Government Finance Statistics Manual 2014

GOVERNMENT FINANCE

STATISTICS MANUAL 2014

MANUAL

INTERNATIONAL MONETARY FUND

2014

Cataloging-in-Publication Data

Joint Bank-Fund Library

Government  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:  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.

Tel.: (202) 623-7430 Fax: (202) 623-7201

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Internet: www.elibrary.imf.org

www.im ookstore.org

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xix

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxi

Chapters

1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Purpose of the Manual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

 e Evolution of International Statistical Guidelines on GFS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

 e Update of the GFSM 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Uses of the GFS Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Structure and Features of the GFS Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Methodological Di erences with the GFSM 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Basis of Recording Economic Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Integration of Flows and Stock Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

 e Analytic Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Harmonization with Other Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Implementation of the GFS Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Structure of the Manual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Institutional Units and Sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Residence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Institutional Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

De nition of an Institutional Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Types of Institutional Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Households . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Legal and social entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Nonpro t institutions (NPIs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Government units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Application of the De nition of an Institutional Unit to Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Institutional Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

De ning Institutional Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Non nancial corporations sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Financial corporations sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

General government sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Contents

Contentsiv

Households sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Nonpro t institutions serving households (NPISHs) sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

 e Use of Subsectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Institutional Coverage and Sectorization of the Public Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Delineating General Government and Public Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

 e General Government Sector and Its Subsectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Central government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

State governments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Local governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Social security funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

 e Public Corporations Sector and Its Subsectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

 e public corporations subsector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Government control of corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Types of public corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Public non nancial corporations subsector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Public  nancial corporations subsector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Public deposit-taking corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

 e central bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Public deposit-taking corporations except the central bank. . . . . . . . . . . . . . . . . . . . . . . . 30

Other public  nancial corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Other groupings of public sector units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Decision Tree for Sector Classi cation of the Public Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Practical Application of Sector Classi cation Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Identifying Quasi-corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Distinguishing Head O ces and Holding Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Restructuring Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Financial Protection Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Special Purpose Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Sinking Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Pension Schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Provident Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Sovereign Wealth Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Market Regulatory Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Development Funds and/or Infrastructure Companies or Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

3. Economic Flows, Stock Positions, and Accounting Rules. . . . . . . . . . . . . . . . . . . . . . . . 40

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Economic Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Monetary transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Nonmonetary transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Two-party nonmonetary transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Internal transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Rearrangements of some transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Rerouting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Partitioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Reassignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Other Economic Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Holding gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Other changes in the volume of assets/liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Contents v

Stock Positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Economic Bene ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

De nition of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Financial assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Non nancial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Accounting Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Type of Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Time of Recording Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Alternative recording bases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Using the accrual basis of recording in the Statements of Operations and

Other Economic Flows, and Balance Sheet of the GFS framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Application of the accrual principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

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

Time of recording dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

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

Time of recording transactions in  nancial assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Time of recording other economic  ows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

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

Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

General rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Valuation of transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Valuation of stock positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Valuation adjustments in special cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Valuation of other economic  ows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Holding gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Other changes in the volume of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Unit of account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Currency conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Domestic and foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Currency of denomination and currency of settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Derived Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Netting of Flows and Stock Positions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

De nitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Reasons for consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Conceptual guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Implementing consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Consolidation in other datasets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2008 System of National Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

4. The Government Finance Statistics Analytic Framework . . . . . . . . . . . . . . . . . . . . . . . 66

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Analytic Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

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

Components and Concepts of the Analytic Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

 e Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Revenue and Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Contentsvi

Transactions in Non nancial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Transactions in Financial Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

 e Statement of Sources and Uses of Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

 e Statement of Other Economic Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

 e Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

 e Statement of Total Changes in Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

 e Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for

Future Social Security Bene ts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

Annex: Using GFS for Fiscal Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Fiscal Indicators Available from the GFS Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Fiscal Indicators Requiring Additional Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

5. Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

De ning Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Time of Recording and Measurement of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

 e Classi cation of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Taxes (11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

GFS tax classi cations in comparison with other statistical databases . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Treatment of tax refunds and tax relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

Tax attribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Tax categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Taxes on income, pro ts, and capital gains(111). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Taxes on payroll and workforce (112) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

Taxes on property (113) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Taxes on goods and services (114) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

General taxes on goods and services (1141) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Value-added taxes (11411). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Sales taxes (11412) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

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

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

Excises (1142) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Pro ts of  scal monopolies (1143) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Taxes on speci c services (1144). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Taxes on use of goods and on permission to use goods or perform activities (1145). . . . . . . 97

Boundary with administrative fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Boundary with taxes on business activities levied on di erent bases . . . . . . . . . . . . . . . . 98

Boundaries with other tax categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Boundary with the acquisition or use of an asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Other taxes on goods and services (1146). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Taxes on international trade and transactions (115) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Other taxes (116). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

Social Contributions [GFS] (12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

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

Social security contributions [GFS] (121). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Other social contributions [GFS] (122). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Grants (13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Other Revenue (14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Contents vii

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

Interest [GFS] (1411) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Dividends (1412). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

Withdrawals of income from quasi-corporations (1413) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Property income from investment income disbursements (1414). . . . . . . . . . . . . . . . . . . . . . . . . . 107

Rent (1415). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Rent on land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Rent on subsoil assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

Boundary with rental of produced assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Boundary with taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Reinvested earnings on foreign direct investment (1416). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Sales of goods and services (142) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Fines, penalties, and forfeits (143) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Transfers not elsewhere classi ed (144). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Premiums, fees, and claims receivable related to nonlife insurance and

standardized guarantee schemes (145) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

6. Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

De ning Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Time of Recording Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

 e Economic Classi cation of Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Compensation of Employees [GFS] (21). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Wages and salaries [GFS] (211) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Wages and salaries in cash [GFS] (2111). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Wages and salaries in kind [GFS] (2112). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Employers’ social contributions [GFS] (212) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

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

Imputed employers’ social contributions (2122) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Imputed employers’ social contributions related to nonpension bene ts. . . . . . . . . . . . . . . . 119

Imputed employers’ social contributions to employment-related pension bene ts . . . . . . . 120

Use of Goods and Services (22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

 e boundary between use of goods and services and compensation of employees . . . . . . . . . . . . . . 121

 e boundary between use of goods and services and transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

 e boundary between use of goods and services and the acquisition of non nancial assets . . . . . . 123

Other boundaries related to use of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

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

Interest [GFS] (24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

Indexation of the coupon payments only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Indexation of the amount to be paid at maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Subsidies (25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Grants (26). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Social Bene ts [GFS] (27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

Other Expense (28). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Property expense other than interest (281). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Dividends (2811). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

Withdrawals of income from quasi-corporations (2812) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Property expense for investment income disbursements (2813) . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

Rent (2814). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Reinvested earnings on foreign direct investment (2815). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Transfers not elsewhere classi ed (282). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Contentsviii

Current transfers not elsewhere classi ed (2821). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Capital transfers not elsewhere classi ed (2822) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

Premiums, fees, and claims payable related to nonlife insurance and standardized

guarantee schemes (283) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Annex: Classiﬁ cation of the Functions of Government . . . . . . . . . . . . . . . . . . . . . . . . 142

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Structure of COFOG Classi cations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Uses of COFOG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Individual versus Collective Goods and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

Units of Classi cation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Problems in Identifying Functions of Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Shared Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Administrative Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Subsidies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Consumption of Fixed Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Cross-Classi cation of Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Detailed Classi cation of the Functions of Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

General Public Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Defense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Public Order and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Economic A airs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

Housing and Community Amenities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Recreation, Culture, and Religion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Social Protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

7. The Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

De ning Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Ownership and the Asset Boundary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

Deriving De nitions for Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

Valuation of Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Value Observed in Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Value Obtained by Accumulating and Revaluing Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Present Value of Future Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Classi cation of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Non nancial Assets (61) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Fixed assets (611) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

Buildings and structures (6111) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Dwellings (61111) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Buildings other than dwellings (61112). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

Other structures (61113) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

Land improvements (61114) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

Machinery and equipment (6112) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180

Transport equipment (61121) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

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

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

Machinery and equipment not elsewhere classi ed (611222) . . . . . . . . . . . . . . . . . . . . . 181

Contents ix

Other  xed assets (6113) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Cultivated biological resources (61131). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Intellectual property products (61132) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Weapons systems (6114) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

Inventories (612). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Materials and supplies (61221) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Work in progress (61222) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Finished goods (61223) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Goods for resale (61224) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Military inventories (61225) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Valuables (613) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Nonproduced assets (614) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Land (6141) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

Mineral and energy resources (6142). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

Other naturally occurring assets (6143) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

Intangible nonproduced assets (6144) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

Contracts, leases, and licenses (61441) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Marketable operating leases (614411) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Permits to use natural resources (614412). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Permits to undertake speci c activities (614413) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Entitlement to future goods and services on an exclusive basis (614414). . . . . . . . . . . . 190

Goodwill and marketing assets (61442). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

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

Monetary gold and Special Drawing Rights (SDRs) (6201, 6221, 6301, 6321) . . . . . . . . . . . . . . . . . . . 191

Monetary gold (62011, 62211) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

Special Drawing Rights (SDRs) (62012, 62212, 63012, 63212) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

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

Debt securities (6203, 6213, 6223, 6303, 6313, 6323) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

Loans (6204, 6214, 6224, 6304, 6314, 6324) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196

Equity and investment fund shares (6205, 6215, 6225, 6305, 6315, 6325) . . . . . . . . . . . . . . . . . . . . . . . 197

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

Investment fund shares or units (62052, 62152, 62252, 63052, 63152, 63252) . . . . . . . . . . . . . . . 198

Insurance, pension, and standardized guarantee schemes [GFS] (6206, 6216, 6226,

6306, 6316, 6326) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

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

Life insurance and annuities entitlements (62062, 62162, 62262, 63062, 63162, 63262) . . . . . . . 200

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

Claims of pension funds on pension manager (62064, 62164, 62264, 63064, 63164, 63264) . . . 202

Provisions for calls under standardized guarantee schemes (62065, 62165, 62265, 63065,

63165, 63265). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

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

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

Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Forward-type contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Other issues associated with  nancial derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Swap contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Credit derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204

Margins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

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

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

Contentsx

Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

Memorandum Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Net Financial Worth (6M2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Gross debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

Gross debt at market value (6M3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Gross debt at nominal value (6M4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Gross debt at face value (6M35) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Concessional loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208

Arrears (6M5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Explicit Contingent Liabilities (6M6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

One-o guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

Net Implicit Obligations for Future Social Security Bene ts (6M7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

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

Classi cation of the Counterparty of Financial Assets and Liabilities by Institutional Sector . . . . . . . . . . 213

Classi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by Maturity . . . . 213

8. Transactions in Nonﬁ nancial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

Costs of Ownership Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

Va lu ati on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Time of Recording. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Consumption of Fixed Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

Netting of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

Classi cation and Recording of Transactions in Non nancial Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

Fixed Assets (311). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

Major improvements versus maintenance and repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

Buildings and structures (3111) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Machinery and equipment (3112) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Other  xed assets (3113) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Cultivated biological resources (31131). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Intellectual property products (31132) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224

Costs of ownership transfer on nonproduced assets other than land (31133). . . . . . . . . . . . . . . . 225

Weapons systems (3114) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

Inventories (312). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

Valuables (313) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Nonproduced Assets (314) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Land (3141) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Mineral and energy resources (3142). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Other naturally occurring assets (3143) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Intangible nonproduced assets (3144) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

9. Transactions in Financial Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230

Va lu ati on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Time of Recording. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232

Netting and Consolidation of Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Netting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Contents xi

Arrears. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Classi cation of Transactions in Financial Assets and Liabilities by Type of Financial Instrument

and Residence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

Monetary Gold and Special Drawing Rights (SDRs) (3201, 3221, 3301, 3321) . . . . . . . . . . . . . . . . . . . . . . . 235

Monetary gold (32011, 32211) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

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

Currency and Deposits (3202, 3212, 3222, 3302, 3312, 3322) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

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

Debt securities issued at par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Debt securities issued at a discount or premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

Index-linked debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

Debt securities with embedded derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

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

Equity and Investment Fund Shares (3205, 3215, 3225, 3305, 3315, 3325) . . . . . . . . . . . . . . . . . . . . . . . . . . 238

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

Privatization/Nationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

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

Insurance, Pension, and Standardized Guarantee Schemes [GFS] (3206, 3216, 3226, 3306,

3316, 3326). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

Nonlife insurance technical reserves [GFS] (32061, 32161, 32261, 33061, 33161, 33261). . . . . . . . . . 240

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

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

Claims of pension fund on pension manager (32064, 32164, 32264, 33064, 33164, 33264) . . . . . . . . 241

Provision for calls under standardized guarantee schemes (32065, 32165, 32265, 33065,

33165, 33265). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241

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

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

Employee stock options (32072, 32172, 32272, 33072, 33172, 33272) . . . . . . . . . . . . . . . . . . . . . . . . . . 242

Other Accounts Receivable/Payable (3208, 3218, 3228, 3308, 3318, 3328) . . . . . . . . . . . . . . . . . . . . . . . . . . 243

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

Classi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments

by Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

10. Other Economic Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

Holding Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

Holding Gains in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

Holding Gains for Particular Types of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Fixed assets (411) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Inventories (412) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Valuables (413) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

Non nancial assets disposed of during the reporting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

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

Financial assets and liabilities with  xed monetary values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250

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

Equity and investment fund shares (4205, 4215, 4225, 4305, 4315, 4325) . . . . . . . . . . . . . . . . . . . . . . . 251

Insurance, pension, and standardized guarantee schemes (4206, 4216, 4226, 4306,

4316, 4326). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251

Financial derivatives and employee stock options (4207, 4217, 4227, 4307, 4317, 4327). . . . . . . . . . . 252

Financial assets denominated in foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Debt instruments that do not accrue interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Contentsxii

Other Changes in the Volume of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Appearance or Disappearance of Existing Economic Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

 e E ect of External Events on the Value of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256

Catastrophic losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256

Uncompensated seizures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Other volume changes not elsewhere classi ed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Fixed assets (511) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Exceptional losses in inventories (512) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

Life insurance and annuities entitlements (52062, 52162, 52262, 53062, 53162, 53262) . . . . . . . 258

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

Provisions for calls under standardized guarantee schemes (52065, 52165, 52265, 53065,

53165, 53265). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Changes in Classi cation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Changes in sector classi cation and structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258

Changes in classi cation of assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

Appendixes

1. Changes from the GFSM 2001 and GFSM 1986. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

Changes from the GFSM 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Chapter 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264

Chapter 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266

Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

Chapter 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

Chapter 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

Chapter 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

Cross-Cutting Changes in Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

Changes from the GFSM 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

Coverage of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

Time of Recording Economic Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Coverage of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Gross and Net Recording of Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Integration of Flows and Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

De nitions and Classi cations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

Balancing Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

Harmonization with Other Statistical Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

2. Social Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

 e Nature of Social Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

Boundary between Social Protection and Private Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

Classi cation Criteria for Social Protection Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

Typology of Social Protection Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282

Social Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

Contents xiii

Social Insurance Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

Social security schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

Other employment-related social insurance schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

Employment-related pensions and other retirement bene t schemes . . . . . . . . . . . . . . . . . . . . . . 286

Nonautonomous employment-related pension schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

Autonomous employment-related pension schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

De ned-bene t pension schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290

De ned-contribution pension schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290

Government assumption of employment-related pension obligations of

other institutional units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

Employment-related nonpension social insurance schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

3. Debt and Related Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Debt Reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Debt Forgiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

Debt Rescheduling and Re nancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Debt rescheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

Debt re nancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

Debt Conversion and Debt Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

Debt conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296

Debt prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

Debt Assumption and Debt Payments on Behalf of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

Debt assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

Debt payments on behalf of others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299

Other Debt-Related Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

Debt Write-O s and Write-Downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

New Money Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

Debt Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300

Debt Concessionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301

Debt Arising from Bailout Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301

 e sectorization issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301

Statistical treatment of “capital injections” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302

Debt of Special Purpose Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304

Debt Arising from Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305

Debt Arising from O -Market Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

On-Lending of Borrowed Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

Stock Positions and Related Flows with the IMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

Reserve position in the IMF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

Credit and loans from the IMF. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

IMF No. 2 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

Special Drawing Rights (SDRs). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

4. Some Cross-Cutting Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Leases, Licenses, Permits, and Other Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312

Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

Contentsxiv

Financial leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

Resource leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

Licenses and Permits to Use a Natural Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315

Radio spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316

Timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318

Fish . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318

Water. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Mineral and energy resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Sharing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Permits to Undertake a Speci c Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

Permits issued by government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

Conditions for government permits recognized as assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Permits to use natural resources as sinks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

Contracts for future production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

Leases as Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

Public-Private Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

Determining Economic Ownership of PPP-Related Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

Statistical Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

Insurance and Standardized Guarantee Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

Types of Insurance and Standardized Guarantee Schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

De ning Terminology Used in Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328

Statistical Treatment of Nonlife Insurance and Standardized Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

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

Flows and stock positions recorded by public sector units as nonlife policyholders and

holders of standardized guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

5. Regional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

Types of Regional Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

Custom Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

A designated agency levies, collects, and distributes the proceeds from the duties . . . . . . . . . . . . . . . 333

A designated agency levies and distributes duties but member governments collect duties on

behalf of the designated agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

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

Member governments have collective rights to levy the duty, but only one member collects

and distributes the duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

Economic Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

Residence in an economic union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336

Recording some speci c transactions related to regional organizations. . . . . . . . . . . . . . . . . . . . . . . . . 336

Monetary and Currency Unions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

Using the GFSM Statistical Framework under Regional Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338

Harmonization Requirements for GFS in Economic or Monetary Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

