.
5 For analytical reasons, the Statement of Other Economic Flows could also be presented as separate statements to record Holding Gains and Losses and Other Changes in Volume of Assets and Liabilities.

354 Government Finance Statistics Manual 2014 Table A7.1 Main Differences between GFS and the SNA Indicator Differences identiﬁ ed Analytical framework GFS are mainly presented in four statements, including a cash-ﬂ ow statement.
In the SNA, transactions are presented in a sequence of seven accounts (see Figure A7.1), other economic ﬂ ows are presented in two accounts, and stock positions are presented in the Balance Sheet.

There is no equivalent to the GFS cash-ﬂ ow statement.

Focus GFS focus on measuring the impact of economic events on the ﬁ nances of government.

The SNA focuses on measuring economic processes and their impact on the various sectors of the economy.
Consolidation In principle, GFS eliminate all intra- and intersector ﬂ ows and stock positions between units of the same sector and subsectors.
Unfunded employment-related pension funds FISIM, insurance services, and fees related to standardized guarantees Transfers in kind— goods and services produced by government Internal transactions in respect of own- account capital formation In the SNA, consolidation is not used as a matter of principle, although it is acknowledged that consolidation may be useful for the general government sector.

GFS require that a liability be recognized for all unfunded employment-related pension obligations.
SNA allows some pension obligations to be excluded from the core accounts and reported in supplementary tables.

The SNA recognizes all social contribution revenue and expense, and records an adjustment item for the change in liabilities, while GFS recognize social contributions and beneﬁ ts as either revenue and expense or transactions in liabilities.
In GFS, the services fees related to interest, nonlife insurance premiums, and fees for standardized guarantees are not separately identiﬁ ed because they can be estimated only indirectly by considering data for all sectors of the economy, such as in the national accounts.

In the SNA, the values for FISIM, insurance services, and standardized guarantees are derived by partitioning interest, nonlife insurance premiums, and fees for standardized guarantees.
In GFS, goods and services produced by government and transferred in kind are recorded as imputed sales only when provided to employees as wages in kind.

In all other cases, only the cost of producing these goods and services is recognized in the respective expense categories.

In the SNA, all goods and services produced by government and transferred in kind are recorded as a transfer and an imputed sale of goods and services.
In GFS, compensation of employees, use of goods and services, and consumption of ﬁ xed capital incurred in own-account capital formation are excluded from expense and are recorded as a component of the cost of the acquisition of the nonﬁ nancial asset.

In the SNA, the full costs of compensation of employees, use of goods and services, and consumption of ﬁ xed capital are recorded as well as the acquisition of the nonﬁ nancial asset.
Finally, the Statement of Sources and Uses of Cash pro- vides information on liquidity.

A7.15 In the SNA, transactions are presented in a sequence of seven accounts (see Figure A7.1), other economic fl ows are presented in two accounts, and stock positions are presented in the Balance Sheet.

Th ere is no SNA equivalent to the GFS Statement of Sources and Uses of Cash.

tional units and the uses of these resources.


Th ese ac- counts are balanced by introducing a balancing item defi ned residually as the diff erence between the total resources recorded on one side of the account and the total uses recorded on the other side.

Th e balancing item from one account is carried forward as the fi rst item in the following account, on the opposite side, thereby making the set of accounts an articulated whole.
A7.16 Each fl ow in the SNA relates to a particular kind of economic process or activity, such as produc- tion, or the generation, distribution, redistribution or use of income, and accumulation.

Each of the current accounts shows the resources available to the institu- A7.17 In the SNA, the sequence of transaction ac- counts is grouped into current and accumulation ac- counts.
Th e current accounts record the production of goods and services, and the generation, distribution, redistribution, and use of income.
Th e accumulation GFS and Other Macroeconomic Statistics 355 Figure A7.1 Diagram of the Sequence of SNA Accounts Production Account (Value added) Generation of Income Account (Operating surplus/ mixed income) Allocation of Primary Income Account (Balance of primary incomes) Alternative presentation Secondary Distribution of Income Account (Disposable income) Redistribution of Income in Kind Account (Adjusted disposable income) The Use of Disposable Income Account (Saving) Use of Adjusted Disposable Income in Kind Account (Saving) Opening Balance Sheet (Net worth) Capital Account (Net lending (+)/ net borrowing (-)) Financial Account (Net lending (+)/ net borrowing (-)) Other Changes in Volume Account (Changes in net worth due to other changes in volume) Note: Balancing items are shown in italics.
Revaluation Account (Changes in net worth due to revaluations) Closing Balance Sheet (Net worth) accounts record capital transfers, the acquisition and dis- posal of assets and liabilities, and other economic fl ows related to assets and liabilities.
Despite the large number of accounts in the SNA, there is broad correspondence between the structures of the GFS and SNA datasets.6 A7.18 As illustrated in Table A7.2, the GFS Statement of Operations can be divided into three sections— namely: • Transactions aff ecting net worth • Transactions in nonfi nancial assets 6 Explicit provision is made in the SNA for fl exibility in the presentation of stock positions and fl ows.
Th e accounts described here comprise the basic presentation described in Chapters 6 through 13 of the 2008 SNA.

• Transactions in fi nancial assets and liabilities.
Th e GFS transactions aff ecting net worth (revenue and expense) are shown as transactions in the current 356 Government Finance Statistics Manual 2014 Table A7.2 Linkages of the Statement of Operations in GFS with Sequence of SNA Transaction Accounts GFS Statement of Operations SNA Sequence of Accounts Main aggregates Balances SNA current accounts Production account Generation of income account Balances and main aggregates Value added / GDP Operating surplus and mixed income Revenue, Expense2 Net operating balance (or change in net worth due to transactions) Allocation of primary income account Balance of primary Secondary distribution of income account Use of disposable income account1 income / GNI Disposable income / NDI Saving / National saving Conceptually, net operating balance differs from saving with the value of capital transfers and taxes on capital transactions, and capitalized expense.
Additional differences in calculated values may arise due to differences in treatment of some employment-related pension schemes.

Operating balance2 minus net investment in nonﬁ nancial assets Net lending (+)/net borrowing (–) SNA accumulation accounts Capital account2 Balances and main aggregates Net lending (+)/net borrowing (–) Conceptually, net lending (+)/net borrowing (–) in GFS is the same as in the SNA.
In practice calculated values may differ due to difference in treatment of some employment-related pension schemes.

Net acquisition of ﬁ nancial assets minus net incurrence of liabilities Change in ﬁ nancial worth due to transactions = net lending(+)/net borrowing (–) Financial account Net lending (+) / net borrowing (–) Conceptually, transactions in ﬁ nancial assets and liabilities in GFS are the same as in the SNA.
In practice, calculated values may differ due to differences in treatment of some employment-related pension schemes.

1The use of the disposable income account is replaced by the use of the adjusted disposable income account by an alternative sequence of accounts in which the secondary distribution of income account is augmented with the redistribution of income in kind account (see Chap- ters 8 and 9 of the 2008 SNA for additional details on these accounts).
2Capital transfers as recorded in the SNA capital account are included in GFS as revenue and expense.

accounts of the SNA with one exception: capital trans- fers are shown in the capital account of the SNA, one of the accumulation accounts.
All of the GFS transac- tions in nonfi nancial assets presented in the second section of the Statement of Operations are shown in the capital account of the SNA, while the GFS trans- actions in fi nancial assets and liabilities correspond to the transactions shown in the fi nancial account of the SNA.

A7.19 Because each of the SNA accounts has its own balancing item, there are more balancing items in the SNA than in GFS.

However, some of the SNA balancing items can be derived from GFS.
Th e diff er- ent placement of capital transfers means that the GFS balancing item for the fi rst section of the Statement of Operations, the net operating balance, diff ers from saving, the fi nal balancing item in the sequence of current accounts in the SNA.

Th e net operating bal- ance of GFS minus capital transfers is comparable to saving as calculated in the SNA.

Net capital transfers are recorded as an aggregate in the capital account of the SNA.
Conceptually, net lending/net borrow- ing, the balancing item in GFS, is equivalent to the net lending/net borrowing calculated in the capital and fi nancial accounts of the SNA.

However, the dif- ference in the treatment of certain activities, such as some employment-related pension arrangements (see paragraph A7.46–A7.47), means that the value of net lending/net borrowing in GFS may diff er from the SNA.

Th ese diff erences are reconcilable.


A7.20 Th e GFS Statement of Other Economic Flows covers all other economic fl ows, classifi ed by type of asset or liability aff ected and according to whether the fl ow is a holding gain or an other change in the volume of assets.

In the SNA, the same distinction be- tween holding gains and other changes in the volume of assets is made.
In the SNA, these accounts are the revaluation account, in which eff ects of price changes in values of assets and liabilities are recorded, and the other changes in volume of assets account, in which changes in the amounts of the assets and liabilities as a result of factors other than transactions and revalu- ations are recorded.7 A7.21 Th e coverage of the GFS Balance Sheet is identical to the coverage of the Balance Sheet in the SNA, except for some employment-related pension entitlements.
Due to diff erent institutional arrange- ments in countries, some fl exibility is given in the SNA, but not in GFS, regarding the recording of pension entitlements for unfunded pension schemes sponsored by government.

Some of these pension en- titlements may be recorded within the main sequence of the SNA accounts (also referred to as the core ac- counts) and others may be reported in supplementary tables.
Linkages between GFS and the SNA A7.22 Despite the structural consistencies, the diff erent objectives of GFS and the SNA require that a few transactions and other economic fl ows recorded in the various statements and accounts be recorded and presented diff erently.

Th is section re- views and summarizes the relevant linkages between the two datasets.
In order to facilitate references to the respective datasets, the items are referred to by their names and the relevant SNA and GFS clas- sifi cation codes.8 Tables A7.3 and A7.4 indicate how the GFS revenue and expense categories link with the SNA classifi cations, and Table A7.5 identifi es the cor- respondence of GFS and SNA transactions in non- fi nancial assets, with corresponding classifi cation codes.
Th e SNA also provides volume measures (in- cluding of government components), an important 7 “Revaluations” and “holding gains” are used interchangeably in the 2008 SNA.

8 Th e SNA classifi cation codes for transactions and other fl ows have the form of a letter: D for distributive transactions, F for fi nancial assets and liabilities, K for other changes in assets ac- counts, or P for transactions in products, each followed by a num- ber.
Th e SNA codes for the balance sheet are AN for nonfi nancial assets and AF for fi nancial assets and liabilities.

Th e SNA coding system uses the letter B for balancing items.

Th e GFS coding system is presented in Appendix 8.

GFS and Other Macroeconomic Statistics 357 type of measure for fi scal analysis that makes the SNA complementary to GFS.
Current accounts A7.23 Th e current accounts of the SNA record the production of goods and services, the generation of income by production, the subsequent distribution and redistribution of income among institutional units, and the use of income for purposes of con- sumption or saving.

Th is section describes the GFS linkages with each of these current accounts.
The production account A7.24 Th e production account records the transac- tions relating to the activity of producing goods and services as defi ned in the SNA.

Th e balancing item, gross value added, is defi ned as the value of output minus the value of intermediate consumption.

Th e pro- duction measure of gross domestic product is defi ned as gross value added plus any taxes minus subsidies on products not already included in the value of output.
Output is the value of goods and services produced during an accounting period.

Intermediate consump- tion comprises the cost of goods and services used in production.

Value added is a measure of the contribu- tion to gross domestic product made by an individual producer, industry, or sector.

For general government, the production account represents the general govern- ment’s contribution to the domestic production.

A7.25 Value added can be presented gross or net of consumption of fi xed capital.
Net value added is the value of output minus the values of both intermediate consumption and consumption of fi xed capital.

Inter- mediate consumption of goods and services (P2) and consumption of fi xed capital (P51c) are included as uses, while the output (P1) of all goods and services produced by a general government unit is a resource.

Total output is divided into market output (P11), out- put for own fi nal use (P12),9 and other nonmarket output (P13).

A7.26 Output is not recorded as such in GFS.


Nev- ertheless, the total output of the general government sector can be determined as the sum of the output of 9 Output for own fi nal use in the SNA consists of products retained by the producer for its own use as fi nal consumption or capital formation.

Th erefore, own-account capital formation, as referred to in GFS, is a narrower defi nition than the SNA concept of output for own fi nal use.
358 Government Finance Statistics Manual 2014 Table A7.3 Correspondence of GFS and SNA Revenue Transaction Categories GFS codes SNA codes GFS revenue categories GFS codes SNA codes GFS revenue categories 1 11 111 1111 1112 = D51 > D51 > D51 1113 > D51 > D29 REVENUE Taxes Taxes on income, proﬁ ts, and capital gains Payable by individuals Payable by corporations and other enterprises Other taxes on income, proﬁ ts, and capital gains Taxes on payroll and workforce Taxes on property Recurrent taxes on immovable property > D29 > D59 Payable by producers Payable by consumers > D29 > D59 > D91 > D91 > D29 > D59 Recurrent taxes on net wealth Payable by producers Payable by consumers Estate, inheritance, and gift taxes Capital levies Other recurrent taxes on property Payable by producers Payable by consumers Taxes on goods and services General taxes on goods and services > D21 Value-added taxes Sales taxes > D2122 On imported goods and services > D214 On domestically produced goods and services Turnover and other general taxes on G&S > D214 Turnover taxes > D59 Expenditure taxes > D214 Taxes on ﬁ nancial and capital transactions Excises > D2122 On imported goods > D214 On domestically produced goods > D214 Proﬁ ts of ﬁ scal monopolies Taxes on speciﬁ c services > D2122 On imported services > D214 On domestically produced services Taxes
 on use of goods and on permission to use goods and perform activities 11451 Motor vehicles taxes 11451.1 > D29 Payable by producers Social contributions Social security contributions Employee contributions Of which: Insurance scheme service charge (–) > D613 ~
 D6131 Actual pension contributions ~ D6132 Actual nonpension contributions Employer contributions ~ D611 Actual social contributions ~ D6111 Actual pension contributions ~ D6112 Actual nonpension contributions ~ D612 Imputed social contributions ~ D6121 Imputed pension contributions ~ D6122 Imputed nonpension contributions > D613 > D613 Self-employed or unemployed contributions Unallocable contributions Other social contributions ~ D6132 Employee contributions ~ D6112 Employer contributions ~ D6122 Imputed contributions Grants From foreign governments > D74 > D92 > D99 > D74 > D92 > D99 > D73 > D92 > D99 ~ D41 ~ D421 ~ D422 ~ D441 ~ D443 = D45 = D43 Current Capital Investment grants Other capital transfers From international organizations Current Capital Investment grants Other capital grants From other general government units Current Capital Investment grants Other capital grants Other revenue Property income Interest Dividends Withdrawals of income from quasi-corporations Property income from investment income disbursements Insurance policy holders Collective investment funds Rent Reinvested earnings on foreign direct investment GFS and Other Macroeconomic Statistics 359 Table A7.3 Correspondence of GFS and SNA Revenue Transaction Categories (concluded) GFS codes SNA codes GFS revenue categories GFS codes SNA codes GFS revenue categories 11451.2 > D59 Payable by consumers 142 142.1 1421 1422 1423 1424 143 144 1441 14411 14411.1 14411.2 144111 144112 144113 14412
 1442 145 1451 14511 14512 14513 1452 Sales of goods and services > P11 Of which: sold at market prices Sales by market establishments Administrative fees Incidental sales by nonmarket establishments Imputed sales of goods and services Fines, penalties, and forfeits Transfers not elsewhere classiﬁ ed Current transfers n.e.c.
Subsidies > D759 > D31 > D39 Subsidies on products Subsidies on production From other general government units From international organizations From foreign governments > D759 Other current transfers n.e.c.

> D99 > D71 > D71 > D72 > D99 Capital transfers n.e.c.
Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes Premiums, fees, and current claims receivable Premiums receivable Fees receivable for standardized guarantee schemes Current claims receivable Capital claims receivable Other taxes on use of goods and on permission to use goods or perform activities > D29 > D59 Payable by producers Payable by consumers Other taxes on goods and services > D214 On products n.e.c.

> D29 > D59 On production n.e.c.


Payable by consumers Taxes on international trade and transactions Customs and other import duties = D2121 Import duties > D2122 Taxes on imports, excl.
VAT and import duties > D213 Taxes on exports Proﬁ ts of export or import monopolies > D2122 Proﬁ ts of import monopolies > D213 Proﬁ ts of export monopolies 11452 11452.1 11452.2 1146 1146.1 1146.2 1146.3 115 1151 1151.1 1151.2 1152 1153 1153.1 1153.2 1154 1154.1 > D2122 1154.2 > D213 1154.3 > D214 1155 1155.1 > D2122 1155.2 1155.3 > D213 > D214 1156 Exchange proﬁ ts Exchange proﬁ ts as taxes on import, excl.
VAT and import duties Exchange proﬁ ts as export taxes Exchange proﬁ ts as taxes on products excl.

VAT, import & export taxes Exchange taxes Exchange taxes as taxes on import, excl.

VAT and import duties Exchange taxes as export taxes Exchange taxes as taxes on products excl.
VAT, import & export taxes Other taxes on international trade and transactions 1156.1 > D29 Payable by producers 1156.2 > D59 Payable by consumers 116 1161 Other taxes Payable solely by business 1161.1 > D214 Stamp taxes 1161.2 > D29 Other taxes on production 1162 > D59 Payable by other than business or unidentiﬁ able Legend: = GFS item is the same as the SNA item > ~ GFS item is a component of the relevant SNA item GFS item is conceptually the same but differs in practice due to treatment of speciﬁ c transactions Note: Nonstandard GFS items required for the SNA indicated in darker shaded rows.
n.e.c.

= not elsewhere classiﬁ ed; VAT = value-added taxes.

360 Government Finance Statistics Manual 2014 nonmarket establishments and the output of market establishments.

Th e output of the two types of estab- lishments is derived quite diff erently: ment sector are not off ered for sale on the market so that valuation should be based on the cost of production.
• Th e output of market establishments is equal to the sales of those establishments (GFS revenue item sales by market establishments (1421)) plus changes in their inventories of work in progress (31222) and fi nished goods (31223).

Th us, to es- tablish a direct link with the SNA, GFS data on the changes in inventories need to be divided into separate data for market and nonmarket establishments.
• Th e output of nonmarket establishments can- not be determined from sales statistics because most of it is distributed without charge or sold at prices that are not economically signifi cant.

Instead, the output of nonmarket establishments is defi ned to be equal to the sum of their produc- tion costs: compensation of employees (21), use of goods and services (22), consumption of fi xed capital (23), other taxes on production paid, and other subsidies on production received (as a neg- ative value).
Th erefore, in order to calculate the output of non- market establishments from GFS data, it is necessary to divide the total values of each of the relevant ex- pense categories into expenses incurred by market establishments and expenses incurred by nonmarket establishments.10 A7.27 In the national accounts, the total output of the general government sector is allocated among three components: market output, output for own fi nal use, and other nonmarket output.
• Output for own fi nal use is the value of goods and services produced for own fi nal use or nonfi - nancial assets constructed for own use by general government units.

Th e latter data are available directly from the details of GFS expenditure as memorandum item 3M1 in Table 8.1.

In the SNA, provision is made to value this output at market prices if the assets constructed on own account are also off ered for sale on the market.
In the GFS framework, it is assumed that assets con- structed on own account by the general govern- • Market output and other nonmarket output are not directly available from GFS, and do not nec- essarily correspond to the output of market and nonmarket establishments because nonmarket establishments can produce market output, and vice versa.
 Th e value of market output is calculated as the sum of the entire output of market es- tablishments, actual sales of nonmarket es- tablishments at market prices11 (part of GFS revenue item incidental sales by nonmarket establishments (1423)), and other output that is imputed to have been sold (part of GFS rev- enue item imputed sales by nonmarket estab- lishments (1424)).

Imputed sales are in-kind transactions that are valued at market prices (see Box A7.1).
 Th e value of other nonmarket output can be calculated residually as the total output of the general government sector minus output for own fi nal use and market output.

A7.28 Intermediate consumption consists of the goods and services consumed as inputs by a process of production, excluding fi xed assets whose con- sumption is recorded as consumption of fi xed capi- tal.
For general government or public sector units, intermediate consumption includes the following GFS items: • Use of goods and services (GFS expense item 22) minus the portion of goods purchased for resale that was actually sold during the report- ing period (reduction in GFS item 31224 due to sales) • Goods and services used in own-account capital formation (GFS memorandum item 3M12) • Consumption of fi nancial intermediation ser- vices indirectly measured (FISIM), which is already taken into account in interest revenue and expense of GFS (GFS items 1411 and 24, respectively) 10 Market establishments included in the general government sector are usually a small fraction of the general government total output.
11 Sales of nonmarket goods or services at prices that are not economically signifi cant remain a part of the value of nonmarket output (see the 2008 SNA, paragraph 6.132).
GFS and Other Macroeconomic Statistics 361 Table A7.4 Correspondence of GFS and SNA Expense Transaction Categories GFS codes SNA codes GFS Expense categories GFS codes SNA codes GFS Expense categories 2 21 21.1 21.2 211 2111 2112 212 2121 EXPENSE Compensation of employees [GFS] > me By market establishments > nme; P1 By nonmarket establishments ~ D11 Wages and salaries ~ D111 Wages and salaries in cash ~ D112 Wages and salaries in kind ~ D12 Employers’ social contributions ~ D121 Actual employer’s social contributions 2121.1 2121.2 ~ D1211 Actual pension contributions ~ D1212 Actual nonpension 2122 ~ D122 contributions Imputed employers’ social contributions ~ D1221 Imputed pension contributions 27 271 2711 2711.1 2711.2 2712 272 2721 2722 273 2731 Imputed nonpension contributions Use of goods and services [GFS] ~ D6222 2732 ~ D632 28 281 2811 2811.1 ~ D421 Social beneﬁ ts [GFS] Social security beneﬁ ts ~ D621 Social security beneﬁ ts in cash ~ D6211 Social security pension beneﬁ ts ~ D6212 Social security nonpension beneﬁ ts ~ D632 Social security beneﬁ ts in kind Social assistance beneﬁ ts ~ D623 ~ D632 Social assistance beneﬁ ts in cash Social assistance beneﬁ ts in kind Employment-related social beneﬁ ts Employment-related social beneﬁ ts in cash Employment-related social beneﬁ ts in kind Other expense Property expense other than interest Dividends Dividends other than reinvested earnings Withdrawals of income from quasi-corporations Withdrawals of income from quasi- corporations other than reinvested
 earnings ~ D1222 ~ P2 ~ me ~ nme; P1 ~ P51c ~ nme; P1 ~ D41 By market establishments 2811.2 ~ D43 Reinvested earnings By nonmarket establishments 2812 ~ D422 Consumption of ﬁ xed capital [GFS] 2812.1 ~ D422 ~ me By market establishments By nonmarket establishments 2812.2 ~ D43 Reinvested earnings Interest [GFS] ~ D412 To nonresidents ~ D412 ~ D411 = To residents other than general government To other general government units Subsidies D31 D311 D312 D319 D39 Subsidies on products Import subsidies Export subsidies Other subsidies on products Subsidies on production To public corporations To public nonﬁ nancial corporations 2813 2813.1 2813.2 2813.3 2814 2815 282 2821 2821.1 2821.2 2821.3 Property expense for investment income disbursements Insurance policy holders Pension entitlements Collective investment funds Rent Reinvested earnings on foreign direct investment Transfers not elsewhere classiﬁ ed Current transfers n.e.c.
Other taxes on production Miscellaneous current transfers ~ D441 ~ D442 ~ D443 = D45 > D43 > D29 > D75 > D751 Current transfers to NPISHs 2821.31 > D751nik Transfers other than in kind transfers To public ﬁ nancial corporations 2821.32 > D751ik Transfers in kind To private enterprises To private nonﬁ nancial enterprises To private ﬁ nancial enterprises To other sectors 2821.4 > D759 2821.41 > D759nik Other miscellaneous current transfers Transfers other than in kind transfers 2821.42 > D759ik Transfers in kind To nonproﬁ t institutions To general government units To households as producers 2822 2822.1 2822.3 > D91 > D99 Capital transfers n.e.c.
Capital taxes Other capital transfers n.e.c.
2122.1 2122.2 22 22.1 22.2 23 23.1 23.2 24 241 242 243 25 25.1 25.11 25.12 25.13 25.2 251 2511 2512 252 2521 2522 253 2531 2532 2533 362 Government Finance Statistics Manual 2014 Table A7.4 Correspondence of GFS and SNA Expense Transaction Categories (concluded) GFS codes SNA codes GFS Expense categories GFS codes SNA codes GFS Expense categories 26 261 2611 2612 2612.1 2612.2 262 2621 2622 2622.1 2622.2 263 2631 2632 2632.1 2632.2 Grants To foreign governments > D74 Current Capital > D92 > D99 Investment grants Other capital grants To international organizations > D74 Current Capital > D92 > D99 Investment grants Other capital grants To other general government units > D73 Current Capital > D92 > D99 Investment grants Other capital grants 283 2831 28311 28312 28313 2832 Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes Premiums, fees, and current claims payable > D71 > D71 > D72 > D99 Premiums payable Fees payable for standardized guarantees Current claims payable Capital claims payable Legend: = GFS item is the same as the SNA item > GFS item is a component of the relevant SNA < item Portion of GFS item is a component of the relevant SNA item ~ GFS item is conceptually the same but differs in practice due to treatment of speciﬁ c transactions Note: Nonstandard GFS items required for SNA, indicated in darker shaded rows.
n.e.c.

= not elsewhere classiﬁ ed.

• Consumption of insurance services and service charge/fee related to standardized guarantees that are components of premiums, fees, and current claims related to nonlife insurance and standardized guarantee schemes (GFS items 1451 and 2831).
A7.29 For SNA purposes, the values for FISIM, insurance services, and standardized guarantees schemes are derived by partitioning interest, non- life insurance premiums, and fees for standardized guarantees (see paragraphs 6.81 and 6.125).

In con- cept, the value of these services should be treated as a use of goods and services expense for the con- sumer and revenue from the sale of a service for the fi nancial intermediary providing the service.
However, in GFS, these partitions are not made be- cause they can be estimated from data for the entire economy.

Instead, in GFS, the entire values of the transactions are recorded as interest, nonlife insur- ance premiums, or fees for standardized guarantees, respectively.12 A7.30 Consumption of fi xed capital (P51) in the SNA is identical to the concept in GFS.
However, the amounts of consumption of fi xed capital may diff er because of the diff ering treatment of own-account 12 See the 2008 SNA, paragraphs A3.24–A3.27, for additional details on the estimation of these services.

capital formation.

Consumption of fi xed capital as re- corded in the national accounts should be equal to the consumption of fi xed capital [GFS] (23) plus the con- sumption of fi xed capital recorded as a component of own-account capital formation in GFS (GFS memo- randum item 3M13).
The distribution of income accounts A7.31 Th e distribution of income accounts are de- composed into three main accounts.

Th ese separated accounts each have diff erent balancing items that have meaningful interpretations of income and comprise: • Primary distribution of income account, com- prising the generation of income account and the allocation of primary income account • Secondary distribution of income account • Redistribution of income in kind account.
The primary distribution of income account A7.32 Th e primary distribution of income account shows how GDP is distributed to labor, capital, gov- ernment, and, where necessary, fl ows to and from the rest of the world.

Th e primary distribution of income is always presented in two subaccounts—namely, the generation of income account and the allocation of primary income account.
GFS and Other Macroeconomic Statistics 363 Box A7.1 In-Kind Transactions Although GFS and the SNA recognize in-kind transactions, recording these may differ in the two datasets, speciﬁ cally in the case of goods and services produced by general government.

Due to the SNA’s focus on economic processes, such transactions may be recorded at various stages in the SNA, while in general they are recorded only once in GFS.

Imputed sales, as recorded in GFS, are called nonmonetary transactions in the SNA.
GFS and the SNA record such an imputed sale in the case of: • Goods and services produced by the general government sector and provided to employees as wages in kind— Treated as compensation of employees paid in cash followed by a sale to the employees (GFS item 1424).

The compensation is recorded in the generation of income account as compensation of employees, as wages and salaries (D11), and the output is recorded as household ﬁ nal consumption expenditure.
In GFS, goods and services produced by the general government sector and provided to employees as wages in kind are treated similarly to the SNA treatment.

The government is deemed to be acting in two capacities: as an employer and as a general producer of goods and services.
In order to indicate the total amount paid as compensation of employees, it is necessary to treat the amount payable in kind as if it had been paid in cash as wages and salaries and then the employees had used the cash to purchase the goods and services.
The SNA records transactions in imputed sales that are not recorded in GFS in the following cases: • Goods and services produced by the general government sector and provided as social beneﬁ ts in kind in ac- cordance with employment-related social beneﬁ ts—Treated in the SNA as if there had been a transfer to the beneﬁ ciaries in cash followed by a sale of the output to the beneﬁ ciaries.
Thus, the goods and services are recorded in the SNA as ﬁ nal consumption expenditure of the households while the transfer is recorded as a social beneﬁ t (recorded in the secondary distribution of income account as social beneﬁ ts other than social transfers in kind (D62 in SNA), under other social insurance beneﬁ ts (D622 in SNA).

This item is divided further into pension beneﬁ ts (D6221 in SNA) and nonpension beneﬁ ts (D6222 in SNA).
In GFS, goods and services pro- duced by general government units and provided as social beneﬁ ts are recorded in GFS as costs of production in the various GFS expense categories, such as compensation of employees and use of goods and services, and consumption of ﬁ xed capital, and not as social beneﬁ ts.
• Goods and services produced by the general government sector and provided as grants in kind to other gov- ernments and international organizations—Treated in the SNA as if there had been a transfer in cash followed by a sale of the output to the recipients of the goods and services.
The output is shown as exports (P6 in SNA) in the case of grants to foreign governments and international organizations and either government ﬁ nal consumption expenditure or gross ﬁ xed capital formation (P51 in SNA) in the case of grants to other domestic general government units.
The transfer is shown in the secondary distribution of income account as other cur- rent transfers (D7), either as current transfers within general government (D73 in SNA) or current international cooperation (D74 in SNA), or in the capital account as capital transfers, as investment grants (D92 in SNA) or other capital transfers (D99 in SNA).

In GFS, such grants in kind are recorded as grants to foreign governments (GFS expense item 261) or grants to international organizations (GFS expense item 262).
• Goods and services produced by the general government sector and provided as transfers in kind to nonproﬁ t institutions serving households or to individuals or households as compensation for damage to property or personal injury or as the settlement of an insurance claim—Treated as a transfer in cash and a sale of market output.
The transfer is recorded in the secondary distribution of income account of the SNA as other current transfers, as nonlife insurance claims (D72) or miscellaneous current transfers (D75), and the output is recorded as ﬁ nal consumption expenditure of the households sector or the nonproﬁ t institutions serving households sec- tor.

In GFS, these goods and services provided in kind are recorded as other transfers (GFS expense item 282).
The generation of income account A7.33 Th e generation of income account shows from the point of view of resident institutional units or sectors, in their capacity as producers, how the value added generates income for labor, capital, and government.
Th e account starts with value added as a resource and then includes as uses: • Compensation of employees (D1) • Other taxes on production13 (D29) payable 13 Other taxes on production consist of all taxes except taxes on products that enterprises incur as a result of engaging in production.

A tax on products is a tax that is payable per unit of some good or service.

(See the 2008 SNA, paragraphs 7.88–7.97.)


364 Government Finance Statistics Manual 2014 • Other subsidies on production (D39) receivable as a negative use.

A7.34 Th e balancing item of the generation of in- come account is the operating surplus (B2), which can be presented gross or net of consumption of fi xed capital.
It measures the surplus accruing from production before deducting any explicit or implicit income: interest charges, rent, or other property in- comes payable on fi nancial assets, land, or other natu- ral resources held to carry on the production process.
A7.35 Compensation of employees in the SNA corresponds to the sum of the GFS expense item com- pensation of employees [GFS] (21) and the amount of compensation of employees recorded as a component of own-account capital formation (GFS memoran- dum item 3M11).
A7.36 Th e taxes and subsidies that are included in the valuation of the output of nonmarket establish- ments consist of other taxes on production payable by general government units to other government units and other subsidies on production receivable by gen- eral government units from other government units, both national and foreign.

Th ese amounts are likely to be rare and/or small in magnitude.
Taxes payable by one level of government to another level of govern- ment are classifi ed in GFS as transfers not elsewhere classifi ed (282) in the subcategory current (2821).

Subsidies on production (D39) receivable are a por- tion of the subsidies (14411) classifi ed under transfers not elsewhere classifi ed (144).14 In GFS, these items, involving general government units, would be elimi- nated in consolidation when statistics for the general government or public sector are compiled.
The allocation of primary income account A7.37 Th e allocation of primary income account focuses on resident institutional units or sectors in their capacity as recipients of primary incomes.

It shows where the items payable in the generation of income account are receivable, and also includes the amounts of property income receivable and payable by institutional unit or sectors.
It contains the oper- ating surplus or mixed income as a resource and re- cords for each sector, property income receivable and payable, compensation of employees receivable, and 14 While a general government unit, public and private corpora- tions, NPISH, or households may be recipients of subsidies, these are payable by government units only.

taxes minus subsidies on production and imports re- ceivable.
Th e balancing item is the balance of primary income (B5), which represents the sector’s contribu- tion to the national income.

Th e balance of primary income or national income can be presented gross or net of consumption of fi xed capital.
A7.38 For the general government sector, the ac- count records the following resources: • Taxes on production and imports (D2), which are divided into taxes on products (D21) and other taxes on production (D29) • Subsidies as a negative resource (D3) • Property income as both a resource and a use (D4).
A7.39 In the SNA, taxes are classifi ed according to their role in economic activities as: • Taxes on production and imports (D2) in the production account, generation of income ac- count, and allocation of primary income account • Current taxes on income, wealth, etc.

(D5) in the secondary distribution of income account • Capital taxes (D91) in the capital account.

A7.40 GFS include a detailed classifi cation of taxes based on common practices in tax administration.
Th e result is that some tax categories in GFS, such as motor vehicle taxes, need to be allocated between two of the SNA tax categories according to whether they are payable by producers or fi nal consumers.

Th is al- location is required in the SNA and, in the absence of a split in GFS or source data, national accounts compilers will need to employ various methods to identify the payer (i.e., a producer or fi nal consumer).
A7.41 A breakdown of these taxes is shown in Table A7.3, which indicates, among other things, the linkages between the GFS and the SNA tax categories.

Th e table shows which GFS tax categories directly correspond to the SNA tax category, which SNA tax category consists of two or more GFS subcategories, and which GFS tax item requires further breakdowns to allow linkage to the SNA categories .
A7.42 Subsidies (D3) in the SNA are the equivalent of subsidies in GFS (GFS revenue item 14411 and GFS expense item 25), but the classifi cation of the type of subsidies is quite diff erent in the two datasets.

In the SNA, the subsidies are divided into subsidies on prod- ucts (D31) and other subsidies on production (D39).

Th e subsidies on products are divided further into subsidies on imports (D311), exports (D312), and other subsidies on products (D319).
In GFS, to allow consolidation of the public sector, subsidies are clas- sifi ed by recipients.

To allow correspondence between the SNA and GFS, a building block approach can be used to identify all subsidies according to whether they are on production or products, as well as identi- fi cation of the recipients.
A7.43 Th ere are several types of property income included as resources in the allocation of primary in- come account: • Dividends (D421) in the SNA are the equivalent of dividends recorded in GFS (GFS revenue item 1412 and GFS expense item 2811, respectively).

• Withdrawals of income from quasi-corporations (D422) in the SNA are the equivalent of these withdrawals recorded in GFS (GFS revenue item 1413 and GFS expense item 2812).
• Rent (D45) in the SNA is the equivalent of rent recorded in GFS (GFS revenue item 1415 and GFS expense item 2814).

• Interest (D41) in the SNA is the equivalent of in- terest in GFS (GFS revenue item 1411 and GFS expense item 24), adjusted for FISIM (see para- graph A7.29).

• Reinvested earnings on direct foreign investment (D43) in the SNA are the equivalent of reinvested earnings recorded in GFS (GFS revenue item 1416 and GFS expense item 2815).
• Imputed property income on investment income disbursements (D44), such as income attribut- able to insurance policy holders, etc., in the SNA is conceptually the equivalent of property income/ expense related to investment income disburse- ments (GFS revenue item 1414 and GFS expense item 2813).

However, for government sector units as holders of insurance policies, the revenue related to this item is likely to be unknown, and would probably be calculated only in the context of the whole of the economy.
It therefore remains an ad- justment item between GFS and national accounts.

Th is imputed property income is also recorded as payable by the benefi ciaries to the operator of the scheme as a household contribution supplement (D6141) in the secondary distribution of income account.

In the case of pension schemes for gen- eral government, this imputed transaction primar- ily relates to employment-related nonautonomous pension schemes.
If these pension schemes are au- GFS and Other Macroeconomic Statistics 365 tonomous, the transactions aff ect only households and the fi nancial corporations sector.

In GFS, an imputed property expense on existing pension en- titlements, recorded under GFS expense item 2813, is equal to the increase in the liability of a defi ned- benefi t pension scheme resulting from the passage of time.
Th us, the imputed household pension con- tribution supplements, recorded in the secondary distribution of income account in the SNA, should be recorded in GFS as incurrence of pension li- abilities (GFS transactions in liabilities item 33063) and not as revenue from social contributions (GFS revenue item 12).

Th e SNA values can be derived from the detailed records of the pension schemes.
The secondary distribution of income account A7.44 Th e secondary distribution of income ac- count covers redistribution of income through cur- rent transfers (other than social transfers in kind made by government and NPISHs to households).15 In addition to carrying forward the balance of pri- mary income, this account records: • Current taxes on income, wealth, etc.
(D5 in SNA) as a resource for government, divided further into taxes on income (D51 in SNA) and other current taxes (D59 in SNA) • Net social contributions (D61 in SNA) as a re- source for government • Social benefi ts other than transfers in kind (D62 in SNA) as a use for government • Other current transfers (D7 in SNA), both as a resource and a use.

A7.45 Th e net social contributions (D61) are the actual and imputed contributions made by house- holds to social insurance schemes.
Th e net contribu- tions exclude fees charged by the administrators of the schemes, which should be recorded as an expense for households for services rendered.

Th e net social con- tributions are divided into four subcategories in the SNA, with each of the net social contribution subcat- egories further divided into pension and nonpension contributions.
Th e subcategories for net social contri- butions are: • Employers’ actual social contributions (D611) • Employers’ imputed social contributions (D612) 15 Social transfers in kind are recorded in the redistribution of income in kind account.

366 Government Finance Statistics Manual 2014 • Households’ actual social contributions (D613) • Households’ social contributions supplements (D614).
A7.46 Th e amount recorded for net social contri- butions receivable by units operating social insurance schemes can be diff erent in the GFS and SNA datasets due to diff erences in the treatment of contributions to employment-related pension schemes.
In the SNA, amounts payable to the operator of the scheme as so- cial contributions (D6111, D6121, and D6131) are in- cluded in the secondary distribution of income, with a subsequent adjustment for the change in pension enti- tlements to record the incurrence of pension liabilities (F63 in SNA).
GFS record social contributions payable to employment-related schemes providing pensions and other retirement benefi ts directly as transac- tions increasing the scheme’s liabilities for pension entitlements (GFS item 33063) by the operator of the scheme.16 In the SNA, all social benefi ts payable, in- cluding pensions and other retirement benefi ts, are re- corded either in the secondary distribution of income account as social benefi ts other than social transfers in kind (D62), or in the redistribution of income account as social transfers in kind (D63).
In addition, all pen- sions and other retirement social benefi ts payable are recorded as a reduction in pension entitlements (F63).

A7.47 Unlike the SNA, transfer expense in GFS ex- cludes government employee pension and retirement benefi ts payable.

Th ese benefi ts are reported only as a transaction reducing liabilities for pension entitle- ments (GFS liability item 33063).

As a result, GFS does not need the item for adjustment for change in pen- sion entitlements.
Also, unlike in the SNA, benefi ts in the form of goods and services produced by general government units are not recorded as social benefi ts in GFS, but in the various GFS expense categories cor- responding to the costs of producing these goods and services, such as compensation of employees, and use of goods and services, etc.
A7.48 As stated in Box A7.1, goods and services produced by the general government sector and provided as social benefi ts in kind, grants in kind, or transfers in kind are recorded in the SNA as the production of output and a transfer to the benefi cia- ries.

Th ese transfers are recorded in the secondary 16 Actual and imputed contributions to pension and other retire- ment benefi t schemes are therefore excluded from GFS revenue from social contributions (GFS revenue category 12).
distribution of income account, as if received in cash by the benefi ciaries, accompanied by a sale of the out- put to the benefi ciaries.
A7.49 Other current transfers (D7) in the SNA are a disparate collection of entries that are found in vari- ous categories in GFS: • Net nonlife insurance premiums (D71) is the equivalent of net nonlife insurance premiums (GFS revenue item 14511 and GFS expense item 28311), adjusted for the imputation of the sale or purchase of insurance services, as described in paragraph A7.29.
• Nonlife insurance claims (D72) are the equiva- lent of the current nonlife insurance claims in GFS (GFS revenue item 14513and GFS expense items 28313).
• Current transfers within general government (D73) and current international cooperation (D74) in the SNA are recorded in GFS as current grants receivable (GFS revenue categories 1311, 1321, or 1331) or payable (GFS expense catego- ries 2611, 2621, or 2631) except for goods and services produced by general government units and distributed in kind (see Box A7.1).
• Miscellaneous current transfers (D75) in the SNA are recorded in GFS as fi nes, penalties, and forfeits (GFS revenue item 143), other current transfers not elsewhere classifi ed (GFS revenue item 14412), current transfers not elsewhere clas- sifi ed (GFS expense item 2821), adjusted with transfers of goods and services produced by gen- eral government units and distributed in kind (see Box A7.1).

A7.50 Th e balancing item of the secondary dis- tribution of income account is disposable income.
For households, this income can be used for fi nal consumption expenditure and saving.

For nonfi nan- cial and fi nancial corporations, disposable income is income not distributed to owners of equity minus taxes payable on income.

Th e disposable income can be presented gross or net of consumption of fi xed capital.
The redistribution of income in kind account A7.51 Th e redistribution of income in kind account records social benefi ts in kind and transfers of indi- vidual nonmarket goods and services from the govern- ment sector to the household sector using the goods or services.

Because of the nature of the transactions concerned, this account is signifi cant only for govern- ment, households, and NPISHs.

Th e account records two elements of the redistribution process.
Th e fi rst is nonmarket production by government and NPISHs of individual services, and the second is the purchase by government and NPISHs of goods and services for transfer to households free of charge or at prices that are not economically signifi cant.

Th e redistribution of income in kind account records social transfers in kind as resources for households and as uses of government and NPISHs.

Th e balancing item of the redistribution of income in kind account is adjusted disposable income.
A7.52 Th e Classifi cation of Functions of Govern- ment (COFOG) can be used to assist in deriving the government individual consumption expenditure (P31 in SNA).

Government’s social benefi ts in kind should be equal to the nonmarket produced social transfers in kind (D631 in SNA).

See Table A7.4 for a presentation of the corresponding GFS expense items.

Government collective consumption (P32 in SNA) is equal to its actual fi nal consumption (P4 in SNA).
The use of disposable income account A7.53 Th e use of income accounts exists in two variants, the use of disposable income account and the use of adjusted disposable income account.

Both accounts show for the three sectors that undertake fi nal consumption—namely, the household sec- tor, the NPISH sector, and the general government sector—how disposable income or adjusted dispos- able income is allocated between fi nal consumption and saving.
It measures that part of income, domesti- cally or abroad, that is not used for fi nal consump- tion.

Savings can be shown on a gross or a net basis (depending on whether consumption of fi xed capital is included).

A7.54 In the SNA, gross saving is the balancing item before capital transactions and can be derived by excluding from the net lending/net borrowing the capital transfers receivable/payable, gross capital formation and acquisitions minus disposals of nonfi - nancial nonproduced assets.
Gross saving can also be derived as disposable income minus fi nal consump- tion.

Since net lending/net borrowing in the SNA and GFS is conceptually the same, for the general govern- ment or public sector, gross saving can be derived from GFS, as follows: GFS and Other Macroeconomic Statistics 367 Net lending/net borrowing Minus: Capital grants/transfers receivable Plus: Plus: Capital grants/transfers payable Net acquisition of nonfinancial assets.
To get from net saving to gross saving, consumption of fi xed capital needs to be added.

A7.55 Th e use of disposable income account and the use of adjusted disposable income account calcu- late saving as a balancing item.

Th e two measures of saving are the same, but calculated diff erently.
• Th e use of disposable income account calculates saving using:  Disposable income as a resource  Final consumption expenditure as a use  An adjustment item showing the adjustment for the change in pension entitlements.

• Th e use of adjusted disposable income account calculates saving as a balancing item using:  Adjusted disposable income as a resource  Actual fi nal consumption as a use  An adjustment item showing the adjustment for the change in pension entitlements.
A7.56 Final consumption is a key component of the use of disposable income account and gross do- mestic product.

Th e concept is implemented in the SNA in two ways: fi nal consumption expenditure (P3) and actual fi nal consumption (P4).

Th e diff er- ence between them is social transfers in kind (D63), which represents the fi nal consumption of goods and services purchased by general government units but actually consumed by households.

A7.57 Final consumption expenditure is not an element of GFS.
Final consumption expenditure can be calculated using linkages with GFS data established earlier.

It can be calculated as: Total output minus output related to own-account capital formation;17 Plus: Purchases of goods and services that are transferred to households without further transformation;18 17 As illustrated in Tables A7.3 and A7.4, this corresponds to the sum of the following GFS categories: 1421+21.2+22.2+23.2+FISIM.
18 As illustrated in Tables A7.3 and A7.4, this corresponds to the sum of the following GFS categories: 2712+2722+2732+2821.32+2821.42.

368 Government Finance Statistics Manual 2014 Minus: Actual and imputed sales of goods and ser- vices (GFS revenue item 142);19 Minus: Changes in inventories of work in progress and finished goods (GFS items 31222 and 31223).
A7.58 In GFS, purchases of goods and services that are transferred to fi nal consumers without further transformation are classifi ed as social security benefi ts in kind (GFS expense item 2712), social assistance ben- efi ts in kind (GFS expense item 2722), employment- related social benefi ts in kind (GFS expense item 2732), or the in-kind portion of current transfers not else- where classifi ed (GFS expense item 2821), depending on the nature and the organization of the distribution.
A7.59 Th e GFS expense categories for social ben- efi ts in kind include reimbursements to households for purchases of goods and services receivable as so- cial benefi ts in kind, and direct purchases by general government units of goods and services from market producers and provided as social benefi ts in kind.
In addition, the GFS item for transfers not elsewhere classifi ed (2821) may include purchases of goods and services from market producers that are distributed directly to households for fi nal consumption other than social benefi ts.

Goods and services produced by government themselves and subsequently used as transfers in kind are not reported as in-kind transac- tions in GFS, but are included in the SNA concept for social transfers in kind (D63).
A7.60 Because the SNA separately measures production and distribution of goods and services, transactions in kind are normally recorded in the accounts as if they are monetary transfers followed by the beneficiary spending the transfer to obtain the goods and services concerned.

Therefore, so- cial transfers in kind (D63) consist of final con- sumption expenditure undertaken by government and NPISHs on behalf of households.

For this reason they are described as individual goods and services.
Information on these individual goods and services may be obtainable from the cross- classification of the COFOG and economic type of expense in Table 6A.2.

The annex to Chapter 6 lists the services that are considered individual.

19 When an existing good is sold, the amount receivable from its sale is recorded as negative fi nal consumption expenditure if the initial outlay on the good was classifi ed as fi nal consumption expenditure.
A7.61 In the SNA, an adjustment is made in the use of disposable income account, as well as in the use of adjustment disposable income account for the change in pension entitlements (D.8).
Th is adjustment for the change in pension entitlements is equal to: Th e total value of the actual social contributions pay- able to funded pension schemes, Plus: The total value of the imputed social con- tributions payable to employment-related pension schemes, Plus: The total value of social contribution sup- plements, Minus: The value of the associated service charges; Minus: The total value of the pensions paid out as pension benefits by the pension schemes.
Th e diff erent treatment of pension schemes eliminates the need for this adjustment item in the GFS frame- work (see paragraph 5.95).

The accumulation accounts A7.62 Saving is the balancing item of the last of the current account in the SNA and the starting point for the accumulation accounts.

Th e fi rst group of accumulation accounts, comprising the capital and fi nancial accounts, covers transactions in assets or liabilities and changes in net worth due to capital transfers.
A second group of accumulation accounts, comprising the other changes in volume of assets account and revaluation account, relates to changes in assets and liabilities caused by factors other than transactions.

The capital account A7.63 Th e capital account records transactions linked to the acquisition of nonfi nancial assets and capital transfers.
Th e account starts with net saving, the fi nal balancing item of the current accounts, and records transactions in nonfi nancial assets and capital transfers.

Th e balancing item is either net lending (+), which measures the net amount available to fi nance other sectors, or net borrowing (–) which corresponds to the net fi nancing from other sectors.

A7.64 Most of the entries in the capital account of the SNA can be derived from the corresponding entries in GFS.
For example, the gross fi xed capital formation (P51g) minus the consumption of fi xed capital (P51c) is the net investment in fi xed assets in GFS (GFS item 311).

As indicated in Table A7.5, the 2008 SNA classifi cation of categories of nonfi nancial assets has been fully incorporated in GFS.
However, in the SNA, fi xed assets are also classifi ed into: • Acquisition of new fi xed assets (item 311.1/ P5111 in Table A7.5) • Acquisition of existing fi xed assets (item 311.1/ P5112 in Table A7.5) • Disposal of existing fi xed assets (item 311.2/ P5113 in Table A7.5).

Th is distinction between new and existing assets is not available from GFS, and would require supple- mentary information from source data systems.
A7.65 Consumption of fi xed capital in the SNA (P51c) equals the sum of the expense item of the same name in GFS (GFS expense item 23) and the con- sumption of fi xed capital that was capitalized as part of own-account capital formation (GFS item 3M13).
A7.66 Changes in inventories (P52), acquisitions minus disposals of valuables (P53), and acquisitions minus disposals of nonproduced assets (NP) are the same as the net investment in the corresponding items in GFS (GFS items 312, 313, and 314, respectively).

A7.67 In the SNA, capital transfers receivable and payable (D9) are recorded as capital taxes (D91), investment grants (D92), and other capital trans- fers (D99).
Th ese transfers are included in GFS as follows: • Capital taxes (D91) receivable by the general government sector can directly be related to GFS revenue recorded in estate, inheritance, and gift taxes (GFS revenue item 1133) and other non- recurrent taxes on property (GFS revenue item 1135).

Where these taxes are payable by one level of government to another, they are included in the expense item capital transfers not elsewhere classifi ed (2822) of the payee.
• Investment grants (D92) consist of all capital transfers made by governments to other resident or nonresident institutional units to fi nance all or part of the costs of their acquiring fi xed assets.

Th ese investment grants receivable/payable are a component of capital grants receivable (GFS rev- enue items 1312, 1322, or 1332), and a compo- GFS and Other Macroeconomic Statistics 369 nent of capital grants payable (GFS expense items 2612, 2622, and 2632).
• Other capital transfers (D99) consist of all capi- tal transfers except capital taxes and investment grants.

One notable category included here is capital transfers related to debt cancellation by mutual agreement.
In GFS, these are a compo- nent of capital grants (GFS revenue items 1312, 1322, or 1332 or GFS expense items 2612, 2622, and 2632), capital transfers not elsewhere classifi ed (GFS revenue item 1442 and GFS expense item 2822), and capital claims related to nonlife insur- ance (GFS revenue item 1452 and GFS expense item 2832).

The ﬁ nancial account A7.68 Th e fi nancial account in the SNA records transactions in fi nancial assets and liabilities, classi- fi ed by instruments.
It therefore records the net ac- quisition of fi nancial assets, and the net incurrence of liabilities.

Th e balancing item, net lending (+)/ net borrowing (–), is in principle equal to the net lending (+)/ net borrowing (–) in the capital account, although measured diff erently.

A7.69 Conceptually, the transactions recorded in the fi nancial account of the SNA are identical to the transactions in fi nancial assets and liabilities recorded in GFS (see Table A7.6).
At the general government or public sector level the value of transactions in fi - nancial assets and liabilities could diff er due to the diff erent approach to consolidation (see paragraph A7.11).

Some investment income disbursements (see paragraph A7.43) would likely be unknown to gov- ernment, and would be calculated only in the context of the whole of the economy and therefore remain an adjustment item between GFS and national accounts.
Amounts recorded as transactions in insurance, pen- sion, and standardized guarantee schemes may also diff er due to the option in the SNA to treat some em- ployment-related liabilities in supplementary rather than the main tables (see paragraph 5.95).
The other changes in the volume of assets accounts A7.70 Th e other changes in the volume of assets account in the SNA records the same economic events as those recorded in GFS (GFS items 5***); the total value of changes should therefore be consistent in 370 Government Finance Statistics Manual 2014 the two datasets.

In both datasets, the other changes in volume of assets are recorded for each type of as- sets and liabilities.
In addition, the SNA also classifi es these changes according to specifi c events that give rise to the change in the volume of the assets or li- abilities.

Data are separately recorded for economic appearance of assets (K1), economic disappearance of nonproduced nonfi nancial assets (K2), catastrophic losses (K3), uncompensated seizures (K4), other changes in volume not elsewhere classifi ed (K5), and changes in classifi cation (K6).
Source data for record- ing these events should therefore provide for identi- fi cation of the relevant assets and liabilities, but also identify the underlying event that caused the change in the volume.

The revaluation account A7.71 Th e revaluation account in the SNA records the same holding gains or losses as those recorded in GFS (GFS items 4***).

Th e total value of nominal holding gains for the general government or public sector should therefore be the same in the two data- sets.
In addition, the SNA recommends that nominal holding gains and losses be further subdivided be- tween neutral and real holding gains and losses.

GFS do not make this distinction: • Neutral holding gains and losses (B1031) over a period are the increase (decrease) in the value of an asset that would be required, in the absence of transactions and other changes in the volume of assets, to maintain command over the same amount of goods and services as at the beginning of the period.
Th e value is obtained by applying, during the same periods of time, an index of the change in the general price level to the initial value of all assets or liabilities.

Th e result of this opera- tion is called neutral holding gains and losses be- cause all assets and liabilities are revalued so as to preserve exactly their purchasing power.

• Real holding gains and losses (B1032) record the diff erence between nominal holding gains and losses and neutral holding gains and losses.
The balance sheet A7.72 Th e opening and closing balance sheets for the general government or public sector are concep- tually the same in the SNA and GFS.

Both datasets display assets on the left -hand side, and liabilities and net worth on the right-hand side.

Th e changes in the Balance Sheet in the SNA are the sum of the entries in the four accumulation accounts corresponding to the respective asset or liability.
Similarly, in GFS the changes in the Balance Sheet for each category of as- sets and liabilities are equal to the sum of transactions, holding gains and losses, and other changes in vol- ume.

Th e classifi cation of assets and liabilities in the two frameworks are fully consistent.

However, at the general government or public sector level the value of stock positions in fi nancial assets and liabilities could diff er due to the diff erent approach to consolidation (see paragraph A7.11).
In practice amounts recorded as stock positions may also diff er in two cases: • Liabilities in respect of employment-related pen- sion schemes may diff er, due to the option in the SNA to treat some employment-related liabilities in supplementary tables (see paragraph 5.95).
• Assets and liabilities subject to investment in- come disbursements may diff er in cases where these amounts are unknown to government, and therefore excluded from GFS, and would be cal- culated only in the context of the whole of the economy (see paragraph A7.43).20 Comparison of the Analytical Frameworks of GFS and the Balance of Payments and the International Investment Position A7.73 Th e BPM6 serves as the standard frame- work for statistics on the fl ows and stock positions between an economy and the rest of the world.
Since the BPM6 is harmonized with the 2008 SNA, it is also harmonized with the other macroeconomic da- tasets, including GFS.

Because of conceptual link- ages, compilers of the international accounts and GFS should consult to ensure the consistent appli- cation of defi nitions of coverage and concepts, and accounting rules.
Comparison of the Accounts in GFS and Balance of Payments and the International Investment Position A7.74 Th e structure of the international statis- tical framework is similar to the structure used in the GFS framework, and comprises (i) the balance 20 Th e SNA also provides volume measures (including of govern- ment components)—an important type of information for fi scal analysis that makes the SNA complementary to GFS.
GFS and Other Macroeconomic Statistics 371 Table A7.5 Correspondence of GFS and SNA Transactions in Nonﬁ nancial Asset Categories GFS codes SNA codes Nonﬁ nancial asset categories Nonﬁ nancial assets Fixed assets Of which: Own-account capital formation Own-account capital formation, compensation of employees Wages and salaries Employers’ social contributions Employers’ actual social contributions Employers’ actual pension contributions Employers’ actual nonpension contributions Employers’ imputed social contributions Employers’ imputed pension contributions Employers’ imputed non-pension contributions Own-account capital formation, intermediate consumption Own-account capital formation, consumption of ﬁ xed capital Acquisition of new ﬁ xed assets Acquisition of existing ﬁ xed assets Disposals of existing ﬁ xed assets Buildings and structures Dwellings Buildings other than dwellings Other structures Land improvements Machinery and equipment Transport equipment Machinery and equipment other than transport equipment ICT equipment Machinery and equipment not elsewhere classiﬁ ed Other ﬁ xed assets Cultivated biological resources Intellectual property products Costs of ownership transfer of nonproduced assets (other than land) Weapons systems Inventories Materials and supplies Work-in-process Of which: Market establishments Work-in-process on cultivated biological assets Other work-in-process Finished goods Of which: Market establishments Goods for resale Military inventories Valuables Nonproduced assets Land
 Mineral and energy resources Other naturally occurring assets Intangible nonproduced assets Contracts, leases, and licenses Goodwill and marketing assets 31 311 3M1 3M11 3M111 3M112 3M1121 3M11211 3M11211 3M1122 3M11221 3M11222 3M12 3M13 Legend: = > > > > > > > > > > > > < < < P511 P1 D1 D11 D12 D121 D1211 D1212 D122 D1221 D1222 P2 P51c P5111 P5112 P5113 = = P512 P52 me me P53 NP NP1 NP1 NP1 = > > > = = = > < ~ NP2 NP3 GFS item is the same as the SNA item GFS item is a component of the relevant SNA item Portion of GFS item is a component of the relevant SNA item GFS item is conceptually the same but differs in practice due to treatment of speciﬁ c transactions Note: Nonstandard GFS items required for the SNA indicated in darker shaded rows.
372 Government Finance Statistics Manual 2014 of payments, which summarizes economic transac- tions between residents and nonresidents during a specifi c time period; (ii) the other changes in fi nan- cial assets and liabilities, which show fl ows due to economic events other than transactions between residents and nonresidents, and include valuation changes; and (iii) the international investment po- sition (IIP), which shows the value of the fi nancial asset and liability stock positions between the resi- dents of an economy and nonresidents at a reporting date.
Th e diff erence between the opening and clos- ing stock positions of the IIP is explained by the sum of transactions and other changes in fi nancial assets and liabilities.

Linkages between GFS and Balance of Payments and the International Investment Position A7.75 Th e BPM6 framework provides a sequence of accounts, each encompassing a separate economic process or phenomenon and a balancing item.

Th e remainder of this section describes how the various international accounts correspond to GFS.
The balance of payments A7.76 Th e balance of payments summarizes eco- nomic transactions between residents and nonresi- dents during a specifi c time period.

Th e diff erent accounts within the balance of payments are dis- tinguished according to the nature of the economic resources provided and received, and comprise the following: • Th e current account shows fl ows of goods and services, primary income, and secondary income between residents and nonresidents.
• Th e capital account shows fl ows for transactions in nonproduced nonfi nancial assets, and capital transfers between residents and nonresidents.

• Th e fi nancial account shows net acquisition and disposal of fi nancial assets and liabilities.

• Th e sum of the balances on the current and capital accounts represents the net lending (surplus) or net borrowing (defi cit) by the resi- dent economy with the rest of the world.

Th is is conceptually equal to the net balance of the fi nancial account.
It is also conceptually equal to the sum of net lending/borrowing for all the resident sectors.

The current account A7.77 Th e current account shows fl ows of goods and services, primary income, and secondary income between residents and nonresidents.

Th e balance on this account, known as the current account balance, shows the diff erence between the sum of exports and income receivable and the sum of imports and in- come payable.
Th e current account balance represents the saving-investment gap for the economy.

The goods and services account A7.78 Th e goods and services account shows transactions in items that are outcomes of produc- tion activities.

Th e focus of the account is the point at which goods and services21 are exchanged between a resident and a nonresident.
Production is an activ- ity in which an enterprise uses inputs (intermediate inputs, labor, produced and nonproduced assets) in order to transform them to an output that can be sup- plied to other units.

A7.79 Th e GFS Statement of Operations has a linkage to the goods and services account to the extent that general government/public sector units enter into transactions with nonresidents, involv- ing goods and services, either as a producer/seller or user of these goods or services.
GFS will usually not separately identify these transactions, which limits opportunities for reconciliation between the goods and service account and GFS.

However, in some cases, supplementary information in the underlying source data may identify such transactions—either because of their nature, large volumes, or large val- ues of the transactions.
Specifi cally, where produced assets are exchanged, contractual arrangements may be publicly available and should be consistently treated in the goods and services account of the bal- ance of payments and GFS.

A7.80 Th e goods and services account requires that goods and services be classifi ed according to the nature of the good or service.
One of these specifi cally requires the separate disclosure of government goods and services not included elsewhere, which cover: • Goods and services supplied by and to enclaves, such as embassies, military bases, and interna- tional organizations 21 Goods as used in this context include both consumer goods and produced nonfi nancial assets.
GFS and Other Macroeconomic Statistics 373 Table A7.6 Correspondence of GFS and SNA Financial Assets and Liabilities GFSM harmonized with other datasets Financial assets1 Total by instrument: Monetary gold and SDRs Monetary gold SDRs Currency and deposits Currency Transferable deposits Other deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements2 Claims of pension fund on pension manager Provisions for calls under standardized guarantees Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts receivable Trade credits and advances Miscellaneous accounts receivable Liabilities1 Total by instrument: Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pension, and standardized guarantee schemes2 Financial derivatives and employee stock options Other accounts payable GFS codes 2008 SNA codes Stock position Transaction Stock position Transaction 6307
62081 62082 63 6301 6302 6303 6304 6305 6306 6307 6308 F1 F11 F12 F2 F21 F22 F29 F3 F4 F5 F51 F52 F6 F61 F62 AF1 AF11 AF12 AF2 AF21 AF22 AF29 AF3 AF4 AF5 AF51 AF52 AF6 AF61 AF62 F63 & F65 AF63 & AF65 F64 F66 F7 F71 F72 F8 F81 F82 AF64 AF66 AF7 AF71 AF72 AF8 AF81 AF82 F12 AF12 F2 F3 F4 F5 F6 F7 F8 AF2 AF3 AF4 AF5 AF6 AF7 AF8 1Both ﬁ nancial assets and liabilities are classiﬁ ed further into domestic and external in the same subcategories except that: liabilities and domestic assets exclude monetary gold from ﬂ ows and stock positions; and domestic assets and domestic liabilities exclude SDRs from stock positions.
2To the extent that nonpension entitlement reserves exist, such liabilities are included with those for pension entitlements for pragmatic reasons (see paragraph 7.195).

• Goods and services acquired from the host econ- omy by diplomats, consular staff , and military personnel located abroad and their dependents • Services supplied by and to governments and not included in other categories of services.
A7.81 Government and international organization enclaves are not residents of the territory in which they are physically located.

Th erefore, their transactions with residents of that territory or location are inter- national transactions.