6. GFS and International Public Sector Accounting Standards . . . . . . . . . . . . . . . . . . . . 341

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

Comparison of IPSASs and GFS Reporting Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

Conceptual Di erences between IPSASs and GFS Reporting Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

Contents xv

Reporting entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342

Recognition criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

Valuation (measurement) bases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

Treatment of revaluations and other volume changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

Presentation and Terminology Di erences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

Di erent names for statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

Classi cation structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347

Minimum level of detail. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

Disclosure of additional information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

Mapping from IPSAS  nancial statement aggregates to GFS aggregates . . . . . . . . . . . . . . . . . . . . . . . . 349

Total assets and total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

Net worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

Revenue and expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

Consumption of  xed capital (assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

Operating balance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350

7. GFS and Other Macroeconomic Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

Overview of Similarities and Di erences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

Coverage and Accounting Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352

Comparison of the Analytical Frameworks of GFS and the SNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353

Comparison of the Accounts in GFS and the SNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353

Linkages between GFS and the SNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

Current accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

 e production account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357

 e distribution of income accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362

 e primary distribution of income account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362

 e generation of income account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363

 e allocation of primary income account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364

 e secondary distribution of income account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365

 e redistribution of income in kind account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366

 e use of disposable income account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367

 e accumulation accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368

 e capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368

 e  nancial account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

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

 e revaluation account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

 e balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Comparison of the Analytical Frameworks of the GFS and the Balance of Payments and the

International Investment Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Comparison of the Accounts in GFS and Balance of Payments and the International

Investment Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Linkages between GFS and Balance of Payments and the International Investment Position . . . . . . . . . . 372

 e balance of payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

 e current account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

 e goods and services account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372

 e primary income account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374

 e secondary income account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375

 e capital account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

 e  nancial account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377

Contentsxvi

 e other changes in  nancial assets and liabilities account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378

 e international investment position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378

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

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

Linkages between GFS and Monetary and Financial Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379

Comparison of the Analytical Framework of the GFS and the System of Environmental-Economic

Accounting Central Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380

Comparing the Accounts in GFS and SEEA Central Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380

 e Nature of Environmental Protection Activities and Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380

Linkages between GFS and SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

Environmental payments to government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

Environmental taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381

Treatment of value-added taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382

Other payments to government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Sales of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Fines and penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Environmental transfers by nongovernment institutional units . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Permits to use environmental assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383

Environmental payments by governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

Environmental subsidies and similar transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

8. GFS Classiﬁ cations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385

9. Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396

Tables

3.1 Detailed Classi cation of Counterparty Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

4.1 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

4.2 Statement of Sources and Uses of Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

4.3 Statement of Other Economic Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4.4 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

4.5 Statement of Total Changes in Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

4.6 Summary Statement of Explicit Contingent Liabilities and Net Implicit Obligations for

Future Social Security Bene ts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

4A.1 Fiscal Indicators Available from the GFS Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

4A.2 Fiscal Indicators Requiring Additional Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

5.1 Summary Classi cation of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

5.2 Detailed Classi cation of Taxes on Income, Pro ts, and Capital Gains (111). . . . . . . . . . . . . . . . . . . . . . . . 92

5.3 Detailed Classi cation of General Taxes on Goods and Services (1141) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

5.4 Detailed Classi cation of Taxes on Use of Goods and on Permission to Use Goods or

Perform Activities (1145) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

5.5 Detailed Classi cation of Taxes on International Trade and Transactions (115) . . . . . . . . . . . . . . . . . . . . 100

5.6 Detailed Classi cation of Social Contributions [GFS] (12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

5.7 Detailed Classi cation of Grants (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

5.8 Detailed Classi cation of Interest [GFS] (1411) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

5.9 Detailed Classi cation of Dividends (1412). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

5.10 Detailed Classi cation of Sales of Goods and Services (142) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

5.11 Detailed Classi cation of Transfers Not Elsewhere Classi ed (144) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

5.12 Detailed Classi cation of Premiums, Fees, and Claims Receivable Related to Nonlife

Insurance and Standardized Guarantee Schemes (145) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Contents xvii

6.1 Summary Economic Classi cation of Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

6.2 Detailed Classi cation of Compensation of Employees [GFS] (21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

6.3 Relationship between Inventories (612) and Use of Goods and Services (22) . . . . . . . . . . . . . . . . . . . . . . 121

6.4 Detailed Classi cation of Consumption of Fixed Capital [GFS] (23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

6.5 Detailed Classi cation of Interest (24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

6.6 Detailed Classi cation of Subsidies (25). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

6.7 Detailed Classi cation of Grants (26) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

6.8 Detailed Classi cation of Social Bene ts (27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

6.9 Detailed Classi cation of Dividends (2811). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

6.10 Detailed Classi cation of Transfers Not Elsewhere Classi eds (282). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

6.11 Detailed Classi cation of Premiums, Fees, and Claims Payable Related to Nonlife Insurance

and Standardized Guarantee Schemes (283) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

6A.1 Classi cation of Expenditure by Functions of Government According to Divisions

and Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

6A.2 Cross-Classi cation of Expenditure by Functional and Economic Classi cations . . . . . . . . . . . . . . . . . . 147

7.1 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

7.2 Summary Classi cation of Non nancial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

7.3 Classi cation of Buildings and Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

7.4 Classi cation of Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

7.5 Classi cation of Other Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

7.6 Classi cation of Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

7.7 Classi cation of Other Naturally Occurring Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

7.8 Classi cation of Intangible Nonproduced Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

7.9 Classi cation of Financial Assets and Liabilities by Instrument and Residence of

the Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

7.10 Classi cation of Memorandum Items to the Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

7.11 Cross-Classi cation of Financial Assets and Liabilities by the Institutional Sector of

the Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214

7.12 Classi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments

by Maturity and by Type of Debt Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

8.1 Classi cation of Transactions in Non nancial Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

9.1 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classi ed by Instrument

and Residence of the Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

9.2 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classi ed by Residence

of the Counterparty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

10.1 Statement of Other Economic Flows (Abbreviated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

10.2 Classi cation of Other Economic Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

A2.1 Illustrative Recording of Flows Related to Social Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

A2.2 Illustrative Recording of Flows Related to Social Security Schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

A2.3 Illustrative Recording of Flows Related to Employment-Related Pension Schemes. . . . . . . . . . . . . . . . . . 288

A2.4 Illustrative Recording of Flows Related to Employment-Related Nonpension

Social Insurance Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293

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

Unit A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

A7.1 Main Di erences between GFS and the SNA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354

A7.2 Linkages of the Statement of Operations in GFS with Sequence of SNA Transaction Accounts . . . . . . . 356

A7.3 Correspondence of GFS and SNA Revenue Transaction Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

A7.4 Correspondence of GFS and SNA Expense Transaction Categories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361

A7.5 Correspondence of GFS and SNA Transactions in Non nancial Asset Categories . . . . . . . . . . . . . . . . . . 371

A7.6 Correspondence of GFS and SNA Financial Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373

A8.1 Classi cation of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387

Contentsxviii

A8.2 Classi cation of Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388

A8.3 Classi cations of Flows and Stock Positions in Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389

A8.4 Classi cations of the Counterparty of Transactions and Stock Positions in Financial

Assets and Liabilities by Institutional Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393

A8.5 Classi cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments

by Maturity and by Type of Debt Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

A8.6 Classi cation of Expenditure by Functions of Government According to Divisions and Groups. . . . . . 395

Figures

2.1 Types of Institutional Units and  eir Relation to Sectors of the Economy . . . . . . . . . . . . . . . . . . . . . . . . . 17

2.2  e Public Sector and Its Relation to Other Institutional Sectors of the Economy . . . . . . . . . . . . . . . . . . . 19

2.3  e Public Sector and Its Main Components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2.4 Decision Tree for Sector Classi cation of Public Entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

4.1 Structure of the GFS Analytic Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

7.1 Net Worth in a Macroeconomic Statistics Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

7.2 Overview of Liabilities and Contingent Liabilities in Macroeconomic Statistics . . . . . . . . . . . . . . . . . . . . 211

8.1 Illustrating the Treatment of Costs of Ownership Transfer on Nonproduced Assets . . . . . . . . . . . . . . . . 226

A2.1 Boundary between Social Protection and Private Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279

A2.2 Typology of Social Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

A3.1 Decision Tree for the Statistical Treatment of Debt Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298

A3.2 Decision Tree for the Statistical Treatment of “Capital Injections”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

A4.1 Illustrating the Treatment of Licenses and Permits to Use a Natural Resource. . . . . . . . . . . . . . . . . . . . . . 315

A7.1 Diagram of the Sequence of SNA Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

A8.1  e Classi cation Coding System for GFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386

Boxes

2.1 Government Control of Nonpro t Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2.2 Government Control of Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

4.1 Policy Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

6.1  e Calculation of Consumption of Fixed Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

6.2 Implicit Subsidies of Central Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

6.3 Transactions with Public Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

A4.1 Criteria to Determine Whether a License Represents and Asset Sale or Rent . . . . . . . . . . . . . . . . . . . . . . 317

A4.2 Statistical Treatment of Permits Issued by Government: Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322

A4.3 Practical Example of Leases as Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

A4.4 Determining the Economic Ownership of PPP-Related Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

A4.5 Practical Applications of the Economic Ownership Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

A5.1 Regional Arrangements in the Harmonizing of GFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

A6.1 Summary Comparison of GFS and IPSASs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

A7.1 In-Kind Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421

F oreword

 e international  nancial crisis in recent years, and the associated large  scal de cits and rising debt levels in many

countries, underscored the importance of reliable and timely statistics on the general government and public sectors.

 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.  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  nancial statistics. In this regard, I am pleased to introduce the

third edition of the Government Finance Statistics Manual.  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.

 is manual represents a major step forward in clarifying the standards for compiling and presenting  scal statistics

and strengthens the worldwide e ort to improve public sector reporting and transparency. Government  nance sta-

tistics are a basis for  scal analysis, and they play a vital role in developing and monitoring sound  scal programs and

in conducting surveillance of economic policies.  e Executive Board of the IMF approved the use of the government

 nance statistics framework as the standard for presenting the Fund’s  scal data. I therefore urge member countries to

adopt the guidelines of the manual as the basis for compiling and disseminating government  nance statistics, and for

reporting this information to the Fund.

 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.  e changes to the manual and revised text were posted on the website of the IMF for worldwide com-

ments from compilers and users.  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

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Preface

 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.  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  nance statistics (GFS) framework, designed to support  scal analysis.  e Manual

was produced by the IMF’s Statistics Department in ful 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  scal transparency.

 e Manual is designed for use by compilers of GFS,  scal analysts, and other users of  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.  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.  e Manual

is focused, however, on conceptual descriptions of de nitions, classi 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.

 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  scal policies.

In particular, globalization increases demands for internationally comparable data, while concerns about the sustain-

ability of  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).

 e GFSM 2014 recommends disseminating fully integrated  ows and stock positions, recorded on an accrual basis,

while maintaining cash- 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 di ering needs and circumstances of the country involved. In particular, many

countries will need to revise their underlying accounting systems to re ect the accrual basis of recording and revised

classi cations.

Acknowledgments

 e preparation of GFSM 2014 was a complex endeavor involving a number of people with di erent skills who were

able to build on each other’s work over an extended period.  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–).

Prefacexxii

 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 dra er and also coordinated and edited contributions to the Manual. Many sta 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 sta 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 dra s for publication. Current and former sta 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,  omas Elkjaer, and Richard Wal-

ton); and Real Sector Division (Messrs. Manik Shrestha and Daniel Smith).

Current and former sta from other departments of the IMF also contributed to the Manual. In particular, col-

laboration between the IMF’s Statistics and Fiscal A airs Departments is acknowledged. Contributors from the Fiscal

A 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

 e GFSM 2014 greatly bene ted from meetings of the Government Finance Statistics Advisory Committee that were

convened in February 2011 and May 2012.  e GFSM 2014 bene ted from the discussions, written contributions, and

comments of members of the committee and the organizations they represented.

Country Members

Australia Michael Davies, Australian Bureau of Statistics

Brazil Felipe Bardella, Ministry of Finance

Fabiana Magalhães Almeida Rodopoulos, Ministry of Finance

Canada Kara Rideout, Statistics Canada

Chile Héctor Hernández, Ministry of Finance

Côte d’Ivoire Nicolas Kacou, Ministry of Finance

Denmark Søren Brodersen, Statistics Denmark

Georgia Pridon Aslanikashvili, Ministry of Finance

Ghana Nelly Mireku, Ministry of Finance and Economic Planning

Japan Hidehiko Futamura, Cabinet O ce

Kosuke Suzuki, Cabinet O ce

Philippines Teresa Habitan, Department of Finance

Qatar Rifaat Basanti, Ministry of Economy and Finance

South Africa Michael Adams, South African Reserve Bank

Switzerland André Schwaller

United Kingdom Philip Stokoe, O ce for National Statistics

United States Pamela Kelly, Bureau of Economic Analysis

Preface xxiii

Representatives of International Organizations

Commonwealth Secretariat of the UK Arindam Roy

European Central Bank Julia Catz

Reimund Mink

Gabriel Quiros

Hans Olsson

Eurostat 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

United Nations Conference on Trade and Development Balliram Baball

United Nations Statistical Division Benson Sim

West African Economic and Monetary Union Mohamed Dhehby

World Bank Shaida Badiee

Neil Fantom

Ibrahim Levent

Evis Rucaj

An earlier dra of the GFSM 2014 was circulated for worldwide comments and the  nal text bene ted from the com-

ments received from experts in member countries and other international organizations.  e IMF Statistics Department

gratefully acknowledges the important contribution by comments received in the process of  nalizing the GFSM 2014.

Louis Marc Ducharme

Director

Statistics Department

International Monetary Fund

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 is chapter describes the purpose and evolution of this

Manual, the uses of government  nance statistics, the

structure of the government  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  e Government Finance Statistics Manual 2014

(GFSM 2014)—the third edition of this Manual

—

describes a specialized macroeconomic statistical

framework, the government  nance statistics (GFS)

framework, designed to support  scal analysis.  e

Manual (i)provides the economic and statistical re-

porting principles to be used in compiling the sta-

tistics; (ii) describes guidelines for presenting  scal

statistics within an analytic framework that includes

appropriate balancing items;

and (iii)is harmonized

with other macroeconomic statistical guidelines.  e

Manual does not treat systematically the practical as-

pects of compiling the statistics.

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.

 e  rst edition was published in 1986 with the title A Manual

on Government Finance Statistics. It is referred to as the GFSM

1986.  e second edition was published in 2001 with the title

Government Finance Statistics Manual 2001. It is referred to as the

GFSM 2001.

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.

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.

 e primary purpose of the GFSM2014 is to provide a

comprehensive conceptual and reporting framework

suitable for analyzing and evaluating  scal policy, es-

pecially the performance of the general government

sector and the broader public sector of any economy.

 ese concepts of sectors are described in Chapter2.

In short, the general government sector consists of

resident institutional units that ful ll the functions

of government as their primary activity.  is sector

includes all government units and all nonmarket,

nonpro t institutional units (NPIs) that are con-

trolled by government units.  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.  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  scal policy on the economy, including resource

use, monetary conditions, and national indebtedness;

the tax burden; tari protection; and the social safety

net. In addition, analysts have become increasingly

interested in  scal rules, structural de cits, assess-

ing the e ectiveness of spending on poverty allevia-

tion, the sustainability of  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  scal analysis.

1.4  e GFSM 2014 supports the compilation of in-

ternationally comparable statistics for the general gov-

ernment sector, the public sector, and their subsectors.

Introduction

2 Government Finance Statistics Manual 2014

Public corporations, non nancial as well as  nancial,

can carry out government  scal policies in a variety of

ways, and analysis of their  scal activities frequently

requires statistics on all of their activities rather than

statistics on speci c transactions. Even when statistics

are compiled for only the general government sector,

some information on public corporations is required.

To re 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  e basic concepts, classi cations, and de ni-

tions employed in this Manual re ect economic prin-

ciples that should be universally valid regardless of the

circumstances in which they are applied.  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  nancial accounting sys-

tem of government, or the extent of public ownership

of for-pro t entities. Nevertheless, the fact that the in-

stitutional and economic structures of countries di 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  e evolution of international statistical

guidelines for compiling GFS started in the early

1970s, with a dra of A Manual on Government Fi-

nance Statistics.  is dra was circulated in English,

Spanish, and French to governments, central banks,

central statistical o 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 dra in

compiling data for the IMF’s Government Finance

Statistics Yearbook, A Manual on Government Fi-

nance Statistics, 1986 (GFSM 1986) was published.

 e GFSM 1986 provided guidance to compile GFS

but was not directly aligned with other macroeco-

nomic statistics.

1.7  e Government Finance Statistics Manual

2001 (GFSM 2001) updated the internationally rec-

ognized guidelines for compiling statistics required

for  scal analysis that were established by the GFSM

1986.  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  scal analysis. Also, the revised guide-

lines incorporated, for the  rst time, an integrated

balance sheet approach to compiling and presenting

GFS.

The Update of the GFSM 2001

1.8  e GFSM 2014 updates the internationally

recognized guidelines for compiling statistics re-

quired for  scal analysis that were established by the

GFSM2001.  e revised guidelines are harmonized

with the updates in other macroeconomic statistical

manuals and guides.  e other statistical manuals

are the overarching System of National Accounts2008

(2008SNA)

and two specialized manuals: the sixth

edition of the Balance of Payments and International

Investment Position Manual (BPM6)

and the Mon-

etary and Financial Statistics Manual (MFSM).

 e

updates to these manuals draw on the text of the 2008

SNA to avoid an inference that a di erent meaning is

intended.

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  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 e orts to

harmonize statistical reporting and  nancial report-

ing have led to additional changes incorporated in the

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).