However, all expenditure on goods and services by locally engaged staff of the en- clave is excluded from international transactions.
In addition, government supply of licenses and permits to nonresidents that are classifi ed as fees and some activities related to technical assistance provided by one country to another are included in goods and 374 Government Finance Statistics Manual 2014 services.22 Th e GFS classifi cations do not specifi cally require the identifi cation of transactions in goods and services with nonresidents.
However, where these transactions can be identifi ed and classifi cations are built into the underlying general government sector ac- counting system, the information should be provided to balance of payments compilers.

Th e value of transac- tions in goods and services entered into with nonresi- dents in GFS may diff er from the international statistics that follow the SNA treatment of insurance services and standardized guarantee fees (see paragraph A7.29).
The primary income account A7.82 Th e primary income account shows primary income fl ows between resident and nonresident insti- tutional units.

Primary income represents the return that accrues to an institutional unit for its contribu- tion to the production process or for the provision of fi nancial assets and renting natural resources to other institutional units.
A7.83 Th e international accounts distinguish the following types of primary income: • Compensation of employees • Investment income  Dividends  Reinvested earnings  Interest  Investment income attributable to policyhold- ers in insurance, standardized guarantees, and pension funds • Other primary income  Rent  Taxes on production and imports  Subsidies.
A7.84 Th e consistency in data between the GFS and primary income account can be established only to the extent that suffi cient supplementary details are separately identifi ed in GFS, or the underlying source data.
Th e following linkages exist between the pri- mary income account and GFS: • Compensation of employees: To the extent that the resident government employs nonresident 22 See the BPM6, paragraphs 10.173–10.181.Th e criteria for the identifi cation of these fees are the same as in the SNA and GFS.

individuals, compensation of employees of gov- ernment would include amounts payable to non- residents that should be recorded in the primary income account of the balance of payments.
Because government employment usually has some residence criteria as a precondition, these amounts are oft en not very large.

However, in the case of territorial enclaves, all compensation of employees payable by government to residents of the host country should be included in the pri- mary income account.

Th e GFS classifi cations do not specifi cally require the identifi cation of com- pensation of employees to nonresidents.
How- ever, when such payments are identifi ed in the underlying source data system, the information should be reported consistently in the GFS and primary income account.

• Investment income: Th e contribution of the gen- eral government sector to investment income is mainly derived from the nonresident portion of the GFS items interest (GFS revenue item 1411 and GFS expense item 24) and dividends (GFS revenue item 1412 and GFS expense item 2811).
It can therefore be linked with the GFS accounts, if underlying source data distinguish between receivables and payables from/to residents and nonresidents.

While the categories of investment income are conceptually the same for GFS and the international accounts, the value of transac- tions with nonresidents in GFS may diff er from the international statistics due to the treatment of FISIM (see paragraph A7.29).
Where general government sector units control insurance, stan- dardized guarantees or pension schemes, they attribute investment income to policyholders in these schemes.

Th ese policyholders may include nonresidents, in which case the relevant portion of the property expense for investment income dis- bursement (GFS expense item 2813) should be consistent with the corresponding item recorded in the primary income account.
Where a general government unit or public corporation has for- eign direct investments in nonresident special purpose entities (SPEs), or foreign branches of public corporations, reinvested earnings, as re- ported in the primary income account, should be recorded separately in GFS (GFS revenue item 1416).
Similarly, where public corpora- tions have foreign direct investors or investment fund shares/units, reinvested earnings should be GFS and Other Macroeconomic Statistics 375 included in the primary income accounts, and should be consistent with amounts reported in GFS (GFS expense item 2815).
• Other primary income: In calculating other pri- mary income, linkages with the GFS data arise from the transactions with nonresidents related to subsidies (GFS revenue item 14411 and GFS ex- pense item 25) and rent (GFS revenue item 1415 and GFS expense item 2814).

Where informa- tion on such payments or receipts is provided in the underlying source data, these data should be consistent with the primary income account.
Th e taxes on production and on imports reported in the balance of payments primary income account constitute the portion of these taxes collected from nonresidents and are the same tax catego- ries as the corresponding item in the SNA (D2 in SNA).
Taxes on production and on imports are the sum of several detailed GFS tax categories: • Recurrent taxes on immovable property (GFS item 1131) The secondary income account A7.86 Th e secondary income account in the bal- ance of payments shows current transfers between residents and nonresidents.

Th is account shows re- distribution of income; that is, when resources for current purposes are provided by one party without anything of economic value being supplied as a direct return to that party.
Various types of current trans- fers are recorded in this account to show their role in the process of income distribution between econo- mies.

Th e extent to which governments are involved in these transfers will determine the linkages between the GFS Statement of Operations and this account.
A7.87 Th e standard components of the second- ary income account make a distinction at the fi rst level between current transfers receivable/payable by general government and by other sectors, comprising the fi nancial corporations, nonfi nancial corporations, households, and NPISHs.

For the general government, these transfers include the transfers in respect of: • Recurrent taxes on net wealth (GFS item 1132) • Current taxes on income, wealth, etc.
• Other recurrent taxes on property (GFS item 1136) • General taxes on goods and services (GFS item 1141) • Excises (GFS item 1142) • Profi ts of fi scal monopolies (GFS item 1143) • Taxes on specifi c services (GFS item 1144) • Taxes on use of goods and on permission to use goods or perform activities—Payable by pro- ducers (GFS item 1145) • Other taxes—Payable by business (GFS item 1161).
A7.85 To allow consistency checks with the pri- mary income account in the balance of payments, these GFS tax categories need to be divided between amounts receivable from residents and nonresidents.

Th ese subcategories are normally not available from GFS, and would be useful only for deriving credits in the primary income account.

While certain taxes on production and imports are easier to divide between residents and nonresidents, others are more diffi cult.
Also, the portion attributable to nonresidents may vary from one tax category to the next and from one year to the next.

• Social contributions • Social benefi ts • Net nonlife insurance premiums • Nonlife insurance claims • Current international cooperation • Miscellaneous current transfers.
A7.88 To the extent that the current transfers of general government are identifi able and reported in GFS as being from or to nonresidents, these data should be consistently reported in the secondary in- come account of the balance of payments.

• Current taxes on income, wealth, etc.

reported in the secondary income account make up the nonresident portion of the same tax categories as in the 2008 SNA (D5 in SNA).

Current taxes on income, wealth, etc.


are the sum of several detailed tax categories as reported in GFS, and comprise taxes on income, profi ts and capital gains (GFS item 111) and several other tax cat- egories mainly payable by fi nal consumers (see paragraph A7.40).
• Social contributions (D61 in SNA) receivable from nonresidents by general government sector units or social benefi ts payable to nonresidents 376 Government Finance Statistics Manual 2014 (D62 and D63 in SNA) may be diff erent from the corresponding GFS items (see paragraphs A7.45–A7.47).

• Current international cooperation is separately reported in the GFS Statement of Operations and should be reported consistently in the secondary income account.
Grants payable to foreign govern- ment and international organizations (GFS item 2611 and 2621 respectively) and grants receivable from foreign governments and international orga- nizations (GFS item 1311 and 1321 respectively) are usually the most important linkage between the GFS and the secondary income account.

• Other miscellaneous current transfers (D75 in SNA)23 comprise various items of current trans- fers receivable and payable (see paragraph A7.49).
• Current transfers of government sector units re- lated to nonlife insurance premiums and claims and miscellaneous current transfers would re- quire a distinction of those receivable or payable to resident and nonresidents.

The capital account A7.89 Th e capital account in the international ac- counts shows transactions between residents and nonresidents related to capital transfers receivable and payable and the acquisition and disposal of non- produced nonfi nancial assets.
It records acquisitions and disposal of nonproduced nonfi nancial assets, such as land sold to embassies and sales of leases and licenses, as well as capital transfers—that is, the pro- vision of resources for capital purposes by one party without anything of economic value being supplied in direct return to that party.
A7.90 Nonproduced nonfi nancial assets consist of fi ve items: land, mineral and energy resources, and other naturally occurring assets, contracts, leases, and licenses, and marketing assets and goodwill (GFS items 3141, 3142, 3143, 31441, and 31442, respectively).

Th ere is full consistency in the macroeconomic statis- tical framework with regards to the items of nonpro- duced nonfi nancial assets that exist.
Where general government sector units acquire or dispose of these assets in transactions with nonresidents, supplemen- tary information would be required from the GFS 23 Th e detailed corresponding GFS categories are shown in Tables A7.3 and A7.4.

transactions to allow compilation or consistency checks with the international accounts.

A7.91 It should be noted that the capital account in the balance of payments does not show produced nonfi nancial assets, as is the case in the SNA and GFS.
It shows only transactions in nonproduced nonfi nancial assets.

Transactions in produced nonfi - nancial assets are included in the goods and services account, which does not distinguish whether those goods or services are destined for capital or current purposes.

A7.92 Conceptually capital transfers are the same as the capital transfers recorded in the SNA and GFS.
Governments are oft en involved in these transfers, which should be reported in a consistent way in GFS and the capital account of the balance of payments.

Th ese capital transfers consist of compulsory trans- fers to governments, transfers under court orders, and voluntary transfers.

Th ere may also be imputed capi- tal transfers as a result of governments’ use of special purpose entities resident in other economies, for fi scal purposes (see paragraph 2.138 and paragraphs 8.24– 8.26 of the BPM6).
Th e capital account of the balance of payments includes the following main types of cap- ital transfers: • Debt forgiveness: When government/public sec- tor entities are involved in debt forgiveness (see paragraphs A3.7–A3.9), either as a recipient or grantor, the event is usually well known and it should be identifi able in the GFS accounts.
In the balance of payments capital account, debt forgiveness received from nonresidents is re- fl ected as revenue in capital grants received from either foreign governments, international or- ganizations, or included in capital transfers not elsewhere classifi ed, when received from other nonresident entities.

Th e corresponding entries in GFS are recorded in GFS items 1312, 1322, or 1442 respectively.

A corresponding reduction in the appropriate foreign debt instrument will be recorded.
When the government sector unit is the provider of debt relief to a nonresident, an expense is refl ected as capital grants to foreign governments or international organizations, or is included in capital transfers not elsewhere classi- fi ed, when provided to other nonresident entities.

Th e GFS expense is recorded in GFS items 2612, 2622, or 2822, respectively.

A corresponding reduction in the appropriate foreign fi nancial asset is recorded.
• Exceptionally large nonlife insurance claims: Where these claims are receivable/payable by govern- ment sector units, they are recorded as capital claims (GFS revenue item 1452 or GFS expense item 2832, respectively).

Due to the extraordi- nary nature of this item, it is usually well known and visible in the GFS data, and will allow inclu- sion in the international accounts.
• Investment grants in the balance of payments: Th ese are capital transfers in cash or in kind made by governments or international organizations to other institutional units to fi nance all or part of the cost of their acquiring fi xed assets.

Gov- ernment/public sector units can be the grantor or recipient of these investment grants.

Th ese transfers are recorded in GFS capital grants, as described earlier.
• One-off guarantees and other debt assumption: When government/public sector units and non- residents are involved in these transactions (see paragraph 7.256–7.260), it should be consistently treated in the capital account and GFS.
• Capital taxes (defi ned in paragraph 5.51): Th ose capital taxes recorded in the capital account of the balance of payment comprise the same tax catego- ries as the corresponding item in the SNA (D91 in SNA), but represent only the portion of these taxes collected from nonresidents (see paragraph A7.67).

Consistency for this item in the capital ac- count and GFS requires a breakdown of these taxes in supplementary GFS data between amounts re- ceivable from residents and nonresidents.
• Other capital transfers: Th ese consist of major nonrecurrent payments in compensation for ex- tensive damage or serious injuries not covered by insurance policies.
Where government/pub- lic sector units are the recipient of this type of transfer from nonresidents, it is recorded as part of capital grants receivable from either foreign governments, international organizations, or included as capital transfers not elsewhere classi- fi ed, when received from other nonresident en- tities (GFS revenue items 1312, 1322, or 1442, respectively).
When the government/public sec- tor unit is the grantor of this type of transfer to a nonresident, an expense is refl ected as capital GFS and Other Macroeconomic Statistics 377 grants to foreign governments, international or- ganizations, or as capital transfers not elsewhere classifi ed, when provided to other entities (GFS expense items 2612, 2622, or 2822, respectively).
Consistency for this item in the capital account and GFS also requires a further breakdown of the transfers to identify amounts receivable or pay- able to nonresidents.

The ﬁ nancial account A7.93 Th e fi nancial account of the balance of payments records transactions that involve fi nan- cial assets and liabilities that take place between residents and nonresidents.
Financial account transactions appear in the balance of payments and, because of their eff ect on the stock of assets and li- abilities, also in the integrated IIP statement.

Th e net balance on the fi nancial account is conceptually equal to the sum of the balances on the current and capital accounts (net lending (+)/net borrowing (–)).

Th e fi nancial account therefore measures how the net lending to or net borrowing from nonresidents is fi nanced.
A7.94 Th e international accounts use functional categories as the primary classifi cation for each of the fi nancial transactions, other changes in assets and liabilities, and stock positions.24 Five functional cat- egories of investment are distinguished in the inter- national accounts: • Direct investment • Portfolio investment • Financial derivatives (other than reserves) and employee stock options • Other investment • Reserve assets.
Th is functional classifi cation takes into consider- ation some aspects of the relationship between the parties and the motivation for investment (see the BPM6, Chapter 6).

In addition, data in the fi nancial account are also presented according to the fi nancial asset or liability instrument employed, the sector or the resident counterpart to the transaction, and ma- turity.
Although the classifi cation of fi nancial assets and liabilities as presented in GFS does not follow 24 Th e term functional classifi cation is used in a diff erent context in the classifi cation of the functions of government.

378 Government Finance Statistics Manual 2014 a functional classifi cation, it is fully consistent with the instrument breakdown and sector classifi cation as used in the international accounts.
As regards fi - nancial assets and liabilities the GFS framework dis- tinguishes between transactions with residents and nonresidents.

GFS follow the same criteria for deter- mining residence as the international accounts.
Con- ceptually, therefore, the GFS data are consistent with the data for general government as presented in the fi nancial account of the balance of payments.25 The other changes in ﬁ nancial assets and liabilities account A7.95 In the international accounts, the other changes in fi nancial assets and liabilities account shows changes in fi nancial positions that arise for reasons other than transactions between residents and nonresi- dents.
Th ese changes are also called other fl ows, and, similar to GFS, they include holding gains and losses, and other volume change in fi nancial assets and liabili- ties (including reclassifi cations).

Because of the impor- tance of diff erent currencies in the IIP, revaluations (holding gains and losses) are broken down between changes due to exchange rates and other price changes.
As described in earlier paragraphs, the classifi cation of assets and liabilities by fi nancial instruments is con- ceptually fully consistent in the GFS and international accounts.

It should result in consistency in the data re- ported for these other fl ows in the two datasets, except in the case of liabilities for pension entitlements that may diff er.
The international investment position A7.96 Th e international investment position (IIP) is a statistical statement that shows at a point in time the value of: fi nancial assets of residents of an econ- omy that are claims on nonresidents and gold bullion held as reserve assets, and the liabilities of residents of an economy to nonresidents.

Th e diff erence between the assets and liabilities is the net position in the IIP and represents either a net claim on or a net liability to the rest of the world.
Th e IIP represents a subset of the assets and liabilities included in a country’s balance sheet.

In addition to the IIP, this balance sheet incor- 25 Th e international accounts identify general government, but do not present data for the subsectors of the general government, as is the case in GFS.

porates nonfi nancial assets as well as fi nancial assets and liability positions between residents.
A7.97 As is the case for the fi nancial account, the highest level of classifi cation used in the IIP is the functional classifi cation (see paragraph A7.94).

Be- cause of the growing importance of the balance sheet approach to analyze sustainability and vulnerability, the recording in the IIP of information by currency composition is part of the standard presentation, while remaining maturity is encouraged.
A7.98 General government’s fi nancial asset/liabil- ity positions with nonresidents, as reported in the GFS balance sheet, follow the same accounting rules and classifi cation by instruments as the IIP.

Additional reporting requirements on remaining maturity break- downs and currency breakdowns, as recommended in the PSDS Guide and GFS, are also fully consistent.
Comparison of the Analytical Frameworks of GFS and the Monetary and Financial Statistics A7.99 Th e MFSM is part of international macro- economic statistical guidelines and can therefore be seen as extending and elaborating on the 2008 SNA.
Th e MFSM framework is consistent with the 1993 SNA with respect to principles and concepts, like the delinea- tion of resident and nonresident entities, sectorization of the economy, classifi cation of the various categories of fi nancial assets and liabilities, time of recording, valuation, and data aggregation.

On consolidation, the MFSM follows GFS in consolidating sectoral balance sheets.

Th e main principles and concepts of the MFSM also accord with those in the BPM6 and this Manual.
Comparing the Accounts in GFS and Monetary and Financial Statistics A7.100 Th e purpose of the MFSM is to provide guidelines for the compilation and the presentation of monetary and fi nancial statistics.

Monetary statis- tics consist of a comprehensive set of stock and fl ow data on the fi nancial and nonfi nancial assets and li- abilities of an economy’s fi nancial corporations sec- tor.
Th e organization and presentation of monetary statistics follow a hierarchical approach based on two general data frameworks—sectoral balance sheets and surveys.

Stock position data reported by individual institutional units are aggregated into sectoral bal- ance sheets, which contain the comprehensive data for the fi nancial corporations subsectors.

At a second level, the data in the sectoral balance sheets are con- solidated into surveys.
A7.101 Financial statistics, on the other hand, consist of a comprehensive set of fl ows and stock position data on fi nancial assets and liabilities of all sectors of an economy.

Th ese data are organized and presented in formats designed to show fi nancial fl ows among the sectors of an economy and corresponding fi nancial asset and liability positions.

Also included in monetary and fi nancial statistics are the fl ow of funds data, presented in a matrix format.
A detailed fl ow of funds accounting cross-classifi es fi nancial assets ac- quired by each sector, by instrument with the coun- terpart debtor sector.

It also cross-classifi es liabilities incurred by each sector by instrument and coun- terpart creditor sector.

Th erefore, this matrix shows the fi nancial transactions among all subsectors of an economy and the rest of the world.

Such a presenta- tion is particularly useful to analyze the allocation of fi nancial resources and users in an economy.
Linkages between GFS and Monetary and Financial Statistics A7.102 Linkages between GFS and the monetary and fi nancial statistics (MFS) result from the fi nancial relations between government and fi nancial corpora- tions.

As clients (and in addition to holding currency), governments hold deposit assets with fi nancial corpo- rations and contract liabilities by borrowing from and selling debt securities to the corporations.
As inves- tors, governments generally are oft en the sole owner of public fi nancial corporations or hold equity in other fi nancial corporations.

Th ese fi nancial relationships result in either a net claim of government on the fi nan- cial corporations or a net claim of these corporations on government.

Th e net asset/liability position be- tween the general/central government sector and the fi nancial corporations sector should be consistent, and reconcilable in the two datasets.
Th e extent to which these data are similar is oft en a good indicator of the consistency in macroeconomic statistics in a country.

A7.103 Diff erences in the amounts reported as net claims between the government sector and the fi nan- cial corporations sector could be used to check the GFS and Other Macroeconomic Statistics 379 accuracy and consistency of the respective datasets.
Where the two sets of data are materially diff erent, the reasons for the diff erences must be ascertained, and documentation on the size and reasons for the discrepancy should be provided to users of the data.

Good statistical practice is for the compilers to inves- tigate and try to resolve diff erences.

Reasons for dif- ferences can oft en be found in: • Coverage—In many cases, governments have nu- merous accounts held in several fi nancial institu- tions.
Th e institutional coverage of general/central government should be the same in both datasets.

A common case exists where certain government institutions have accounts with fi nancial institu- tions and MFS cover these accounts, but the ac- counts of these institutions are not covered in GFS because these GFS data are confi ned to budgetary accounts, thereby not covering the data of the ex- trabudgetary units.
Diff erences may also arise if government has accounts with a fi nancial institu- tion, but this fi nancial institution is not covered in the monetary and fi nancial statistics.

• Sectorization—Some of the statistical institu- tional units may not be appropriately and con- sistently identifi ed and classifi ed as general government or public sector units or the sector classifi cation of the subsectors may be diff erent in the two datasets.
For example, an institutional unit that manages and organizes externally fi - nanced projects and foreign grants may not be appropriately designated as a government ac- count in fi nancial corporations’ records.

• Classifi cation and coverage of fi nancial instru- ments—Th e classifi cation of fi nancial instruments included in fi nancial assets and liabilities may dif- fer, or an instrument may not be consistently clas- sifi ed in the two datasets.
For example, diff erences may arise when an instrument such as accounts receivable/payable is not treated the same way in the data, or when a loan is incorrectly reported as equity investment in one of the datasets.

• Time of recording—Complementary periods used in government accounting may result in transac- tions being recorded at a time other than when economic ownership changed hands.
• Accrual versus cash recording—Although concep- tually both datasets should be recorded on an ac- crual basis, GFS compilers oft en use cash-based 380 Government Finance Statistics Manual 2014 data as a proxy for data compiled on an accrual basis, or make adjustments to cash data to approx- imate accrual data.

Th e fi nancial corporations sector is oft en more advanced in implementing accrual accounting.
Oft en, certain items may not be correctly accrued to the time when the eco- nomic event occurred—for example, they may be using diff erent methods to accrue discount or premiums on bonds.

• Valuation—While conceptually both datasets should follow the same valuation principles for assets and liabilities, national practices may diff er.
Where valuation diff erences in source data exist, diff erences may occur between GFS and monetary and fi nancial statistics, unless valuation adjustments are made when the respective datasets are prepared.
• Dematerializing of debt instruments—Where governments issue tradable securities, they oft en have no knowledge or record of transactions in the secondary market, so the sector holding such securities can usually be determined either by surveying the ultimate purchaser of such se- curities or by using data from a centralized se- curities depository.
However, quite oft en these instruments are held by nominees of the fi nan- cial corporations sector, which may complicate the identifi cation of the owners of claims of the government.

Th e complexity of determining ownership of tradable instruments may further introduce inconsistency in the data.

A7.104 Due to the fi nancial asset/liability posi- tions held between general/central government and the fi nancial corporations sector, some additional revenue and expense fl ows occur between these sec- tors.
Further consistency checks can be performed on these revenue and expense transactions where the level of detail in the source data permits them.

Th ese relate specifi cally to receivables/payables in respect of interest, dividends, other property income, subsidies, and capital transfers between the general/central gov- ernment sector and the fi nancial corporations sector.
Comparison of the Analytical Framework of GFS and the System of Environmental-Economic Accounting Central Framework A7.105 Th e System of Environmental-Economic Accounting (SEEA) Central Framework is the in- ternational statistical standard for environmental- economic accounting.
Th e SEEA Central Framework contains the internationally agreed standard con- cepts, defi nitions, classifi cations, and accounting rules and tables for producing internationally comparable statistics on the environment and its relationship with the economy.

Th e SEEA Central Framework is a mul- tipurpose conceptual framework that presents the stock positions and changes in these stock positions (fl ows) of environmental assets.
Comparing the Accounts in GFS and SEEA Central Framework A7.106 Th e SEEA Central Framework follows a similar accounting structure to the 2008 SNA and this Manual, and uses consistent concepts, defi ni- tions, and classifi cations to facilitate the integration of environmental and other macroeconomic statis- tics.
Consequently, the SEEA Central Framework allows for the integration of environmental informa- tion (oft en measured in physical terms) with eco- nomic information (oft en measured in monetary terms) in a single framework.
However, given the specifi c analytical focus of the SEEA Central Frame- work on the environment and its linkages with the economy, as well as its focus on the measurement of fl ows and stock positions in physical and monetary terms, there are some limited diff erences between the SEEA Central Framework and the 2008 SNA.26 To the extent that SEEA Central Framework is con- sistent with the 2008 SNA, it is also consistent with this Manual.
The Nature of Environmental Protection Activities and Accounting A7.107 Environmental protection activities are those activities whose primary purpose is the pre- vention, reduction, and elimination of pollution and other forms of degradation of the environment.
Th ese activities include, but are not limited to, the preven- tion, reduction, or treatment of waste and wastewater; the prevention, reduction, or elimination of air emis- sions; the treatment and disposal of contaminated soil and groundwater; the prevention or reduction of noise and vibration levels; the protection of bio- diversity and landscapes, including their ecological functions; monitoring of the quality of the natural environment (air, water, soil, groundwater); research 26 See SEEA Central Framework, paragraphs 1.39–1.52.
and development on environmental protection; and the general administration, training, and teaching ac- tivities oriented toward environmental protection.

A7.108 Resource management activities are those activities whose primary purpose is preserving and maintaining the stock of natural resources and hence safeguarding against depletion.
Th ese activities in- clude, but are not limited to, reducing the withdrawals of natural resources (including through the recov- ery, reuse, recycling, and substitution of natural re- sources); restoring natural resource stocks (increases or recharges of natural resource stocks); the general management of natural resources (including moni- toring, control, surveillance, and data collection); and the production of goods and services used to manage or conserve natural resources.
A7.109 To account for environmental protection and resource management activities the SEEA Central Framework comprises the following types of tables and accounts: • Supply and use tables in physical and monetary terms showing fl ows of natural inputs, products, and residuals • Asset accounts for individual environmental as- sets in physical and monetary terms showing the stock of environmental assets at the begin- ning and end of each accounting period and the changes in the stock • A sequence of economic accounts that highlights depletion-adjusted economic aggregates • Functional accounts that record transactions and other information about economic activities un- dertaken for environmental purposes.
Th e analysis of these data can also be extended by linking the tables and accounts to relevant employ- ment, demographic, and social information.

A7.110 Th e SEEA Central Framework relies on basic environment statistics, such as statistics on natural resources—for example water, energy, for- est, fl ows of materials and pollutants—which are usually collected for specifi c purposes.
Th e SEEA Central Framework adds value to individual infor- mation components by bringing them together to inform integrated policies, evaluate trade-off s be- tween diff erent policies, and evaluate their impacts across domains of the economy, the environment, and society.

GFS and Other Macroeconomic Statistics 381 Linkages between GFS and SEEA Central Framework A7.111 Th ere is a wide range of transactions and stocks positions related to the environment that are recorded in the GFS framework.
Th e type of trans- action oft en fl ows from governments’ role of owner of natural resources, such as land and subsoil assets, user of these resources, or other ways in which gov- ernments infl uence the use of these resources by other sectors, such as governments’ control over the use of the atmosphere as a sink for pollution.

Of particular interest in this regard are fl ows of taxes and subsidies related to the environment.
A7.112 Many of the mechanisms by which economic behavior is infl uenced toward meeting environmental policy objectives involve payments to government, most commonly in the form of taxes, permits, and rent; and payments by government in the form of subsidies and other transfers.

Th ese transactions are recorded in the GFS framework but are generally not separately identifi able as relating to the environment.
In order to allow comparisons of GFS and the SEEA Central Framework, such data would need to be provided sepa- rately in the underlying source data of GFS.

A7.113 Similar to GFS, the SEEA Central Frame- work records only taxes and subsidies for which an actual transaction takes place between institutional units.

In some cases there is interest in the value of so- called implicit subsidies—for example, via tax exemp- tions or preferential tax rates.
However, as there are no transactions recorded in relation to these amounts they are not recorded in either dataset.

A7.114 Th e remainder of this section discusses pay- ments to government related to the environment, and payments by government related to the environment.27 Environmental payments to government Environmental taxes A7.115 Th e decision as to whether a payment re- garded as a tax is environmental is based on consid- eration of the tax base.
An environmental tax is a tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, specifi c, negative impact on the environment.

In practice, this defi nition is ap- plied by looking at all of the various taxes levied in a 27 See SEEA Central Framework, section 4.4, for a detailed descrip- tion on accounting for transactions related to the environment.
382 Government Finance Statistics Manual 2014 country and making an assessment as to whether the tax base in each circumstance is something that has a negative environmental impact.

A7.116 Since the application of this defi nition may vary across countries, for the purposes of inter- national comparison of environmental taxes, lists of relevant taxes bases that satisfy this defi nition have been developed by the Organisation for Economic Co-operation and Development and Eurostat.
A7.117 Th e consideration of the tax base in the determination of the environmental status of a tax is an exception to the general approach to defi ning the environmental status on the basis of the purpose of the transaction.

However, in the case of taxes, gener- ally the taxpayer does not know in advance as to what the tax payment might be used for by the govern- ment.

Nor are the reasons for levying a tax as stated by the legislator a reliable basis for international com- parisons.
Th e primary purpose of taxation may some- times be to create incentives to reduce environmental pressures, or to raise revenue for the purpose of fi - nancing environmental protection.

However, in many cases, the specifi c reason may not be stated and oft en the primary purpose of taxation is the raising of funds to pay for general social services, such as health and education.
A7.118 In cases where the use of the tax revenue is known, these taxes are considered “earmarked taxes.” Th ose taxes that are earmarked for environmental protection are relevant in the calculation of environ- mental protection expenditure.

A7.119 Th ere are four broad categories into which environmental taxes are generally grouped.

Th ese are: • Energy taxes—Th is category includes taxes on energy products used for both transport and sta- tionary purposes.
Taxes on fuel used for trans- port purposes should be shown as a separate subcategory of energy taxes.

Energy products for stationary use include fuel oils, natural gas, coal, and electricity.

Taxes on carbon are included under energy taxes rather than under pollution taxes.

If they are identifi able, carbon taxes should be reported as a separate subcategory within energy taxes.

A special type of carbon taxes is payments for tradable emission permits.
Th e treatment of payments for these permits is dis- cussed later in this section.

• Transport taxes—Th is category mainly includes taxes related to the ownership and use of motor vehicles.

Taxes on other transport equipment (e.g., planes) and related transport services (e.g., duty on charter or scheduled fl ights) are also included here as are taxes related to the use of roads.
Th e transport taxes may be “one-off ” taxes related to imports or sales of the equipment or recurrent taxes, such as an annual road tax.

Taxes on petrol, diesel, and other transport fuels are in- cluded under energy taxes.

• Pollution taxes—Th is category includes taxes on measured or estimated emissions to air and water, and the generation of solid waste.

An ex- ception is taxes on carbon, which are included under energy taxes, as discussed earlier.

Taxes on sulphur are included here.


• Resource taxes—Th is category typically includes taxes on water abstraction, extraction of raw materials, and other resources (e.g., sand and gravel).

Consistent with the general scope of envi- ronmental taxes, payments to government for the use of land or natural resources are treated as rent and therefore are excluded from resource taxes.
Treatment of value-added taxes A7.120 Generally, value-added taxes (VAT) are excluded from the defi nition of environmental taxes because they are considered to have no infl uence on relative prices in the same way that other taxes on environmental tax bases do (i.e., VAT is levied on a broad range of goods and services regardless of their impact on the environment).

Th is lack of direct in- fl uence is also refl ected in the deductible nature of VAT for many taxpayers.
Th ere is one relatively spe- cifi c exception to this general treatment.

In princi- ple, where VAT is calculated on a price that includes a duty or tax already determined to be an environ- mental tax, the relevant amount of nondeductible VAT (equal to the VAT rate multiplied by the amount of the environmental tax excluding the part that is deductible by the taxpayer) can also be considered to be part of environmental taxes and classifi ed based on the nature of the underlying tax base.
Such a situ- ation may occur when VAT on petrol/gasoline is cal- culated, including the fuel duty paid on hydrocarbon oils.

In practice, the ability to separately identify this amount of VAT may require additional information.

Other payments to government A7.121 Only those payments that are consid- ered to be taxes according to the defi nitions of GFS and the SNA are within the scope of environmental taxes in the SEEA.
At the same time, there may also be particular interest in identifying and recording other payments to government that are also related to the environment, such as payments of rent, some sales of goods and services, and some fi nes and pen- alties.

In determining the environmental status of these payments, focus should remain on the basis for the payment rather than on either the name used to describe the payment or the purpose for which the revenue raised may be used.
Th e following para- graphs describe these other environment-related types of payments to government.

To allow compari- sons of GFS and SEEA Central Framework, data on these environment-related payments to government would need to be provided separately in the underly- ing source data of GFS, or added as subitems of the GFS categories.
Rent A7.122 Th ere are certain environmental assets, particularly mineral and energy resources, that are owned by government, and payments to government by extractors are oft en required.

Th ese payments are treated as rent.

Payments of rent in respect of mineral and energy resources are commonly referred to as royalties, and in resource-endowed countries these payments may represent an important component of total government revenue.
Th ese are oft en also re- ferred to as resource leases (see paragraph A4.16).

Sales of goods and services A7.123 In a number of situations the government could undertake a range of activities that provide goods and services to households and businesses that are environmental in nature.
Such provision of goods and services constitutes production by government units, and payments made by users are oft en referred to as “fees.” A common situation is the payments made to general government units that operate waste collec- tion schemes for the disposal of waste.
Whether these payments are purchases of goods and services or taxes can be diffi cult to assess, since it must be determined as to whether the purchaser has received a commen- surate service from the government in return for the GFS and Other Macroeconomic Statistics 383 payment.

Th e general guidance in the paragraphs 5.73–5.75 should be followed to make the distinction.
Fines and penalties A7.124 Fines and penalties are distinguished from taxes as being compulsory payments imposed on institutional units by courts of law or quasi-judicial bodies.

Th ese payments to governments are treated as fi nes, penalties and forfeits (GFS item 143).

It may well be that some fi nes and penalties are related to illegal environmental activities—for example, fi nes for pol- luting water bodies.
Th e recording of environment- related fi nes and penalties also arises in the case of the use of environmental assets as sinks.
Environmental transfers by nongovernment institutional units A7.125 Where information on these fl ows is of in- terest, the amounts to be recorded as environmental should follow the same principles as applied in the case of government fl ows—that is, transfers paid to other institutional units should be based on whether the primary purpose of the payer is environmental pro- tection or resource management.
Within GFS further breakdown or “of which” lines may be added to the clas- sifi cation structure to specifi cally identify these fl ows.

A7.126 A particular instance of transfers between institutional units concerns fl ows between interna- tional organizations and national governments and other resident institutional units.

In certain countries these fl ows may be signifi cant.
In line with the gen- eral principles outlined here, transfers paid by inter- national organizations to institutional units within a country should be considered to be environmental if the primary intent of the international organization is that the money is spent for environmental protec- tion or resource management purposes.

Supplemen- tary breakdowns in grants from foreign governments or international organizations (GFS item 131 and 132) could provide for this data need.
Permits to use environmental assets A7.127 A common and important mechanism for managing the interaction between the economy and the environment is the use of permits and licenses to access, extract, or use environmental assets.

In some cases, the permits and licenses may relate to the phys- ical removal of environmental assets, such as in the 384 Government Finance Statistics Manual 2014 case of fi shing licenses, and in other cases they may relate to the use of the environment as a sink for emis- sions.
For a discussion of licenses and permits to use natural resources, see A4.18–A4.50.

Environmental payments by governments A7.128 Payments by government related to envi- ronmental issues are recorded in a number of places in GFS and the SNA.

Th e treatment largely depends on how the payments relate to production and con- sumption and whether they are considered to be cur- rent or capital in nature.

A7.129 All of the payments considered in this sec- tion are transfers (see paragraph 3.10).
Consequently, this section does not include payments by govern- ment for the purchase of goods and services related to the environment.

Environmental subsidies and similar transfers A7.130 An environmental subsidy or similar trans- fer is a transfer that is intended to support activities that protect the environment or reduce the use and extraction of natural resources.
It includes those transfers defi ned in GFS as subsidies (25), social ben- efi ts (27), grants (26), and transfers not elsewhere clas- sifi ed (282).

A7.131 Subsidies or other transfers should be treated as environmental when the primary intent or purpose of the government is that resources be used for either environmental protection or resource management purposes.
The determina- tion of primary purpose should not be based on whether the use of the resources by the recipient of the transfer results in positive outcomes for the environment.

While it is reasonable to consider that the purpose of the government in making the transfer and the purpose of the recipient are the same, it may not be the case that the expenditure of the transferred resources results in beneficial envi- ronmental outcomes even if this was the intent.
For detailed descriptions of the classification of these transfers, refer to Chapter 6.

A7.132 In principle, a decision as to whether the primary purpose of a transfer is environmental should be made for each individual transfer.

Th en, once a de- cision on the primary purpose has been made, the total value of the transfer is treated as being for that primary purpose.

A7.133 In practice, information on transfers by government is usually contained in budget and other government expenditure data.
Generally, these data do not show individual transactions and more commonly show information by type of government program, thus including a large number of individual transfers.

It is usually the case that such programs have multiple purposes, and hence determining the number and value of individual transfers that have a primary pur- pose of environmental protection or resource man- agement may require additional information.
A7.134 In these situations, it may be necessary to estimate the share of the value of transfers for a given government program that refl ects the value of indi- vidual transfers within the program that have envi- ronmental protection or resource management as their primary purpose.

APPENDIX 8 GFS Classiﬁ cations Th is appendix provides all of the classifi cation codes used in the GFS framework.
A8.1 Classifi cation codes are used in the GFS sys- tem to identify types of transactions, other economic fl ows, and stock positions of assets and liabilities.

Th is appendix presents in one place all of the codes that were presented in Chapters 5 through 10.

Th e overall organization of the codes is shown in Figure A8.1.
A8.2 Codes beginning with 1 refer to revenue; codes beginning with 2 refer to expense; and codes beginning with 3 refer to transactions in nonfi nancial assets, fi nancial assets, and liabilities.

For fi nancial as- sets and liabilities, the code 3 signifi es transactions that have been classifi ed by fi nancial instrument.
A8.3 Th e fi rst digit of the classifi cation code for a specifi c type of other economic fl ow is 4 or 5: codes beginning with 4 refer to holding gains and losses, while codes beginning with 5 refer to other changes in the volume of assets and liabilities.

Th e fi rst digit for total other economic fl ows is 9.

For a stock posi- tion in a type of asset or liability, the fi rst digit of the classifi cation code is 6.
A8.4 Codes for transactions, other economic fl ows, and stock positions in assets and liabilities also identify types of assets and liabilities.

Hence, the sec- ond and subsequent digits of each code are identical for each type of asset or liability.

Th at is, 311 refers to transactions in fi xed assets, 411 to holding gains in fi xed assets, 511 to other changes in the volume of fi xed assets, 911 to total other economic fl ows in fi xed assets, and 611 to the stock position of fi xed assets.
A8.5 Expense transactions and transactions in non- fi nancial assets (i.e., expenditure) can also be classifi ed using the Classifi cation of Functions of Government (COFOG), as described in the annex to Chapter 6.

All COFOG classifi cation codes begin with 7.


A8.6 Transactions and stock positions in fi nan- cial assets and liabilities can be classifi ed according to the residence and institutional sector of the other party to the fi nancial instrument, as well as according to the type of fi nancial instrument.

When classifi ed by residence and institutional sector of the counter- party, the classifi cation codes for transactions begin with 8 and the classifi cation codes for stock positions begin with 68.
Th e counterparty to the transactions is not necessarily the same as the counterparty to the stock positions.

While the parties are the same at the inception of the instrument, they may diff er for transactions in that instrument.
As explained in paragraph 9.25, in principle, the classifi cation of general government units’ transactions in fi nancial assets and liabilities by residence is based on the residence of the units that were a party to the trans- action being recorded, whereas the classifi cation of stock positions in fi nancial assets and liabilities in a government unit’s balance sheet is based on the residence of the issuer of fi nancial instruments (as- sets), and the residence of the holder of the fi nancial instruments (liabilities).
If a transaction in fi nancial assets or liabilities is between a resident and a non- resident unit that involves an instrument originally issued by a resident, an entry in other changes in the volume of assets (reclassifi cation) is recorded to maintain the integrated GFS framework of fl ows and stock positions.

A8.7 In this appendix, the classifi cation codes are presented in Tables A8.1–A8.6, which illustrate the standard presentation of these items in GFS.
I n prac- tical applications, this standard presentation could be used to select subsets of data for various presen- tational formats.

It may also be possible and desirable to use more detailed classifi cations.

Such an expan- sion can be accomplished by adding another digit to any given classifi cation code.

For example, the clas- sifi cation code for the stock of transport equipment is 61121.
If types of transport equipment were to be classifi ed separately, the codes 611211, 611212, and so forth could be used.
386 Government Finance Statistics Manual 2014 Figure A8.1 The Classiﬁ cation Coding System for GFS Transactions Other economic flows Flows Stock positions 1 2 3 7 8 Revenue Expense Transactions in nonfinancial assets classified by type of asset Transactions in financial assets and liabilities classified by residence of the counterparty and by instrument COFOG1 (Expenditure = expense + transactions in nonfinancial assets) Transactions in financial assets and liabilities classified by residence and institutional sector of the counterparty 9 4 5 6 Holding gains/losses in nonfinancial assets classified by type of asset Other changes in the volume of nonfinancial assets classified by type of asset Holding gains/ losses in financial assets and liabilities classified by residence of the counterparty and by instrument Other changes in the volume of financial assets and liabilities classified by residence of the counterparty and by instrument Stock positions in nonfinancial assets classified by type of asset Stock positions in financial assets and liabilities classified by residence of the counterparty and by instrument 68 Stock positions in financial assets and liabilities classified by residence and institutional sector of the counterparty 1Classiﬁ cation of the Functions of Government GFS Classiﬁ cations 387 Table A8.1 Classiﬁ cation of Revenue 1146
11452 114521 114522 114523 114524 114525 1146 115 1151 1152 1153 1154 1155 1156 116 1161 1162 12 121 1211 1212 1213 1214 Revenue Taxes Taxes on income, proﬁ ts, and capital gains Payable by individuals Payable by corporations and other enterprises Other taxes on income, proﬁ ts, and capital gains Payable by general government Unallocable taxes on income, proﬁ ts, and capital gains Taxes on payroll and workforce Taxes on property Recurrent taxes on immovable property Recurrent taxes on net wealth Estate, inheritance, and gift taxes Capital levies Other
 recurrent taxes on property Taxes on goods and services General taxes on goods and services Value-added taxes Sales taxes Turnover and other general taxes on goods and services Taxes on ﬁ nancial and capital transactions Excise Proﬁ ts of ﬁ scal monopolies Taxes on speciﬁ c services Taxes on use of goods and on permission to use goods or perform activities Motor vehicle taxes Other taxes on use of goods and on permission to use goods or perform activities Business and professional licenses Pollution taxes Radio and television licenses Licenses and permits for households Other taxes on use of goods and on permission to use goods or perform activities not elsewhere classiﬁ ed Other taxes on goods and services Taxes on international trade and transactions Customs and other import duties Taxes on exports Proﬁ ts of export or import monopolies Exchange proﬁ ts Exchange taxes Other taxes on international trade and transactions Other taxes Payable solely by business Payable by other than business or unidentiﬁ able Social contributions [GFS] Social security contributions [GFS] Employee contributions [GFS] Employer contributions [GFS] Self-employed or nonemployed contributions [GFS] Unallocable contributions [GFS] Other social contributions [GFS] Employee
1452 Other social contributions [GFS] Employee contributions [GFS] Employer contributions [GFS] Imputed contributions [GFS] Grants From foreign governments Current Capital From international organizations Current Capital From other general government units Current Capital Other revenue Property income [GFS] Interest [GFS] From nonresidents From residents other than general government From other general government units Dividends From nonresidents From residents Withdrawals of income from quasi-corporations Property income from investment income
 disbursements Rent Reinvested earnings on foreign direct investment Sales of goods and services Sales by market establishments Administrative fees Incidental sales by nonmarket establishments Imputed sales of goods and services Fines, penalties, and forfeits Transfers not elsewhere classiﬁ ed Current transfers not elsewhere classiﬁ ed Subsidies Other current transfers not elsewhere classiﬁ ed Capital transfers not elsewhere classiﬁ ed Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes Premiums, fees, and current claims receivable Premiums receivable Fees receivable for standardized guarantee schemes Current claims receivable Capital claims receivable Note: Further breakdown/“of which” lines may be analytically useful and could be presented as indicated in the detailed tables in Chapter 5.
388 Government Finance Statistics Manual 2014 Table A8.2 Classiﬁ cation of Expense Expense Compensation of employees [GFS] Wages and salaries [GFS] Wages and salaries in cash [GFS] Wages and salaries in kind [GFS] Employers' social contributions [GFS] Actual employers’ social contributions [GFS] 27 271 2711 2712 272 2721 2722 Social beneﬁ ts [GFS] Social security beneﬁ ts [GFS] Social security beneﬁ ts in cash [GFS] Social security beneﬁ ts in kind [GFS] Social assistance beneﬁ ts [GFS] Social assistance beneﬁ ts in cash [GFS] Social assistance beneﬁ ts in kind [GFS] Imputed employers’ social contributions [GFS] 273 Employment-related social beneﬁ ts [GFS] Use of goods and services Consumption of ﬁ xed capital [GFS] Interest [GFS] To nonresidents [GFS] To residents other than general government [GFS] To other general government units [GFS] Subsidies To public corporations Public nonﬁ nancial corporations Public ﬁ nancial corporations To private enterprises Private nonﬁ nancial enterprises Private ﬁ nancial enterprises To other sectors Grants To foreign governments Current Capital To international organizations Current Capital To other general government units Current Capital 2731 2732 28 281 2811 28111 28112 2812 2813 2814 2815 282 2821 2822 283 2831 28311 28312 28313 2832 Employment-related social beneﬁ ts in cash [GFS] Employment-related social beneﬁ ts in kind [GFS] Other
 expense Property expense other than interest Dividends To nonresidents To residents Withdrawals of income from quasi-corporations Property expense for investment income disbursements Rent Reinvested earnings on foreign direct investment Transfers not elsewhere classiﬁ ed Current transfers not elsewhere classiﬁ ed Capital transfers not elsewhere classiﬁ ed Premiums, fees, and claims related to nonlife insurance and standardized guarantee schemes Premiums, fees, and current claims payable Premiums payable Fees payable for standardized guarantee schemes Current claims payable Capital claims payable Note: Further breakdown/“of which lines” may be analytically useful and could be presented as indicated in the detailed tables in Chapter 6.
GFS Classiﬁ cations 389 Table A8.3 Classiﬁ cations of Flows and Stock Positions in Assets and Liabilities Classiﬁ cation of holding gains and losses in assets and liabilities Classiﬁ cation of other changes in the volume of assets and liabilities Classiﬁ cation of total other economic ﬂ ows in assets and liabilities Classiﬁ cation of stock positions in assets and liabilities Classiﬁ cation of transactions in assets and liabilities1 Net worth and its changes Nonﬁ nancial assets Fixed assets Buildings and structures Dwellings Buildings other
 than dwellings Other structures Land improvements Machinery and equipment Transport equipment Machinery and equipment other than transport equipment Information, computer, and telecommunications (ICT) equipment Machinery and equipment not elsewhere classiﬁ ed Other ﬁ xed assets Cultivated biological resources Animal resources yielding repeat products Tree, crop, and plant resources yielding repeat products Intellectual property products Research and development Mineral exploration and evaluation Computer
 software and databases Computer software Databases Entertainment, literary, and artistic originals Other intellectual property products Cost of ownership transfer on nonproduced assets other than land Weapons systems Inventories Materials and supplies Work in progress Finished goods Goods for resale Military inventories Valuables 390 Government Finance Statistics Manual 2014 Table A8.3 Classiﬁ cations of Flows and Stock Positions in Assets and Liabilities (continued) Classiﬁ cation of holding gains and losses in assets and liabilities Classiﬁ cation of other changes in the volume of assets and liabilities Classiﬁ cation of total other economic ﬂ ows in assets and liabilities Classiﬁ cation of stock positions in assets and liabilities Classiﬁ cation of transactions in assets and liabilities1 Nonproduced assets Land Mineral and energy resources Other naturally occurring assets 314 3141 3142 3143 Noncultivated biological resources 31431 Water resources Other natural resources Radio spectrum Natural resources not elsewhere classiﬁ ed Intangible nonproduced assets Contracts, leases, and licenses 31432 31433 314331 314332 3144 31441 Marketable operating leases 314411 Permits to use natural resources 314412 Permits to undertake speciﬁ c activities 9144
Entitlement to future goods and services on an exclusive basis Goodwill and marketing assets Financial assets Monetary gold and Special Drawing Rights (SDRs) Monetary gold Special Drawing Rights Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes
 [GFS] 31442 32 3201 32011 32012 3202 3203 3204 3205 32051 32052 3206 Nonlife insurance technical reserves 32061 Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts receivable Trade credit and advances Miscellaneous other accounts receivable GFS Classiﬁ cations 391 Table A8.3 Classiﬁ cations of Flows and Stock Positions in Assets and Liabilities (continued) Classiﬁ cation of holding gains and losses in assets and liabilities Classiﬁ cation of other changes in the volume of assets and liabilities Classiﬁ cation of total other economic ﬂ ows in assets and liabilities Classiﬁ cation of stock positions in assets and liabilities Classiﬁ cation of transactions in assets and liabilities1 Domestic
 321 421 521 921 621 Same instrument breakdown as above, but excluding monetary gold for all ﬂ ows and stock positions and SDRs for stock positions External 3211–3218 4211–4218 5211–5218 9211–9218 6212–6218 322 422 522 922 622 Same instrument breakdown as above 3221–3228 Liabilities Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Equity and investment fund shares Equity Investment fund shares or units Insurance, pension, and standardized guarantee schemes [GFS] 33 3301 3302 3303
 3304 3305 33051 33052 3306 Nonlife insurance technical reserves 33061 Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Financial derivatives and employee stock options Financial derivatives Employee stock options Other accounts payable Trade credit and advances Miscellaneous other accounts payable Domestic Same instrument breakdown as above, but excluding SDRs External 33062 33063 33064 33065 3307 33071 33072 3308 33081 33082 331 4221–4228 43 5221–5228 53 9221–9228 93 6221– 3312–3318 4312–4318 5312–5318 9312–9318 6312–6318 332 432 532 932 632 Same instrument breakdown as above 3321–3328 4321–4328 5321–5328 9321–9328 6321–6328 Memorandum items Own-account capital formation Compensation of employees Use of goods and services Consumption of ﬁ xed capital Other taxes on production minus other subsidies on production 3M1 3M11 3M12 3M13 3M14 392 Government Finance Statistics Manual 2014 Table A8.3 Classiﬁ cations of
 Flows and Stock Positions in Assets and Liabilities (concluded) Classiﬁ cation of transactions in assets and liabilities1 Classiﬁ cation of holding gains and losses in asset and liabilities Classiﬁ cation of other changes in the volume of assets and liabilities Classiﬁ cation of total other economic ﬂ ows in assets and liabilities Classiﬁ cation of stock positions in assets and liabilities 3M2 3M3 3M4 3M35 3M36 3M37 3M38 Net ﬁ nancial worth Gross debt: Gross debt at market value Gross debt at nominal value
 Gross debt at face value Net debt: Net debt at market value Net debt at nominal value Net debt at face value Concessional loans: Concessional loans at nominal value Implicit transfers resulting from loans at concessional interest rates Arrears Explicit contingent liabilities: Publicly guaranteed debt Other one-off guarantees Net implicit obligations for future social security beneﬁ ts Nonperforming loan assets Nonperforming loan assets at fair value Nonperforming loan assets at nominal value 4M2 4M3 4M4 5M2 5M3 5M4 9M2 9M3 9M4 4M36 4M37 5M36 5M37 9M36 9M37 6M2 6M3 6M4 6M35 6M36 6M37 6M38 6M391 6M392 6M5 6M6 6M61 6M62 6M7 6M8 6M81 1Transactions in each category of nonﬁ nancial assets may be further distinguished as acquisitions, disposals, and consumption of ﬁ xed capital (see Table 8.1).
GFS Classiﬁ cations 393 Table A8.4 Classiﬁ cations of the Counterparty of Transactions and Stock Positions in Financial Assets and Liabilities by Institutional Sector Classiﬁ cation of transactions in ﬁ nancial assets and liabilities1 Classiﬁ cation of stock positions in ﬁ nancial assets and liabilities1 Change in net ﬁ nancial worth due to transactions / net ﬁ nancial worth Financial assets Domestic debtors General government Central bank Deposit-taking corporations except the central bank Public deposit-taking corporations except the central bank Private deposit-taking corporations Other ﬁ nancial corporations Other public ﬁ nancial corporations Other private ﬁ nancial corporations Nonﬁ nancial corporations Public nonﬁ nancial corporations Private nonﬁ nancial corporations Households and nonproﬁ t institutions serving households External debtors General government International organizations Financial corporations other than international organizations Central banks Financial corporations not elsewhere classiﬁ ed Other nonresidents Liabilities Domestic creditors General government Central bank Deposit-taking corporations except the central bank Public deposit-taking corporations except the central bank Private deposit-taking corporations Other ﬁ nancial corporations Other public ﬁ nancial corporations Other private ﬁ nancial corporations Nonﬁ nancial corporations Public nonﬁ nancial corporations Private nonﬁ nancial corporations Households and nonproﬁ t institutions serving households External creditors
 General government International organizations Financial corporations other than international organizations Central banks Financial corporations not elsewhere classiﬁ ed Other nonresidents 8 82 (=32) 821 (=321) 8211 8212 8213 82131 82132 8214 82141 82142 8215 82151 82152 8216 822 (=322) 8221 8227 8228 82281 82282 8229 83 (=33) 831 (=331) 8311 8312 8313 83131 83132 8314 83141 83142 8315 83151 83152 8316 832 (=332) 8321 8327 8328 83281 83282 8329 68 (=6) 682 (=62) 6821 (=621) 68211 68212 68213 682131 682132 68214 682141 682142 68215 682151 682152 68216 6822 (=622) 68221 68227 68228 682281 682282 68229 683 (=63) 6831 (=631) 68311 68312 68313 683131 683132 68314 683141 683142 68315 683151 683152 68316 6832 (=632) 68321 68327 68328 683281 683282 68329 Note: Transactions in monetary gold are classiﬁ ed according to the counterparty involved.
Although gold bullion has no counterparty, by convention, the counterparty to the stock position in gold bullion is shown as “other nonresidents” in this table.

1The counterparty to the transactions is not necessarily the same as the counterparty to the stock positions.

While the parties are the same at the inception of the instrument, they may differ for transactions in that instrument.
As explained in paragraph 9.25, in principle, the clas- siﬁ cation of general government units’ transactions in ﬁ nancial assets and liabilities by residence is based on the residence of the units that were a party to the transaction being recorded, whereas the classiﬁ cation of stock positions in ﬁ nancial assets and liabilities in a govern- ment unit’s balance sheet is based on the residence of the issuer of ﬁ nancial instruments (assets), and the residence of the holder of the ﬁ nancial instruments (liabilities).
If a transaction in ﬁ nancial assets or liabilities is between a resident and a nonresident unit that involves an instrument originally issued by a resident, an entry in other changes in the volume of assets (reclassiﬁ cation) is recorded to maintain the integrated GFS framework of stock positions and ﬂ ows.
394 Government Finance Statistics Manual 2014 Table A8.5 Classiﬁ cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity and by Type of Debt Instrument Long-term by original maturity With payment due in more than one year = Long- term by remaining maturity (c) Short-term, by original maturity1 (a) With payment due in one year or less (b) Short- term by remaining maturity (a) + (b) Total (b) + (c) Financial assets corresponding to debt instruments Monetary gold and Special Drawing Rights (SDRs) Monetary gold Special Drawing Rights Currency and deposits Debt securities Loans Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Other accounts receivable Trade credit and advances Miscellaneous other accounts receivable Domestic Same instrument breakdown as above, but excluding monetary gold and SDRs External Same instrument breakdown as above Debt instruments (= gross debt) Special Drawing Rights (SDRs) Currency and deposits Debt securities Loans Insurance, pension, and standardized guarantee schemes [GFS] Nonlife insurance technical reserves Life insurance and annuities entitlements Pension entitlements [GFS] Claims of pension funds on pension manager Provisions for calls under standardized guarantee schemes Other accounts payable Trade credit and advances Miscellaneous other accounts payable Domestic Same instrument breakdown as above, but excluding SDRs External Same instrument breakdown as above 1This category includes arrears and interest on arrears.
62.1 6201.1 62011.1 62012.1 6202.1 6203.1 6204.1 6206.1 62061.1 62062.1 62063.1 62064.1 62065.1 6208.1 62081.1 62082.1 621.1 6212.1– 6218.1 622.1 6221.1– 6228.1 63.1 6301.1 6302.1 6303.1 6304.1 6306.1 63061.1 63062.1 63063.1 63064.1 63065.1 6308.1 63081.1 63082.1 631.1 6312.1– 6318.1 632.1 6321.1– 6328.1 62.2 6201.2 62011.2 62012.2 6202.2 6203.2 6204.2 6206.2 62061.2 62062.2 62063.2 62064.2 62065.2 6208.2 62081.2 62082.2 621.2 6212.2– 6218.2 622.2 6221.2– 6228.2 63.2 6301.2 6302.2 6303.2 6304.2 6306.2 63061.2 63062.2 63063.2 63064.2 63065.2 6308.2 63081.2 63082.2 631.2 6312.2– 6318.2 632.2 6321.2– 6328.2 62.3 6201.3 62011.3 62012.3 6202.3 6203.3 6204.3 6206.3 62061.3 62062.3 62063.3 62064.3 62065.3 6208.3 62081.3 62082.3 621.3 6212.3– 6218.3 622.3 6221.3– 6228.3 63.3 6301.3 6302.3 6303.3 6304.3 6306.3 63061.3 63062.3 63063.3 63064.3 63065.3 6308.3 63081.3 63082.3 631.3 6312.3– 6318.3 632.3 6321.3– 6328.3 62.4 6201.4 62011.4 62012.4 6202.4 6203.4 6204.4 6206.4 62061.4 62062.4 62063.4 62064.4 62065.4 6208.4 62081.4 62082.4 621.4 6212.4– 6218.4 622.4 6221.4– 6228.4 63.4 6301.4 6302.4 6303.4 6304.4 6306.4 63061.4 63062.4 63063.4 63064.4 63065.4 6308.4 63081.4 63082.4 631.4 6312.4– 6318.4 632.4 6321.4– 6328.4 62.5 6201.5 62011.5 62012.5 6202.5 6203.5 6204.5 6206.5 62061.5 62062.5 62063.5 62064.5 62065.5 6208.5 62081.5 62082.5 621.5 6212.5– 6218.5 622.5 6221.5– 6228.5 63.5 6301.5 6302.5 6303.5 6304.5 6306.5 63061.5 63062.5 63063.5 63064.5 63065.5 6308.5 63081.5 63082.5 631.5 6312.5– 6318.5 632.5 6321.5– 6328.5 GFS
 Classiﬁ cations 395 Table A8.6 Classiﬁ cation of Expenditure by Functions of Government According to Divisions and Groups 7 Total expenditure General public services Executive and legislative organs, ﬁ nancial and ﬁ scal affairs, external affairs Foreign economic aid General services Basic research R&D General public services General public services n.e.c.
Public debt transactions Transfers of a general character between different levels of government Defense Military defense Civil defense Foreign military aid R&D Defense Defense n.e.c.

Public order and safety Police services Fire protection services Law courts Prisons R&D Public order and safety Public order and safety n.e.c.
Economic affairs General economic, commercial, and labor affairs Agriculture, forestry, ﬁ shing, and hunting Fuel and energy Mining, manufacturing, and construction Transport Communication Other industries R&D Economic affairs Economic affairs n.e.c.

Environmental protection Waste management Waste water management Pollution abatement Protection of biodiversity and landscape R&D Environmental protection Environmental protection n.e.c.
Note: R&D = research and development; n.e.c.

= not elsewhere classiﬁ ed.

Housing and community amenities Housing development Community development Water supply Street lighting R&D Housing and community amenities Housing and community amenities n.e.c.
Health Medical products, appliances, and equipment Outpatient services Hospital services Public health services R&D Health Health n.e.c.

Recreation, culture, and religion Recreational and sporting services Cultural services Broadcasting and publishing services Religious and other community services R&D Recreation, culture, and religion Recreation, culture, and religion n.e.c.
Education Pre-primary and primary education Secondary education Postsecondary nontertiary education Tertiary education Education not deﬁ nable by level Subsidiary services to education R&D Education Education n.e.c.

Social protection Sickness and disability Old age Survivors Family and children Unemployment Housing Social exclusion n.e.c.