International Monetary Fund, Balance of Payments and Interna-

tional Investment Manual, 6th ed. (Washington, 2009).

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.

 is manual also draws on United Nations, Classi cations of

Expenditure According to Purpose (New York, 2000) for the Clas-

si cation of Functions of Government introduced in Chapter 6.

3 Introduction

GFSM2014.  e changes incorporated in GFSM 2014

can broadly be summarized as

• Methodological changes in the 2008 SNA

• Clari cations of existing methodological guide-

lines

• Presentational changes

• Editorial changes.

Uses of the GFS Framework

1.10  e GFS framework is designed to provide

statistics that enable policymakers and analysts to

study developments in the  nancial operations and

 nancial position of government. GFS also allow an

assessment of the liquidity and sustainability of the  -

nances of the general government sector or the public

sector in a consistent and systematic manner.  e GFS

framework can be used to analyze the operations of

a speci c level of government, transactions between

levels of government, and the public sector.

1.11  e GFS framework produces summary in-

formation on the overall performance and  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.  ese balancing items are

de 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

speci 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  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

 e major changes are described in more detail in Appendix1.

positions, such as comparisons of ratios of taxes, ex-

pense, or debt to gross domestic product.

Structure and Features of the GFS

Framework

1.14  e GFS framework pertains to the gen-

eral government and public sectors as de ned in the

2008SNA and Chapter2 of this Manual.  ese sec-

tors are de 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  ows are in-

tegrated in the GFS framework and are presented in

several statements, as described in Chapter 4. Two

types of economic  ows are recorded in the GFS

framework: transactions and other economic  ows.

For the most part, transactions are interactions be-

tween two institutional units that take place by mutual

agreement.  e Statement of Operations and the State-

ment of Sources and Uses of Cash record the results

of all transactions during a reporting period.  ey

are classi ed as revenue, expense, net investment in

non nancial assets, net acquisition of  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  ows include price changes

and a variety of other economic events that a ect the

holdings of assets and liabilities, such as debt write-

o s and catastrophic losses.  e Statement of Other

Economic Flows summarizes these changes in assets,

liabilities, and net worth.

1.17  e Balance Sheet for the general government

or public sector is a statement of the stock positions

of non nancial and  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.

Economic  ows re ect the creation, transformation, exchange,

transfer, or extinction of economic value. Transactions and other

economic  ows are de 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 bene ts when

various needs arise, can have important economic

in uences on the general economy but do not result

in transactions or other economic  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 Bene ts, summarizes the explicit and

some implicit contingent liabilities.

1.20  e comprehensive treatment of transactions

and other economic  ows in the GFS framework pro-

vides a full explanation of the changes between the

opening and closing balance sheet stock positions.

 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  ows equals the stock po-

sition at the end of the period. Such an integrated

statistical framework permits the e ects of policies

and speci c economic events to be described and ana-

lyzed fully.

1.21 Various classi cations are applied to the eco-

nomic  ows and stock positions recorded in the GFS

framework. For example, each revenue transaction is

classi ed according to whether it is a tax or another

type of revenue; expense transactions are classi ed by

purpose (functional classi cation) and by economic

type (economic classi cation); assets are classi ed

according to whether they are  nancial or non nan-

cial; and  nancial assets and liabilities are classi ed

by type of instrument, maturity, and the sector of the

unit that issued the asset or that holds the liability.

1.22 Despite harmonization of the GFS framework

with the 2008 SNA, there are di erences between the

two statistical frameworks because of the di erent

analytic purposes they serve.  e most important dif-

ference is that the focus of the GFS framework is the

impact of economic events on government  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

di ers from the treatment of those activities in the

2008 SNA. Signi cant di 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

di 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

 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-

si cation of subsidies in GFS is based on the nature

of the recipient of the subsidy, while classi cation in

the 2008 SNA is based on whether the subsidy is on a

product or production.

1.24 De



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

di 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.  e de 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 di ers

from the same concept in the 2008 SNA, the indicator

“[GFS]” is added a er the GFS title and an explana-

tion of the di erence is provided.

Methodological Differences with the

GFSM 1986

1.25  e methodology for compiling GFS de-

scribed in this Manual di ers substantially from the

methodology of the GFSM 1986.  e following para-

graphs summarize the major di erences. Details are

provided in Appendix1.

5 Introduction

Coverage

1.26  e coverage of the GFS framework is the

general government sector as de ned in the 2008

SNA, which is de ned on the basis of institutional

units. To capture the  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.  e

coverage of the GFSM1986 is de ned on a functional

basis under which general government data include

all the relevant transactions of any unit carrying out

a function of government.  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  e GFS framework records economic  ows

on an accrual basis, which means that  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  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

di er from both the nominal value and the current

market value.

Balance Sheets

1.30 Complete balance sheets, which include all

stock positions of non nancial and  nancial assets,

liabilities, and net worth, are included in the GFS

framework.  e GFSM 1986 reports only on the stock

positions of certain debt liabilities.

Integration of Flows and Stock Positions

1.31  e comprehensive recording of transactions

and other economic  ows permits a full integration of

economic  ows and stock positions and the reconcili-

ation of di 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.  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 de cit/surplus.

1.33  e GFS framework’s use of de nitions of

revenue and expense as transactions that bring about

changes in net worth leads to a di erent treatment of

transactions in non nancial assets.  e GFSM 1986

treats cash transactions in non nancial assets as

capital revenue and expenditure, which a ected the

overall de 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 non nancial assets.

1.34 In the GFS framework, all transactions involv-

ing the acquisition or disposal of  nancial assets are

treated as  nancing transactions, and net lending (+) /

net borrowing (−) is a balancing item calculated as the

net operating balance minus the net investment in non-

 nancial assets. Net lending/net borrowing is also equal

to the net acquisition of all  nancial assets minus the

net incurrence of all liabilities from transactions. In the

GFSM 1986, the net acquisition of  nancial assets for

policy purposes is designated as lending minus repay-

ments and treated like expenditure in deriving the over-

all de cit/surplus. In the GFSM 2014 framework, the

6 Government Finance Statistics Manual 2014

supplementary  scal indicators include the calculation

of an overall  scal balance that treats the net acquisition

of selected  nancial assets similarly to the net acquisi-

tion of  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

di erences exist due to the di 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 di erences be-

tween statistical guidelines and accounting stan-

dards has informed changes in both.  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 re ect the revised classi cations of the

GFS framework.

1.38 Nonetheless, it is likely that many countries

will follow a similar path as they implement the GFS

Although the GFS framework uses some accounting terms, it is

important to remember that it is a statistical reporting framework

that might di er in important ways from the underlying  nancial

accounting system from which most of GFS will be derived (see

Appendix 6).

framework. For example, a possible  rst step on the

migration path could be that countries would adopt the

classi 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 de cien-

cies, such as by incorporating information on revenue

or expense arrears. Another step could be the assembly

of balance sheet information on  nancial assets and li-

abilities that would allow estimates to be made of the

other economic  ows as they relate to these  nancial

instruments. A more di cult step is likely to be the

collection of a complete set of information about the

stock positions of non 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 identi 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.

Structure of the Manual

1.40  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 classi cations used and the

types of economic  ows or stock positions included

in each classi cation category.

1.41 Chapter2 describes the coverage of the general

government and public sectors, and their subsectors.

Chapter3  rst explains the concepts of transactions,

other economic  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  ows, and stock

http://dsbb.imf.org.

7 Introduction

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 classi -

cations of transactions, other economic  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 classi cation of stock positions

of assets and liabilities. Chapter 8 provides a classi-

 cation of transactions in non nancial assets, while

Chapter9 provides a classi cation of transactions in

 nancial assets and liabilities. Chapter10 covers other

economic  ows.

1.43 An annex to Chapter 4 describes the use of

GFS to build well-de ned indicators for  scal analy-

sis, while an annex to Chapter6 describes the Classi -

cation of the Functions of Government (COFOG).

1.44  is Manual includes nine appendixes. Ap-

pendix 1 lists the methodological changes from the

GFSM2001 to this Manual, and the di 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 classi cation codes used in the

GFS framework. Appendix 9 contains a glossary of

terms used in the GFS framework.

Institutional Units and Sectors

 is chapter de 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 classi cation principles.

Introduction

2.1 In principle, GFS should cover all entities

that materially a ect  scal policies. Normally,  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.

 e term “government” is o 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. Nonpro 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  scal policy (see paragraphs 2.104–2.105).

 ese government-owned enterprises, such as the

central bank, post o ce, or railroad, which are o 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  e statistical unit employed in the insti-

tutional sector classi cation in GFS is the institu-

tional unit, the same unit that is the foundation of

the 2008 SNA and other macroeconomic datasets.

 is chapter therefore de 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 de ned (see para-

graph 2.58). Second, the public sector is de ned to

also capture the market activities and the quasi- scal

operations of public corporations (see paragraph

2.63) such as the central bank and other public cor-

porations. Quasi- scal operations are government

operations carried out by institutional units other

than general government units.  ese quasi- scal

operations have the same  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 de ned because of

their analytical usefulness.

2.5  e remainder of this chapter de 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

de ning the institutional sectors.  e chapter applies

these concepts to delineate the general government

sector and the public sector. Finally, a decision tree to

assist with the classi cation of public sector entities

and the application of sector classi cation principles

to some examples are discussed.

Maintaining a list or register of these units and their sector

classi cation will ensure consistent classi cation in all macroeco-

nomic datasets.

9 Institutional Units and Sectors

Residence

2.6 A n 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 classi 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  ows and stock positions

of assets and liabilities of general government and

public sector units are classi ed in GFS on the basis

of the counterparty to a  nancial instrument, where

one of the classi cation criteria is the residence of the

counterparty.

2.7  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).

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.  e most commonly used concept

of economic territory is the area under the e ective

economic control of a single government.  e concept

of economic territory in GFS is the same as that used

in other macroeconomic datasets.  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:

•  e land area

• Airspace

Residence is primarily de 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.

• Territorial waters, including areas over which

jurisdiction is exercised over  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, scienti c

stations, information or immigration o ces, aid

agencies, central bank representative o 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, scienti c, or other

purposes with the formal agreement of governments

of the territories where the land areas are physically

located.  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 o shore  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.

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

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 inde nitely

or over a  nite but long period of time, in economic

activities and transactions on a signi cant scale.  e

location need not be  xed so long as it remains within

the economic territory. Actual or intended location

for one year or more is used as an operational de ni-

tion; while the choice of one year as a speci 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 identi 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.  e notional resident unit is

recorded as owning the asset and receiving the rent

or rentals that accrue to the asset.  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 de 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.  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 di erent econ-

omy are not classi ed as public corporations; these are

classi ed as private corporations in the economy in

which they are resident.  is is because they are not

public corporations related to the government of their

economy of residence.

2.15  e case of “special purpose entities” (SPEs),

“brass plate companies,” or “shell companies” requires

particular consideration.  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  scal activities of nonresident

government-controlled SPEs should be re ected in

GFS (see paragraphs 2.136–2.139).

2.16  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:

•  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.

•  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.

•  ey are created for various purposes, such as

international  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

bene 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

a airs.

11 Institutional Units and Sectors

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.

Regional organizations consist of those institutions

whose members are governments or monetary au-

thorities

of economies that are located in a speci c

region of the world.  ey can be  nancial, such as

regional development banks, or non 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.

 ese are sometimes described as “supranational au-

thorities.” Despite the fact that they ful 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  nancial positions be

classi 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 identi -

cation of these units and determination of their resi-

 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.

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.

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.  e procedures

should be applied consistently with the recording in

other macroeconomic statistics.

2.21 A currency union central bank is an interna-

tional  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

o ces in each of the member countries to conduct

some central bank functions. Each national o ce acts

as the central bank for that country and is treated as

a resident institutional unit in that country.  e head-

quarters, however, is an international organization.

Institutional Units

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:

•  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.

See the 2008 SNA, paragraph 4.13, and the BPM6, paragraphs

4.41–4.44.

 e de nitions and descriptions of institutional units are fully

consistent with the corresponding de nitions and descriptions in

the 2008 SNA, Chapter 4. Herea 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 identi cation of the counterparty

to transactions and stock positions, and consolida-

tion.

 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  nancial

statistics because the institutional units and sec-

tors for which statistics are compiled are de ned

identically (see Appendix 7).

•  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.

•  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.  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.  e

de 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 satis es

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.

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.  e

term enterprise may refer to a corporation, a quasi-

corporation, a nonpro t institution, or an unincorpo-

rated enterprise.

Types of Institutional Units

2.26 In compiling macroeconomic data the clas-

si 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  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.  e latter

comprises groups of persons staying for a very long

or inde nite period of time, or who may be expected

to reside for a very long or inde 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

If the establishment charges economically signi cant prices and

meets the criteria to be classi ed as an institutional unit, it would

be treated as a quasi-corporation (see paragraph 2.33).

See the 2008 SNA, paragraphs 5.1–5.2, for a detailed description

of enterprises.

13 Institutional Units and Sectors

by individual members of the same household may

be pooled for the bene 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.

 ree types of legal or social entities are recognized as

institutional units: corporations and nonpro 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 de ned as entities that

are capable of generating a pro t or other  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.  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.  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 de nition of a cor-

poration that would be universally valid.  erefore,

in macroeconomic statistics, the term corporation is

not necessarily used in the same way as in the legal

sense.

2.32  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 signi -

cant prices as explained in paragraph 2.66, and the

potential to be a source of pro t or other  nancial

For a full discussion on the features of corporations, also see the

2008 SNA, paragraphs 4.38–4.50.

gain to the owners. Some nonpro 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 nonpro t institutions

are legal corporations that produce for the market

but they are not allowed to be a source of  nancial

gain to their owners. Conversely, some entities with

di erent legal titles, such as partnerships or a joint-

stock company, could be considered corporations for

economic statistics when they satisfy the de nition of

corporations.

2.33 A quasi-corporation is either (i) an unincor-

porated enterprise owned by a resident institutional

unit that has su 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 e 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 signi cant amount of production in the economic

territory over a long or inde nite period of time.

 ese entities are not incorporated or otherwise le-

gally constituted, but function as if they were corpo-

rations.  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:

•  e establishment charges prices for its outputs

that are economically signi cant (see paragraph

2.66

•  e establishment is operated and managed in a

similar way to a corporation.

•  e establishment has a complete set of accounts,

or is able to construct a complete set of accounts,

that enable its stock positions and  ows to be

separately identi ed and measured.

Unincorporated enterprises, such as some post o ces or na-

tional railways, may exist in government ministries. When these

unincorporated enterprises produce goods and services for the

market at economically signi cant prices, and have separate sets

of accounts, they are quasi-corporations and classi 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 non nancial

corporations sector or the  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 classi ed as public corporations (see

paragraph 2.104).

Nonproﬁ t institutions (NPIs)

2.36 Nonpro 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, pro t, or other  nancial gain for the

institutional units that establish, control, or  nance

them. In practice, their productive activities gener-

ate either surpluses or de cits, but the surpluses can-

not be appropriated by other institutional units.  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 pro 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 signi 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 su ciently high to have a signi cant

in uence on the demand for their services.  ere

are no shareholders with a claim on the pro ts or

equity of the NPI. Because of their status as NPIs,

they are also able to raise signi 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 signi cant

prices.

• Some market NPIs restrict their activities to

serving a particular subset of other market pro-

ducers.  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 bene t to the group of enterprises that

control and  nance them.  ese NPIs are usually

 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, classi ed as market producers.  ese

market NPIs are, like corporations and quasi-

corporations, members of either the non nancial

corporations sector or the  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).

 erefore, schools, colleges, universities, clinics,

hospitals, etc. constituted as NPIs are nonmarket

producers when they charge fees that are not eco-

nomically signi cant.

•  e remaining NPIs, those that produce goods

and services but do not sell them at economically

signi cant prices and are not controlled by gov-

ernment, are classi 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.  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 production

• Finance their activities primarily out of taxation

or other compulsory transfers.

 e concepts of market and nonmarket producers are described

in paragraph 2.65.

 e requirement of  nancing activities by compulsory transfers

is necessary to di erentiate a government from a nonpro t insti-

tution, which may carry out the same functions as a government

but obtains its funds from voluntary transfers, property income,

or sales.  e receipt of compulsory transfers may be indirect. For

example, a local government may  nance its activities with grants

receivable from the central government.

15 Institutional Units and Sectors

A government unit may also  nance a portion of its

activities in a speci 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 identi 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  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.  ey remain, nevertheless,

part of the same institutional unit. Similarly, a given

ministry or department may maintain branch o ces

or agencies in many di erent locations to meet local

needs.  ese o ces and agencies are part of the same

institutional unit.

2.41  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

o en established to carry out speci c functions, such

as road construction or the nonmarket production of

health or education services.  ese entities should be

treated as separate government units (o en referred to

as extrabudgetary units) if they satisfy the criteria to

be an institutional unit (see paragraphs 2.22 and 2.80).

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

is referred to as an arti cial subsidiary and is not

treated as a separate institutional unit, unless it is

resident in an economy di erent from that of its par-

ent unit (see paragraphs 2.6–2.20). Resident arti cial

subsidiary entities are classi 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 arti cial subsidiaries

are sometimes set up as SPEs. Although these resi-

dent arti cial subsidiaries are o en legally consti-

tuted corporations, to the extent that these entities are

nonmarket producers and are controlled by another

government unit, they should be classi 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-

si 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  scal activities they carry out are

re ected in the accounts of the government that con-

trols them (see paragraphs 2.136–2.139).

2.44 Another example of a resident arti cial sub-

sidiary is where government establishes a central

borrowing authority that appears to be a public  -

nancial corporation but is in fact part of a general

government unit.  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 classi 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 di erent from that of its parent, it should

be classi ed as a captive  nancial institution (see

paragraphs 2.14 and 2.54) in the  nancial corpora-

tion sector of the host economy.

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.

 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.

2.46 Many governments allocate substantial re-

sources to social protection through the provision of

social bene ts (see paragraphs 6.96–6.105 and Ap-

pendix 2), to protect the entire population or speci c

segments of it against certain social risks. Social risks

are events or circumstances that may adversely a ect

the welfare of the households concerned either by im-

posing additional demands on their resources or by

reducing their income. Examples of social bene 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

e 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.  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

 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 de nition of a corporation should be

classi 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).

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.

See the 2008 SNA, paragraphs 5.35–5.45, for more details.

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  nancial gains or losses to the

government units that own or control them. In some

cases, the corporation issues shares, and thus the  -

nancial gain or loss is clearly allocated to the share-

holders. In other cases, no shares are issued, but it

is clear that a speci c government unit controls the

corporation’s activities and is  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 Sectors

2.49 An economy can be divided into institutional

sectors.

It is therefore necessary to de 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 di erent

from the other sectors. An economy is divided into

 ve mutually exclusive institutional sectors. All resi-

dent institutional units are allocated to one of these

institutional sectors.  e  ve institutional sectors are:

• Non nancial corporations sector

• Financial corporations sector

• General government sector

• Households sector

• Nonpro t institutions serving households sector.

2.51  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  e non nancial corporations sector con-

sists of resident institutional units that are princi-

pally engaged in the production of market goods or

 e de nitions and descriptions of institutional sectors are fully

consistent with the corresponding de nitions and descriptions in

the 2008 SNA, Chapter 4.

Herea er, “sector” will o en be used as a short form for “insti-

tutional sector.”

17 Institutional Units and Sectors

Figure 2.1 Types of Institutional Units and Their Relation to Sectors of the Economy

√ Units included in sector

non nancial services.  e sector includes public and

private corporations and is composed of:

• All resident non nancial corporations (as de-

 ned in paragraphs 2.31–2.32), regardless of the

residence of their owners

•  e branches of nonresident enterprises that are

engaged in non nancial production in the eco-

nomic territory on a long-term basis

• All resident NPIs that are market producers of

goods or non nancial services.

Financial corporations sector

2.53  e  nancial corporations sector consists of

resident corporations that are principally engaged in

providing  nancial services, including insurance and

pension fund services, to other institutional units.  e

production of  nancial services is the result of  nan-

cial intermediation,  nancial risk management, liquid-

ity transformation, or auxiliary  nancial activities. In

addition, the sector includes NPIs engaged in market

production of a  nancial nature, such as those  nanced

by subscriptions from  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:  nancial intermediaries,  nan-

cial auxiliaries, and captive  nancial institutions and

money lenders.

• Financial intermediaries are institutional units

that incur liabilities on their own account for the

purpose of acquiring  nancial assets by engag-

ing in  nancial transactions on the market.  e

assets and liabilities of  nancial intermediaries

are transformed or repackaged with respect to

maturity, scale, risk, and the like, in the  nancial

intermediation process.  e  nancial intermedia-

tion process channels funds between third parties

with a surplus of funds and those with a demand

for funds. A  nancial intermediary not only acts

as an agent for these other institutional units, but

also places itself at risk by acquiring  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 speci 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  nancial corpo-

rations that are principally engaged in activities

associated with transactions in  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  nancial assets and liabilities

being transacted.  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  nancial institutions and money lend-

ers are institutional units providing  nancial ser-

vices other than insurance, where most of their

assets or liabilities are not available on open  -

nancial markets.  ese entities transact within

only a limited group of units (such as with sub-

sidiaries) or subsidiaries of the same holding

Sector

Type of unit

Households

Corporations

Nonprofit institutions

Government units

Nonfinancial

corporations

sector

Financial

corporations

sector

General

government

sector

Households

sector

Nonprofit

institutions

serving

households

sector

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 classi 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.  ese

seven subsectors are: central bank; deposit-taking cor-

porations except the central bank; money market funds;

nonmoney market investment funds; other  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  nancial corporations are presented as fol-

lows for analytic purposes:

•  e central bank

• Deposit-taking corporations except the central

bank

• Other  nancial corporations—including all  -

nancial intermediaries except deposit-taking

corporations,  nancial auxiliaries, and captive

 nancial institutions and money lenders.

2.57  e  nancial corporations sector includes

public and private  nancial corporations comprising:

• All resident  nancial corporations (as de ned

in paragraphs 2.31–2.35), regardless of the resi-

dence of their shareholders

•  e branches of nonresident enterprises (see para-

graph 2.20) that are engaged in  nancial activity in

the economic territory on a long-term basis

• All resident NPIs that are market producers of

 nancial services (see paragraph 2.36 – 2.37).

General government sector

2.58  e general government sector consists of

resident institutional units that ful ll the functions

of government as their primary activity.  ese insti-

tutional units perform the principal economic func-

tions of government, as described in paragraph 2.38,

in addition to ful lling their political responsibilities

and their role of economic regulator.  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  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  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 di erent forms in

di erent societies or cultures. All physical persons in the

economy must belong to one and only one household.

Households supply labor, undertake  nal consumption,

and, as entrepreneurs, produce market goods and non-

 nancial (and possibly  nancial) services.

Nonproﬁ t institutions serving

households (NPISHs) sector

2.61  e nonpro t institutions serving house-

holds (NPISHs) sector consists of resident non-

market nonpro t institutions (NPIs) that are not

controlled by government.  ey provide goods and

services to households for free or at prices that are not

economically signi cant. One type of NPISHs is cre-

ated by associations of persons to provide goods or,

more o en, services primarily for the bene 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.  ey

do not include bodies serving similar functions that

are controlled by government units. Religious institu-

tions are usually excluded from general government

and classi ed as NPISHs even when mainly  nanced

by government units if this majority  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  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 classi ed

as NPISHs in the host economy.

19 Institutional Units and Sectors

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 di 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.  e non nancial corporations sub-

sector can be divided into public non nancial corpo-

rations, foreign-controlled non nancial corporations,

and national private non nancial corporations.

 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  e public sector consists of all resident in-

stitutional units controlled directly, or indirectly, by

resident government units—that is, all units of the

Similarly,  nancial corporations can be divided into public,

foreign-controlled, and national private  nancial corporations.

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  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).

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 signi cant. A nonmar-

ket producer provides all or most of its output to

others for free or at prices that are not economically

signi cant.

2.66 Economically signi cant prices are prices that

have a signi cant e ect on the amounts that producers

Public enterprises are o en also referred to as state-owned

enterprises or parastatals.

Figure 2.2 The Public Sector and Its Relation to Other Institutional Sectors of the Economy

General

Government

Sector

Central government

State governments

Local governments

Public

sector

Public corporations

Private

corporations

Private

corporations

Public corporations

Private Private

Nonfinancial

Corporations

Sector

Financial

Corporations

Sector

Households

Sector

Nonprofit

Institutions

Serving House-

holds Sector

20 Government Finance Statistics Manual 2014

are willing to supply and on the amounts purchasers

wish to buy.  ese prices normally result when:

•  e producer has an incentive to adjust supply ei-

ther with the goal of making a pro 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.

 ese conditions usually mean that prices are eco-

nomically signi cant if sales cover the majority of the

Figure 2.3 The Public Sector and Its Main Components

Includes social security funds.

Alternatively, social security funds can be combined into a separate subsector, as shown in the box with dashed lines.

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

Public Sector

State

Governments

Social Security

Funds

Public

Nonfinancial

Corporations

Public

Financial

Corporations

Central

Government

Budgetary

Extrabudgetary

Social Security

Funds

Other Public

Financial

Corporations

General

Government

Public

Corporations

Subsectors

Public Deposit-

Taking

Corporations

Public Deposit-

Taking Corporations

except the

Central Bank

Local

Governments

21 Institutional Units and Sectors

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 signi cant when

it has little or no in uence on how much the pro-

ducer is prepared to supply and on the quantities

demanded. Economically insigni 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 insigni cant price may be

set on administrative, social, or political grounds for

goods or services for which the amount to be sup-

plied is  xed.

2.68 It can be presumed that prices are economi-

cally signi cant when the producers are private cor-

porations. When there is public control, however,

the unit’s prices may be modi ed for public policy

purposes.  is may cause di culties in determin-

ing whether the prices charged are economically sig-

ni cant. Public corporations are o 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 di 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.  e classi cation of a producer as

a market or nonmarket producer should be consid-

ered over a range of years.

Once classi ed, only if

a change in pricing holds for several years or is ex-

pected to hold for several years should a reclassi ca-

tion of the entity be considered.

2.71 It is likely that corporations receiving substan-

tial government  nancial support, or enjoying other

When a newly established unit needs to be classi ed to a sector,

the classi 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.

risk-reducing factors such as substantial government

guarantees, will respond to changes in the economic

conditions di erently from corporations without such

advantages because their budget constraints are so er,

and so are more likely to be classi ed as nonmarket

producers.

2.72  e question arises whether government-

owned entities supplying goods and services to gov-

ernment should be treated as market or nonmarket

producers.  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).  ese entities

will, in general, not satisfy the criteria to be an institu-

tional unit. Similarly, it can o en be assumed that the

producer is not a market producer if the unit provides

the goods and services in the absence of competition

with private producers, and when the choice of sup-

plier to government is not based on price.  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  xed capital, and other taxes on pro-

duction.

 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

Prices determined in a competitive market are highly likely to

be economically signi cant prices.

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.

A market es-

tablishment is an establishment that charges econom-

ically signi cant prices. Where a general government

unit sells some of its output at prices that are econom-

ically signi 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.  e

remaining market establishments would remain an

integral part of the general government sector.

The General Government Sector

and Its Subsectors

2.76  e general government sector consists of

resident institutional units that ful ll the functions of

government as their primary activity.  is sector in-

cludes all government units and all nonmarket NPIs

that are controlled by government units. For analytic

purposes, it is o 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 di 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-

 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  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 classi cation of the subsectors of the

general government would allow for both NPIs and

social security funds to be distinguished for each of

 e sales of goods and services (142) include sales of market

establishments and sales by nonmarket establishments, and

are identi ed as speci 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.

• All social security funds could be combined into

a separate subsector and all other general gov-

ernment units could be classi 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 classi 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.  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 Classi cation problems may arise when gov-

ernment operations are carried out by a general gov-

ernment unit jointly accountable to two levels of

government.

 is classi cation decision may be espe-

cially di 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 di erent levels of government. For example, a state

government unit might have the right to appoint the

majority of o cers managing an NPI but the  nancing

might be provided mainly by the central government.

General government units subject to dual control

should be classi 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  e central, state, and local government sub-

sectors of general government are each made up of

 e alternative methods of subsector classi cation are designed

to accommodate di erent analytic needs.  e decision as to

which method is more appropriate in a given country depends

on how signi cant social security funds are and on the extent to

which they are managed independently of the government units

with which they are associated.

Also see the discussion on joint ventures in paragraphs

2.140–2.143.

23 Institutional Units and Sectors

institutional units. For each of these subsectors, it

is o 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  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).  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-

si 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.

 e budgetary central government is o en a single

unit of the central government that encompasses

the fundamental activities of the national executive,

legislative, and judiciary powers.  is component of

general government is usually covered by the main

(or general) budget.  e budgetary central govern-

ment’s revenue and expense are normally regulated

and controlled by a ministry of  nance, or its func-

tional equivalent, by means of a budget approved by

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.

Box 2.1 Government Control of Nonproﬁ t Institutions

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.  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).  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.

 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 speci 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 o en referred to

as “extrabudgetary funds” or “decentralized agencies.”

2.83 Nonmarket NPIs controlled by government

are typically classi ed as extrabudgetary units when

they satisfy the criteria to be an institutional unit.

More speci cally, they are classi ed with the level

of government that controls them—namely, central,

state, or local governments.  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  e following sections further de ne the

subsectors of government.  ese de nitions apply

whether social security funds are included with the

 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  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.  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 e 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 bene 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 bene 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  nances that  scal policy impacts on in a-

tionary or de 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

25 Institutional Units and Sectors

2.88 While the central government may also control

non nancial or  nancial corporations, these corpora-

tions are classi 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 classi 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  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  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  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 identi 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

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  scal authority extends over the

largest geographical areas into which the country as

a whole may be divided for political or administra-

tive purposes.  ey are institutional units whose  s-

cal, legislative, and executive authority extends only to

individual “states” into which the country as a whole

may be divided.  ese states may be described by dif-

ferent names in di 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 herea 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  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 speci ed purposes. It should also be able to

appoint its own o 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-

si cation, these intermediate levels of government are

grouped with the level of government—either state or

local—with which they are most closely associated.

2.93 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).

 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.  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.  ese corporations and quasi-

corporations should be classi 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  scal, legislative, and executive author-

ity extends over the smallest geographical areas dis-

tinguished for administrative and political purposes.

 e local government subsector consists of local

governments that are separate institutional units

plus those nonmarket NPIs that are controlled by

local governments.  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.  ey are o 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.  ey should also

be able to appoint their own o 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.  ey typi-

cally provide a wide range of services to local residents,

some of which may be  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. O en, local govern-

ment units with di 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 puri 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  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 identi ed within

a local government unit that satis es the criteria to be

a corporations or a quasi-corporation (see paragraph

2.34), it is classi ed as a public corporation. When

market establishments

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  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

See paragraph 2.75 for a de nition of market establishments.

27 Institutional Units and Sectors

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.

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  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 bene 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 bene ciaries.  ese schemes cover a wide variety of

programs, providing bene 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.  ere is not necessarily a direct

link between the amount of the contributions payable

by an individual and the bene 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 classi ed

as a public  nancial corporation if under control

of government, or otherwise as a private  nancial

corporation (see paragraphs A2.47–A2.53). A non-

autonomous employment-related pension scheme

Appendix 2 provides a detailed description of the nature of

social protection, including social security.

for government employees that is administered by a

social security fund remains part of social security

funds. However, if the conditions for participation

and bene ts payable, as determined by the employ-

ment contract, di 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.  erefore, economic  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  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 classi ed as corporations for

statistical purposes if they do not charge economically

signi cant prices. Public corporations may be involved

in quasi- 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  scal) policy for government. Most directly,

a public corporation can engage in speci 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

 scal policy by employing more sta 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 pro 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.  ese public corporations are o en

28 Government Finance Statistics Manual 2014

large and/or numerous, and may have a signi cant

economic impact—for example:

• Public corporations may be of signi cance to gov-

ernment because of the e 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  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 reclassi 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 re ect all transac-

tions with public corporations, and changes in the net

worth of public corporations are re ected in the value

of the equity of those corporations owned by general

government units.  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  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 de ned as the ability to determine general

corporate policy of the corporation.  e expression

“general corporate policy” as used here is understood

in a broad sense to mean the key  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 de nitive list of factors

to be taken into account. Although a single indicator

could be su 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  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.  e o 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 scienti 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 aircra airworthiness would not be consid-

ered controlled with respect to individual approvals

and disapprovals. However, its broader operating and

 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 classi ed as public corporations

in the host economy, but would be part of the private

corporations in that economy.

2.112 Quasi-corporations and market NPIs (i.e.,

NPIs engaging in market production) under the con-

trol of government are classi ed as public corporations.

Also see the discussion of residence in paragraphs 2.6–2.21

of this chapter and de nitions of corporations in paragraphs

2.31–2.32.

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.

Box 2.2 Government Control of Corporations

30 Government Finance Statistics Manual 2014

Types of public corporations

2.113 Public corporations are classi ed as non -

nancial or  nancial corporations, depending on the

nature of their primary activity.

Public nonﬁ nancial corporations subsector

2.114 All resident non nancial corporations con-

trolled by general government units or other public

corporations are part of the public non nancial cor-

porations subsector. Non nancial corporations are

corporations whose principal activity is the produc-

tion of market goods or non nancial services. Typical

examples of public non nancial corporations are na-

tional airlines, national electricity companies, and na-

tional railways, if those entities charge economically

signi cant prices.  is category could also include

public nonpro t institutions engaging in market pro-

duction (such as hospitals, schools, or colleges) if they

are separate institutional units and charge economi-

cally signi cant prices. However, entities that receive

 nancial aid from government but are not controlled

by government are not public corporations, but are

classi ed as private corporations or NPISHs.

Public ﬁ nancial corporations subsector

2.115 All resident  nancial corporations con-

trolled by general government units or other public

corporations are part of the public  nancial corpo-

rations subsector. Financial corporations are cor-

porations that are principally engaged in providing

 nancial services, including insurance and pension

fund services, to other institutional units (see para-

graphs 2.53–2.57).

2.116  e  nancial corporations subsector can

further be divided into subsectors according to the

 nancial corporations’ activity in the market and the

liquidity of its liabilities.

However, for GFS purposes,

the public  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  nancial

corporations. Relative to other subsectors of the public

sector, public  nancial corporations may tend to have

relatively large values of  nancial assets and liabilities

because of their role in  nancial intermediation. Ac-

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  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

 nancial corporations controlled by general govern-

ment units or other public corporations whose prin-

cipal activity is  nancial intermediation and who have

liabilities in the form of deposits or  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  e central bank is the national  nancial in-

stitution that exercises control over key aspects of the

 nancial system. In general, the following  nancial

intermediaries are classi ed in this subsector:

•  e national central bank, including where it is

part of a system of central banks

• 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 classi 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  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  nancial units

and are separate institutional units from the central

bank are included with  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

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).