R&D Social protection Social protection n.e.c.
APPENDIX 9 Glossary Accrual basis of recording In the accrual basis of recording, fl ows are recorded at the time economic value is created, transformed, exchanged, transferred, or extinguished .................3.62 Actual employers’ social contributions Actual employers’ social contributions consist of actual contributions pay- able to social security funds, employment-related pension funds, and other employment-related social insurance schemes to obtain entitlement to social benefi ts for their employees ................................................................................6.21 Actual premium (fee) Th e actual premium (fee) is the amount payable to the insurer (guarantor) to secure insurance coverage for a specifi c event over a stated time period ..A4.74 Aggregates Aggregates are summations of individual entries and elements in a class of fl ows or stock positions .................................................................................... 3.141 Allocated gold accounts Allocated gold accounts provide ownership of a specifi c piece of gold ..... 7.127 Amortized value of a loan Amortized value of a loan refl ects the gradual elimination of the liability by regular payments over a specifi ed period of time ......................................... 3.115 Ancillary activity Arrears Asset Asset-backed securities and collateralized debt obligations Balance of payments Balance sheet Balancing items Banker’s acceptance An ancillary activity is a supporting activity providing services within an enter- prise in order to create the conditions within which the principal or secondary activities can be carried out .................................................................................2.45 Arrears are defi ned as amounts that are both unpaid and past the due date for payment ............................................................................................3.71, 7.247, 9.20 An asset is a store of value representing a benefi t or series of benefi ts accru- ing to the economic owner by holding or using the resource over a period of time.
................................................................................................................ 3.42, 7.6 Asset-backed securities and collateralized debt obligations are arrangements under which payments of interest and principal are backed by payments on specifi ed assets or income streams .................................................................. 7.151 Th e balance of payments summarizes economic transactions between residents and nonresidents during a specifi c time period ............................................A7.76 A balance sheet is a statement of the values of the stock positions of assets owned and of the liabilities owed by an institutional unit or group of units, drawn up in respect of a particular point in time ........................... 3.56, 4.39, 7.1 Balancing items are economic constructs obtained by subtracting one aggre- gate from a second aggregate ........................................................................... 3.142 A banker’s acceptance is created when a fi nancial corporation endorses, in re- turn for a fee, a draft or bill of exchange and the unconditional promise to pay a specifi c amount at a specifi ed date ............................................................... 7.145 Glossary 397 Bills Bonds and debentures Bills are defi ned as securities (usually short-term) that give holders the uncon- ditional rights to receive stated fi xed sums on a specifi ed date ................... 7.144 Bonds and debentures are securities that give the holders the unconditional right to fi xed payments or contractually determined variable payments on a specifi ed date or dates ....................................................................................... 7.146 Book value Book value generally refers to the value recorded in the entities’ records ... 3.115 Budgetary central government Buildings other than dwellings Th e budgetary central government is oft en a single unit of the central govern- ment that encompasses the fundamental activities of the national executive, legislative, and judiciary powers .........................................................................2.81 Buildings other than dwellings include whole buildings or parts of buildings not designated as dwellings.
Fixtures, facilities, and equipment that are integral parts of the structures are included ....................................................................7.46 Capital account in the inter- national accounts Th e capital account in the international accounts shows transactions between residents and nonresidents related to capital transfers receivable and payable and the acquisition and disposal of nonproduced nonfi nancial assets ......A7.89 Capital claims payable Capital claims payable comprise exceptionally large insurance settlements pay- able in the wake of a catastrophic event or disaster ...................................... 6.125 Capital claims receivable Capital claims receivable comprise exceptionally large insurance settlements receivable in the wake of a catastrophic event or disaster .............................5.151 Capital grants Capital levies Capital taxes Capital transfers Capital grants are capital transfers receivable by government units, from other resident or nonresident government units or international organizations, that do not meet the defi nition of a tax, subsidy, or a social contribution ..........5.103 Capital levies cover taxes on the values of the assets or net worth owned by in- stitutional units levied at irregular and very infrequent intervals of time .....5.52 Capital taxes are taxes levied at irregular and very infrequent intervals on the values of the assets or net worth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gift s, or other transfers .......................................................................................................5.52 Capital transfers are transfers in which the ownership of an asset (other than cash or inventories) changes from one party to another or that oblige one or both parties to acquire or dispose of an asset (other than cash or inventories) .......3.16 Capital transfers not else- where classiﬁ ed Capital transfers not elsewhere classifi ed are gift s and
 transfers of a capital na- ture (other than grants) from individuals, private nonprofi t institutions, non- governmental foundations, or corporations ....................................................5.148 Captive ﬁ nancial institutions and money lenders Captive fi nancial institutions and money lenders are institutional units pro- viding fi nancial services other than insurance, where most of their assets or liabilities are not available on open fi nancial markets .....................................2.54 Cash basis of recording In the cash basis of recording, fl ows are recorded when cash is received or dis- bursed .....................................................................................................................3.67 Catastrophic loss A catastrophic loss is the partial or complete destruction of a signifi cantly large number of assets within any of the asset categories resulting from a large-scale, discrete, and recognizable event ...................................................................... 10.60 398 Government Finance Statistics Manual 2014 Center of predominant eco- nomic interest Central bank Central government subsector An institutional unit has a center of predominant economic interest in an eco- nomic territory when there exists, within the economic territory, some loca- tion, dwelling, place of production, or other premises on which, or from which, the unit engages and intends to continue engaging, either indefi nitely or over a fi nite but long period of time, in economic activities and transactions on a signifi cant scale .....................................................................................................2.12 Th e central bank is the national fi nancial institution that exercises con trol over key aspects of the fi nancial system .................................................................. 2.118 Th e central government subsector consists of the institutional unit(s) of the central government plus those
 nonmarket NPIs that are controlled by the cen- tral government.
Th e political authority of the central government extends over the entire territory of the country .............................................................2.85 Change in net worth due to holding gains or losses Change in net worth due to holding gains or losses is defi ned as the sum of the positive or negative holding gains and holding losses on all assets and li- abilities ................................................................................................................4.37 Change in net worth due to other changes in the volume of assets and liabilities Change in net worth due to other changes in the volume of assets and liabilities is defi ned as the sum of the positive and negative other changes in the volume of assets and liabilities ..........................................................................................4.38 Change in net worth due to other economic ﬂ ows Change in net worth due to other economic fl ows is defi ned as the sum of the change in net worth due to holding gains or losses and the change in net worth due to other changes in the volume of assets .......................................... 4.36, 10.2 Claim (beneﬁ t or call) Collective service A claim (benefi t or call) is the amount payable to the policyholder by the in- surer in respect of an event covered by the policy occurring in the period for which the policy is valid ...................................................................................A4.77 A collective service is a service provided simultaneously to all members of the community or to all members of a particular section of the community, such as all households living in a particular region .................................................... 6.134 Commitments basis of recording In the commitments basis of recording, fl ows are recorded when an institu- tional unit has committed itself to a transaction ..............................................3.65 Compensation of employees Compensation of employees is the total remuneration, in cash or in
 kind, pay- able to an individual in an employer-employee relationship in return for work performed by the latter during the reporting period ........................................6.9 Computer software Computer soft ware includes computer programs, program descriptions, and supporting materials for both systems and applications soft ware that are ex- pected to be used for more than one year .........................................................7.70 Consolidation Consolidation is a method of presenting statistics for a set of units (or entities) as if they constituted a single unit .......................................................... 3.153, 9.18 Consumption of ﬁ xed capital Consumption of fi xed capital is the decline, during the course of the reporting period, in the current value of the stock of fi xed assets owned and used by a government unit as a result of physical deterioration, normal obsolescence, or normal accidental damage ..................................................................................6.53 Contingent liabilities Contingent liabilities are obligations that do not arise unless a particular, dis- crete event(s) occurs in the future .......................................................... 4.47, 7.251 Glossary 399 Contracts, leases, and licenses Contracts, leases, and licenses are treated as assets only when both the fol- lowing conditions are satisfi ed: (i) the terms of the contract, lease, or license specify a price for the use of an asset or provision of a service that diff ers from the price that would prevail in the absence of the contract, lease, or license, and (ii) one party to the contract must be able legally and practically to realize this price diff erence ........................................................................................................7.105 Control of a corporation Control of a corporation is defi ned as the ability to determine general corpo- rate policy of the corporation
 ........................................................... 2.107, Box 2.2 Control of an NPI Corporations Control of an NPI is defi ned as the ability to determine the general policy or program of the NPI ........................................................................................Box 2.1 Corporations are defi ned as entities that are capable of generating a profi t or other fi nancial gain for their owners, are recognized by law as separate legal entities from their owners, and are set up for purposes of engaging in market production .............................................................................................................2.31 Costs of ownership transfer Costs of ownership transfer are the costs associated with acquiring and dispos- ing of nonfi nancial assets (other than inventories) ............................................8.6 Credit derivatives Credit entry Cultivated biological resources Currency Currency union Current account Current grants Credit derivatives are fi nancial derivatives whose primary purpose is to trade credit risk ............................................................................................................ 7.218 A credit entry is a decrease in an asset, an increase in a liability, or an increase in net worth ................................................................................................................3.55 Cultivated biological resources cover animal resources yielding repeat prod- ucts and tree, crop, and plant resources yielding repeat products whose natural growth and regeneration are under the direct control, responsibility, and man- agement of institutional units .............................................................................7.59 Currency consists of notes and coins that are of fi xed nominal values and are issued or authorized by the central bank or government ............................ 7.135 A currency union is defi ned as a union to which two or more
 economies be- long and that has a regional central decision-making body, commonly a cur- rency union central bank, endowed with the legal authority to conduct a single monetary policy and issue the single currency of the union .......................A5.34 Th e current account shows fl ows of goods and services, primary income, and secondary income between residents and nonresidents ..............................A7.78 Current grants are current transfers receivable by government units, from other resident or nonresident government units or international organi- zations, and that do not meet the defi nition of a tax, subsidy, or a social contri- bution .................................................................................................................. 5.103 Current transfers Current transfers consist of all transfers that are not capital transfers ..........3.17 Custom union Databases A custom union is a form of regional arrangement whereby agreement exists on a common tariff (custom duties) vis-à-vis the other economies while the movement of goods within the arrangement tends to be duty-free .............A5.6 Databases consist of fi les of data organized in such a way as to permit resource- eff ective access and use of the data .....................................................................7.70 400 Government Finance Statistics Manual 2014 Debit entry Debt assumption Debt conversion (swap) A debit entry is an increase in an asset, a decrease in a liability, or a decrease in net worth...................................................................................................................................3.55 Debt assumption is a trilateral agreement between a creditor, a former debtor, and a new debtor (typically a government unit), under which the new debtor assumes the former debtor’s outstanding liability to the creditor, and is liable for repayment of debt
 ........................................................................................A3.26 Debt conversion (swap) is an exchange of debt—typically at a discount—for a nondebt claim (such as equity), or for counterpart funds that can be used to fi nance a particular project or policy ..............................................................A3.20 Debt forgiveness (or debt cancellation) Debt forgiveness (or debt cancellation) is defi ned as the voluntary cancellation of all or part of a debt obligation within a contractual arrangement between a creditor and a debtor ...........................................................................................A3.7 Debt payments on behalf of others Rather than assuming a debt, a public sector unit may decide to repay that debt or make a specifi c payment on behalf of another institutional unit (original debtor), without a guarantee being called or the debt being taken over ....A3.30 Debt prepayment Debt reﬁ nancing Debt prepayment consists of a repurchase, or early payment, of debt at condi- tions that are agreed between the debtor and the creditor ..........................A3.24 Debt refi nancing involves the replacement of an existing debt instrument or instruments, including any arrears, with a new debt instrument or instru- ments .................................................................................................................. A3.14 Debt reorganization (also referred to as debt restructuring) Debt reorganization (also referred to as debt restructuring) is defi ned as an arrangement involving both the creditor and the debtor (and sometimes third parties) that alters the terms established for servicing an existing debt ......A3.2 Debt rescheduling Debt securities Debt write-offs or write-downs Deep-discount bonds Defeasance Debt rescheduling is a bilateral arrangement between the debtor and the credi- tor that constitutes a formal postponement of debt service payments and the application of new
 and generally extended maturities .................................A3.11 Debt securities are negotiable fi nancial instruments serving as evidence of a debt ...................................................................................................................... 7.143 Debt write-off s or write-downs refer to unilateral reductions by a creditor, of the amount owed to it .......................................................................................A3.32 Deep-discount bonds are long-term securities that require periodic coupon payments during the life of the instrument, but the amount is substantially below the market rate of interest at issuance ................................................. 7.147 With defeasance, a debtor unit removes liabilities from its balance sheet by pairing them with fi nancial assets, the income and value of which are suffi cient to ensure that all debt-service payments are met ..........................................A3.37 Deﬁ ned-beneﬁ t pension scheme A defi ned-benefi t pension scheme is one where the benefi ts payable to an em- ployee on retirement are determined by the use of a formula, either alone or as a minimum amount payable ............................................................................A2.54 Deﬁ ned-contribution pen- sion scheme A defi ned-contribution pension scheme is one where the benefi ts payable to an employee on retirement are defi ned exclusively in terms of the level of the funds built up from the contributions made over the employee’s working life and the increases in value that result from the investment of these funds by the manager of the scheme .....................................................................................A2.55 Glossary 401 Depository receipts Deposits Distributable income Dividends Domestic currency Depository receipts are securities that represent ownership of securities listed in other economies
 ............................................................................................ 7.167 Deposits are all claims, represented by evidence of deposit, on the deposit- taking corporations (including the central bank) and, in some cases, general government or other institutional units ......................................................... 7.137 Distributable income of a corporation is equal to entrepreneurial income, plus all current transfers receivable, minus all current transfers payable and minus the adjustment for the change in pension entitlements relating to the pension scheme of that corporation .............................................................................. 5.116 Dividends are the distributed earnings allocated to government or public sec- tor units, as the owners of equity, for placing funds at the disposal of corpora- tions .......................................................................................................... 5.111, 6.109 Domestic currency is that which is legal tender in the economy and issued by the monetary authority for that economy—that is, either that of an individual economy or, in a currency union, that of the common currency area to which the economy belongs ......................................................................................... 3.134 Due-for-payment basis of recording In the due-for-payment basis of recording, fl ows that give rise to cash payments are recorded at the latest times they can be paid without incurring additional charges or penalties or, if sooner, when the cash payment is made ...............3.66 Dwellings Dwellings are buildings, or designated parts of buildings, that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fi xtures customarily installed in residences .....................7.44 Economic assets Economic assets are resources over which ownership rights are enforced and from which economic
 benefi ts may fl ow to the owners ........................ 3.43, 4.43 Economic classiﬁ cation of expense Th e economic classifi cation of expense identifi es the types of expense incurred according to the economic process involved ......................................................6.2 Economic ﬂ ows Economic owner Economic territory Economic unions Economic fl ows refl ect the creation, transformation, exchange, transfer, or ex- tinction of economic value; they involve changes in the volume, composition, or value of a unit’s assets, liabilities, and net worth ...........................................3.4 Th e economic owner of resources such as goods and services, natural re- sources, fi nancial assets, and liabilities is the institutional unit entitled to claim the benefi ts associated with the use of these resources by virtue of accepting the associated risks.............................................................................................. 3.39, 7.5 Economic territory, in its broadest sense, can be any geographic area or juris- diction for which statistics are required ..............................................................2.8 Economic unions are established by means of an intergovernmental legal agreement among sovereign countries or jurisdictions with the intention of fostering greater economic integration ..........................................................A5.19 Economically signiﬁ cant prices Economically signifi cant prices are prices that have a signifi cant eff ect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy ............................................................................................................2.66 Economy An economy consists of a set of resident institutional units.............................2.6 402 Government Finance Statistics Manual 2014 Embedded derivative An embedded derivative arises when a derivative feature is inserted in a stan- dard fi nancial
 instrument and is inseparable from the instrument ............ 7.148 Employee stock options Employee stock options are options to buy the equity of a company, off ered to employees of the company as a form of remuneration ................................ 7.221 Employers’ social contributions Employment-related social beneﬁ ts Employers’ social contributions are social contributions payable by employers, to social security funds, employment-related pension funds, or other employ- ment-related social insurance schemes to obtain entitlement to social benefi ts for their employees ...............................................................................................6.19 Employment-related social benefi ts are social benefi ts payable in cash or in kind by government or public sector units to their employees or employees of other government or public sector units participating in the scheme (or to survivors and dependents of the employees who are eligible for such pay- ments) ...............................................................................................................6.104 Enterprise An enterprise is the view of an institutional unit as a producer of goods and services ...................................................................................................................2.25 Entertainment, literary, and artistic originals Entertainment, literary, and artistic originals are original fi lms, sound record- ings, manuscripts, tapes, and models in which drama performances, radio and television programming, musical performances, sporting events, and literary and artistic output are recorded or embodied.
.................................................7.72 Entitlement to future goods and services on an exclusive basis Entitlement to future goods and services on an exclusive basis relates to the case where one party that has contracted to purchase goods or services at a fi xed price at a time in the future is able to transfer the obligation of the second party to the contract to a third party .............................................................. 7.112 Environmental protection activities Environmental protection activities are those activities whose primary purpose is the prevention, reduction, and elimination of pollution and other forms of degradation of the environment ................................................................... A7.107 Environmental tax Equity Establishment An environmental tax is a tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, specifi c, negative impact on the environ- ment ................................................................................................................. A7.115 Equity consists of all instruments and records that acknowledge claims on the residual value of a corporation or quasi-corporation, aft er the claims of all creditors have been met .................................................................................... 7.165 An establishment is an enterprise, or part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out or in which the principal productive activity accounts for most of the value added ......................................................................................................................2.24 Estate, inheritance, and gift taxes Estate, inheritance, and gift taxes cover taxes on transfers of property at death and on gift s, including gift s made between living members of the same family to avoid, or minimize, the payment of inheritance taxes ................................5.51 Exchange An exchange is a
 transaction in which one unit provides a good, service, asset, or labor to a second unit and receives a good, service, asset, or labor of the same value in return .........................................................................................................3.9 Glossary 403 Excises Expenditure Excises are taxes levied as a product-specifi c unit tax on a predefi ned limited range of goods .......................................................................................................5.62 Expenditure is the sum of expense and the net investment in nonfi nancial assets .......................................................................................................................4.21 Expense Expense is a decrease in net worth resulting from a transaction ........... 4.24, 6.1 Explicit contingent liabilities Explicit contingent liabilities are defi ned as legal or contractual fi nancial ar- rangements that give rise to conditional requirements to make payments of economic value .................................................................................................. 7.252 Extrabudgetary Face value Fair value General government entities with individual budgets not fully covered by the main (or general) budget are considered extrabudgetary ...............................2.82 Face value of a debt instrument is the undiscounted amount of principal to be repaid at (or before) maturity ............................................................... 3.115, 7.242 Fair value is a market-equivalent value defi ned as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction ............................................................ 3.115 Financial account of the bal- ance of payments Th e fi nancial account of the balance of payments records transactions that in- volve fi nancial assets and liabilities that take place between residents and non- residents
 ..............................................................................................................A7.93 Financial assets Financial auxiliaries Financial claim Financial corporations Financial assets consist of fi nancial claims and gold bullion held by monetary authorities as a reserve asset ...............................................................................3.48 Financial auxiliaries consist of fi nancial corporations that are principally en- gaged in activities associated with transactions in fi nancial assets and liabilities or with providing the regulatory context for these transactions but in circum- stances that do not involve the auxiliary taking ownership of the fi nancial as- sets and liabilities being transacted ....................................................................2.54 A fi nancial claim is an asset that typically entitles the owner of the asset (the creditor) to receive funds or other resources from another unit, under the terms of a liability ....................................................................................... 3.47, 7.15 Financial corporations are corporations that are principally engaged in provid- ing fi nancial services, including insurance and pension fund services, to other institutional units .............................................................................................. 2.115 Financial corporations sector Th e fi nancial corporations sector consists of resident corporations that are principally engaged in providing fi nancial services, including insurance and pension fund services, to other institutional units ..........................................2.53 Financial derivative contract A fi nancial derivative contract is a fi nancial instrument that is linked to an- other specifi c fi nancial instrument or indicator or commodity and through which specifi c fi nancial risks (e.g., interest rate risk, foreign exchange risk, eq- uity and commodity price risks, and credit risk)
 can be traded in their own right in fi nancial markets ................................................................................. 7.204 Financial intermediaries Financial intermediaries are institutional units that incur liabilities on their own account for the purpose of acquiring fi nancial assets by engaging in fi nan- cial transactions on the market...........................................................................2.54 404 Government Finance Statistics Manual 2014 Financial lease Fines and penalties Finished goods Fiscal policy Fixed assets Forfeits Forward-type contract A fi nancial lease is a contract under which the lessor, as legal owner of an asset, conveys substantially all risks and rewards of ownership of the asset to the lessee ........................................................................................................ 7.158, A4.10 Fines and penalties are compulsory current transfers imposed on units by courts of law or quasi-judicial bodies for violations of laws or administrative rules ..................................................................................................................... 5.142 Finished goods consist of goods that are the output of a production process, are still held by their producer, and are not expected to be processed further by the producer before being supplied to other units .................................................7.83 Fiscal policy is the use of the level and composition of the general govern- ment and public sectors’ spending and revenue—and the related accumulation of government assets and liabilities—to achieve such goals as the stabiliza- tion of the economy, the reallocation of resources, and the redistribution of income .....................................................................................................................1.2 Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year
 ........................................ 7.18, 7.35 Forfeits are amounts that were deposited with a general government unit pend- ing a legal or administrative proceeding and that have been transferred to the general government unit as part of the resolution of that proceeding ....... 5.142 A forward-type contract (forward) is an unconditional contract by which two counterparties agree to exchange a specifi ed quantity of an underlying item (real or fi nancial) at an agreed-on contract price (the strike price) on a speci- fi ed date ............................................................................................................... 7.212 Functional classiﬁ cation of expense Th e functional classifi cation of expense provides information on the purpose for which an expense was incurred ......................................................................6.3 General government sector Th e general government sector consists of resident institutional units that ful- fi ll the functions of government as their primary activity ............. 1.2, 2.58, 2.76 General taxes on goods and services General taxes on goods and services are levied on the production, leasing, de- livery, sale, purchase, or other change of ownership of a wide range of goods and the rendering of a wide range of services ..................................................5.57 Gold bullion Gold swap Gold bullion takes the form of coins, ingots, or bars with a purity of at least 995 parts per 1,000, including such gold held in allocated gold accounts ........ 7.128 A gold swap involves an exchange of gold for foreign exchange deposits with an agreement that the transaction be reversed at an agreed future date at an agreed gold price ............................................................................................................ 7.161 Goods and services account Th e goods and services account shows transactions in items that are outcomes of production activities
 .....................................................................................A7.78 Goods for resale Government units Goods for resale are goods acquired for the purpose of reselling or transferring to other units without being further processed ................................................7.84 Government units are unique kinds of legal entities established by political processes that have legislative, judicial, or executive authority over other insti- tutional units within a given area .......................................................................2.38 Glossary 405 Grants Grants are transfers receivable by government units, from other resident or nonresident government units or international organizations, and that do not meet the defi nition of a tax, subsidy, or social contribution ................. 5.5, 5.101 Gross debt at market value Gross debt at market value means that debt securities are valued at market prices; insurance, pension, and standardized guarantee schemes are valued ac- cording to principles that are equivalent to market valuation; and all other debt instruments are valued at nominal prices, which are considered to be the best generally available proxies of their market prices ......................................... 7.240 Gross debt at nominal value Gross debt at nominal value means that debt securities are valued at their nom- inal values.
Th e nominal value of a debt instrument at any moment in time is the amount that the debtor owes to the creditor ........................................... 7.241 Gross value added or gross domestic product (GDP) Gross value added is defi ned as the value of output minus the value of interme- diate consumption .............................................................................................A7.24 Historic cost Holding gain or loss Household Historic cost, in its strict sense, refl ects the cost at the time of acquisition, but sometimes it may also refl ect occasional revaluations ................................. 3.115 A holding gain or loss is a change in the monetary value of an asset or liability resulting from changes in the level and structure of prices, excluding qualita- tive or quantitative changes in the asset or liability ............................... 3.33, 10.1 A household is a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth, and who consume certain types of goods and services collectively, mainly housing and food ...............2.28 Households sector Th e households sector consists of all resident households .............................2.60 Implicit contingent liabilities Implicit contingent liabilities do not arise from a legal or contractual source but are recognized aft er a condition or event is realized .................................... 7.252 Imputed employers’ social contributions Imputed employers’ social contributions are the amounts calculated and added to actual contributions, suffi cient to exactly match the increases in employees’ social benefi t entitlements ...................................................................................6.22 Index-linked securities Index-linked securities are instruments for which either the coupon payments (interest) or the principal or both are linked to another item, such as a price index, an interest rate, or the price of a commodity .....................................
 7.153 Individual consumption good or service An individual consumption good or service is one that is acquired by a household and used to satisfy the needs or wants of members of that house- hold ...................................................................................................................... 6.135 Information, computer, and telecommunications equipment Information, computer, and telecommunications (ICT) equipment consists of devices using electronic controls and also the electronic components forming part of these devices .............................................................................................7.56 Institutional sector Institutional unit An institutional sector groups together similar kinds of institutional units ac- cording to their economic objective s, functions, and behavior .....................2.50 An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities and in transactions with other entities ..........................................................................2.22 Intangible nonproduced assets Intangible nonproduced assets are constructs of society evidenced by legal or accounting actions ............................................................................................. 7.104 406 Government Finance Statistics Manual 2014 Intellectual property products Interest Intermediate consumption International investment position Intersectoral consolidation Intellectual property products are the result of research, development, inves- tigation, or innovation leading to knowledge that the developers can market or use to their own benefi t in production because use of the knowledge is re- stricted by means of legal or other protection ..................................................7.64 Interest is a form of investment income that is receivable by the owners of cer- tain kinds of fi nancial assets (SDRs,
 deposits, debt securities, loans, and other accounts receivable) for putting these fi nancial assets and other resources at the disposal of another institutional unit .............................................................. 5.108 Intermediate consumption consists of the goods and services consumed as inputs by a process of production, excluding fi xed assets whose consumption is recorded as consumption of fi xed capital ............................................................................A7.28 Th e international investment position (IIP) is a statistical statement that shows at a point in time the value of: fi nancial assets of residents of an economy that are claims on nonresidents and gold bullion held as reserve assets; and the liabilities of residents of an economy to nonresidents .......................................................A7.96 Intersectoral consolidation is consolidation between subsectors of the public sec- tor to produce consolidated statistics for a particular grouping of public sector units ...........................................................................................................................3.156 Intrasectoral consolidation Intrasectoral consolidation is consolidation within a particular subsector to pro- duce consolidated statistics for that particular subsector ..................................3.155 Inventories Investment funds Joint operating arrangements Joint venture Land Land improvements Legal or social entity Legal owner Liability Inventories are produced assets consisting of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production, or other use at a later date ..............................................7.18, 7.75 Investment funds are collective investment undertakings through which investors pool funds for investment in fi nancial or nonfi nancial assets ...........................7.174 Joint operating arrangements
 can be in the form of jointly controlled operations or jointly controlled assets ......................................................................................2.143 A joint venture involves the establishment of a corporation, partnership, or other institutional unit in which, legally, each party has joint control over the activities of the joint venture unit ..........................................................................................2.141 Land consists of the ground, including the soil covering and any associated sur- face waters, over which ownership rights are enforced and from which economic benefi ts can be derived by their owners by holding or using them ....................7.92 Land improvements are the result of actions that lead to major improvements in the quantity, quality, or productivity of land, or prevent its deterioration ........7.49 A legal or social entity is one whose existence is recognized by law or society inde- pendently of the persons or other entities that may own or control it ...............2.30 Th e legal owner of resources such as goods and services, natural resources, fi nan- cial assets, and liabilities is the institutional unit entitled by law and sustainable under the law to claim the benefi ts associated with the resource ................3.38, 7.5 A liability is established when one unit (the debtor) is obliged, under specifi c circumstances, to provide funds or other resources to another unit (the cred- itor)........................................................................................................... 3.45, 4.45, 7.15 Glossary 407 Life insurance Life insurance and annuities entitlements Listed shares Loan Life insurance is an activity whereby a policyholder makes regular payments to an insurer in return for which the insurer guarantees to provide the policyholder (or in some cases another nominated person) with an agreed sum, or an annuity, at a given date or earlier if the policyholder dies beforehand
 ..................................A4.69 Life insurance and annuities entitlements are fi nancial claims policyholders have against an enterprise off ering life insurance or providing annuities ................7.187 Listed shares are equity securities listed on an exchange and may be referred to as quoted shares.
(Unlisted shares are equity securities not listed on an ex- change) ......................................................................................................................7.168 A loan is a fi nancial instrument that is created when a creditor lends funds directly to a debtor and receives a nonnegotiable document as evidence of the asset ...........................................................................................................................7.157 Loans and other debt instru- ment guarantees Loans and other debt instrument guarantees are commitments by one party to bear the risk of nonpayment by another party ....................................................7.259 Local government units Local government units are institutional units whose fi scal, legislative, and ex- ecutive authority extends over the smallest geographical areas distinguished for administrative and political purposes ....................................................................2.95 Machinery and equipment Machinery and equipment cover transport equipment, machinery for informa- tion, computer, and telecommunications (ICT) equipment, and machinery and equipment not elsewhere classifi ed .........................................................................7.52 Margins Margins are payments of cash or deposits of collateral that cover actual or poten- tial obligations incurred ............................................................................... 7.219, 9.75 Market establishment A market establishment is an establishment that charges economically signifi cant prices ...........................................................................................................................2.75 Market prices Market prices for transactions Market prices refer to current exchange value—that is, the value at which goods, services, labor, or assets are exchanged or else could be exchanged for cash (cur- rency or transferable deposits)
 ..............................................................................3.107 Market prices for transactions are defi ned as amounts of money that willing buy- ers pay to acquire something from willing sellers; the exchanges are made between independent parties and on the basis of commercial considerations only, some- times called “at arm’s length” ..................................................................................3.108 Market producer A market producer is an institutional unit that provides all or most of its output to others at prices that are economically signifi cant ....................................................2.65 Market regulatory agencies Market regulatory agencies act on behalf of a government (or a regional organi- zation with governments as its members) and infl uence the market for specifi c goods or services directly and/or indirectly ........................................................2.156 Marketable operating leases Marketable operating leases are third-party property rights relating to fi xed assets .........................................................................................................................7.108 Marketing assets Marketing assets consist of items such as brand names, mastheads, trademarks, logos, and domain names .......................................................................................7.115 Materials and supplies Materials and supplies consist of all goods held with the intention of using them as inputs to a production process ............................................................................7.79 408 Government Finance Statistics Manual 2014 Maturity of a debt instrument Military inventories Mineral and energy resources Th e maturity of a debt instrument refers to the time until the debt is ex- tinguished according the creditor ......................................................................................................................7.266 the contract
the contract between the debtor and to Military inventories consist of single-use items, such as ammunition, missiles, rockets, bombs, etc., delivered by weapons or weapons systems ........................7.86 Mineral and energy resources consist of mineral and energy reserves located on or below the earth’s surface that are economically exploitable, given current technol- ogy and relative prices ..............................................................................................7.97 Mineral exploration and evaluation Mineral exploration and evaluation consists of the value of expenditure on explo- ration for petroleum and natural gas and for nonpetroleum deposits and subse- quent evaluation of the discoveries made ..............................................................7.68 Monetary gold Monetary transaction Monetary union Motor vehicle taxes Net debt Net ﬁ nancial worth Net investment in invento- ries (change in inventories) Net premiums Net value added Net worth Neutral holding gain Monetary gold is gold to which the monetary authorities (or others who are sub- ject to the eff ective control of the monetary authorities) have title and is held as a reserve asset ..............................................................................................................7.126 A monetary transaction is one in which one institutional unit makes a payment (receives a payment) or incurs a liability (acquires an asset) to (from) another institutional unit stated in units of currency ...........................................................3.8 A monetary union exists where there is the presence of a single monetary policy among economies, established by an intergovernmental legal agreement .....A5.32 Motor vehicle taxes include taxes on the use of motor vehicles or permission to use motor vehicles .....................................................................................................5.80 Net debt is calculated as gross debt minus fi nancial assets corresponding to debt instruments
 ..............................................................................................................7.243 Th e net fi nancial worth of an institutional unit (or grouping of units) is the total value of its fi nancial assets minus the total value of its liabilities ............ 4.41, 7.235 Net investment in inventories (change in inventories) is measured by the value of the additions to inventories minus the value of withdrawals from inventories minus the value of any recurrent losses of goods held in inventories during the reporting period ........................................................................................................8.44 Net premiums are defi ned as actual premiums plus premium supplements minus the insurance service charge payable by the policyholders ..............................A4.76 Net value added is the value of output minus the values of both intermediate con- sumption and consumption of fi xed capital .......................................................A7.25 Th e net worth of an institutional unit (or grouping of units) is the total value of its assets minus the total value of its liabilities .....................................................4.39, 7.1 Neutral holding gains and losses over a period are the increase (decrease) in the value of an asset that would be required, in the absence of transactions and other changes in the volume of assets, to maintain command over the same amount of goods and services as at the beginning of the period ............................ 10.11, A7.71 Nominal value Nominal value at any moment in time is the amount that the debtor owes to the creditor ......................................................................................................................3.115 Glossary 409 Noncultivated biological resources Noncultivated biological resources consist of animals, birds, fi sh, and plants that yield both once-only and repeat products over which ownership rights are en-
 forced but for which natural growth or regeneration is not under the direct con- trol, responsibility, and management of any institutional units ........................7.101 Nonﬁ nancial assets Nonfi nancial assets are economic assets other than fi nancial assets ...............3.50 Nonﬁ nancial corporations Nonfi nancial corporations are corporations whose principal activity is the pro- duction of market goods or nonfi nancial services ..............................................2.114 Nonﬁ nancial corporations sector Th e nonfi nancial corporations sector consists of resident institutional units that are principally engaged in the production of market goods or nonfi nancial ser- vices .............................................................................................................................2.52 Nonlife insurance Nonlife insurance is an activity similar to life insurance except that it covers all other risks, accidents, sickness, fi re, etc.
..............................................................A4.70 Nonlife insurance technical reserves Nonlife insurance technical reserves consist of (i) prepayments of net nonlife insurance premiums and (ii) reserves to meet outstanding nonlife insurance claims ........................................................................................................................7.183 Nonmarket producer A nonmarket producer provides all or most of its output to others for free or at prices that are not economically signifi cant ...........................................................2.65 Nonmonetary transactions Nonmonetary transactions are transactions that are not initially stated in units of currency ......................................................................................................................3.19 Nonparticipating preferred stocks or shares Nonparticipating preferred stocks or shares are those that pay a fi xed income but do not provide for participation in the distribution of the residual value of an in- corporated enterprise on dissolution ....................................................................7.150 Nonpension social beneﬁ ts Nonpension social benefi ts include payments made to individuals when they are temporarily unemployed, suff ering from a medical condition, or suff ering from an event that prevents them from working for a period ..........................................A2.7 Nonperforming loans Nonproﬁ t institutions Nonperforming loans are those for which
 (i) payments of principal and/or interest are past due by three months (90 days) or more; or (ii) interest payments equal to three months (90 days) interest or more have been capitalized (reinvested to the principal amount) or payment has been delayed by agreement; or (iii) evidence exists to reclassify a loan as nonperforming even in the absence of a 90-day past due payment, such as when the debtor fi les for bankruptcy .............................7.262 Nonprofi t institutions (NPIs) are legal or social entities created for the purpose of producing or distributing goods and services, but they cannot be a source of income, profi t, or other fi nancial gain for the institutional units that establish, control, or fi nance them ...........................................................................................2.36 Nonproﬁ t institutions serv- ing households Th e nonprofi t institutions serving households (NPISHs) sector consists of resi- dent nonmarket nonprofi t institutions (NPIs) that are not controlled by govern- ment ............................................................................................................................2.61 Notional resident unit A notional resident unit is a unit identifi ed for statistical purposes to be the resi- dent owner of immovable assets legally owned by nonresidents ........................2.13 410 Government Finance Statistics Manual 2014 Off-market swap On-balance sheet securitization One-off guarantees
 On-lending Operating leasing Option contract An off -market swap is a swap contract that has a nonzero value at inception as a result of having reference rates priced diff erently from current market values— that is, “off -the-market” ............................................................................. 7.162, A3.68 On-balance sheet securitization involves debt securities backed by a future rev- enue stream generated by the assets.
Th e assets remain on the balance sheet of the debt securities issuer (the original asset owner), typically as a separate portfolio.
Th ere is no securitization unit involved ..............................................................A3.66 One-off guarantees comprise those types of guarantees where the debt instrument is so particular that it is not possible to calculate the degree of risk associated with the debt with any degree of accuracy ....................................................................7.256 On-lending of borrowed funds refers to a resident institutional unit, A (usually central government), borrowing from another institutional unit(s), B (usually a nonresident unit), and then on-lending the proceeds from this borrowing to a third institutional unit(s), C (usually state or local governments, or a public corporation(s)), where it is understood that unit A obtains an eff ective fi nancial claim on unit C .......................................................................................................A3.72 Operating leasing is the activity of renting out produced assets under arrange- ments that provide use of a tangible asset to the lessee, but do not involve the transfer of the bulk of risks and rewards of ownership to the lessee .................A4.6 In an option contract (option), the purchaser acquires from the seller a right to buy or sell (depending on whether the option is a call (buy) or a put (sell)) a speci- fi ed underlying item at a strike price on or before a specifi ed date ..................7.209 Original maturity Original maturity is the period from the issue date until the fi nal contractually scheduled payment date .........................................................................................7.267 Other accounts receivable/ payable Other accounts receivable/payable consist of trade credit and advances and mis- cellaneous other items due to be paid or received ..............................................7.224 Other changes in the volume of assets Other changes in the volume of assets are any changes in the value of an asset or liability that do not result from a transaction or a
 holding gain/loss ........3.35, 10.1 Other current transfers not elsewhere classiﬁ ed Other current transfers not elsewhere classifi ed are gift s and transfers of a current nature (other than grants or subsidies) from individuals, private nonprofi t institu- tions, nongovernmental foundations, or corporations ......................................5.147 Other economic ﬂ ows Other economic fl ows are changes in the volume or value of assets or liabilities that do not result from transactions .......................................................................3.31 Other employment-related social insurance schemes Other employment-related social insurance schemes derive from an employer- employee relationship in the provision of pension entitlement and other social benefi t to employees as part of the conditions of employment ........................A2.40 Other equity Other equity is equity that is not in the form of securities ................................7.169 Other intellectual property products Other intellectual property products consist of new information and specialized knowledge not elsewhere classifi ed .........................................................................7.73 Other public ﬁ nancial corporations Other public fi nancial corporations comprise all resident fi nancial corporations, except public deposit-taking corporations, controlled by general government units or other public corporations ........................................................................2.121 Glossary 411 Other recurrent taxes on property Other revenue Other social contributions Other recurrent taxes on property include all recurrent taxes on property other than immovable property or net wealth .................................................................5.53 Other revenue is all revenue receivable excluding taxes, social contributions, and grants ..................................................................................................................5.6,
5.106 Other social contributions are actual and imputed contributions receivable by social insurance schemes operated by employers on behalf of their em- ployees ........................................................................................................................5.98 Other structures Other structures consist of all structures other than buildings ...........................7.48 Other subsidies on production Other taxes Other taxes on goods and services Other taxes on use of goods and on permission to use goods or perform activities Own funds Partitioning Pension entitlements Other subsidies on production are subsidies that enterprises receive as a con- sequence of engaging in production but that are not related to specifi c pro- ducts ............................................................................................................................6.90 Other taxes cover revenue from taxes levied predominantly on a base or bases not elsewhere classifi ed, and unidentifi ed taxes ...........................................................5.93 Other taxes on goods and services includes taxes on the extraction of minerals, fossil fuels, and other exhaustible resources from deposits owned privately or by another government and any other taxes on goods or services not included in categories 1141 through 1145 ..................................................................................5.82 Other taxes on use of goods and on permission to use goods or perform ac- tivities include business and professional licenses that consist of taxes paid by enterprises in order to obtain a license to carry on a particular kind of business or profession and taxes payable by individuals to perform certain activities ......................................................................................................................5.81 Own funds are defi ned as the diff erence between total assets (at market values) and total liabilities excluding shares and other equity (at market value)
 .........7.231 Partitioning records a transaction that is a single transaction from the perspective of the parties involved as two or more diff erently classifi ed transactions .........3.29 Pension entitlements are fi nancial claims that existing and future pensioners hold against either their employer or a fund designated by the employer, to pay pen- sions earned as part of a compensation agreement between the employer and em- ployee ........................................................................................................................7.190 Pensions and other retire- ment beneﬁ ts Pensions and other retirement benefi ts are payable when individuals cease em- ployment upon retirement ......................................................................................A2.6 Permit to undertake a spe- ciﬁ c activity A permit to undertake a specifi c activity is an asset for the holder when: (i) the permits are limited in number and so allow the holders to earn monopoly profi ts, (ii) the monopoly profi ts do not come from the use of an asset belonging to the permit-issuer, and (iii) a permit holder is able both legally and practically to sell the permit to a third party ......................................................................................7.110 Permits to use natural resources Permits to use natural resources are third-party property rights relating to natural resources ...................................................................................................................7.109 Premium earned Th e premium earned is the part of the actual premium that relates to coverage provided in the reporting period..........................................................................A4.75 412 Government Finance Statistics Manual 2014 Premiums, fees, and claims payable related to nonlife insurance and standardized guarantee schemes Premiums, fees, and claims payable related to nonlife insurance and standard- ized guarantee schemes include
 nonlife insurance premiums payable to insurance schemes/corporations to secure entitlement to insurance against risks, claims pay- able by insurance schemes to benefi ciaries, and fees payable to obtain standard- ized guarantees .........................................................................................................6.125 Premiums, fees, and claims receivable related to nonlife insurance and standardized guarantee schemes Premiums, fees, and claims receivable related to nonlife insurance and standard- ized guarantee schemes comprise nonlife insurance premiums receivable by insur- ance schemes to provide entitlement to insurance against risks; claims receivable from insurance schemes by benefi ciaries; and fees receivable for the issuance of standardized guarantees .........................................................................................5.149 Premiums, fees, and current claims payable Premiums, fees, and current claims payable comprise nonlife insurance premiums expense and fees payable for the issuance of standardized guarantees, as well as insurance settlement expense that is not exceptional .........................................6.125 Premiums, fees, and current claims receivable Premiums, fees, and current claims receivable comprise nonlife insurance pre- mium revenue and fees receivable for the issuance of standardized guarantees, as well as insurance settlement revenue that is not exceptional ............................5.150 Present value Present value is the value today of a future payment or stream of payments dis- counted at some appropriate compounded interest rate ......................................7.33 Primary income account Th e primary income account shows primary income fl ows between resident and nonresident institutional units .............................................................................A7.82 Production measure of gross domestic product Th e production measure of gross domestic product is defi ned
 as gross value added plus any taxes minus subsidies on products not already included in the value of output .......................................................................................................................A7.24 Proﬁ ts of ﬁ scal monopolies Profi ts of fi scal monopolies cover that part of the profi ts of fi scal monopolies that is transferred to the government.
Fiscal monopolies are public corporations, pub- lic quasi-corporations, or government-owned unincorporated enterprises that have been granted a legal monopoly over the production or distribution of a par- ticular kind of good or service in order to raise revenue and not in order to further the interests of public economic or social policy ..................................................5.63 Property expense Property expense is the expense payable to the owners of fi nancial assets or natu- ral resources when they put them at the disposal of another unit ....................6.108 Property expense for invest- ment income disbursements Property expense for investment income disbursements includes property income attributed to insurance policyholders, pension entitlements, and holders of invest- ment fund shares .....................................................................................................6.113 Property income Property income is the revenue receivable in return for putting fi nancial assets and natural resources at the disposal of another unit .........................................5.107 Property income from invest- ment income disbursements Property income from investment income disbursements includes property income attributed to insurance policyholders and holders of investment fund shares .........................................................................................................................5.120 Provident funds Provident funds are compulsory saving schemes that maintain the integrity of the contributions for individual participants .............................................................2.148 Public corporations subsector Th e public corporations subsector consists of all resident corporations controlled by government units or by other public corporations ........................................2.104 Glossary 413 Public deposit-taking corporations Public deposit-taking corporations are fi nancial corporations controlled by gen- eral government units or other
 public corporations whose principal activity is fi - nancial intermediation and who have liabilities in the form of deposits or fi nancial instruments that are close substitutes for deposits .............................................2.117 Public deposit-taking corpo- rations except the central bank Public deposit-taking corporations except the central bank consist of all resident depository corporations, except the central bank, that are controlled by general government units or other public corporations ..................................................2.120 Public ﬁ nancial corporations subsector All resident fi nancial corporations controlled by general government units or other public corporations are part of the public fi nancial corporations sub- sector .........................................................................................................................2.115 Public monuments Public monuments are identifi able because of particular historical, national, re- gional, local, religious, or symbolic signifi cance ...................................................7.42 Public nonﬁ nancial corpora- tions subsector All resident nonfi nancial corporations controlled by general government units or other public corporations are part of the public nonfi nancial corporations sub- sector .........................................................................................................................2.114 Public-private partnerships (PPPs) Public-private partnerships (PPPs) are long-term contracts between two units, whereby one unit acquires or builds an asset or set of assets, operates it for a pe- riod, and then hands the asset over to a second unit .........................................A4.58 Public sector Quasi-corporation Th e public sector consists of all resident institutional units controlled directly, or indirectly, by resident government units—that is, all units of the general govern- ment sector and resident public corporations
 ................................................1.2, 2.63 A quasi-corporation is (i) either an unincorporated enterprise owned by a resi- dent institutional unit that has suffi cient information to compile a complete set of accounts and is operated as if it were a separate corporation and whose re- lationship to its owner is eff ectively that of a corporation to its shareholders, or (ii) an unincorporated enterprise owned by a nonresident institutional unit that is deemed to be a resident institutional unit because it engages in a signifi cant amount of production in the economic territory over a long or indefi nite period of time .........................................................................................................................2.33 Quasi-ﬁ scal operations Quasi-fi scal operations are government operations carried out by institutional units other than general government units ..............................................................2.4 Real holding gain Realized holding gain Reassignment A real holding gain is defi ned as the value accruing to an asset as a result of a change in its price relative to the prices of goods and services in general .......10.11 A holding gain is realized when an asset is sold, redeemed, used, or otherwise disposed of, or a liability incorporating a holding gain or loss is repaid ...........10.6 Reassignment records a transaction arranged by a third party on behalf of others as taking place directly by the two principal parties involved .............................3.30 Recurrent taxes on immov- able property Recurrent taxes on immovable property cover taxes levied regularly on the use or ownership of immovable property, which includes land, buildings, and other structures ....................................................................................................................5.49 Recurrent taxes on net Recurrent taxes on net wealth cover taxes levied regularly on net wealth ........5.50 wealth 414
 Government Finance Statistics Manual 2014 Regional arrangements Regional arrangements involve coordination of institutional units in several coun- tries for a particular monetary or economic purpose .........................................A5.1 Reinvested earnings Reinvested earnings are the direct investor’s share of the retained earnings of the direct investment enterprise ...................................................................... 5.134, 6.121 Remaining maturity or re- sidual maturity Rent (expense) Rent (revenue) Rerouting Research and development Residence Resource lease Remaining maturity or residual maturity is the period from the reference date (balance sheet date) until the fi nal contractually scheduled payment date .....7.267 Rent is the expense payable to the owners of a natural resource (the lessor or land- lord) for putting the natural resource at the disposal of another institutional unit (a lessee or tenant) for use of the natural resource in production ....................6.120 Rent is the revenue receivable by the owners of a natural resource (the lessor or landlord) for putting the natural resource at the disposal of another institutional unit (a lessee or tenant) for use of the natural resource in production ............5.122 Rerouting records a transaction as taking place through channels that diff er from the actual ones, or as taking place in an economic sense when no actual transac- tions take place...........................................................................................................3.28 Research and development consists of the value of expenditure on creative work undertaken on a systematic basis in order to increase the stock of knowledge, in- cluding knowledge of man, culture, and society, and use of this stock of knowledge to devise new applications ........................................................................................7.66 Th e residence of each institutional unit is the economic
 territory with which it has the strongest connection (i.e., its center of predominant economic interest) .....2.7 A resource lease is an agreement whereby the legal owner of a natural resource that macroeconomic statistics treat as having an infi nite life makes it available to a lessee in return for a regular payment recorded as property income and described as rent .......................................................................................................................A4.16 Resource management activities Resource management activities are those activities whose primary purpose is preserving and maintaining the stock of natural resources and hence safeguarding against depletion ...................................................................................................A7.108 Restructuring agencies Restructuring agencies are entities set up to sell corporations and other assets, and for the reorganization of companies .....................................................................2.129 Revenue Revenue is an increase in net worth resulting from a transaction ........................5.1 Sales of goods and services Sales taxes Securities Securities lending Sales of goods and services consist of the sales by market establishments, admin- istrative fees charged for services, incidental sales by nonmarket establishments, and imputed sales of goods and services ..............................................................5.136 Sales taxes are all general taxes levied on sales at one stage only, whether at manu- facturing or production stages or on wholesale or retail trade ...........................5.59 Securities are debt and equity instruments that have the characteristic feature of negotiability ..............................................................................................................7.119 Securities lending is an arrangement whereby a security holder transfers securities to another party (security taker), subject to the
 stipulation that the same or similar securities be returned on a specifi ed date or on demand ...................................7.160 Glossary 415 Securities repurchase agree- ment (repo) Securitization Sinking fund Social assistance Social assistance beneﬁ ts Social beneﬁ ts Social contributions A securities repurchase agreement (repo) is an arrangement involving the sale of securities for cash, at a specifi ed price, with a commitment to repurchase the same or similar securities at a fi xed price either on a specifi ed future date (oft en one or a few days hence) or with an open maturity ........................................................7.159 Securitization occurs when a unit, named the originator, conveys the ownership rights over fi nancial or nonfi nancial assets, or the right to receive specifi c future fl ows, to another unit, named the securitization unit.
In return, the securitization unit pays an amount to the originator from its own source of fi nancing.
Th e secu- ritization unit obtains its own fi nancing by issuing debt securities using the assets or rights to future fl ows transferred by the originator as collateral .................A3.59 A sinking fund is a separate account, which may be an institutional unit, made up of segregated contributions provided by the unit(s) that makes use of the fund (the “parent” unit) for the gradual redemption of the parent unit’s debt.
A sinking fund may also be established to provide for major repairs or replacements ............2.144 Social assistance provides social protection benefi ts to all persons who are in need without any formal requirement to participate as evidenced by the payment of contributions ...........................................................................................................A2.25 Social assistance benefi ts are transfers payable in cash or in kind to households to meet the same needs as social insurance benefi ts but are not made under a social insurance scheme ....................................................................................... 6.101, A2.25 Social benefi ts are current transfers receivable by households intended to provide for the needs that arise from social risks ...............................................................A2.4 Social contributions are actual, or imputed, revenue receivable by social insurance schemes to make provision for social insurance benefi ts payable .... 5.4, 5.94, A2.4 Social insurance contribution A social insurance contribution is the amount payable to a social insurance scheme in order for a designated benefi ciary to be entitled to receive the social benefi ts covered by the scheme ............................................................................A2.31 Social insurance schemes Social protection Social risks Social insurance schemes provide social protection and require formal participa- tion by the benefi ciaries, evidenced by the payment of contributions (actual or imputed) ...................................................................................................... 2.101, A2.30 Social protection is the systematic intervention intended to relieve households and individuals of the burden of a defi ned set of social risks.
............................A2.1 Social risks are events or circumstances that may adversely aff ect the welfare of the households concerned either by imposing additional demands on their resources or by reducing their income ................................................................. 2.46, 6.96, A2.1 Social security beneﬁ ts Social security benefi ts are social benefi ts expense payable in cash or in kind to households by social security schemes ...................................................................6.99 Social security contributions Social security contributions are actual revenue receivable by social security schemes organized and operated by government units, for the benefi t of the con- tributors to the scheme .............................................................................................5.97 Social security fund A social security fund is a particular kind of government unit that is devoted to the operation of one or more social security schemes........................... 2.100, A2.34 416 Government Finance Statistics Manual 2014 Social security schemes Sovereign wealth funds Special Drawing Rights Social security schemes are social insurance schemes covering the community as a whole, or large sections of the community, and are imposed and controlled by government units ........................................................................................ 2.101, A2.33 Created and owned by the general government for macroeconomic purposes, sov- ereign wealth funds hold, manage, or administer assets to achieve fi nancial objec- tives, and employ a set of investment strategies that include investing in foreign fi nancial assets .........................................................................................................2.152 Special Drawing Rights (SDRs) are international reserve assets created by the In- ternational Monetary Fund (IMF) and allocated to its members to supplement reserve assets
 ............................................................................................................7.131 Standardized guarantees Standardized guarantees are those kinds of guarantees that are issued in large numbers, usually for fairly small amounts, along identical lines ......... 7.201, A4.71 State governments Stock position Stripped securities Subsidies State governments consist of institutional units exercising some of the functions of government at a level below that of central government and above that of the government institutional units existing at a local level ........................................2.90 A stock position is the total holdings of assets and/or liabilities at a point in time ..............................................................................................................................3.36 Stripped securities are securities that have been transformed from a principal amount with coupon payments into a series of zero-coupon bonds, with a range of maturities matching the coupon payment date(s) and the redemption date of the principal amount(s) ..........................................................................................7.152 Subsidies are current unrequited transfers that government units make to enter- prises on the basis of the level of their production activities or the quantities or values of the goods or services they produce, sell, export, or import .... 5.146, 6.84 Subsidy on products A subsidy on products is a subsidy payable per unit of a good or service .........6.89 Swap contract Synthetic securitization Tax credit Tax expenditures Tax refunds A swap contract involves the counterparties exchanging, in accordance with prearranged terms, cash fl ows based on the reference prices of the underlying items .............................................................................................................. 7.162, 7.215 Synthetic securitization involves transfer of the credit risk related to a
 pool of assets without transfer of the assets themselves, either through a securitization unit or through the direct issuing of debt securities by the original asset owner .........A3.65 A tax credit is an amount subtracted directly from the tax liability due by the ben- efi ciary household or corporation aft er the liability has been computed ..........5.29 Tax expenditures are concessions or exemptions from a “normal” tax structure that reduce government revenue collection ...........................................................5.28 Tax refunds are adjustments for overestimation of taxes payable or the return of amounts to taxpayers due to overpayments ...........................................................5.27 Tax relief measures Tax relief measures are incentives that reduce the amount of tax owed by an insti- tutional unit ................................................................................................................5.28 Taxes Taxes are compulsory, unrequited amounts receivable by government units from institutional units ...............................................................................................5.2, 5.23 Glossary 417 Taxes on capital gains Taxes on capital gains consist of taxes on the capital gains (including capital gain distributions of investment funds) of persons or corporations that become pay- able during the current reporting period, irrespective of the periods over which the gains have accrued ..............................................................................................5.41 Taxes on ﬁ nancial and capi- tal transactions Taxes on fi nancial and capital transactions are taxes levied on the change in own- ership of property, except those classifi ed as gift s, inheritance, or estate transac- tions .............................................................................................................................5.61 Taxes on goods and services Taxes on goods and services are taxes
 that become payable as a result of the pro- duction, sale, transfer, leasing, or delivery of goods and rendering of services, or as a result of their use for own consumption, or own capital formation ...........5.55 Taxes on income, proﬁ ts, and capital gains Taxes on income, profi ts, and capital gains consist of taxes assessed on the actual or presumed incomes of institutional units ...........................................................5.41 Taxes on individual or household income individual or household income Taxes on taxes, including those deducted by employers (pay-as-you-earn taxes), and surtaxes .......................................................................................................................5.41 income consist of personal Taxes on international trade and transactions Taxes on international trade and transactions are taxes that become payable when goods cross the national or customs frontiers of the economic territory, or when transactions in services exchange between residents and nonresidents ............5.83 Taxes on payroll or workforce Taxes on property Taxes on payroll or workforce are taxes payable by enterprises assessed either as a proportion of the wages and salaries paid or as a fi xed amount per person em- ployed ..........................................................................................................................5.45 Taxes on property are taxes payable on the use, ownership, or transfer of wealth ..........................................................................................................................5.46 Taxes on speciﬁ c services Taxes on specifi c services are levied on payments for specifi c services .............5.69 Taxes on the income of corporations Taxes on the income of corporations consist of corporate income taxes, corporate profi ts taxes, corporate surtaxes, etc.
......................................................................5.41 Taxes on use of goods and on permission to use goods or perform activities Taxes on use of goods and on permission to use goods or perform activities are fees levied for the issuance of a license or permit that are not commensurate with the cost of the control function of government .....................................................5.72 Taxes on winnings from lot- teries or gambling Total gross debt Transaction Transfer Taxes on winnings from lotteries or gambling are taxes payable on the amounts receivable by winners ................................................................................................5.41 Total gross debt—oft en referred to as “total debt” or “total debt liabilities”— consists of all liabilities that are debt instruments.
A debt instrument is defi ned as a fi nancial claim that requires payment(s) of interest and/or principal by the debtor to the creditor at a date, or dates, in the future .......................................7.236 A transaction is an economic fl ow that is an interaction between institutional units by mutual agreement or through the operation of the law, or an action within an institutional unit that is analytically useful to treat like a transaction, oft en because the unit is operating in two diff erent capacities ......................................................3.5 A transfer is a transaction in which one institutional unit provides a good, service, or asset to another unit without receiving from the latter any good, service, or asset in return as a direct counterpart ....................................................................3.10 418 Government Finance Statistics Manual 2014 Transfers not elsewhere clas- siﬁ ed (payable) Transfers not elsewhere clas- siﬁ ed (receivable) Transfers not elsewhere classifi ed payable include a number of gift s and transfers to individuals, private nonprofi t institutions, nongovernmental foundations, cor- porations, or government units that are not included in other categories of trans- fers, and serving quite diff erent purposes ............................................................6.122 Transfers not elsewhere classifi ed receivable include subsidies, as well as gift s and transfers from individuals, private nonprofi t institutions, nongovernmental foun- dations, corporations, or sources other than governments and international orga- nizations ....................................................................................................................5.145 Transport equipment Transport equipment consists of equipment for moving people and objects ...7.54 True-sale securitization True-sale securitization involves debt securities issued by a securitization unit where the underlying assets have been transferred from the original asset owner’s (i.e.,
 the originator’s) balance sheet to that of the securitization unit .............A3.62 Turnover and other general taxes on goods and services Turnover and other general taxes on goods and services are multistage cumulative taxes and taxes where elements of consumption taxes are combined with multi- stage taxes ...................................................................................................................5.60 Unallocated gold accounts Unallocated gold accounts represent a claim against the account custodian to de- liver gold ...................................................................................................................7.127 Unearned premium Th e unearned premium is the amount of the actual premium received that relates to the period past the reporting period ...............................................................A4.75 Unrealized holding gain An unrealized holding gain is one accruing on an asset that is still owned or a li- ability that is still outstanding at the end of the reporting period ......................10.6 Valuables Valuation of stock positions Value of goodwill and mar- keting assets Value-added taxes Wages and salaries Valuables are produced assets of considerable value that are not used primarily for purposes of production or consumption, but are held primarily as stores of value over time ............................................................................................................7.18, 7.87 Stock positions should be valued at market value—that is, as if they were ac- quired in market transactions on the balance sheet reporting date (reference date) ...........................................................................................................................3.113 Th e value of goodwill and marketing assets is the diff erence between the value paid for an enterprise as a going concern and the sum of its assets minus the sum of its liabilities, each item of which has been separately
 identifi ed and valued ........................................................................................................................7.116 Value-added taxes (VAT) are taxes on goods or services collected in stages by en- terprises but ultimately charged in full to the fi nal purchasers ...........................5.58 Wages and salaries are compensation of employees payable in cash and/or in kind, except for social contributions payable by employers ..........................................6.12 Wages and salaries in cash Wages and salaries in cash are the amounts payable in cash, or any other fi nancial instruments used as means of payments, to employees in return for work per- formed .........................................................................................................................6.13 Wages and salaries in kind Wages and salaries in kind are amounts payable in the form of goods, services, inter- est forgone, and shares issued to employees in return for work performed......... 6.17 Water resources Water resources consist of surface and groundwater resources used for extrac- tion to the extent that their scarcity leads to the enforcement of ownership or use rights, market valuation, and some measure of economic control ...................7.102 Glossary 419 Weapons systems Weapons systems include vehicles and other equipment such as warships, subma- rines, military aircraft , tanks, missile carriers and launchers, etc.
......................7.74 Withdrawals of income from quasi-corporations Work in progress Withdrawals of income from quasi-corporations consist of that part of distribut- able income that the owner withdraws from the quasi-corporation ................5.118 Work in progress consists of goods and services that are not yet suffi ciently processed to be in a state in which it is normally supplied to other institutional units ............................................................................................................................7.80 Written-down replacement cost Written-down replacement cost is the current acquisition price of an equivalent new asset minus the accumulated consumption of fi xed capital, amortization, or depletion ...................................................................................................................3.115 Zero-coupon bonds Zero-coupon bonds are long-term securities that do not involve periodic pay- ments during the life of the bond ..........................................................................7.147 This page intentionally left blank Index Numbers in references refer to paragraphs in chapters, boxes, tables, or appendices.
A Above-the-line transactions, 4.53, employment-related pensions and other retirement benefi ts, 6.106 balancing items and, 1.32–1.33 components of, 4.8.
See also specifi c Table 4A.1 Accounting rules choice of gross and net presenta- tions, 3.143–3.151 credit entries, 3.55 currency conversion, 3.132–3.133 currency denomination and cur- rency settlement, 3.137–3.139 data reporting guidelines and stan- dards, 3.52, 3.53 debit entries, 3.55 double-entry recording of economic events, 3.54 harmonization of macroeconomic datasets, A7.9–A7.12, A7.98, A7.105 international standards for, govern- ment fi nance statistics framework and, A6.1–A6.56 reporting periods, 3.52 treatment of domestic and foreign currency, 3.134–3.136 unit of account, 3.51, 3.130–3.131 valuation, 3.113 See also Analytic framework of government fi nance statistics; Consolidation; Time of recording economic fl ows; Type of account- ing system Accounts payable, See Other accounts payable/receivable expense transactions, 6.6 implementation of government fi nance statistics framework, 1.37–1.38, 3.75 imputed social contributions, A2.46 income taxes, 5.43 interest, 5.108–5.109, 6.64, 9.44, A3.89 licenses, A4.43 premiums, fees and current claims, 5.150, 7.184, 9.58 prepayments, A4.21 refunds, 5.27 rent, 5.123 revenue transactions, 5.14, 5.17 sales of goods, 5.141 social assistance benefi ts, A2.29 taxes on pollution, 5.81 taxes on property, 5.47 time of recording transactions, 3.60, 3.62–3.64, 5.13, 8.13, 9.13 use in government fi nance frame- work, 1.27–1.28, 3.70, A5.43, Box A6.1 Accumulation accounts, A7.18, A7.62–A7.71, Table A7.2 Administrative fees, 5.73–5.75, 5.138 Aggregates analytical value of,
 3.140, 4.53–4.54 defi nition of, 3.141 of revenue for fi scal analysis, 5.9 reasons for consolidation, 3.155, Accrual basis of recording economic 3.158 events advantages of, 3.69–3.74, 4.2 compensation of employees, 6.10 defi nition of, 3.62, 5.10 dividends, 3.87 to create balancing items, 3.142 Amortized value, 3.115 Analytic framework of government fi nance statistics, Figure 4.1 analytic objectives of, 1.41, 4.4–4.5 component GFSM 1986 and, 4.6–4.7 purpose of, 4.3 supplementary statements, 4, 13.
See also specifi c statements Ancillary activities, 2.45, 2.72, A3.37 Animal resources, 7.60, 7.62–7.63, 8.34–8.35 Annuity entitlements, 7.187–7.188, 9.62, A4.69 other changes in volume of assets, 10.71 Aquaculture, 7.48 Arrears as balance sheet memorandum item, 7.247–7.250 as step in migration path, 1.38 as transactions in fi nancial assets and liabilities, 9.20–9.23 changes in classifi cation of, 10.84 defi nition of, 3.71, 7.247, 9.20, Table 4A.1 interest rate in calculating, 6.80 statistical recording of, 7.248–2.250, 7.266 time of recording repayment of debts in, 3.97 under fi nancial derivative contracts, 7.226 valuation of, 7.250 Artifi cial subsidiaries of government, 2.42–2.44, 2.162, A3.55 Asset-backed securities defi nition of 7.151 included in debt instruments, 7.143, A3.59 valuation of, 7.27, 7.154 422 Index Asset management companies.
See Restructuring agencies Assets analytic framework, 1.34 appearance or disappearance of, appearance or disappearance of existing economic assets from, 10.48–10.58 arrears in, 7.247–7.250 as condition to be a separate institu- 10.48–10.58 tional unit, 2.126 classifi cation of, 4.43–4.44, 7.34, Table A8.3 defi nition of, 3.42–3.43, 7.6, 7.14–7.19 economic, 3.43, 4.43, 7.5–7.10 eff ect of external events on value of, 10.59–10.75 fi nancial, 3.43, 3.48 leases as, A4.53–A4.57, Box A4.3 liquidity-related, 4.31 nationalization of, 9.55, Box 4.1 net presentation of, 3.143–3.151 nonfi nancial, 3.43, 3.50 other changes in the volume of, classifi cation of assets in, 4.43–4.44 classifi cation of counterparties to fi nancial relationships in, 7.264–7.265, Table 7.11 classifi cation of debt liabilities and corresponding fi nancial assets by maturity, 7.266–7.271, Table 7.12 classifi cation of fi nancial assets and liabilities in, 4.43–4.45, 7.118–7.227 classifi cation of fi xed assets in, 7.34–7.74, Tables 7.2–7.5 classifi cation of nonfi nancial assets net debt in, 7.243–7.245 net fi nancial worth in, 7.235 net worth calculation in, 4.39, 7.228–7.333, A6.48, Figure 7.1, Table 4.4 nonperforming loan assets in, 7.262–7.263 ownership and asset boundary in, 7.5–7.13 purpose of, 7.2 recording of net worth in, 7.1 recording of PPP-related assets in, A4.61 recording of shared assets in, A4.37 recording of stock positions in, 3.36 time of recording/compilation, 3.57, 7.1, 7.37 valuation of assets and liabilities for, 3.107,
 3.113, 7.20–7.33, 7.122 3.35, 4.10 in, 7.34–7.117, Table 7.2 Balancing items other economic fl ows of, 3.31 ownership concepts and, 3.38–3.41, 7.5–7.13 permits recognized as, A4.46–A4.52 policy-related, Box 4.1, 4.30 privatization, 9.53–9.54 reclassifi cation of institutional unit resulting in change in value of, 10.76–10.79 reclassifi cation of, 3.101–3.102, 10.80–10.84 rent versus sale of, A4.21, Box A4.1 shared, A4.36–A4.40 stock positions of, 3.1, 3.36 time of recording, 3.88–3.97 valuation of, 1.29, 3.107, 3.111–3.117, 7.20–7.33 See also Financial assets and liabili- ties; Fixed assets; Nonproduced assets B Bad banks.
See Restructuring agencies Bailout operations, A3.42–A3.53 Bail, 5.144, 7.226 Balance of Payments and International Investment Position Manual (BPM6), 1.8, 1.35, 2.89, A3.52, A7.5 government fi nance statistics frame- work and, A7.73–A7.98 Balance sheet, Table 4.4, Table 7.1 accounting principles, 3.56 classifi cation of nonproduced assets analytical signifi cance of, 4.39, in, 7.90–7.117, Table 7.2 4.53–4.55 concessional loans in, 7.246, A3.40 contingent assets and liabilities in, 7.13.
See also balance sheet memorandum items cost of ownership transfer, 8.42, Figure 8.1 defi nition of, 1.17, 3.56, 4.39, 7.1 deriving defi nitions of assets and liabilities for, 3.43, 7.6, 7.14–7.19 explicit contingent liabilities in, 7.13, 7.251–7.260 consolidation and, 3.166 defi nition of, 3.142 in government fi nance statistics frame work, 1.1, 1.11, 1.32, 3.151, 7.228 See also Financial Net Worth and Net worth Banker’s acceptance, 7.145 Barter transactions, 3.19, 3.22, 3.88, 3.112, 3.125, 4.23–4.24, 4.35, 7.30 fi scal indicators available from, 7.2, Below-the-line transactions, 4.53, 4.54 fundamental identity of, 3.54 gross debt in, 7.236–7.242 implicit obligations for future social security benefi ts in, 7.13, 7.261, 9.67 in analytic framework of GFSM 2014, 4.3, 4.6, 4.8, Figure 4.1, A7.21, A7.72 in government fi nance statistics framework, 1.30.
See also balance sheet in analytic framework of GFSM 2014 Table 4A.1 Bills as discounted fi nancial instruments, 6.71, 9.40 banker’s acceptance of, 7.145 defi nition of, 7.144 holding gains or losses on, 10.29 types of, 7.144 valuation of, 7.27, 7.154 Biological resources cultivated, 7.58–7.63, 8.34–8.36, Table 7.5 in implementation of the GFS noncultivated, 7.101, 8.55, 10.52 framework, 1.38 Bonds integration of, 1.20, 3.2, 7.2, 8.2, 9.2, A7.13 memorandum items, 3.49, 4.47, 7.142, 7.234–7.263, Table 7.10 consolidation of, 3.152 defi nition of, 7.146–7.147 discounted, 6.71, 9.40 holding gains or losses on, 10.27 reclassifi ed as equity, 3.97, 7.150, debt assumption/forgiveness/ Index 423 responsibilities of, 2.85 signifi cance of statistics from, 2.86 Chambers of commerce, 2.37, 6.42 Changes in net worth as fi scal indicator, 4.40 due to holding gains or losses, 4.37 due to other changes in the volume of assets and liabilities, 4.38 due to other economic fl ows, 3.54, payment on behalf of others as A2.61–A2.62, A3.8, A3.25–A3.31 defi ning characteristics of, 3.15–3.16 equity versus, 9.52 in kind, 8.29 not elsewhere classifi ed, 5.148, 6.124, Table 5.11, Table 6.10 other economic fl ows versus, 10.62, 10.72 4.36, 10.2 subsidies versus, 6.85, 6.91, 8.12, 9.49 Captive fi nancial institutions, 2.44, 2.54, 2.56, 2.121, 2.128 Cash balance, Table 4A.1 Cash basis of recording, 4.2 defi nition of, 3.67 in Statement of Sources and Uses of Cash, 3.103–3.106, 4.34, 5.11, 6.7 limitations of, 3.70–3.72 time of recording
 transactions, 3.60, 3.67 due to transactions, 1.15, 1.33 in Statement of Total Changes in Net Worth, 1.18, 4.14, 4.46, Table 4.5 Charities, 2.61, 6.123 Classifi cation of Functions of Govern- ment (COFOG), 1.43 classifi cation challenges in, 6.143–6.146 classifi cation of administrative expenditures in, 6.144 Cash transfers, 3.16, 3.18 Catastrophic loss of assets, 1.16, 3.128, classifi cation of consumption of fi xed capital in, 6.146–6.147 9.21, 10.84 refi nancing through, A3.14–A3.16 valuation of, 3.115–3.117, 7.27 Book value, 3.115, 6.146, 7.173 Brass plate companies, 2.15 Bridge banks.
See Restructuring agencies Budgetary and extrabudgetary govern- ment units, 2.41–2.42, 2.80–2.83, 2.87, 2.93, Figure 2.3 Build, own, operate, and transfer schemes, 7.39, A4.12, A4.58 Build, own and transfer schemes, A4.58 Buildings and structures classifi cation of, 7.41–7.51, Table 7.3 never put into service, 10.69 owned by nonresidents, 2.13 recording of transactions in, 8.28–8.32 time of recording, 7.37, 8.15 valuation of, 7.41, 7.45 See also Monuments 10.60–10.61 Central bank(s) C Capital account, A7.18–A7.19, A7.63–A7.67, A7.76, A7.89–A7.92, Figure A7.1, Table A7.2 Capital claims payable, 6.125, A4.79, A7.67, A7.92, as fi nancial intermediary, 2.55–2.56 as public fi nancial corporation, 2.118–2.119, Figure 2.3 currency issued by, 7.135 dividends of, 5.114–5.116 gold as fi nancial asset of, 7.126–7.130, Table 6.11 9.28 receivable, 5.151, A4.80, A7.67, implicit subsidies/taxes of, 5.26, A7.92, Table 5.12 5.70, 6.89, Box 6.2 Capital formation.
See Own-account implicit taxes from multiple exchange capital formation rates, 5.88 Capital gains taxes.
See Taxes on capital in monetary and currency unions, classifi cation of shared expenditures in, 6.143 classifi cation of subsidies in, 6.145 cross-classifi cation of expenditures in, 6.148–6.149, Table 6A.2 defi nition of, 6.126 government fi nance statistical framework and, 6.127 individual versus collective goods and services distinguished in, 6.133–6.139 purpose of, 6.126 structure, 6.128–6.129, Table 6A.1 units of classifi cation, 6.140–6.142 uses of, 6.130–6.132 2.21, 7.169, A5.32–A5.35 representative offi ce as territorial COFOG.
See Classifi cation of Func- enclave, 2.9 SDR allocations and holdings of, 7.133, A3.80, A3.87, A3.94 Central borrowing authority, 2.44 Central government public sector, 2.122 tions of Government Collateralized debt obligations, 7.143, 7.151 Collective goods and services, 6.133–6.139 Commitments basis of recording, Central government subsector 3.61, 3.70–3.71 gains Capital grants, 5.103, 6.94 Capital injections, 2.130, A3.43, A3.47–A3.53, Box 6.3, Figure A3.2 Capital levies, 5.52 Capital spending, Table 4A.1 Capital taxes, 5.25, 5.51, 6.124, A7.39, A7.67, Table 4A.1 Capital transfers acquisition of PPP assets through, A4.65 capital injections as, 2.130, 9.66, 3.155 A3.47, A3.49–A.53, Figure A3.1 recording monetary authority func- current transfers and, 3.15, 3.18 tions of, 2.89 6.9–6.11, Table 6.2 defi nition, 2.85 institutional units of, 2.87–2.89 intrasectoral consolidation of, time of recording transactions, 3.65 Compensation of employees arrears of, 7.247 as exchange type of transaction, 3.9 classifi ed as expense, 4.24, 6.2, 424 Index coverage in GFS versus 2008 SNA, of transactions in fi nancial assets, See also Summary Statement of 1.24 defi nition of, 6.9 employee benefi ts purchased by employee, 6.14 employer-employee relationship and, 6.9, 6.33–6.34, A2.40 employers’ social contributions, 6.19–6.26 3.163–3.164, 9.19 principles/conceptual guidelines of, 3.161 process of, 3.152, 9.18 purpose/reasons for, 3.152, 3.158–3.160 types of consolidation, 3.154 types of transaction not subject to, expenses for
 use of goods and ser- 3.161 vices versus, 6.33–6.36 imputed, 5.100, 5.140, 6.22 in accrual basis of recording, 6.10 in cash basis of recording, 6.10 in government fi nance statistics framework, 1.24 in kind, 5.140, 8.47, 9.78 reimbursements, 6.15, 6.36 social contributions.
See Social con- tributions and Employers’ social contributions wages and salaries, 6.12–6.18 Computer soft ware and databases, 7.64–7.65, 7.69–7.71, 8.40, Table 7.5 Concessional lending (loans), A3.39–A3.41 as memorandum items, 7.246, 9.12, Table A8.3 by central banks, 5.70, 6.89, Box 6.2 description of, 3.123, 9.12, Table 4A.2 examples of, 3.123 from International Monetary Fund, Constructs of society, 7.19, 7.90, 7.104 Consumers’ associations, 2.61 Consumption of fi xed capital as expense, 4.24, 6.53, 8.18 as part of production cost, 2.74, 6.2 calculation of, 6.55–6.56, 6.59, Box 6.1 cash fl ows and, 6.61 change in volume of assets versus, 6.58 classifi cation of, Table 6.4 cost of ownership transfer as, 6.60, Figure 8.1 decline in value of fi xed assets due to deterioration as, 8.18, 10.8 defi nition of, 6.53 depreciation versus, 6.54, A6.54 excluded events, 6.58 gross operating balance and, 4.20 in calculation of holding gains, 10.8, 10.13–10.14 in Classifi cation of Functions of Government, 6.146–6.147 in government fi nance statistics framework, 4.20, A6.54 A3.86–A3.88 in System of National Accounts 2008, loans at nominal value, 9.12 recorded as supplementary infor- mation, 3.123, 7.246, 9.12 to government employees, 6.17 Consolidation balancing items and, 3.166 data discrepancies in process of, 3.165 defi nition of, 2.23, 3.153, 9.18 implementation of, 3.165–3.166 in fi nancial statements according to accounting standards, 3.168, A6.13, A6.17 6.53 losses of fi xed assets as, 6.57 time recording of, 3.90,
 6.61, 8.16 Contingent liabilities as memorandum items, 7.251–7.261, Table 7.10, Table A8.3 classifi cation of explicit, 7.254, Table 4.6 defi nition of, 4.47, 7.251, Table 4A.1 explicit versus implicit, 7.252 guarantees and, 7.253, 7.256 in macroeconomic statistics, 7.253, Explicit Continent Liabilities and Net Obligations for Future Social Security Benefi ts Contractors, 6.33 Contracts, leases, and licenses as assets/nonfi nancial assets, 7.17, 7.105–7.106, 8.56–8.57, A4.53–A4.57, Box A4.3, Table 7.2 fi nancial derivatives versus, 7.207 for use of natural resources, A4.19, Figure A4.1 recording changes in value of, 10.49, 10.53, Table 10.2 recording transactions in, A4.2–A4.3 types of, 7.107, 8.57, Table 7.8.
See also specifi c type See also Leases Conversion, currency, 3.130, 3.132–3.133 Conversion, debt, A3.5, A3.20–A3.23 Corporations defi ning characteristics of, as insti- tutional unit, 2.31–2.35 distributable income of, 5.111–5.116 fi nancial, 2.53–2.57, Figure 2.2 government control of, 2.107, Box 2.2 imputation system of taxing, 5.44 income taxes, 5.41–5.44 market producers as, 2.65–2.69 nonfi nancial, 2.52, Figure 2.2 quasi, 2.125 restructuring.
See Restructuring agencies See also Public corporations Counterparty information and classifi cation, 2.6, 2.23, 3.165, 7.264–7.265, A6.41, Table 3.1, Table 7.11, Table A8.4 Credit derivatives, 7.207, 7.218 Credit guarantees, 7.259, 9.57, A4.72 Cultivated biological resources, 7.58–7.63, 8.34–8.36, Table 7.5 Cultural clubs, 2.61 Currency classifi cation of, 7.135–7.136, 9.33–9.34 consolidated statistical presentation, in System of National Accounts 2008, Figure 7.2 3.164 2.22, 3.53, 3.167 intersectoral, 3.156, 3.157 intrasectoral, 3.155, 3.157 major transactions subject to, 3.162–3.164, 5.22, 6.8, 6.20 liabilities and, 7.251 recording of, 4.15, A2.38 statements in government fi nance statistics framework, 1.19, 4.13–4.15, 4.47, Table 4.6 conversion, 3.119, 3.132–3.133, 7.23, 7.136, 9.11 defi nition of, 4.33, 7.135 domestic versus foreign, 3.134–3.136, 6.78, 7.136 Index 425 classifi cation codes, Table A8.5 comparability across member states in economic or monetary union, A5.44 Debt reorganization by assumption or payments on behalf of others, A3.5, A3.26–A3.31, Figure A3.1 concessional debt, 3.123, 7.246, by conversion or prepayment, A3.5, holding gains and losses on, 10.23 monetary/nonmonetary transac- tions expressed in, 3.8, 3.19 of denomination, 3.131, 3.137–3.139 of settlement, 3.131, 3.137–3.139 production/issuance of, 6.48, 9.34 swap contracts, 7.215 union, A5.34 unit of account, 3.130 volume changes, 10.61 Currency boards, 2.17, 2.118 Currency union central bank, 2.21, 9.12 defeasance, A3.37–A3.38 defi
 nition, A7.236 fi scal indicators, 1.3, 1.13, Table 4A.1 forgiveness, 4.35, A3.7–A3.9 gross and net, 3.150, 4.54–4.55, 7.236–7.245, Table 7.10 7.169, A5.35.
See also Monetary and currency unions guarantees.