31 Institutional Units and Sectors

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 o ce

giro institutions,

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  nancial corporations com-

prise all resident  nancial corporations, except pub-

lic deposit-taking corporations, controlled by general

government units or other public corporations.  is

subsector includes units that raise funds in  nancial

markets other than by deposits and use them to acquire

 nancial assets. Examples of units in this subsector are

money market funds, nonmoney market investment

funds, insurance corporations, pension funds, and

other  nancial intermediaries (except insurance cor-

porations and pension funds). In addition, this subsec-

tor includes  nancial auxiliaries (including supervisory

authorities that are separate institutional units), and

captive  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.  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:

•  e non nancial public sector— e general

government sector plus public non nancial

corporations

•  e general government sector plus the central

bank

•  e central government public sector— e cen-

tral government subsector plus public corpora-

tions controlled by the central government.

Giro institutions enable money to be transferred quickly and

cheaply between accounts or between  nancial institutions.

GFS for the central government public sector will be compara-

ble to the consolidated  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.

2.123  e term “sovereign” is o en used by  nan-

cial markets and  scal analysts in the context of  scal

operations, borrowing, and debt. Unlike groupings of

the public sector described earlier, which are based on

institutional units, “sovereign” is de 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 de 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-

is 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?  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 identi ed within the general government unit?

Such market establishments should be classi 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

Is the entity a

resident?

Yes

Is the unit

controlled by

government?

Is the entity a

nonresident

SPE of

government?

Is the entity an

institutional

unit?

Classify the entity as a

nonresident institutional

unit and impute fiscal

transactions of SPE in

general government

sector and rest

of the world.

Yes

PUBLIC SECTOR

UNIT

Is the unit a

market

producer?

PUBLIC

CORPORATION

Does the unit

produce

financial

services?

PUBLIC FINANCIAL

CORPORATION

GENERAL

GOVERNMENT

Is the unit a

financial

auxiliary?

Yes

YesYes

No But

REST OF

THE WORLD

Is there a market

establishment that meets

the definition of an insti-

tutional unit within the

nonmarket producer?

Classify the entity as

an integral part of

the institutional unit that

controls the entity.

HOUSEHOLDS,

NPISH, or

PRIVATE

CORPORATION

Classify the market

establishment as a quasi-

corporation.

PUBLIC

NONFINANCIAL

CORPORATION

33 Institutional Units and Sectors

• Is the institutional unit providing  nancial aux-

iliary services, such as supervisory authorities of

 nancial intermediaries and  nancial markets?

A positive answer to this question will place the

institutional unit in the public  nancial corpora-

tions subsector (see paragraph 2.54).

• Is the public corporation involved in producing

 nancial services?  e answer to this question

will place the institutional unit in the public  -

nancial or public non 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 de ned in paragraph

2.33) satisfy the criteria to be separate institutional

units and function as if they were corporations.  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.  us,

quasi-corporations owned or controlled by govern-

ment units are grouped with public corporations in

the public non nancial or public  nancial corpora-

tions sectors.

2.126  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

 nance some or all of their capital formation out of

their own saving,  nancial assets, or borrowing.  e

ability to distinguish  ows of income and  nance be-

tween quasi-corporations and general government

units implies that, in practice, their operating and

 nancing activities must be separable from govern-

ment revenue or  nancing statistics, despite the fact

that they are not separate legal entities.

2.127 Entities such as national railways, port au-

thorities, post o ces, government publishing o ces,

public theaters, museums, swimming pools, hospi-

tals, education centers, and other entities that provide

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 satis es the

criteria to be an institutional unit should be classi ed

as a separate institutional unit, regardless of whether

it forms part of a group.  e parent corporation in

such circumstances is o en referred to as a holding

company.  ere are two di erent types of holding

companies:

•  e  rst type is the head o ce that is actively en-

gaged in production by exercising some aspects

of managerial control over its subsidiaries.  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 non nancial corporations subsector un-

less all or most of their subsidiaries are  nancial

corporations, in which case they are treated by

convention as  nancial auxiliaries in the  nan-

cial corporations sector.

•  e second type is a unit that holds the assets

of subsidiary corporations but does not under-

take any management activities.  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.  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  nancial

corporations subsector and treated as captive

 nancial institutions even if all the subsidiary

corporations are non nancial. However, these

holding companies should be distinguished from

arti 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.  ey may also serve for de-

feasance of impaired assets or repayment of liabilities

of insolvent entities, o en in the context of a bank-

ing crisis.  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 non nancial or

 nancial.  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 classi 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 signi cant

price criteria may be insu cient for this purpose, the

following general criteria should be considered:

• 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  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  nancial support and, by law or ef-

 is is because restructuring units have, by nature, little output.

fectively, on behalf of the government, is likely

to be included within the general government

sector.

2.131  e following are two frequently observed

examples that provide further guidance in the classi -

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:



 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.  is

unit is more likely to be a market producer and

classi ed as a  nancial corporation, and the

transactions made on behalf of the government

rerouted through the general government unit

using the service provided.



 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.

 e restructuring unit should be classi 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  nancial cri-

sis. Such a restructuring agency must be analyzed

according to the degree of risk it assumes, con-

sidering the degree of  nancing provided by the

government. Again, two cases may be considered:



 e restructuring agency borrows on the mar-

ket at its own risk to acquire  nancial or non-

 nancial assets that it actively manages. In this

case the unit is more likely to be a market pro-

ducer and classi ed as a  nancial corporation.



 e restructuring agency deliberately purchases

assets at above-market prices with direct or indi-

rect  nancial support from the government. It is

primarily engaged in the redistribution of national

income (and wealth), does not act independently

Rerouting is described in paragraph 3.28.

35 Institutional Units and Sectors

of government or place itself at risk, and therefore

is not a market producer and should be classi ed

in the general government sector.

Financial Protection Schemes

2.132  e  nancial infrastructure of an economy

may include  nancial protection schemes to pro-

tect the assets of  nancial institutions’ clients.  ese

schemes are o en referred to as deposit guarantee

schemes or deposit insurance schemes.  e main

types of schemes provide protection of deposits or

protect policyholders against failing life and nonlife

insurance schemes.  ese entities are known by vari-

ous names, but to determine their sector classi cation,

the nature of their activities should be considered on a

case-by-case basis.

2.133 A  nancial protection scheme is classi ed

as part of the general government, a public  nancial

corporation, or a private  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  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  nancial protection scheme through other

means, the scheme is to be included in the public sec-

tor.  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 bene 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.

• If the fees are proportional to the cost of the ser-

vice provided, and the scheme is an institutional

unit, it is classi 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 de nition of an SPE, some typical features are

that it has little physical presence, is related to another

corporation or government, and is o en resident in

a territory other than the territory of residence of its

parent unit.

2.137 Governments may set up SPEs for  nan-

cial convenience. For example, the SPE may be in-

volved in  scal or quasi- scal activities (including

securitization of assets, borrowing, etc.). Resident

SPEs that function only in a passive manner relative

to general government and that carry out  scal and

quasi- 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 classi ed to a sector according to their prin-

cipal activity.

2.138 SPEs that are resident in a di erent country

than their controlling government are always clas-

si ed as separate institutional units in the economy

where they are established. When such entities exist,

care must be taken to re ect the  scal activities of

government accurately. All  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.

2.139 A government may create a nonresident

SPE to undertake government borrowing or incur

SPEs are also discussed in the 2008 SNA, paragraphs 4.55–4.58.

For a de nition of resident and nonresident units, see para-

graphs 2.6–2.15.

Examples of these imputations are described in the PSDS Guide,

Box 4.12.

36 Government Finance Statistics Manual 2014

government outlays abroad for  scal purposes. Even

if there are no actual economic  ows recorded be-

tween the government and the SPE related to these

 scal activities,  ows and stock positions should be

imputed in the accounts of both the government and

the rest of the world to re ect the  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.  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.  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  nance for its own pur-

poses. Such a joint venture maintains its own account-

ing records.

2.142  e participants to a joint venture may be

public sector and/or private sector units. To properly

decide the sector classi 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 e 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 e ective control

and it is classi 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 su 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-

si cation; however, the recording should re 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 di 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 con dence, supporting the market

for government securities.

2.145 Public sector sinking funds are classi ed to

sectors according to whether they are separate insti-

tutional units

and, if so, whether they provide their

services at economically signi cant prices.

• Sinking funds that are separate institutional units

and provide services as market producers are

classi ed as public  nancial corporations.

• Sinking funds that are separate institutional units

and provide services as nonmarket producers are

classi ed as general government units. In partic-

ular, such sinking funds will be classi ed as ex-

trabudgetary units of the unit that controls them

(e.g., central government).

• Sinking funds that are not separate institutional

units are classi ed with the unit that controls

them (i.e., the “parent” unit).

An institutional unit is de ned in paragraph 2.22.

37 Institutional Units and Sectors

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 classi 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 classi 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 classi ed as public  nancial corporations.

Pension Schemes

2.147  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

classi 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 bene 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 speci ed circumstances, such

as retirement, unemployment, invalidity, and death.

 ese contributions are then managed and invested

to obtain a return for each participant.

2.149  e establishment of a provident fund raises

the issue of whether this fund is classi ed as a social

security scheme elsewhere in the general government,

as a public corporation, or outside the public sector.

Provident fund arrangements as de ned in the pre-

ceding paragraph are di 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 bene ts.  ese provident funds thus

are excluded from social security schemes.

2.150  e classi cation of a provident fund con-

trolled by government in the general government sec-

tor or  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 satis es the de nition of an in-

stitutional unit is classi ed as a public  nancial

corporation. Individual contributions determine

individual bene ts, and the entity is involved in

 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 de ned-contribution pension

funds (see paragraphs 2.53–2.54).  erefore,

these units are classi ed in the public  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 classi 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 classi 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).

Created and owned by the general

government for macroeconomic purposes, SWFs

hold, manage, or administer assets to achieve  nan-

cial objectives, and employ a set of investment strate-

gies that include investing in foreign  nancial assets.

 e funds are commonly established out of balance of

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, o cial foreign currency opera-

tions, the proceeds of privatization,  scal surpluses,

and/or receipts resulting from commodity exports.

2.153  e establishment of an SWF raises the issue

of whether this fund is classi ed as part of the general

government, as a public corporation, or outside the

public sector.  e classi cation of a sovereign wealth

fund controlled by government in the general govern-

ment sector or  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 de nition of an institu-

tional unit:

• If the SWF is not an institutional unit, it is classi-

 ed with the unit that controls it.

• If the resident SWF is an institutional unit, it is

classi ed as:



A public  nancial corporation if it is providing

 nancial services on a market basis



A general government unit (an extrabudgetary

fund or social security fund

) if it satis es the

de 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 classi ed as a

separate institutional unit in the  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 re 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 in uence the market for

speci c goods or services directly and/or indirectly.

 ese agencies may in uence the market directly by

acting as buyers and sellers of the goods or services

and may in uence the market indirectly through

SWFs that hold and manage wealth designated to provide social

bene ts will be included in social security funds.

regulations, rulings, compliance laws, or standards, to

impact the production, price, and marketing of spe-

ci c products.  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  e nature of these market regulatory agen-

cies may di er.  e nature of each agency should be

investigated to decide the sector classi 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 de nition

of an international or regional organization are not

included in the statistics of the individual member

countries, but their activities should be re ected in

regional data (see Appendix 5). By convention,  nan-

cial regulatory (supervisory) bodies are considered as

 nancial corporations, speci cally as  nancial auxil-

iaries when they are separate institutional units. For

those resident market regulatory agencies involved

with non nancial goods and services, the following

guidance applies:

•  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.  is would usually be the case for

those agencies exclusively or principally in-

volved in the distribution of subsidies on behalf

of government.

•  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-

si ed in the general government sector. Although

the agency may have active participation of

members from the market it serves, government

39 Institutional Units and Sectors

control is established by the enabling instruments

and nonmarket nature of these entities.

•  ose agencies that satisfy the criteria to be an

institutional unit and that are mainly a market

producer should be classi ed in the non nancial

corporations subsector.  ese market regulatory

agencies’ sole or principal activity is to buy, hold,

and sell the goods or services at economically

signi 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 classi cation may require careful

consideration. If it is possible to separately identify a

quasi-corporation that is undertaking market activi-

ties, it should be classi ed in the non nancial corpo-

rations subsector.  e nonmarket activities should be

classi 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 classi cation.

Development Funds and/or Infrastructure

Companies or Entities

2.160 Some governments create special entities/funds

to  nance and develop the economy in general, develop

speci c sectors of the economy, or upgrade speci c fa-

cilities, such as infrastructure.  ese types of agencies/

funds may be involved in various aspects of develop-

ment, ranging from only providing the  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,” “ scal stabilization funds,”

or “infrastructure companies,” are used to describe these

agencies. Whatever they are called, the sector classi 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 classi ed as an integral part of the unit

that controls it.

2.162  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.  e  -

nancing arrangements of these entities usually involve

the issuance of debt instruments, but could also in-

clude some other sources of  nancing.  e customers

that they serve, the  nancing arrangements, and the

economic ownership of the assets created by these en-

tities could o en be indicative of the risks assumed by

these entities, and could help to determine their status

as an institutional unit.  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 arti cial subsidiary. If it is a resident

unit, it is classi ed as a component of the level

of government that controls it (i.e., as part of the

parent unit).  ese entities are not treated as sep-

arate institutional units, unless they are resident

in an economy di 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  nancial intermediation and should

be regarded as a resident arti cial subsidiary (see

paragraphs 2.42–2.44).

• If government assumes economic ownership of

the non 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 arti cial subsidiary.

• If these entities meet the de nition of an insti-

tutional unit (see paragraph 2.22) and are gov-

ernment-controlled market producers of goods

or services, they should be classi ed as a cor-

poration. More speci cally, they will be a public

 nancial corporation only if they are involved

in providing  nancial services (see paragraph

2.53).

 ey will be public non nancial corpora-

tions only if they produce and sell the infrastruc-

ture assets at economically signi cant prices in

market transactions.

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  nancial intermediaries).

Economic Flows, Stock Positions,

andAccounting Rules

 is chapter describes the economic  ows and stock po-

sitions of the government  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

 ows or stock positions.

Flows are monetary expres-

sions of economic actions and e 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 speci cally, stock positions refer

to a unit’s holdings of assets and liabilities at a speci c

time and the unit’s resulting net worth, equal to total

assets minus total liabilities.

3.2  e  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  ows. In other words, the following relationship is

valid for each stock position:

+ F = S

where S

and S

represent the values of a speci c stock

position at the beginning and end of a reporting pe-

riod, respectively, and F represents the net value of all

 ows during the period that a 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  ows a ecting that stock position that have oc-

curred since the unit  rst acquired the particular type

of asset or liability.

3.3  e GFS framework includes a great diversity

of economic  ows.  is chapter  rst describes sev-

eral important characteristics of economic  ows that

In macroeconomic statistics, the term “ ows” will o en be used

as a short form for “economic  ows,” and “stocks” will o en be

used as a short form for “stock positions.”

underlie their classi cation and treatment. It then de-

scribes in a general way the accounting rules used for

recording these  ows and stock positions in GFS. De-

scriptions of speci c categories of  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  ows re 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  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  ows are classi ed as transactions

or as other economic  ows.  e following sections de-

scribe these two types of economic  ows.

Transactions

3.5 A transaction is an economic  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, o en because the unit is

operating in two di erent capacities.

 is de 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,

For example, consumption of  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).

41 Economic Flows, Stock Positions, andAccounting Rules

there is collective recognition and acceptance by the

community of the obligation to pay taxes.  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  e treatment of some activities in GFS takes

a di erent perspective from the treatment of the

same activities in the 2008 SNA. GFS is focused on

the impact of economic events on the  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 di erent

perspectives. Despite di erent treatments of some ac-

tivities, both frameworks include all  ows that change

stock positions so that all changes in the balance sheet

can be explained by the  ows.

3.7 Transactions may take on many di erent

forms. In GFS, all transactions are classi ed according

to their economic nature, while transactions in expen-

diture are also classi ed according to their functions

(see Chapters 5, 6, 8, and the annex to Chapter 6). To

give more precision to the classi 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  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 bene ts are o en pay-

able in  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.

Compensation of employees,

purchases of goods and services, the incurrence of in-

terest expense, and the sale of an o 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.  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 signi 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 bene 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- 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.  e trans-

action should be divided into an exchange at the as-

set’s market value and a transfer equal in value to the

di erence between the actual transaction value and

the market value (see paragraph 3.107) of the asset.

3.12 Exchange transactions do not include entitle-

ments to collective services or bene ts—these are

 e term “provides a good, service, asset . . .” is meant to include

one unit allowing a second unit to use an asset owned by the  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.

See paragraph3.29 for a general statement on partitioning of

transactions.

42 Government Finance Statistics Manual 2014

considered transfers.  e amount of collective service

or bene 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 classi ed as transfers due to the

collective nature of the bene 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-

e ts from services provided by the government unit

receiving the taxes. For example, in principle, no one

can be excluded from sharing in the bene 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 bene 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.

 is type of premium

entitles the units making the payment to bene ts only

if one of the events speci ed in the insurance contract

occurs.  at is, one unit pays a second unit for accept-

ing the risk that a speci ed event may occur to the

 rst unit.  ese transactions are considered transfers

because in the nature of the insurance business, they

distribute income between policyholders to those who

claim, as opposed to all policyholders who contribute.

 ere is uncertainty whether the contributing unit

will receive any bene ts and, if it does receive bene 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 bene ts.  us, social security contri-

butions receivable and social security bene 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

 e prepayment of a premium is the acquisition of a  nancial

asset by the insured (see paragraph A4.76), which reduces as

insurance coverage is provided.

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 de 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 non 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 a ect

the level of disposable income and in uence the con-

sumption of goods or services.  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 bene 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 di erently, a

transfer should be classi 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.  ese

43 Economic Flows, Stock Positions, andAccounting Rules

include all transactions that do not involve any cash

 ows, such as barter, in-kind transactions, and cer-

tain internal transactions.  ey must be assigned a

monetary value as GFS record  ows and stock posi-

tions expressed in monetary terms.  e entries there-

fore represent values that are indirectly measured or

otherwise estimated.  e values assigned to nonmon-

etary transactions have a di 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  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 di 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  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

e ciency, or to insure that the intended goods and

services are consumed. For example, aid a 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 di erent capacities,

and it is analytically useful to record this act as a

transaction.  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  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).

Rearrangements of some transactions

3.27 Some transactions are not recorded in the

form in which they appear to take place. Instead, they

are modi ed in macroeconomic statistics to bring out

their underlying economic relationships more clearly.

 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 di er from the actual

ones, or as taking place in an economic sense when no

actual transactions take place. Rerouting is o en re-

quired when a unit that is a party to a transaction does

not appear in the actual accounting records because of

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  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 pro ts

of  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 di erent kind from unit

B to unit A. For example, when a nonresident spe-

cial purpose entity (SPE) of government borrows

abroad for  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).  is rearrangement of the

transactions re 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 di erently classi 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

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

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.  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 e orts.  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 bene ciary government

unit. For guidelines on the reassignment or attribution

of taxes to collecting or bene ciary governments, see

paragraphs5.33–5.38.

Other Economic Flows

3.31 Other economic  ows are changes in the

volume or value of assets or liabilities that do not re-

sult from transactions.  ese other economic  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  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  ere are two major categories of other eco-

nomic  ows, described as holding gains and losses, and

other changes in the volume of assets and liabilities.

Holding gains and losses

3.33 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, exclud-

ing qualitative or quantitative changes in the asset

or liability. Holding gains and losses on assets and

References to changes in the valuation or volume of assets also

apply to liabilities.

Holding gains and losses are also referred to as revaluations in

the 2008 SNA and in generally accepted accounting standards.

45 Economic Flows, Stock Positions, andAccounting Rules

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 speci c events.  ese events are divided into

three main categories:

•  e  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.)

•  e second group consists of the e ects of ex-

ternal events—exceptional and unexpected—on

the economic bene ts derivable from assets and

corresponding liabilities. (See paragraphs 10.59–

10.75 for a complete discussion.)

•  e  nal group is made up of changes in classi -

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).  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  ows during that period

because changes in positions are caused by transac-

tions and other economic  ows. In order to discuss

 e distinctions made are only for purposes of description; the

GFS framework and classi cation system does not allow for this

breakdown.

stock positions, it is necessary to determine the asset

boundary in macroeconomic statistics from which the

de nition of assets and liabilities is derived.  e cover-

age of assets in GFS is limited to economic assets from

which economic bene ts may  ow to the owners.

Economic Beneﬁ ts

3.37 Economic bene ts arise from owning and

using economic assets.  e economic bene 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 bene ts that may be derived

from an asset include:

•  e ability to use assets, such as buildings or ma-

chinery, in production

•  e generation of services (e.g., renting out pro-

duced assets to another entity)

•  e generation of property income (e.g., interest

and dividends received by the owners of  nancial

assets)

•  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.  e legal owner of resources such

as goods and services, natural resources,  nancial as-

sets, and liabilities is the institutional unit entitled by

law and sustainable under the law to claim the bene 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  e economic owner of resources such as

goods and services, natural resources,  nancial assets,

and liabilities is the institutional unit entitled to claim

the bene 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 bene ts. In re-

turn, the legal owner accepts another package of risks

and bene 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 di 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 di 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 bene ts also

accrue to the government on behalf of the commu-

nity at large.  us, government is both the legal and

economic owner of these resources. However, govern-

ments may share the bene 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  e bene ts inherent in  nancial assets and

liabilities are seldom transferred from a legal owner

to an economic owner in exactly the same state.  ey

are usually transformed to new forms of  nancial as-

sets and liabilities by the intermediation of a  nancial

institution that assumes some of the risk and bene ts

while passing the  nancial instrument on to other

units.

Deﬁ nition of Assets and Liabilities

3.42 An asset is a store of value representing a

bene t or series of bene 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 bene ts may  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 de ned

earlier. A distinction is made between non nancial

and  nancial assets. All  nancial assets have liabili-

ties as counterparts, except for gold bullion held as a

reserve asset, which, by convention, is a  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 bene ts with another

economic unit for future payments. From this a  nan-

cial claim, and hence a liability, can be de ned.  ere

are no non nancial liabilities recognized in the GFS

framework, and thus the term liability necessarily re-

fers to a liability that is  nancial in nature.

3.45 A liability is established when one unit (the

debtor) is obliged, under speci c circumstances, to

provide funds or other resources to another unit (the

creditor). Normally, a liability is established through

a legally binding contract that speci es the terms and

conditions of the payment(s) to be made and payment

according to the contract is unconditional.  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  nancial claims) are explicitly identi ed

by formal documents expressing the debtor-creditor

relationship. In other cases, liabilities are imputed to

re ect the underlying economic reality of a transac-

tion, such as the creation of a notional loan when an

asset is acquired under a  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  nancial claim on the debtor. A  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,  nancial claims are unconditional.

A  nancial claim provides bene ts to the creditor,

such as by acting as a store of value, or by generating

In contrast, accounting standards recognize non nancial liabili-

ties under certain conditions.

47 Economic Flows, Stock Positions, andAccounting Rules

interest, other property income, or holding gains. Fi-

nancial claims consist of equity and investment fund

shares, debt instruments,  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  nancial claims

and gold bullion held by monetary authorities as a

reserve asset. For a complete discussion of  nancial

assets and liabilities, see paragraphs 7.118–7.227.

3.49  is Manual follows the 2008 SNA by not

treating guarantees other than derivatives and the

provision for calls under standardized guarantee

schemes as  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 Non nancial assets are economic assets other

than  nancial assets. Non nancial assets are further

subdivided into those that are produced ( 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

non 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  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  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 in uenced by inci-

dental factors, while long periods may not adequately

portray changes in the economy in a timely manner.

Merely seasonal e ects can be avoided by having the

reporting period cover a whole cycle of regularly re-

current economic phenomena. In general, calendar

years,  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  scal per-

formance. Country-speci c circumstances will in u-

ence the coverage, frequency, and periodicity of  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.

3.53  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  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).  ere are also many similarities between the

rules used in the GFS framework and those applied by

businesses and governments in their  nancial state-

ments.

 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  ows and stock positions.

Type of Accounting System

3.54  e recording of economic events underly-

ing GFS derives from general bookkeeping prin-

ciples. Double-entry recording is used for recording

all  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.  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

 ows also lead to debit and credit entries.  ese  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

http://dsbb.imf.org.

Appendix 6 presents a broad description of linkages with  nan-

cial accounting standards. It is recommended that the  nancial

statements of government entities compiled in accordance with

international accounting standards for governments be harmo-

nized to the extent possible, and where di 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  ows can increase or decrease assets

and liabilities, thereby directly impacting net worth.

In the case of the reclassi 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.  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.  ere are several possible

combinations of debits and credits a 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).  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 una ected.

Time of Recording Flows

3.57 Once a  ow has been identi ed, the time at

which it occurred must be determined so that the re-

sults of all  ows within a given reporting period can

be reported. Although this section is concerned with

the time assigned to  ows, the integrated nature of

the GFS framework means that the stock positions re-

corded on the balance sheet are also in uenced by the

timing of  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  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  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 non nancial assets, one can dis-

tinguish the day that a budget is voted upon by the

legislature, the day on which the ministry of  nance

authorized a department to pay out speci ed funds,

the day a particular commitment is entered into by

the departments, the day deliveries take place, and  -

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 de 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

non nancial assets and  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,  ows

are recorded when cash is received and disbursed.

49 Economic Flows, Stock Positions, andAccounting Rules

 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,  ows are

recorded at the time economic value is created, trans-

formed, exchanged, transferred, or extinguished. In

other words, the e 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 bene t payment is established, or other un-

conditional claims are established.

3.63 If an economic event requires a subsequent

cash  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  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 shi 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).

 us, all monetary and nonmonetary transactions are

included in statistics compiled on the accrual basis.

3.65 In the commitments basis of recording,  ows

are recorded when an institutional unit has commit-

ted itself to a transaction.  is basis o en applies only

to purchases of assets, goods, services, and to com-

pensation of employees.  e time of recording gen-

erally is when approval for the purchase was issued,

which results in funds being earmarked for a speci 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,

 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.

 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  ows than cash accounting, record-

ing is limited to monetary  ows and therefore does

not capture all economic events.

3.67 In the cash basis of recording,  ows are re-

corded when cash is received or disbursed.  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  ow are recorded in the GFS Statement of

Sources and Uses of Cash (see paragraphs4.32–4.35).

Nonmonetary  ows are not recorded, since no cash

 ows are involved in these transactions.  erefore,

the cash basis of recording does not fully record all

economic activity and resource  ows.

3.68 Cash  ows determine the government’s abil-

ity to pay its bills and, by in 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 o en represent

the most readily available estimates generated by the

Another basis of recording is when  ows are recorded at

the time legal controls that are necessary to authorize a pay-

ment have been completed.  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

 ows are of analytical value in their own right they

do not fully meet the government’s reporting needs.

 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  ows are recorded, in-

cluding internal transactions, in-kind transactions,

and other economic  ows. Moreover, it is only this

comprehensive recording framework that permits the

full integration of all  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  e integrated framework of GFS uses the

accrual basis, primarily because the time of record-

ing matches the time of the actual resource  ows and

economic events. As a result, the accrual basis pro-

vides the best estimate of the macroeconomic impact

of government  scal policy. With the cash basis, the

time of recording may diverge signi 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 a er

the expense was incurred.  e due-for-payment basis

will frequently record transactions a er the resource

 ows have taken place, although the very long delays

permitted by the cash basis would, in most cases, be

reduced.  e timing of the commitments basis will

precede the actual resource  ow.

3.71  e accrual basis of recording also fully cap-

tures all amounts receivable or payable in arrears.

Arrears are de 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  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 di 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 de 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.  us, there will be no information

on arrears unless special compilation e ort is made.

3.72 In accrual accounting systems, provision is

usually made for a separate statement of cash  ows

to be prepared as part of the comprehensive suite of

statements—implementing accruals accounting sys-

tems therefore usually maintains some information

on cash  ows. Managing liquidity is crucial for the

operation of any unit, and information on cash  ows

helps meet this need. Moreover, it may be di cult

to assess solvency and future cash  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 di erentiate

between the time of payment, acquisition, and use

of resources. With the accrual basis, acquisitions of

non 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  xed capital.

3.74 Additionally, the other major macroeconomic

statistical frameworks (national accounts, balance of

payments, and monetary and  nancial statistics) use

the accrual basis.  us, the consistency of statistics

from the di 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

51 Economic Flows, Stock Positions, andAccounting Rules

be di 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  ow is recorded under the

accrual basis of recording when economic ownership

changes or another economic event has occurred.

More speci 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  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).  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.  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.  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.  us, the di 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).  e amount of taxes and social

insurance contributions that is recorded as revenue

should be the amount that is realistically expected to

be collected.  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 coe cients re ecting the assess-

ments not likely to be collected.  e coe 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 speci 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.  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 gi 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 signi 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  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  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 speci 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 speci c time period, such as a license to

operate a business during a speci c period.

3.85 Some compulsory transfers, such as  nes,

penalties, and property forfeitures, are determined

at a speci c time.  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 in 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 satis ed certain conditions,

such as the prior incurrence of expenses for a speci c

purpose or the passage of legislation.  ese transfers

are recorded by recipient and donor when all condi-

tions are satis 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).  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  e time of recording transactions (including

by barter, payment in kind, or transfer in kind)

goods and non 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 partners

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  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 speci 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  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  ows

that take place continuously or over extended peri-

ods. For example, operating leases and consumption

of  xed capital accrue continuously over the whole

period a  xed asset is used and interest

accrues

continuously over the period that the  nancial claim

exists.  ese  ows are recorded as being provided

 ese transactions are excluded from a pure cash basis of

recording.

To maintain symmetry in the macroeconomic statistical system,

the time of recording should be the same for both parties to the

transaction.

 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.

53 Economic Flows, Stock Positions, andAccounting Rules

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  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  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 di erent from the time they

were acquired. In the meantime, they are classi ed as

inventories.

Time of recording transactions in

ﬁ nancial assets and liabilities

3.93 Transactions in many types of  nancial assets

and liabilities, such as debt securities, loans, currency,

and deposits, are recorded when economic ownership

changes (see paragraphs 9.13–9.16).  is date may be

speci ed according to a contract to ensure matching

entries in the books of both parties. If no precise date

is  xed, the date on which the creditor receives pay-

ment, or some other  nancial claim, is the determin-

ing factor. For example, loan drawings are entered in

the accounts when actual disbursements are made

and  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 di erent dates

because they acquire the documents evidencing the

transaction at di erent times.  is variation usually is

caused by the process of clearing, or the time checks

are in the mail.  e amounts involved in such a “ 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  nancial claim.

3.95 Some  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 non nancial transaction and are not otherwise

evidenced. In these cases, the  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  nancial asset is delivered. Any signif-

icant di 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  nancial in-

strument when it goes into arrears, this change should

be recorded as a reclassi cation in the other changes

in volume of the  nancial assets and liabilities ac-

count.  e reclassi cation applies to situations where

the original contract remains, but the terms within it

change (e.g., interest rates, repayment periods, etc.).

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 re ect the redemption of the

old instrument and to create a new instrument.

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  re happens at a speci c time, and

the impact of a natural disaster can be allocated to a

speci c period.

3.99 Changes in prices o 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.  e starting point will be the moment at which:

•  e reporting period begins

• Ownership is acquired from other units (through

purchase or a transaction in kind)

• An asset is produced.

 e end point in time will be the moment at which:

•  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.  e

signing of the contract  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.  is implies that during the

period between the signing of a contract and the date

on which the  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  rst party to be recorded in the

 nancial accounts.

3.101 Other changes in volume, including reclas-

si cations, are recorded as these changes occur. An

integrated stock- ow framework requires that both

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 Reclassi 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 reclassi 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 reclassi cations makes it possible

to reconstruct supplementary time series based on the

situation before the reclassi 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

 ows should be based on transactions as close to the

payment/receipt stage as possible.  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  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 non -

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.

For revenue, data representing the tax

payments received by government, net of refunds paid

out during the period covered should be reported.

 ese data will include taxes paid a er the original as-

sessment, taxes paid or refunds deducted from taxes

a er subsequent assessments, and taxes paid or re-

funds deducted a er any subsequent reopening of the

accounts. In the reporting of tax revenue, the use of

payment basis data is o en the  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

Cash accounting that allows back-dated transactions (known as

complementary periods), may distort actual cash  ows. Record-

ing of cash transactions in such a manner should be disclosed.

55 Economic Flows, Stock Positions, andAccounting Rules

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  nance in the national accounts. To reconcile data

extracted from cash-based data and data maintained

on an accrual basis, the cash  ows must be adjusted

for accrued revenue not yet received and accrued ex-

pense not yet paid, respectively.

Valuation

General rule

3.107 All  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

 ows take place, while  ows recorded in the State-

ment of Sources and Uses of Cash should be valued at

the monetary value of the cash  ows. Stock positions

should be valued at the market prices prevailing on

the balance sheet date. Valuation of speci c types of

 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 de 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.”  us, according to this strict

de nition, a market price refers only to the price for

one speci 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 di erent market price. A market price de 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 speci 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 a er taking into account any rebates,

refunds, adjustments, etc., from the seller.

3.111 Transactions in  nancial assets and liabilities

are recorded at the prices at which they are acquired

or disposed of. Transactions in  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.  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.  is is

because both debtors and creditors should record the

same amount for the same  nancial instrument.  e

commissions, fees, and/or taxes should be recorded

separately from the transaction in the  nancial asset

and liability, under appropriate categories of revenue

or expense.  e valuation of  nancial instruments,

which excludes commission charges, di ers from

the valuation of non 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 su 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 di 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  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  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 e ect, approximate market

prices (see paragraph 3.125).

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 de ned

as the amount for which an asset could be ex-

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

re ects the value of the instrument at creation

and subsequent economic  ows, such as transac-

tions, exchange rate and other valuation changes

other than market price changes, and other vol-

ume changes. For  nancial instruments other

than debt securities, equity, and  nancial deriva-

tives, the lack of generally available market values

means that these values are estimated by using

the nominal value.

•  e amortized value of a loan re ects the grad-

ual elimination of the liability by regular pay-

ments over a speci ed period of time. On the

date of each scheduled payment, the amortized

value is the same as the nominal value, but it may

di er from the nominal value on other dates be-

cause the nominal value includes interest that has

accrued.

•  e face value of a debt instrument is the undis-

counted amount of principal to be repaid at (or

before) maturity.

 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  xed

capital, amortization, or depletion.

• Book value generally refers to the value recorded

in the entities’ records. Book values may have

di erent meanings because their values are in u-

enced by accounting standards, rules, and poli-

cies, as well as the timing of acquisition, company

In some statistical databases, face value is also called nomi-

nal value. However, in GFS, nominal value is understood to be

di erent from face value, except on the date of maturity of the

instrument.

57 Economic Flows, Stock Positions, andAccounting Rules

takeovers, frequency of revaluations, and tax and

other regulations.

• Historic cost, in its strict sense, re ects the cost

at the time of acquisition, but sometimes it may

also re ect occasional revaluations.