See Contingent liabilities nonperforming.
See Nonperforming Current accounts, A7.13, A7.23–A7.61, loans A7.77–A7.88, Table A7.2 of special purpose entities, Current grants, 5.103–5.104, 6.94, A5.13 Current transfers, 3.15, 3.17–3.18 not elsewhere classifi ed, 5.147, A3.54–A3.58 on-lending of, A3.72–A3.78 payment on behalf of others, 6.123 Customs duties, 5.84 collection and allocation in customs union, A5.7–A5.18 Customs unions administrative structures for collec- tion of duties in, A5.8 A3.30–A3.31 securities.
See Debt securities sinking fund for redemption of, 2.144 statistics, 1.8, 3.137 time of recording, 3.93, 3.97, 9.13 valuation, 1.29, 3.113–3.117, as international/regional organiza- 7.27–7.30 tion, 2.17, A5.5 defi nition of, A5.6 recording of collection fees in, A5.9 recording of customs duties in, A5.7–A5.18 with the IMF, A3.79–A3.95 write-off s/write-downs, 10.57, A3.32–A3.34 See also Debt instruments; Debt reorganization; Debt securities See also Regional organizations Cyclically adjusted balances, 4.58, Debt instruments, 7.15 classifi cation of, 7.236–7.237, A3.20–A3.25 by forgiveness, A3.5, A3.7–A3.9 by rescheduling or refi nancing, A3.5, A3.10–A3.19 defi nition of, A3.2 reason for, A3.3 types of, A3.4–A3.6 Debt securities accrual of interest on, 9.36, 10.8 arrears on, 9.21 changes in classifi cation, 10.84 changes in value due to interest or exchange rate changes, 10.26 classifi cation of, 7.143–7.156, 9.36–9.43 consolidated statistical presentation, 3.163–3.164 defi nition of, 7.143 gross presentation of, 3.150 index-linked, 6.75–6.78, 9.41–9.42, 10.28 interest on, 6.62–6.83 issued at discount or premium, 9.40, 10.8, 10.25 issued at par, 9.39 recording holding gains and losses on, 10.24–10.29 securitization of, A3.59–A3.66 time of recording transactions in, 3.93 valuation of, 1.29, 3.117, 7.27, Table 4A.2 Table A8.5 7.154–7.156 D Debentures, 7.146 Debit entry, 3.54–3.55 Debt arising from off -market swaps, A3.67–A3.71 defi nition of, 7.236 dematerializing of, A7.103 fi nancial assets corresponding to,
 7.243 grace periods 6.69 included in fi nancial claims, 3.47, 7.15 arising from securitization, maturity of, 7.266, 9.88, Table 7.12, A3.59–A3.66 Table A8.5 arrears of, 3.71, 6.80, 7.247–7.250, 9.20–9.23 assumption, 5.148, A3.26–A3.29 bailout operations and, A3.42–A3.53 cancellation, 5.148, 6.91, 6.124, A3.7 classifi cation by counterparty, 10.79 classifi cation by maturity, 7.266–7.271, 9.88 new money facility, A3.35–A3.36 nominal value of, 7.21 types of, 7.236 valuation of, 7.26–7.30, 7.122, 7.238 on which no interest accrues, 3.118, 10.45 See also Debt; Debt reorganization; Debt securities with embedded derivatives, 7.148, 9.43 Deep-discount bonds, 6.72, 7.146–7.147 Defeasance, 2.129, 9.26, A3.37–A3.38, A3.46 Deposit guarantee/insurance schemes, 2.132–2.135, 7.202, 9.57.
See also Financial protection schemes Depository receipts, 7.166–7.167 Deposits classifi cation of, 7.137–7.142, 9.33–9.35 defi nition of, 4.33, 7.137 denominated in gold, 7.126 mineral, 4.10, 5.129–5.130, 6.55, 7.9, 7.19, 7.68, 7.97, 8.32, 8.54, 10.52 426 Index prepayments versus, 7.226 transferable versus nontransferable, 7.140 valuation, 7.142, 10.23 disproportionately large ( “super”), 5.64–5.66, 5.115–5.116, 6.110, 9.49 distributed to investment fund grants payable/receivable, A5.23 harmonization for government fi nance statistics, A5.31, A5.41–A5.44, Box A5.1 Deposit-taking corporations, 2.54–2.56, shareholders, 5.121 legal and economic characteristics 7.137 public sector, 2.117–2.120, Figure 2.3, Table 7.11 Depreciation, 6.54, 6.146, A6.29, A6.54–A6.55 Derivatives, embedded, 7.148, 7.207 debt securities with, 6.79, 9.43 distribution of profi ts versus, 5.114 economic benefi ts, 3.37, 7.7 income tax on, 5.41, 5.44 interim payment, 5.117 lump-sum payments, 5.90 schedule and size of, 5.115–5.117, 6.110 of, A5.19 member government units acting as agents of, A5.30 recording transactions related to, A5.26–A5.31 residence of, 2.17, A5.24–A5.25 revenues of common budget in, Derivatives, fi nancial time of recording transactions, 3.87, A5.20, A5.26–A5.28 5.112, 6.109 scope of policy harmonization in, Domestic bank fi nancing, Table 4A.1 Domestic fi nancing, Table 4A.1 Domestic nonbank fi nancing, Table 4A.1 Domestic versus foreign currency, A5.21 See also Regional organizations Economically signifi cant prices,
 2.32–2.33, 2.37, 2.65–2.75, 2.114, 10.77 3.134–3.136 Electromagnetic spectrum, 7.12, 7.103, changes in classifi cation of, 10.84 classifi cation of, 4.28, 9.70–9.76 contracts requiring ongoing servic- ing, 9.74 credit derivatives, 7.218 debt component of off -market swaps, A3.67–A3.71 debt instruments versus, 7.15, 7.119 defi nition of, 7.204 forward-type contracts, 7.210, 7.212–7.214 holding gains or losses on, 10.42 interest versus settlement payments, 6.63 margins, 7.219–7.220, 9.75 off setability, 7.205 option contracts, 7.209–7.211 sales in secondary markets, 9.73 settlement, 9.76 swap contracts, 7.215–7.217 types of fi nancial derivatives, 7.208 valuation of, 7.204, 9.73 Derived measures, 3.140–3.142, 3.161 Design, build, operate, and transfer Double-entry, 3.54, 3.56, A7.13 Due-for-payment basis of recording, 3.61, 3.66, 3.70–3.71, 3.73 Dwellings, 7.44–7.45, Table 7.3 E Economic assets, 3.35, 3.37, 3.43, 3.50, 4.25, 4.38, 4.43, 7.6–7.10, 7.12, 10.5, 10.48 Economic benefi ts derived from assets, 3.37 Economic fl ows.
See fl ows Economic ownership, 2.143, 3.38–3.41, 3.60, 3.62, 3.88, 3.93, 3.100, 7.5, 7.37, 7.109, 9.13–9.14, 9.45, A4.4, A4.16, A4.21, A4.23, A4.33, A4.62–A4.65, Box A4.4, Box A4.5 schemes, A4.58 Economic territory Development funds, 2.160–2.162 Development spending, Table 4A.2 Diplomatic, 2.9 Direct taxes, 5.9, Table 4A.1 Discounted debt securities, 6.71–6.73, 9.40 defi nition and scope of, 2.8–2.12 land and buildings in extraterrito- rial enclaves, 2.13 of economic union, A5.24 of international organizations, 2.16 residence criteria and, 2.2, 2.7 Dissemination of data, good practices Economic unions in, 1.39, 3.52 Distributable income, 5.116, 5.118, budget authority in, A5.22 common budget versus member 5.134, 6.111, 6.121 Dividends classifi cation of, 5.107, 5.113, 6.108, 9.49, Table 5.9, Table 6.9 defi nition of, 5.111, 6.109 state budgets in, A5.23 defi nition of, A5.5, A5.19 economic territory of, A5.24 expenses of, A5.29–A5.30 goals of, A5.20 10.52, A4.23 Employee stock options cancellation of, 10.57 classifi cation of, 7.221, 9.77–9.81 defi nition of, 7.221 fi nancial claims/instruments as, 3.47, 4.28, 7.15 granted to suppliers, 7.222 holding gains or losses on, 10.43 issued by parent company to employee in subsidiaries, 9.81 valuation of, 7.223 Employer-based social insurance schemes, 5.98–5.100 Employer-employee relationship, 6.9, 6.33–6.34, A2.40 Employment-related pensions, 2.102, 2.147, 4.48, 4.50, 5.94, 6.21, 6.26, 7.189–7.198, A2.21, A2.24, A2.41–A2.43, Figure A2.1, Figure A2.2 Employment-related
 social benefi ts, 4.48, 6.16, 6.97, 6.104–6.106, 7.195, A2.22–A2.24, Table 6.8, Figure A2.1 Employment-related social insurance, A2.18, A2.23, A2.40, Figure A2.1, Figure A2.2 Enterprise(s), 2.25 Entertainment, literary, and artistic originals, 7.64, 7.72, 8.37, 8.41, Table 7.5 Index 427 Entitlements employment-related pension, 2.102, 5.95, 5.116, 7.189, 9.63, 10.36, 10.41, 10.72 life insurance and annuities, 9.62, 10.71 payments as transfer transactions, 3.12 social benefi t, 6.22, A2.38 to future goods
 and services, 7.112, A4.51–A4.52 special purpose entities, A3.56–A3.57 valuation of, 7.166, 7.171–7.173, 7.233 withdrawals of, 5.90, 5.115, 6.112 Establishment(s), 2.24, 2.34, 2.75, 2.98, 2.124, 2.127 Estate taxes, 5.51 European Union, A5.20, Box A5.1 Exchange rates changes in value of securities due to changes in, 10.1, 10.26 fi scal indicators using, 4.53, 4.55, 4.57, Table 4A.1, Table 4A.2 gross/net recording of, 3.143–3.151 in government fi nance statistics framework, 1.33, 4.16, Figure 4.1 major types of, 4.24 of regional organizations, A5.29– A5.30 payable tax credits as, 5.31 refunds of, 6.4 time of recording of, 3.77–3.92, Environmental-economic accounting, government fi nance accounting 3.104, 6.6–6.7 A7.105–A7.134 Environmental groups, 2.61 Environmental taxes, A7.115–A7.121, Tables 5.2–5.5 Equity as assets of general government, 2.48, 2.59 rules, 3.132–3.133 holding gains or losses from changes in, 3.33, 10.44, A7.95 multiple rate regimes, 5.89 role in credit derivatives, 7.218 subsidies in offi cial system of, 6.89 taxes on exchange transactions and valuation of, 3.107–3.112 See also respective categories of expense such as Compensation of employees; Interest expense; Property expense Export taxes, 5.85.
See also Taxes on exports capital injections resulting in, profi ts, 5.88–5.91 Extrabudgetary units, 2.41–2.44, 2.80, A3.47–A3.49, Figure A3.2, A3.53, A4.40 classifi cation of, 7.166–7.170, 9.47–9.55 consolidation of, 3.164 conversions, 7.150, 9.43, 10.84 debt assumption resulting in, A3.28, Figure A3.1 debt-for-equity swaps, A3.5, A3.21, A3.23 defi ning features of, 7.164, 7.165 evidence of ownership, 7.166 fi nancial claims/instruments, 3.49, 4.28, 7.15, Box 6.3 holding gains or losses on, 10.30–10.33 liabilities of general government, membership fees as, 6.42 net worth versus, 4.40, 7.173, 7.228–7.229, A6.48, Figure 7.1 nonprofi t institutional units, 2.37 notional resident units, 2.13 own funds versus, 7.231–7.232 policy lending, 4.30, Box 4.1 property income on, 5.90, 5.111, 6.109 reclassifi cation of assets into, 10.77, 10.84 recorded according to accounting standards, A6.32–A6.33, A6.48–A6.49 use of, in recording currency swaps, 2.82–2.83, 2.87, 2.93, Figure 2.3 7.216 valuation of transactions expressed in foreign currency, 3.119, 9.11, 9.33 Exchanges as determinant of market prices, 3.108 as monetary transaction, 3.9 combined with transfers, 3.11, 3.123 of fi nancial assets and liabilities, 3.44, 5.8, 6.5, 7.119, 9.3, A3.5 Excise taxes, 5.55, 5.57, 5.62, 5.71, 5.84, 5.96 F Face value, 3.115, 3.117, 7.144, A3.16 gross debt at, 7.238, 7.242, Table 7.10 Fair value, 3.115, 7.142, 7.163, 7.204, 7.223, 7.262, 9.55, A3.52, A4.12, A6.27–A6.30, Box A6.1, Table 7.10 Fees and licenses classifi cation of revenue
 from, 5.138 for business operations, 5.81, A4.42 for fi nancial protection schemes, Ex-dividend shares, 3.87, 5.112, 6.109, 2.135 10.32 Expenditure, 3.7, 4.21, 4.53, 5.28, 6.32, Table 4.1, Table 4.2, Table 4A.1 accounting rules for recording, 3.55–3.56 for goods and services, 5.136, 6.30 not commensurate with the control function of government, 5.72 other taxes on use of goods and per- mission to use goods or perform activities, 5.81 accrued expense versus cash fl ow standardized guarantee schemes, expense, 4.35 classifi cation of, 1.21, 6.1–6.3, 5.149, 6.125, 9.57 taxes versus, 5.73–5.75 6.8, 6.126, Table 4.2, Table 4.2, Table 6.1, Table A8.2, Table A8.6.
See also Classifi cation of Func- tions of Government (COFOG) collection fees as, 5.35 consolidation of, 3.162, 3.165 defi nition of, 4.16, 4.24, 6.1 excluded transactions, 4.24, 5.44, Financial account, A7.68–A7.69, A7.93–A7.94, Figure A7.1, Table A7.2 Financial assets and liabilities accounting identity, 9.2 arrears of, 9.20–9.23 changes in classifi cation of, 9.35, 10.84 6.5 changes in volume of, 10.57, 10.63 2.47 Expense 428 Index classifi cation according to counter- parties, 7.264–7.265, 9.86–9.87, Table 9.2 Financial auxiliaries, 2.54, 2.121 Financial claims defi nition of, 3.47, 7.15.
See also classifi cation by maturity, 7.266–7.271, specifi c type of claims Table 7.12 classifi cation of, 4.26–4.31, termination of, 9.3 Financial corporations 7.118–7.124, 7.264–7.265, 9.24– 9.27, Table 4.1, Table 4.2, Table 7.9, Table 7.11, Table 9.1 bailout operations, A3.42–A3.53 institutional sector for, 2.50, 2.53–2.57, Figure 2.1, Figure 2.2 consolidation of transactions in, pension funds, autonomous, 9.18–9.19 A2.47–A2.52 currency and deposits, 7.135–7.142, public sector, 2.115–2.121, Figure 2.2, 9.33–9.35 debt securities, 7.143–7.156, 9.36–9.43 Figure 2.3 restructuring agencies as, 2.130–2.131 types of/classes of, 2.54 defi nition and scope of, 3.43–3.48, Financial derivatives.
See Derivatives, 7.15–7.16 employee stock options, 7.203, 7.221–7.223, 9.77–9.81 equity, 7.164–7.173, 9.47–9.55 fi nancial derivatives contracts, 7.203–7.220, 9.70–9.76 holding gains and losses for, with fi xed monetary values, 10.23 insurance, pension, and standardized guarantee schemes, 7.178–7.202, 9.57–9.69 investment fund shares, 7.164, fi nancial Financial intermediaries central bank as, 2.118 defi nition of, 2.54 functions of, 2.54 interest expense payable to, 6.81 subsectors of, 2.55 Financial intermediation services indi- rectly measured (FISIM), 5.108, 6.52, 6.62, 6.81, A7.28, A7.29, Table 5.8, Table 6.5, Table A7.1 Financial leases, A4.4, A4.10–A4.15, 7.174–7.177, 9.56 A4.55 liquidity, 2.55, 4.31, 7.118, 7.124, 7.266 loans, 7.157–7.163, 9.44–9.46 monetary gold, 7.126–7.130, 9.28–9.30 net debt calculation, 7.243 net lending/net borrowing equal to defi nition of, 7.158, A4.10 fi xed assets acquired under, 7.38 operating leases versus, 6.50, A4.37 time of recording, 8.17 Financial net worth.
See Net fi nancial transactions in, 9.5 worth net presentation of transaction in, Financial protection/deposit insur- 9.17, Table 9.1 other accounts receivable/payable, ance schemes, 2.132–2.135, 5.74, 5.138, A4.72 7.224–7.227, 9.82–9.84 Financial services fees, 6.52.
See also public policy-related, 4.29–4.30, Box 4.1 recording of transactions in State- ment of Operations, 4.26–4.31 special drawing rights, 7.131–7.134, 9.31–9.32 time of recording transactions in, Financial intermediation services indirectly measured (FISIM) Financing indicators, Table 4A.1 Financing transactions, in Statement of Operations, 4.26–4.31, Table 4.1, Table 4.2.
See also Transactions in fi nancial assets and liabilities 3.93–3.97, 9.13–9.16 Fines and penalties types of fi nancial instruments included in, 9.24–9.27.
See also the respective type of instruments types of transactions in, 9.3–9.4 valuation of transactions in, 9.7–9.12 classifi cation of, as expense, 6.123 classifi cation of, as revenue, 5.6, 5.143–5.144 defi nition of, 5.142 on taxes, 5.24, 5.143 related to environmental-economic activities, A7.124 time of recording, 3.85, 5.144 Finished goods, 7.83, 8.47, Table 7.6 Fiscal analysis role of GFSM 2014 in, 1.3 use of government fi nance statis- tics framework for, 1.10–1.13, 4.51–4.60, Table 4A.1, Table 4A.2 See also Analytic framework of gov- ernment fi nance statistics Fiscal balance analysis, 4.53, Table 4A.1 Fiscal burden, 5.9, Table 4A.1 Fiscal impulse, Table 4A.2 Fiscal policy defi nition of, 1.2 government entities in execution of, 2.1 role of central government subsec- tor in, 2.86 role of GFSM 2014 in analysis of, 1.2 Fiscal stabilization funds, 2.160–2.162 Fishing quotes/permits/licenses, A4.30–A4.31 Fixed assets, 7.35–7.74 acquired under fi nancial lease, 7.38, 8.17 biological resources.
See Cultivated biological resources buildings and structures, 7.41–7.51, 8.28–8.32, Table 7.3 classifi cation of other, 7.58–7.73, Table 7.5 classifi cation of, 7.35, Table 7.2 component of produced assets, 7.18 constructed on own account, 7.37, 8.9 costs of ownership transfer, 6.60, 8.7, 8.42, 10.68, Figure 8.1 cultivated biological resources, 7.58– 7.63, 8.34–8.36, 8.47, Table 7.5 defi nition of, 7.18, 7.35 deterioration of, 10.65 holding gains and losses on, 10.13 intellectual property products, 6.46–6.47, 7.64–7.73, 8.37–8.41, Table 7.5 machinery and equipment, 6.43, 6.49, 7.52–7.57, 8.33, Table 7.4 maintenance and repair expenses, 6.45, 8.25–8.27 other changes in volume of, 10.63–10.69 Index 429 ownership of, 7.37–7.39 recording of transactions in, 8.24–8.43 revalued stock position for PIM, Box 6.1 time of recording of phased produc- tion of, 7.37 valuation, 7.36, 8.9, 8.24 weapons systems, 6.49, 7.74, 8.43 Fixed capital consumption.
See Con- sumption of fi xed capital Float, 9.14 Flows basis of recording, 1.27–1.28, 3.60, 3.67 classifi cation of, 1.21, Table A8.3 consolidation, 9.18–9.19 defi nition of, 3.4 double-entry recording of, 3.54 expressed in foreign currencies, 3.119–3.129 illustrative recording of fl ows related to nonlife insurance or standardized guarantees, A4.79–A4.80 illustrative recording of fl ows related to social protection, Table, A2.1, Table A2.2, Table A2.3, Table A2.4 in government fi nance statistics framework, 1.15, 1.21, 1.27, 1.31, 3.1 in regional arrangements, A5.3 in structure of analytic framework, Forward-type contracts, 7.208, 7.210, General taxes on goods and services, 7.212–7.214, 7.218, 9.71 Free trade zones, 2.11, A5.6, A5.19 Functional classifi cation of govern- ment, 1.21, 6.3, Table 6A.1 COFOG system for, 6.126–6.132 detailed functions of government, 5.57–5.61, Table 5.3 Geographical area, 2.8, 2.90, 2.95 GFSM 2014.
See Government Finance Statistics Manual 2014 Gift taxes, 3.81, 5.51 Gold 6.150 allocated accounts, 7.126–7.128, economic function cross-classifi ed with, 6.148–6.149, Table 6A.2 See also Classifi cation of Functions of Government (COFOG) Futures contracts, 7.213 G Gambling winnings, 3.46, 5.41–5.42, 5.63, 5.66–5.68 General government sector comprise of, 2.58–2.59 coverage of the GFS framework, 1.26, 2.4, 4.7 decision tree for classifi cation of entities in, 2.124, Figure 2.4 defi nition and scope of, 1.2, 2.58, 2.76, 4.7 10.84 as fi nancial asset, 3.43, 3.48 as fi nancial claim, 3.47, 7.15 as fi nancial instrument, 4.28 as remuneration to IMF member countries, A3.89 bullion, 3.43, 7.15–7.16, 7.126, 7.128 changes in classifi cation of, 10.84 deposits, 7.139, 9.35 holding gains and losses, 3.127, 5.90, 10.21, 10.23 international investment position, A7.96 monetary, classifi cation of, 3.47, 7.126–7.130, 7.244, 9.28–9.29 nonmonetary, 7.88, 7.135, 8.47–8.48, delineation with public corpora- 9.30, 9.34 tions, 2.64, A5.42, A6.14 economic functions of, 2.38 institutional units of, 2.58, 2.64 international comparison of subsec- tor statistics, 2.77, A5.42 plus central bank, as public sector grouping, 2.122 reclassifi cation of, 10.84 recorded as foreign currency, 3.135 swaps, 7.161, 9.46 unallocated accounts, 7.127, 7.139 Golden shares, Box 2.2 Goods for resale, 6.29, 6.44, 7.75, 7.84–7.85, 8.47, Table 7.6 3.1, 4.8, Table 4.1 reclassifi cation of assets and liabili- Goodwill and marketing assets, integration of stock
 positions and, ties of, 10.80–10.84 1.31, 3.2 reclassifi cation of units to or from, 10.76–10.79 7.17, 7.31, 7.104, 7.113–7.117, 8.56, 8.58, 10.49, 10.54–10.56, Table 7.8 netting of, 3.143–3.151, 9.17 of special purpose entities, 2.138–2.139 time of recording.
See Time of recording economic fl ows types of, 1.15, 3.4, Figure 4.1 unit of account, 3.51, 3.130–3.131 valuation of, 1.29, 3.107, 3.115–3.129 See also Other economic fl ows; Transactions Foreign direct investment, reinvested earnings, 5.134–135, 6.121, 9.50, 10.34 Foreign fi nancing, Table 4A.1 Forfeits, 5.142–5.144 Forgiveness, debt, 3.16, 4.35, 7.30, A3.5, A3.7–A3.9 relation to other institutional sec- Government tors, 2.122, Figure 2.1, Figure 2.2 residence of units of, 2.14 scope of government fi nance statistics framework for reporting on, 1.26 subsectors of, 2.62, 2.76–2.103, 3.153 transfer transactions typical in, 3.10 types of expense in, 6.1 types of revenue in, 5.1 types of transactions in fi nancial assets and liabilities in, 9.85 uses of government fi nance statis- tics framework in analysis of, 1.10–1.13 asset ownership/use of, 7.11–7.12 defi nition and scope of, 2.1 employees of, 6.9 entities of, 2.1.
See also General Government Sector; Government units; Public corporations fi nal consumption expenditure, A7.55–A7.60, Table 4A.1 residence of entities of, 2.14 Government fi nance statistics frame- work, 1.1 advantages of accrual basis of recording in, 3.70 aggregates in, 3.141 430 Index Balance of Payments and International Investment Position Manual and, A7.73–A7.98 balance sheets in, 1.30, 7.1–7.3 balancing items in, 1.32–1.34, 3.140 basis of recording economic events in, 1.27–1.28, 3.61–3.75, 4.3 classifi cation codes, A8.1–A8.7, Fig- ure A8.1, Table A8.1, Table A8.2, Table A8.3, Table A8.4, Table A8.5, Table A8.6 classifi cation of, 3.7 COFOG and, 6.126–6.127 coverage of, 1.26, 2.1–2.4, 3.53 diff erences in institutional and economic structures of countries and, 1.5, 1.36–1.39, A7.2 fi scal indicators available from, 4.51–4.60, Table 4A.1, Table 4A.2 harmonization of, 1.13, 1.22, 1.35, A5.1 implementation of, 1.5, 1.36–1.39 integration of, 3.2 International Public Sector Account- ing Standards and, A6.1–A6.56, Box A6.1 Monetary and Financial Statistics Manual and, A7.99–A7.104 Objectives of accounting versus, Government Finance Statistics Manual 2014 (GFSM 2014) additions and changes from previous editions in, 1.8–1.9, 1.25–1.345, A1.1–A1.162 evolution of, 1.6–1.9 harmonization, 1.1, 1.8–1.9, 1.35, A1.1, A1.187 preparation of, 1.8–1.9 purpose of, 1.1–1.5 revision process, 1.8 structure of, 1.40–1.44 supplemental practical guidelines, 1.1 See also Government fi nance statis- public sector, 2.4, 2.63,
 Figure 2.3 relationships between, 2.47 rent from lands/subsoil assets owned by, 5.126–5.130 residence of, 2.14 sector classifi cation of, 1.2, 2.38, 2.76–2.84 social protection programs and, 2.46, 2.100–2.101 tax attribution principles, 5.33–5.40 taxes payable by, 5.42 types of expense, 3.1, 6.1–6.2 types of revenue in, 3.13, 5.1 See also General government sector tics framework Grants Government Finance Statistics Yearbook, 1.6, 4.51 Government-owned enterprises as government units, 2.47 examples of, 2.1
 nonresident, 2.20, 2.57 See also Public corporations Government production activities, 1.22 Government units accountable to two levels of govern- ment, 2.79, 2.99, Box 2.1 ancillary activities supplied to, 2.45, 2.72 artifi cial subsidiaries, 2.42–2.44, A6.11–A6.12 2.162 purpose of, 4.1, 4.5, A7.3 structure and features of, 1.14–1.24, as legal or social entities, 2.30, 2.47 as nonmarket producers, 2.32, 2.37, 4.8–4.15 System of Environmental-Economic Accounting Central Framework and, A7.105–A7.134 System of National Accounts 2008 and, 1.22–1.24, 3.6, A7.13–A7.72, Tables A7.1–A7.5 uses of, 1.10–1.13, 4.51, A5.36–A5.40 valuation in, 1.29, 3.107–3.117, A6.25–A6.30 See also Analytic framework of gov- ernment fi nance statistics Government Finance Statistics Manual 1986 (GFSM 1986), 1.6–1.7, 1.35, 4.2, 4.6 GFSM 2014 and, 1.25–1.34, A1.164–A1.186 Government Finance Statistics Manual 2001 (GFSM 2001), 1.7–1.8, A1.1–A1.162 2.41, 2.58–2.59 as recipients of subsidies, 6.86 budgetary and extrabudgetary, 2.80–2.82 classifi cation of revenue from sales of goods and services by, 5.136, 5.141 defi nition of, 2.38 dividend payments to or from, 5.113 economic functions of, 2.38 establishments as, 2.24 geographic location of, 2.40 identifi cation of, 2.39–2.47, 2.64–2.75 in control of public corporations, 2.107–2.112, Box 2.2 market producers versus, 2.24, 2.35, 2.64–2.75, 2.48, 2.63–2.64, 2.104.
See also Public corporations net worth of, 7.229 privatization of, 9.54 as transfer transactions, 3.10 between general government units, 2.82, 2.95, 5.102, 6.93 capital, 5.103, 6.94 claims settlement and, 5.105 classifi cation of, 5.5, 5.101–5.104, 6.92–6.94, Table 5.7, Table 6.7 consolidated statistical presentation, 3.153, 3.162, 5.5, 5.102 current, 5.103, 6.94 defi nition of, 5.5, 5.101, 6.92 distributed in regional arrangements, A5.8–A5.18, A5.23 in kind, 5.104, 6.92, 6.95 sources/recipients of, 5.102, 6.93 time of recording of, 3.86, 5.16, 5.105 valuation of, 3.108, 3.123, 5.104 Gross capital formation, A7.54, Table 4A.1 Gross debt analysis of, 4.55 as memorandum item to balance sheet, 7.236–7.242, Table 7.10 at market value, 7.240 at nominal value, 7.241 defi nition of, 7.236, Table 4A.1 face value, 7.241 valuation of, 7.154, 7.239–7.242 Gross debt sustainability, 4.55, Table 4A.1 Gross fi nancing needs, Table 4A.2 Gross fi xed capital formation, Table 4A.1 Gross investment in nonfi nancial assets, 8.4, Table 4.1, Table 4.2, Table 4A.1 Index 431 Gross operating balance, 4.20, Table 4.1, Table 4A.1 Gross saving, A7.54, Table 4A.1 Guarantees classifi cation of, 3.49 contingent liabilities and, 7.253, Figure 7.2 control established through, Box 2.2 in the GFS framework, 3.49, 4.15, Table 4.6 one-off , 7.255–7.260 risks associated with, 1.4, 1.19, 2.71 on investment fund shares, 10.34 on monetary gold, 10.21 on nonfi nancial assets, 10.19–10.20 on special drawing rights, 10.22 on valuables, 10.18 realized and
 unrealized, 10.6–10.7, A6.31–A6.33 recording of, 10.5 time of recording, 3.33–3.34, 3.99–3.100, 3.127, 10.7, 10.12 valuation of, 3.127, 10.9–10.10 Hospital buildings, 7.47 Hospitals standardized schemes.
See Stan- dardized guarantee schemes as institutional household, 2.28 as nonprofi t institutions, 2.37, 2.97, H Historic cost, 3.115 Holding companies, 2.128 Holding gains and losses as economic benefi t, 3.37 calculation of holding gains, 10.9–10.10 changes in net worth due to, 4.37 changes in value excluded from classifi cation as, 10.8 classifi cation codes, 10.4, Table A8.3 consumption of fi xed capital in esti- mation of, 6.68, 10.13–10.14 continuous accrual of, 3.34.
See also Time of recording defi nition of, 3.33, 4.10, 10.1 in the GFS framework, 4.10, 4.46, 5.139 as market producers, 2.114, 2.127 Household(s) as types of institutional units, 2.27 defi nition of, 2.28 economic sector, 2.60, Figure 2.2 income taxes, 5.41 multiperson, 2.29 nonprofi t institutions serving.
See Nonprofi t institutions serving households relation to other sectors, Figure 2.1 subsidies to, in capacity as produc- ers, 6.86 I Implementation of GFSM 2014 challenges using accrual basis 10.2, Table 4.5, Table 10.1 accounting in, 3.75 measuring, 10.9–10.10 net presentation of, 3.149 neutral and real, 10.11 on debt instruments that do not consideration of local circumstances in, 1.36–1.37 consolidation process, 3.165–3.166 good data dissemination practices accrue interest, 10.45 in, 1.39 on debt securities, 10.24–10.29 on employee stock options, 10.43 on equity, 10.30–10.33 on fi nancial assets denominated in foreign currencies, 10.44 on fi nancial assets with fi xed mon- etary values, 10.23 on fi nancial derivatives, 10.42 on fi xed assets, 10.13–10.15 on insurance, pension, and stan- dardized guarantee schemes, 10.35–10.41 on inventories, 10.16–10.17 institutional and legal structures of government and, 1.5 in monetary unions, A5.38–A5.40 sequence of, 1.38 Implicit transfers resulting from loans at concessional interest rates, 7.246, 9.12, Table 7.10 Import duties, 3.81, 5.84, A5.12, Table 5.5 Incidental sales, 5.139, A5.9, A5.27, Table 5.10 Income accounts, A7.31–A7.61, A7.82–A7.88 Income taxes classifi cation and recording of, 5.42–5.44, Table 5.2 defi nition and scope of, 5.41 refunds, 3.145 time of recording, 3.82–3.83, 5.12, 5.15, 5.43 withheld from employees, 6.12 Index-linked debt/securities/loans, 6.75–6.83, 7.153, 9.41–9.42, 10.26 Indirect taxes, 5.9, Table 4A.1 Individual goods and services,
 6.133–6.139, A7.60 Information, computer, and telecom- munication equipment, 7.52, 7.56, Table 7.4 Infrastructure companies/funds, 2.160–2, 162 Infrastructure construction/assets, 7.11, 7.48 Inheritance taxes, 5.51 In kind transactions, 3.19–3.21 barter, 3.22 diff erence in GFS and SNA treatment of, Box A7.1 employee compensation.
See Remu- neration grants, 5.5, 5.104–5.105, 6.94 payments other than remuneration, 3.24 remuneration, 3.23, 5.140, 6.35.
See also Wages and salaries, social benefi ts, 2.101, 6.39–6.40, 6.100–6.101, 6.104, A7.48 transfers, 3.16, 3.25 types of, 3.21 valuation, 3.121–3.123 wages and salaries, 6.17–6.18, Table 6.2 Institutional sectors defi nition of, 2.50 fi nancial corporations, 2.53–2.57 general government, 2.58–2.59 households, 2.60 institutional units and relationship to, 2.51, Figure 2.1 nonfi nancial corporations, 2.52 nonprofi t institutions serving households, 2.61 subsectors of, 2.62 types of, 2.50 432 Index Institutional units Insurance ancillary activities of, 2.45 application of defi nition, 2.39–48 artifi cial subsidiary, 2.42 central borrowing authority as, 2.44 changes in classifi cation of, 10.76– 10.79 characteristics of, 2.22–2.25 classifi cation of specifi c types of, 2.125–2.162 classifi cation of, 2.50, 2.63, 2.124, Figures 2.1 and 2.4.
See also Sector classifi cation claims, 5.148, 5.150–5.151, 7.15, A4.77, A7.84 classifi cation of property income disbursements, 5.120 classifi cation of, 9.57–9.62 conceptual basis of, A4.66 consolidated statistical presentation, 3.164 deposit.
See Financial protection/ deposit insurance schemes exceptionally large settlements receivable/payable, 5.151, 6.125 expenses attributed to policyholders, consolidated statistical presentation, 6.113–6.114 3.153–157 control of, 2.47 corporations as, 2.31–2.35 criteria to be, 2.22 defi nition, 1.14, 2.22 enterprises and, 2.25 establishments and, 2.24 government units as, 2.38 households as, 2.28–2.29, 2.60 identifi cation of, 2.26 in fi nancial corporations sector, 2.53–2.57, 2.115–2.121 fi nancial corporations in, 2.53–2.55 fi nancial derivatives versus, 7.207 fi nancial intermediation, 2.55 life, 5.120, 7.187–7.188, 9.62, A4.69 nonlife insurance premiums as transfer transactions, 3.12, 3.14 nonlife, 7.183–7.186, 9.58–9.61, A4.70, A4.78–A4.80 policy, nature of, A4.66 premiums, 5.149–5.150, 6.125, A4.74– A4.76, Table 5.12, Table 6.11 private, versus, A2.11–A2.16, in general government sector, 2.58, Figure A2.1 2.76–2.103 public fi nancial corporations, 2.115, changes in volume of, 10.63–10.75 classifi cation of, 4.28, 9.57–9.69 classifi cation of, 7.178–7.202 consolidation of, 3.164 diff erence in GFS and SNA treatment of, 5.95, A7.69 holding gains or losses on, 10.35– 10.41 social protection arrangements.
See Social protection valuation of, 7.122, 7.240 See also Insurance; Pension schemes; Standardized guarantee schemes Intangible nonproduced assets, 3.50, 7.31, 7.90, 7.104–7.117, 8.56–8.58, Table, 7.8 Intellectual property products classifi cation of, 6.46–6.47, 8.37, 7.64, Table 7.5 computer soft ware and databases, 7.69–7.71, 8.40 defi nition of, 7.64 entertainment, literary and artistic, 7.72, 8.41 mineral exploration and evaluation, 6.47, 7.68 original products and copies, 7.65 other, 7.73 recording transactions in, 6.46–6.47, in government fi nance statistics framework, 2.3, 2.23, 4.7 in nonfi nancial corporations sector, 2.52, 2.114 in public sector, 2.63 location of, 2.12 nonprofi t institutions serving households as, 2.36–2.37, 2.61 notional resident units, 2.13 of central government, 2.85–2.89 of local government, 2.95–2.99 of state government, 2.80–2.83, 2.90–2.94 public corporations as, 2.48 residence of, 2.6–2.14 social protection and, 2.46, Appendix 2 2.121 8.37–8.41 recording of nonlife insurance pre- miums as transactions, 9.58–9.61 reserves/assets/liabilities/entitlements related to, 5.120, 7.178, 9.57 service fees for, 6.52 SNA treatment versus GFS treatment of, A7.29, A7.43, A7.69, Table A7.1 social protection versus, A2.11–A2.16, Figure A2.1 social.
See Social insurance taxes on, 5.92 terminology of, A4.73–A4.77 time of recording, 3.89 types of, A4.67–A4.70 valuation of, 5.20, 7.122 See also Insurance, pension, and research and development, 7.66–7.67, 8.38 See also Research and development expenses Interest accrual recording of, 3.70, 3.90, 6.64, 7.123 arrears, 6.80, 7.247, 9.22 as exchange type of transaction, 3.9 as used in primary balance/fi scal analysis, 4.55, Table 4A.1 cash recording of, 6.65 classifi cation as expense, 4.24, 5.110, 6.62, 6.83, Table 5.8, Table 6.5 classifi cation as revenue, 5.108–5.110, Table 5.8 special purpose entities as, 2.15, 2.43, 2.136–2.139 standardized guarantee schemes Insurance, pension, and standardized consolidated statistical presentation, 3.152, 3.162 transactions between, 3.5 types of, 2.27–2.38.
See also specifi c type guarantee schemes debtor approach to calculating, as debt instrument, 7.236, 7.243, 6.66–6.68 Table 7.12 defi nition of, 5.108, 6.62 Index 433 fi nancial intermediation services indirectly measured (FISIM) and, 6.62, 6.81 grace periods and, 6.69 gross versus net presentation of, 3.143–3.144 imputed, 5.108, 6.17 on debt instruments that do not accrue, 7.30, 10.45 on debt securities issued at par, 9.39 on debt securities with embedded No.