3.116  e valuation of assets and liabilities based

on accounting standards may not fully re ect the

market prices of the assets and liabilities. In such

cases, the source data for GFS should be adjusted to

re ect, as closely as possible, the market value of the

assets and liabilities.

3.117 Some  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.

However, transactions in these assets and

liabilities should be valued at the prices actually paid.

Similarly, to attain integration between stock posi-

tions and  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,

the value

of the principal (recorded in other accounts payable/

receivable) is reduced by an amount that re 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

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.

 e PSDS Guide recommends that debt instruments should be

valued at nominal value, while debt securities should be valued at

market value as well.

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, re 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  ow takes place, and stock

positions are converted at the rate prevailing on the

balance sheet date.  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.  e valuation in the domestic currency of a

purchase or sale on credit expressed in a foreign cur-

rency may di 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 o en months a 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 o en be quite di er-

ent from that of the recipient.  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 a 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 o 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 de 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.  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 e 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  ows should be partitioned and recorded sepa-

rately (see paragraph 3.29). In such a case, the total

value of the individual transactions a er partitioning

must equal the market value of the exchange that ac-

tually occurred.

3.125  e value of  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.  e following list suggests

several estimation possibilities.  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.  e value of certain stock

positions, primarily  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

 xed assets can be valued using the market price

for similar new goods, properly adjusted for con-

sumption of  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  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 di erences.

•  e value of  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

 xed capital, holding gains or losses, depletion,

exhaustion, degradation, unforeseen obsoles-

cence, and exceptional losses.

• 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 non nancial asset valued

in this way should include a mark-up that re-

 ects the net operating surplus attributable to

 is estimate is also referred to as the “written-down current

acquisition” value.

59 Economic Flows, Stock Positions, andAccounting Rules

the producer. For nonmarket goods and services

produced by general government units or non-

pro 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.  is

method is particularly prominent for a number

of  nancial assets, natural assets, and intangible

assets. For some  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 di 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.  e valua-

tion of these other economic  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 non nancial and  nancial

assets and liabilities. Since all  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 non nancial assets, it

is usually necessary to determine the market value of

the asset before and a er the economic event, such as

its appearance, disappearance, catastrophic loss, or re-

classi cation (see paragraphs 10.46–10.84).  e value

of the other change in volume is calculated as the dif-

ference in the market value of the asset immediately

before and a er the event.

3.129 Other changes in the volume of  nancial

assets and liabilities are recorded at the market or

market-equivalent prices of similar instruments. For

writing-o of marketable  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 o . For nonmarketable  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 o . For all reclassi cations of

assets and liabilities, values of both the new and old

instruments should be the same.

Currency

Unit of account

3.130  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).  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  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  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.  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.  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  ows, therefore, an average exchange

rate for the period in which the  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 de 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.  e currency of denomina-

tion is determined by the currency in which the value

of  ows and stock positions is  xed as speci ed in the

contract between the parties. Accordingly, all cash

 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.  e cur-

rency of denomination is important for distinguish-

ing transaction values and holding gains and losses.

3.138  e currency of settlement may be di erent

from the currency of denomination. Using a currency

in settlement that is di erent from the currency of de-

nomination simply means that a currency conversion is

involved each time a settlement occurs.  e currency of

settlement is important for international liquidity and

measurement of potential foreign exchange drains.

3.139 A  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 speci c currency, then the liability

should be attributed to that currency.

Derived Measures

3.140 Derived measures consist of aggregates and

balancing items.  ey are important analytic tools

that summarize the values of selected  ows or stock

positions that have been individually recorded in the

GFS framework.  ese derived measures are the sum

or the balance of two or more  ows or stock positions.

3.141 Aggregates are summations of individual

entries and elements in a class of  ows or stock posi-

tions.  ey allow for these data to be arranged in a

61 Economic Flows, Stock Positions, andAccounting Rules

manageable and analytically useful way. For example,

tax revenue is the sum of all  ows that are classi 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 classi ed as social security funds.

Aggregates and classi cations are closely linked in that

classi 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 de ciencies in source

data, such as missing information on individual trans-

actions, other economic  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

 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  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.  e choice de-

pends on the category of  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.  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 bene 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 in 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  nal determination

exceeds the actual tax due. Such refunds are recorded

as a reduction in tax revenue. Similarly, if social bene 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 non 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 non nancial asset

may be preferable and can be derived easily.

3.147 Netting is implicit in the presentation of

some speci 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.  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  nancial assets/liabilities are also presented net

in the GFS framework, to re ect the nature of the

 nancial  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  nancial instrument as sepa-

rate data categories.

3.149 Other economic  ows are presented net.

 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  -

nancial instrument, both  nancial assets or liabilities,

are presented gross. For example, a unit’s holding of

debt securities as  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 speci c manner. Apart from

the balancing items net worth, net operating balance,

and net lending/net borrowing, the GFS classi ca-

tions employ the word “gross” and “net” to indicate

the value of the operating balance and investment

in non nancial assets before or a er deduction of

consumption of  xed capital.  e framework also

uses the term “net” to indicate that the net acquisi-

tion of  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,  rst,

an aggregation of all  ows and stock positions within

the GFS analytical framework, followed by the elimi-

nation, in principle, of all  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  ow or stock

position of one unit is paired with the corresponding

 ow or stock position recorded for the second unit

with which it is being consolidated, and both  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.

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  nancial public corporations and

for the non 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 non nancial corporations subsector.  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  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 speci c purposes.

 ere are o en  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

See PSDS Guide, Box 8.1 and Table 8.2, for examples of

consolidation.

63 Economic Flows, Stock Positions, andAccounting Rules

sector units—for example, consolidation between cen-

tral, state, and local governments, and between general

government and public non 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  e main reason for consolidation lies in the

analytical usefulness of the consolidated statistics: con-

solidation eliminates the distorting e ects on aggre-

gates of di ering administrative arrangements across

countries or over time.  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  ows and stock positions that actually cross

the boundaries with other sectors or nonresidents.  e

same arguments apply to why public corporations and

public sector statistics should be consolidated.

3.159 By eliminating all reciprocal  ows and stock

positions among the units being consolidated, con-

solidation has the e ect of measuring only  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  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

 ows or stock positions among a grouping of insti-

tutional units, thus producing statistics that exclude

these internal  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  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  ows and stock positions.  e

goal is to eliminate, in a consistent manner,  ows and

stock positions that will have a signi cant e ect on the

 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.  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

 ows that may vary greatly in importance.  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 non nancial assets.

3.163  e following major transactions, other eco-

nomic  ows, and stock positions in  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  nancial instruments, the following  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  is Manual recommends that, based on

Table 3.1, counterparty  ows and stock position in-

formation be identi 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  scal signi cance. Suggestions for

the sequence of analysis are:

• Begin all consolidation exercises with an analysis

of the accounts involved to determine whether

there are  ows or stock positions internal to the

unit(s) to be consolidated.  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  ows and stock positions can be mea-

sured or estimated, and whether the amounts will

be signi cant in terms of analytical importance.

• If the amounts are likely to be signi cant, are

they large enough to justify the e ort to collect

the data and other information for consolida-

tion purposes?  e e 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.

•  e “one-side” rule of thumb is commonly used.

 at is, if there is convincing evidence from the

one institutional unit that a  ow or stock position

exists, it should be imputed to the counterparty.

 e imputation should be recorded even if there

is no record of the  ow or stock position in the

counterparty’s accounts. When such an adjust-

Table 3.1 Detailed Classiﬁ cation of Counterparty

Information

Code Sector

General government

Central government

State governments

Local governments

Social security funds

Corporations

Private corporations

Private nonﬁ nancial corporations

Private ﬁ nancial corporations

Public corporations

Public nonﬁ nancial corporations

Public ﬁ nancial corporations

Further breakdown/“of which” lines could allow for the

identiﬁ cation of subsectors and individual units.

Social 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  ow

or stock position cannot be directly identi ed, it

will be necessary to ensure that the records for

that unit are properly modi ed.

• For  ows and stock positions in  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.  ere are

many reasons for such discrepancies, such as cov-

erage, time of recording, valuation, and classi ca-

tion. Resolving these discrepancies will promote

proper consolidation and improve the overall

65 Economic Flows, Stock Positions, andAccounting Rules

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 a er con-

solidation.  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 a ect balanc-

ing items. In other words, the balancing items that

are produced by simple aggregation are the same as

those produced by consolidation.  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 di erent balancing

items from the unconsolidated data, recording errors

have been made.  erefore, when intra- or intersec-

toral  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 a ect balancing items (see

paragraph 3.165).

Consolidation in other datasets

2008 System of National Accounts

3.167  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 di erent accounts of the

national accounts are never consolidated.  e di er-

ence between the 2008 SNA and this Manual re ects

the di erent uses of the statistics.  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 e ective when the measure of gov-

ernment operations is a set of consolidated statistics

rather than unconsolidated statistics.  e GFS frame-

work also is not intended to produce a measure of

production.  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  nancial statements, compiled in accor-

dance with accounting standards, accounting entries

are o en presented on a consolidated basis for the re-

porting entity and all of its controlled entities.  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.

 is use of consolidation attempts to portray the

operations and  nancial position of a parent and its

subsidiaries as though the group of enterprises were a

single unit. For example, a  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.

The Government Finance Statistics

Analytic Framework

 is chapter introduces the government  nance statis-

tics analytic framework

and describes the relationships

among its elements and use of government  nance sta-

tistics in  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  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.

 e GFS framework, on the other hand, is designed to

facilitate  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 di er in the

treatment of particular items.

4.2 Traditionally, governments have recorded their

activities on a cash basis; this is re 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  nancing/

 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.

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  scal policy and have become more

adept at separating the time of a  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- ow statement for assessing  scal policy.

4.3  e GFS analytic framework introduced in the

GFSM2001, and as updated in this Manual, re ects

these developments and is presented in the form of

a set of interrelated accrual-based statements.  ese

statements are harmonized with the 2008 SNA, that

integrate  ows and stock positions, and are supple-

mented with a cash- ow statement.  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  scal policy. More

speci cally, the use of accrual-based statements and

the integration of balance sheets with  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 signi cantly reduce its

net worth.  e framework also provides an improved

basis for monitoring e ciency in the allocation and

use of all government resources.  e analytic frame-

work set out in this Manual encompasses the tradi-

tional cash-based  scal reporting, to support liquidity

analysis.

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.

67 The Government Finance Statistics Analytic Framework

Analytic Objectives

4.4  e GFS analytic framework is a quantitative

tool that supports  scal analysis. To permit e ective

analysis of  scal policy, the GFS framework must fa-

cilitate the identi 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 su ciently detailed and e 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  nancial statistics)

• Enable analysts to assess the  nancial soundness

of the general government and public sectors in

ways commonly applied to other organizations

in the economy

• Enable assessment of sustainability over the long

term

• Enable assessment of liquidity constraints and  -

nancing needs.

Construction of the Analytic

Framework: Relation to the GFSM1986

4.6  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  scal policy.  ere are three types of modi cations:

•  e de nitions of individual statistical variables

are closely aligned with economic concepts. An

important example is the treatment of non 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.

 ese include: the shi from a functional-based

de nition of general government and public

sectors to one built on institutional units (see

paragraphs 2.22–2.48); a switch from using only

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- ow statements.

the cash basis of recording to a framework of

accounts using the accrual basis of recording,

while maintaining a cash- ow statement (see

paragraphs 3.70–3.72); and the complete integra-

tion of  ows and stock positions (see paragraphs

3.2–3.3).

•  e GFSM 1986 framework has been extended

to include nonmonetary transactions, such as in-

kind and imputed transactions (see paragraphs

3.19–3.20),  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 a ect  scal poli-

cies.  erefore, two principal constructs are used for

which GFS should be compiled.  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- scal activities (see Chapter 2). Once an

institutional unit has been classi ed to a sector, all its

 ows and stock positions are recorded in that sector.

 us, statistics for the general government sector as

well as for the public sector should be compiled.  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  e core of the analytic framework is a set of

four  nancial statements.  ree of the statements can

be combined to show that all changes in stock posi-

tions result from  ows (see Figure 4.1 and paragraph

3.4).  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  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

++=

Minus

++=

Equals

Plus

Equals Equals Equals

Opening

Balance Sheet

Equals

Minus Minus Minus

Equals

Plus Plus Plus

Equals Equals

Statement of

Operations

Equals

Net worth

Stock positions

Flows

Stock positions

Change

in net worth

due to transactions

(net operating

balance)

Change

in net worth due

to other economic

flows

Revenue

minus

Expense

Nonfinancial

assets

Financial assets

Liabilities

Transactions in

nonfinancial

assets

Transactions in

financial assets

Transactions in

liabilities

Other economic

flows in

nonfinancial assets

Other economic

flows in

financial assets

Other economic

flows in liabilities

Net financial

worth

Change in net

financial worth due

to transactions (net

lending (+) / net

borrowing (–))

Change in net

financial worth

due to other

economic flows

Net worth

Nonfinancial

assets

Financial assets

Liabilities

Net financial

worth

Transactions Other economic flows

Opening

Balance Sheet

Closing

Balance Sheet

Statement of Other

Economic Flows

Statement of

Operations

Equals

Plus

Equals

Minus

Equals

Plus

Equals

Minus

Equals

Plus

Equals

Minus

Equals

Plus

Equals

Minus

Equals

as the sale of a good or service by one unit and its

purchase by another (see paragraph 3.5).  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  xed capital rec-

ognizes that a unit is both the owner of a  xed asset

and the consumer of the services provided by the

asset. Taken together, transactions constitute the larg-

est share of the  ows associated with the implemen-

tation of  scal policy. As described in the following

section, transactions are classi ed to demonstrate

how general government and public sector units raise

revenue and spend it, and to show the e ects of  scal

69 The Government Finance Statistics Analytic Framework

policy decisions on the net worth of the sector, on its

demand for credit, and on its ability to invest in assets.

4.10  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 speci cally, holding gains

and losses represent changes to stock positions that

arise from price movements, including exchange

rate movements.

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 reclassi cation of assets/liabilities.

4.11  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  e Statement of Sources and Uses of Cash re-

cords cash in ows and out ows using a classi cation

similar to that of the Statement of Operations, but with

a focus on the net change in cash  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.  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 Bene ts.

4.14  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  e Summary Statement of Explicit Contin-

gent Liabilities and Net Implicit Obligations for Future

Social Security Bene ts summarizes the explicit and

implicit guarantees outstanding. Contingent liabilities

create  scal risks and may arise from deliberate public

policy or from unforeseen events.  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

“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  e Statement of Operations (see Table 4.1)

presents details of transactions in revenue and ex-

pense, as well as the net investment in non nancial

assets, the net acquisition of  nancial assets, and the

net incurrence of liabilities.

Revenue is de ned as

the increase in net worth resulting from transactions,

and expense as the decrease in net worth resulting

from transactions.  e net investment in non nan-

cial assets equals the acquisitions minus disposals of

 xed assets, minus consumption of  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, re ecting the

total change in net worth due to transactions.  e sub-

sequent deduction of the net investment in non nan-

cial assets results in net lending (+) / net borrowing(–),

which is also equal to the net result of transactions in

 nancial assets and liabilities. In addition to these bal-

ances, the annex to Chapter 4 describes a number of

other important  scal indicators that could be derived

from GFS and that are used in  scal analysis.

4.18  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.  e net operating balance as de ned here

excludes gains and losses resulting from changes in

price levels and other changes in the volume of as-

sets.  e component of the change in net worth that

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

classi cation of cash  ows shown in Table4.2 should be used.

Otherwise, with accrual or partial accrual (noncash) source data,

the classi cation of transactions shown in Table4.1 should be

used. With the exception of consumption of  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 bene 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.  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  scal impact.

4.19 Net lending(+) / net borrowing(–) is a sum-

mary measure indicating the extent to which gov-

ernment is either putting  nancial resources at the

disposal of other sectors in the economy or abroad,

or utilizing the  nancial resources generated by other

sectors in the economy or from abroad. It may there-

fore be viewed as an indicator of the  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 di 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  e gross operating balance as presented in the

Statement of Operations di ers from the net operating

balance in that it does not include consumption of  xed

capital as an expense. Consumption of  xed capital can

be di 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.

 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 non nancial assets and is presented

as an additional aggregate in the Statement of Opera-

tions.  is aggregate is not in uenced by the level of

consumption of  xed capital and is therefore suitable

for international comparisons between countries even

if they cannot reliably measure consumption of  xed

capital.

 e availability of data on consumption of  xed capital has no

in uence on net lending/net borrowing.  e counterpart entry

for the expense recorded for consumption of  xed capital reduces

the value of investment in  xed assets—thereby neutralizing the

impact on net lending/net borrowing.

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 non nancial assets; and transactions in  nancial

assets and liabilities.  e following paragraphs follow

this structure in providing an overview of the vari-

ous categories of transactions.  ese de nitions and

descriptions are not intended to be comprehensive.

Table 4.1 Statement of Operations

Transactions Affecting Net Worth:

1 Revenue

11 Taxes

12 Social contributions [GFS]

13 Grants

14 Other revenue

2 Expense

21 Compensation of employees [GFS]

22 Use of goods and services

23 Consumption of ﬁ xed capital [GFS]

24 Interest [GFS]

25 Subsidies

26 Grants

27 Social beneﬁ ts [GFS]

28 Other expense

NOB/GOB Net/gross operating balance (1–2)

Transactions in Nonﬁ nancial Assets:

31 Net/gross investment in nonﬁ nancial

assets

311 Fixed assets

312 Inventories

313 Valuables

314 Nonproduced assets

2M Expenditure (2+31)

NLB Net lending (+) / Net borrowing (–) [GFS]

(1–2–31 = 1–2M = 32–33)

Transactions in Financial Assets and Liabilities (Financing):

32 Net acquisition of ﬁ nancial assets

321 Domestic

322 External

33 Net incurrence of liabilities

331 Domestic

332 External

The net operating balance equals revenue minus expense. The

gross operating balance equals revenue minus expense other

than consumption of ﬁ xed capital.