1 Account, A3.82 No.
2 Account, A3.90 quotas, A3.82–A3.83 recording of stock positions and fl ows arising from membership in, 7.131–7.134, 9.31–9.32, A3.79– A3.95 remuneration from, A3.89 reserve position in, A3.84–A3.85 Special Data Dissemination Standard Plus, 1.39, 3.52 derivatives, 6.79, 9.43 Special Data Dissemination Standard, plants and animals as, 7.60–7.61, 8.34 reclassifi cation of, 10.82, 10.84 recording of transactions related to, 3.91, 6.6, 6.44, 8.3, 8.44–8.47 time of recording, 3.90–3.91, 6.6, 8.44 transfers of inventory, 6.37, 6.40 use of goods and services and, 6.6, 6.29, 6.44, Table 6.3 valuation of, 7.78, 8.10, 8.44 work in progress, 7.80–7.82, 8.47 on debt securities, 7.143, 9.36–9.38 on discounted instruments, 6.71–6.72, 7.144–7.147, 9.9, 9.40 on index-linked instruments, 1.39, 3.52 Investment funds Special Drawing Rights, 7.131–7.134, 7.138, 9.31–9.32, A3.82, A3.87, A3.91–A3.95 as fi nancial claim, 7.15 as fi nancial intermediary, 2.55 classifi cation of, 7.164, 7.174–7.177, 6.75–6.78, 9.41 International organizations 9.56 on loans issued at premium, 6.73 on loans recorded at nominal value, 7.163, 9.44 on nonperforming loans, 7.262 on overdue taxes, 5.24, 6.82 on Special Drawing Rights, 7.131, 9.32 payable to fi nancial intermediaries, 6.81 step-up interest, 6.70 time of recording, 3.70, 3.90, 3.133, 5.108, 6.64, 9.16 defi ning characteristics of, 2.16 economic territory of, 2.16 grants from/to, 5.101–5.104, 6.92–6.93, Table 5.7, Table 6.7 membership fees and subscriptions to, 9.52 ownership of, 7.169
 residence of, 2.16–2.21 See also Regional arrangements International Public Sector Account- ing Standards (IPSASs), 1.9, 4.46 relationship with, A4.63, A6.1–A6.56, valuation of, 3.108–3.112, 3.118, Box A6.1 3.123, 5.109–5.110 Inventories Interest rates changes in value of securities due to changes in, 10.26 concessional, 2.104, 3.123, 7.246, 9.12 for arrears, 9.22 implicit tax/subsidy of central bank, 5.70, 6.89, Box 6.2 step-up, 6.70 swap contracts, 7.215–7.216 Intermediation, 2.54.
See also Financial intermediaries International investment position, 9.27, A7.74, A7.96–A7.98 International Monetary Fund as international organization, 2.16 Code on Good Practice on Fiscal Transparency, 3.52, 4.51 credits and loans from, A3.86–A3.88 General Data Dissemination System, 1.39, 3.52 as produced assets, 7.18 classifi cation of, 3.50, 3.91, 6.6, 7.75–7.86, 8.45–8.46, Table 7.6 commemorative coins as, 7.135, 9.34 costs of ownership transfer on, 6.60, 8.45 defi nition of, 7.18, 7.75 exceptional losses in, 10.70 excluded from capital transfers, 3.16 fi nished goods, 7.83, 8.47 gold as, 7.129, 9.30 goods for resale, 7.84–7.85, 8.47 holding gains on, 10.16–10.17 materials and supplies, 7.79, 8.47 military, 7.86, 8.43, 8.47 net investment in, 8.4, 8.44 net presentation of changes in, 3.147, 8.19–8.20 other change in volume of, 10.63, 10.70, 10.82, 10.84 consolidated statistical presentation, 3.164 defi nition of, 7.174 development or infrastructure com- panies as, 2.160–2.162 expense for disbursements of income from, 6.113 income disbursements, 5.120–5.121 recording changes in value of, 5.121, 6.119, 10.34 sector classifi cation of, 2.121, 2.160 share or units of, 7.174 valuation of, 7.233 J Joint accountability of units, 2.79 Joint operating arrangements, 2.143 Joint ownership of assets, 2.29, A4.39 Joint-stock companies, 2.32 Joint ventures, 2.140–2.143, A4.40 L Land asset boundary of land, 7.7–7.10 classifi cation of, 3.50, 7.19, 7.93, 7.95–7.96 consumption of fi xed capital on, 8.53 costs of ownership
 transfer, 3.111, 7.22, 8.7, 8.53, Figure 8.1 defi nition of, 7.92 economic territory and, 2.9–2.10 holding gains and losses on, 8.31 nonresident ownership of, 2.13, 7.91 434 Index other changes in volume of, 8.31, recording of transactions in, 1.34, 10.51–10.52, 10.60 3.4, 4.26–4.31 recording transaction, 8.50–8.53 rent receivable/payable on, 5.122, 5.126–5.128, 5.132, 6.51, 6.120 resource lease on, 5.125, A4.17, A4.26–A4.27 structures on, 8.51 taxes on, 5.49, 5.52, 5.53 valuation of, 7.94, 8.11 See also Land improvements relation with debt, 7.236–7.237 sources of, 3.45–3.46 time of recording transactions in, 3.60, 3.93–3.97 types of liabilities, 3.45–3.46 valuation of, 3.111, 3.113–3.115, 7.20–7.33 See also Financial assets and liabili- ties and Contingent liabilities Land improvements Licenses classifi cation of, 7.49–7.50, 8.50, Table 7.3 consumption of fi xed capital on, 7.51, 8.31, 8.53 defi nition of, 7.49 land and, 7.50 recording transactions in, 7.94, 8.7, 8.31 valuation of, 7.51 Late interest, 9.22 Leases as assets, A4.53–A4.57, Box A4.3 types of, A4.4–A4.17.
See also specifi c type, Financial leases; Operating leases; and Resource leases as asset sale versus rent, 5.124, 7.109, A4.21, Box A4.1 business, 5.81 compulsory, 5.138 original copies, 7.65 to make use of natural resources, 5.54, 5.78, A4.18–A4.35, Figure A4.1 to use goods, or to perform specifi c activities, 5.55, 5.72–5.75, 5.81, A4.36–A4.50, Box A4.2, Table 5.4 to use motor vehicles, 5.55, 5.72–5.75, 5.80 See also Contracts, leases, and licenses; Fees and licenses See also Contracts, leases, and licenses Life insurance, 7.178–7.179, 7.187–7.188, Legal and social entities, 2.30–2.38 Legal ownership, 3.38–3.41, 5.141, 7.4– 7.5, 7.96, 7.158, A4.4, A4.37, A4.62 Letters of credit, 7.13, 7.207, 7.259 Liabilities classifi cation of, 1.21, 4.27–4.30, 7.118–7.227, Table 7.9 consolidation of, 3.163 contingent liabilities versus, 7.13 defi nition of, 3.45, 4.45, 7.15 fi nancial claims and, 3.47, 7.15 holding gains and losses, 3.33, 3.100, 4.37 in calculation of net worth, 1.17, 7.1 in government fi nance framework, 9.62, 10.71, A4.69 nonlife versus, 7.183 Lines of credit, 7.13, 7.259 Liquidation corporations.
See Restruc- turing agencies Liquidity management, 3.67, 4.29, 4.31, Box 4.1, 7.123, 9.12 Loans arrears of, 3.71, 7.247, 9.21 as debt instrument, 7.236, 7.243 classifi cation of, 7.157–7.162, 9.44–9.46 concessional, 2.162, 3.123, 5.108, 6.17, 7.246, 9.12, A3.39–A3.41, Box 6.2 consolidated statistical presentation, 1.15, 1.30, 4.22, Figure 4.1 3.163 net presentation of, 3.148 nonfi nancial, 3.44 other changes in the volume of, 3.35, 4.38 other economic fl ows, 3.31, 3.126–3.129 reclassifi cation of, 3.101–3.102, 10.80–10.84 control of corporations through, Box 2.2 defi nition of, 7.157 from International Monetary Fund, A3.86–A3.88 guarantees, 7.259 index-linked, 9.41.
See also Index- linked debt net presentation of, 3.148, 9.4 nonperforming, 7.262–7.263 on-lending of borrowed funds, A3.72–A3.78, Table A3.1 other changes in volume of, 10.57 reclassifi cation of, 7.149, 7.157, 10.84 time of recording disbursement of, 3.93 to employees, 5.108, 6.17, A2.9 valuation of, 7.163, 9.23, A3.8 Local government defi nition of, 2.95 extrabudgetary units of, 2.82–2.83 functions of, 2.95–2.97 general government sector and, 2.58, 2.62, Figures 2.2 and 2.3 institutional units of, 2.80, 2.99 nonmarket NPIs of, 2.83 social security funds of, 2.78 Lotteries, 5.63, 5.66–5.69, 5.114 Lottery winnings, 5.41–5.42 M Machinery and equipment, 6.37, 6.43, 6.49, 7.7, 7.35, 7.37–7.38, 7.52–7.57, 7.88, 8.33, Table 7.4 Maintenance and repairs classifi cation as expense, 6.45 defi ning features of, 8.27 major improvements versus, 8.25–8.26 Major improvements to fi xed assets.
See Maintenance and repairs Margins, 7.219–7.220, 9.75 Maritime territories, 2.9 Marketable operating leases, 7.107, 7.108, 8.57, A4.56, Table 7.8 Market producers characteristics of, 2.32, 2.66–2.69, 2.73 classifi cation of revenue from sales of goods and services by, 5.136–5.138 corporations as, 2.31, 2.33 defi nition of, 2.65 establishments as, 2.24, 2.76, 2.75 identifi cation of, 2.64–2.75 in government fi nance framework, 2.4 nonmarket producers versus, 2.64–2.75, Figure 2.4.
See also Nonmarket producers nonprofi t institutions as, 2.37 regional enterprises as, 2.20 transfers of goods and services purchased from, 6.40, 6.91, 6.123, A2.27, A7.59 Marketing boards, 5.65, 5.86–5.87.
See also Market regulatory agencies Market prices approximated by/equivalents of, Money market funds, 2.55, 2.121, 7.174, 7.177 Monopolies permits and licenses creating, 7.111 profi ts of, 5.86–5.87 rerouting profi ts of, 3.28 taxes on, 5.55, 5.63–5.68, 5.86–5.87, 5.114, Table Monuments, 7.42–7.43, 7.47–7.48, 3.112, 3.114, 7.30–7.33 8.30, 10.50 Index 435 Net debt, 4.54–4.55, 7.243–7.245, Table 4A.1, Table 7.10 Net fi nancial worth as balance sheet memorandum item, 7.235 as indicator of sustainability, 4.41, Table 4A.1 defi nition of, 4.41, 7.235 in government fi nance statistics framework, Figure 4.1 Net incurrence of liabilities, 1.34, 1.15, 3.151, 4.16, 9.5, 9.17, 9.23, Tables 4.1 and 9.1 Net interest expense, 3.144, Table 4A.1 Net investment in nonfi nancial assets defi nition of, 4.16, 8.4, Table 4.1, Table 4.2, Table 4A.1 in government fi nance statistics framework, 1.34 inventories, 8.44 Net lending/net borrowing as fiscal indicator, 4.19, 4.53, Tables 4A.1 and 4A.2 as fi scal targets in regional arrange- ments, A5.39 as indicator of fi scal balance, 4.53 calculation of, 4.17, 9.5 compared with SNA concept, A7.19 defi nition of, 4.17, Table 4.1 impact of capital grants in kind on, 5.104 impact of consumption of fi xed capital on, 8.18 Motor vehicle taxes, 5.79–5.80, A7.40, Table 5.4 Mutual funds, 2.54, 7.174 N National accounts, 1.23, 2.23, 3.74, 3.106, 3.131, 3.165, 3.167, 4.18, 5.120, 1.151, 6.52, 6.81, 6.125, 6.139, A7.13–A7.72.
See also Sys- tem of National Accounts 2008 Nationalization, 9.55, A3.42, Box 4.1 Natural disasters, 5.146, 6.37, 6.58, 6.91, 10.16, 10.60–10.61, A2.10 Natural resources as nonfi nancial assets, 3.50 as nonproduced assets, 7.17, 7.19 classifi cation of, 7.90–7.103 depletion of, 10.52 entering or exiting asset boundary, 10.49–10.52 environmental-economic account- ing, A7.108–A7.110, A7.122 fi scal analysis in countries with, 4.59, 5.9, Table 4A.2 in government fi nance statistics leases, A4.16–A4.17, A4.53–A4.55 licenses and permits to make use of, 5.78, 7.109, A4.18–A4.35, –, A4.48, Box A4.1, Figure A4.1, Table 7.8 ownership by nonresidents, 2.13 ownership, 3.38–3.39, 7.5 permits to use.