The 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.

Classiﬁ ed by instrument and/or sector of the counterparty (see

Tables 9.1 and 9.2).

71 The Government Finance Statistics Analytic Framework

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.

 e major types of revenue are

taxes (11), social contributions (12), grants (13), and

other revenue (14).

 e detailed classi cation of rev-

enue is described in Chapter5.  e disposal of a non-

 nancial asset by sale or barter is not revenue because

it has no e ect on net worth. Rather, it changes the

composition of the balance sheet by exchanging one

asset (the non nancial asset) for another (the pro-

ceeds of the sale). Similarly, amounts receivable from

loan repayments and loan disbursements are not rev-

enue.  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.

 e major types of expense

are compensation of employees (21), use of goods

and services (22), consumption of  xed capital (23),

interest (24), subsidies (25), grants (26), social ben-

e ts (27), and other expense (28). In addition, ex-

pense can be classi ed according to the functions

of government, such as health or social protection.

 e economic and functional classi cations of ex-

pense are described in Chapter 6.  e acquisition

of a non nancial asset by purchase or barter is not

an expense because it has no e ect on net worth.

Rather, it changes the composition of the balance

sheet by acquiring one asset (the non 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 classi ed as

expense.  ese are transactions in assets or liabili-

ties as described in Chapter 8 and 9.

In general, transactions that increase net worth result from

current operations. Capital transfers are an exception. Capital

transfers are de ned in paragraph 3.16. In GFS, capital transfers

receivable are classi ed as revenue because they increase the

recipient’s net worth and they are o en indistinguishable from

current transfers in their e ect on government operations.

 e numbers in parentheses a er each classi cation category are

the GFS classi cation codes. Appendix 8 provides all classi cation

codes used in the GFS system.

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.

Transactions in Nonﬁ nancial Assets

4.25  e second section of the Statement of Opera-

tions (see Table4.1) records transactions that change

a government’s net investment in non nancial assets.

Non nancial assets are economic assets other than

 nancial assets. Non nancial assets are stores of value

and provide bene ts either through their use in the

production of goods and services or in the form of

property income and holding gains.  ese assets are

classi ed as  xed assets (311), inventories (312), valu-

ables (313), and nonproduced assets (314).  e classi -

cation of non nancial assets is described in Chapter 7

and transactions in non nancial assets are discussed

in Chapter8.

Transactions in Financial Assets and

Liabilities

4.26  e third section of the Statement of Opera-

tions (see Table 4.1) records  nancing transactions,

which are transactions that change a government’s

holdings of  nancial assets and liabilities ( nancial as-

sets and liabilities are de ned in paragraphs 3.48 and

3.45, respectively).  e classi cation of  nancial as-

sets and liabilities is described in Chapter 7 and trans-

actions in  nancial assets and liabilities are discussed

in Chapter9.

4.27 Transactions in  nancial assets can be clas-

si ed in multiple ways; for ease of presentation,

Table4.1 indicates a classi cation of  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 classi cation of liabilities.

4.28  ere are additional classi cations of transac-

tions in  nancial assets and liabilities in GFS.  e  rst

classi cation is based on the type of  nancial instru-

ments involved in the transactions.  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

 is section deals only with the net investment in non nancial

assets (acquisitions minus disposals of non nancial assets, minus

consumption of  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 non nancial assets. Rather than being

considered transactions in non nancial assets, these transactions

are included in capital transfers, either as capital grants or other

expense, as relevant.

72 Government Finance Statistics Manual 2014

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.

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.

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).

Box 4.1 Policy Lending

guarantee schemes;  nancial derivatives and employee

stock options; and other accounts receivable/payable

(see Table9.1).  e second classi cation is based on

the sector of the counterparty of the transactions in

 nancial instruments.  at is, transactions in liabili-

ties are classi ed according to the sector of the institu-

tional unit conducting the counterpart transaction in

 nancial assets, such as  nancial corporations, non -

nancial corporations, households, and nonpro t insti-

tutions serving households (see Table9.2).

4.29 Another possible classi cation of transactions

in  nancial assets and liabilities is whether they were

acquired or disposed of for the purpose of public pol-

icy or liquidity management.  is distinction is not

included in the Statement of Operations, but is used

to de ne the overall  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 su ering economic ad-

versity. Such transactions can take a variety of forms,

including loans, equity securities, and debt securi-

ties. Given that there is o en a concessional element

to such transactions, it is useful to identify them in a

73 The Government Finance Statistics Analytic Framework

separate category so that for some analyses the  scal

impact of these policy-related transactions in assets

could be assessed separately.

4.31 All other transactions in  nancial assets are

assumed to be for liquidity management or other pur-

poses.  at is, the assets are acquired to earn a mar-

ket rate of return while keeping su cient funds on

hand to  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.  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 non nancial

assets, and transactions involving  nancial assets and

liabilities other than the  nancial asset currency and

deposit (cash) itself.  e net change in the stock of

cash is the sum of the net cash received from these

three sources.

4.33  e net change in the stock of cash refers to

the  nancial asset currency and deposits (3202). Cur-

rency consists of notes and coins that are of  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.  e classi cation of this  nancial asset is

described in Chapter7 and transactions are discussed

in Chapter9.

4.34  e Statement of Sources and Uses of Cash

(Table4.2) re ects transactions when using the cash

basis of recording.  is, in e 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).

 e net acquisition of  nancial assets for policy purposes was

called “lending minus repayments” in the GFSM 1986 and was

o en referred to as “net lending.”  ese terms should not be

confused with the term “net lending/net borrowing” used in this

Manual.

4.35 Additional useful information for  scal analy-

sis is obtained from an analysis of the di erences

between amounts reported in the Statement of Opera-

tions and the Statement of Sources and Uses of Cash.

Table 4.2 Statement of Sources and Uses of

Cash

Cash Flows from Operating Activities:

C1 Revenue cash ﬂ ows

C11 Taxes

C12 Social contributions

C13 Grants

C14 Other receipts

C2 Expense cash ﬂ ows

C21 Compensation of employees

C22 Purchases of goods and services

C24 Interest

C25 Subsidies

C26 Grants

C27 Social beneﬁ ts

C28 Other payments

CIO Net cash inﬂ ow from operating activities

(C1–C2)

Cash Flows from Transactions in Nonﬁ nancial Assets:

C31 Net cash outﬂ ow from investment in

nonﬁ nancial assets

C311 Fixed assets

C312 Inventories

C313 Valuables

C314 Nonproduced assets

C2M Expenditure cash ﬂ ows (C2+C31)

CSD Cash surplus (+) / Cash deﬁ cit (–) (C1–C2–

C31= C1–C2M = C32–C33)

Cash Flows from Transactions in Financial Assets and

Liabilities (Financing):

C32x Net acquisition of ﬁ nancial assets other than

cash

C321x Domestic

C322x External

C33 Net incurrence of liabilities

C331 Domestic

C332 External

NFB Net cash inﬂ ow from ﬁ nancing activities

(C33–C32x)

NCB Net change in the stock of cash

(CSD+NFB = C3202 = C3212+C3222)

The net cash outﬂ ow from investment in nonﬁ nancial assets

equals purchases minus sales.

On 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.

Classiﬁ ed by instrument and/or sector of the counterparty (see

Tables 9.1 and 9.2).

74 Government Finance Statistics Manual 2014

 ere are some broad types of transactions that are

recorded in Table4.1 but not in Table4.2:

• 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.  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.  e  scal implication of such di 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.  e  scal implication

of such di erences may indicate a larger demand

for service delivery in the future, or a need to as-

sess the e ciency of tax collection e orts.

•  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.  ere may be  scal

implications for liquidity management.

•  ere are transactions that are not in cash by

their nature. Consumption of  xed capital, im-

puted transactions, barter, other transactions in

kind, and debt forgiveness and write-o are non-

cash transactions and would therefore not be re-

corded in a Statement of Sources and Uses of Cash.

 e di 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

4.36  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.  ey

are classi ed as changes either in the value or volume

of assets, liabilities, and net worth.  e balancing item

of this statement, the change in net worth due to

other economic  ows, is de 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. In line with the integrated approach,

these other economic  ows are classi ed by the type

of asset or liability a ected. Other economic  ows are

described in Chapter10.

4.37 Change in net worth due to holding gains or

losses is de ned as the sum of the positive or nega-

tive holding gains and holding losses on all assets

and liabilities.  ese include all changes in the value

of assets, liabilities, and net worth due solely to price

e ects.  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  nancial

assets and liabilities denominated in a foreign cur-

rency (see paragraph 10.44).

4.38 Change in net worth due to other changes

in the volume of assets and liabilities is de ned as

the sum of the positive and negative other changes in

the volume of assets and liabilities.  ese changes in

the volume of assets and liabilities, other than from

transactions and price e ects, may arise for a variety

of reasons.  ey can be described as resulting from

Table 4.3 Statement of Other Economic

Flows

9 Change in net worth due to other

economic ﬂ ows (4+5)

4 Change in net worth due to holding gains

and losses

41 Nonﬁ nancial assets

411 Fixed assets

412 Inventories

413 Valuables

414 Nonproduced assets

42 Financial assets

43 Liabilities

5 Change in net worth due to other changes

in the volume of assets and liabilities

51 Nonﬁ nancial assets

511 Fixed assets

512 Inventories

513 Valuables

514 Nonproduced assets

52 Financial assets

53 Liabilities

See Table 10.2 for a detailed classiﬁ cation of other economic

ﬂ ows.

Classiﬁ ed by residence, instrument, and/or sector of the counter-

party (see Tables 9.1 and 9.2).

75 The Government Finance Statistics Analytic Framework

the appearance or disappearance of existing resources

as economic assets, e ects of external events that are

exceptional and unexpected, and changes in classi -

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.  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.

 e main bal-

ancing item on the balance sheet is net worth.  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.  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  ows) is a  scal indicator for assessing the

sustainability of  scal activities.

4.40 For public corporations, using changes in net

worth as a  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).  us, for public cor-

porations’ own funds (including the value of shares and

other equity and net worth) may provide a more useful

 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 non nancial

assets are not available or are unreliable, net  nancial

worth is another  scal indicator of sustainability.  e

net  nancial worth of an institutional unit (or group-

ing of units) is the total value of its  nancial assets

minus the total value of its liabilities.

4.42  e Balance Sheet shows the stock positions in

assets and liabilities. ( e de nitions and classi cations

of assets and liabilities are described in Chapter7.)

Table 7.1 presents the balance sheet in another format.

Assets

4.43  e assets included in the Balance Sheet are

economic assets, de ned as resources over which

ownership rights are enforced and from which eco-

nomic bene ts may  ow to the owners. Economic

bene 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 classi ed in the same way that transactions

and other economic  ows in assets are classi ed. As-

sets are either non nancial or  nancial. Non nancial

assets are further classi ed as  xed assets, inventories,

valuables, or nonproduced assets. Financial assets are

classi ed by residence of the counterparty and by type

of instrument. Financial assets can also be classi ed

by sector of the counterparty and maturity.

Liabilities

4.45 A liability is established when one unit (the

debtor) is obliged, under speci c circumstances, to

provide funds or other resources to another unit (the

creditor). Most classi cations that apply to  nancial

assets also apply to liabilities. Liabilities are classi ed

by the residence of the counterparty and by type of

Table 4.4 Balance Sheet

Opening

balance

Closing

balance

6 Net worth (61+62–63)

61 Nonﬁ nancial assets

611 Fixed assets

612 Inventories

613 Valuables

614 Nonproduced

assets

62 Financial assets

621 Domestic

622 External

63 Liabilities

631 Domestic

632 External

Memorandum items

...

Classiﬁ ed by instrument and/or sector of the counterparty (see

Tables 7.9 and 7.11).

See Chapter 7 for a list of standard memorandum items that

should be included on the balance sheet.

76 Government Finance Statistics Manual 2014

Table 4.5 Statement of Total Changes in Net

Worth

Transactions Affecting Net Worth:

1 Revenue

2 Expense

NOB Net operating balance (1–2)

Change in Net Worth due to Other Economic Flows:

91 Nonﬁ nancial assets

41 Holding gains

51 Other changes in the volume of

nonﬁ nancial assets

92 Financial assets

42 Holding gains

52 Other changes in the volume of

ﬁ nancial assets

93 Liabilities

43 Holding gains

53 Other changes in the volume of liabilities

9 Total other economic ﬂ ows (91+92–93)

CNW Total change in net worth (NOB+9)

The net operating balance equals revenue minus expense.

Classiﬁ ed by categories of assets and liabilities as needed.

instrument. Liabilities can also be classi ed by sector

of the counterparty and maturity.

The Statement of Total Changes

in Net Worth

4.46  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.  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  ows. In

its summary format, this supplementary statement

serves to highlight the total change in net worth of

government.

The Summary Statement of Explicit

Contingent Liabilities and Net Implicit

Obligations for Future Social Security

Beneﬁ ts

4.47  e Summary Statement of Explicit Contin-

gent Liabilities and Net Implicit Obligations for Future

Social Security Bene 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.  ese contin-

gencies create  scal risks and may arise from deliber-

ate public policy or from unforeseen events.  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).

4.48 In GFS, the net implicit obligations for future

social security bene ts (other than employment-related

retirement bene ts) are not recognized as liabilities (see

Appendix 2).

Social security contributions are clas-

 is format brings the statistical presentation closer to the

presentation used in  nancial statements compiled in accordance

with International Public Sector Accounting Standards (see Ap-

pendix 6).

For more details, see the PSDS Guide, paragraphs 4.3–4.26.

 ese implicit obligations exclude amounts that become

overdue a er all criteria for bene ts have been met—GFS include

these as liabilities in other accounts payable.

si ed as revenue (and therefore as an increase in net

worth), and social security bene ts payable as expense

(a decrease in net worth).  is treatment is in line with

conventional  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 bene t payments may be seen as the extinction

of previously incurred government liabilities.  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 bene ts eventually payable.

4.49 Indeed, it is not uncommon for governments

to change unilaterally the structure of bene ts of so-

cial security schemes (e.g., by changing the circum-

stances under which the bene ts become payable or

the amount of the bene t). Moreover, in most cases,

these bene 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

77 The Government Finance Statistics Analytic Framework

Table 4.6 Summary Statement of Explicit

Contingent Liabilities and Net

Implicit Obligations for Future

Social Security Beneﬁ ts

6M6 Total explicit contingent liabilities

6M61 Publicly guaranteed debt

6M62 Other one-off guarantees

6M63 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

It 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.

For 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.

arises from its social security programs. Such a con-

tingency recognizes the present value of future ben-

e 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  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 bene ts is considered to be a reduction in

the same liability (see paragraph 6.25).

Annex: Using GFS for Fiscal Analysis

 is annex describes the use of GFS in creating  scal

indicators.

Introduction

4.51  is annex o ers an overview of the appli-

cation of the GFS framework in creating commonly

used  scal indicators.

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  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  ndings.

Fiscal Indicators Available from the GFS

Framework

4.53  e GFS framework produces  scal indica-

tors from the transactions, other economic  ows,

stock positions, aggregates, or balancing items. For

example, in the Statement of Operations, net lending/

net borrowing is the basic indicator of the  scal bal-

ance, measured from “above-the-line” as revenue

minus expenditure (with expenditure comprising ex-

pense plus the net investment in non nancial assets).

 is  scal balance can alternatively be measured from

“below-the-line” as the di erence between transac-

tions in  nancial assets and liabilities, also referred

to as  nancing transactions. From an above-the-line

 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  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

 nance de cits.

4.54  e Balance Sheet o ers data on regularly

used  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  nancial instruments, are useful for an analysis

of liquidity. Balancing items such as net worth and net

 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/

de 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  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  scal indica-

tors that are directly available from GFS or that can be

derived from GFS.

Fiscal Indicators Requiring Additional

Data

4.57 Some  scal indicators require additional

information.  e overall  scal balance, for example,

re ects the net lending/net borrowing a 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  xed assets) are included as  nan-

cial items, while policy lending is treated as if it is an

expense rather than a transaction in  nancial assets.

79 The Government Finance Statistics Analytic Framework

For example, privatization proceeds or the repay-

ment of policy lending is treated as  nancing while

capital injections or loans to public corporations

(policy lending) are added to expense in calculating

the overall  scal balance. Calculating the overall  s-

cal balance requires therefore a distinction between

transactions in  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  scal indicators where infor-

mation from various datasets must be assembled.

 ese more complex  scal balances attempt to mea-

sure  scal positions net of cyclical and other transi-

tory e ects by taking into consideration the e ects

of exogenous factors on the  scal balance. Examples

of these more complex balances are also provided in

Table 4A.2. Cyclically adjusted balances are measures

of the government’s  scal position in an economy as

if the economy was operating at potential gross do-

mestic product (GDP).  ese balances can be calcu-

lated by adjusting the GFS concept of net lending/net

borrowing (or other  scal balances in the GFS frame-

work) for the e 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

 scal performance.

4.59 In resource-rich countries, analysts o en

take into account the volatility of commodity prices

(which a ects  scal balances but is outside of the di-

rect control of government) when assessing  scal per-

formance. Calculating nonresource balances requires

removing from net lending/net borrowing (or other

 scal balances) net resource-related revenue a nd ex-

penditure.  ese resource-related items are not avail-

able in the core classi cations of GFS, but could be

provided in underlying source data.

4.60 Table 4A.2 presents a list of  scal indicators

that are built using GFS with additional data.  ese

 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

Fiscal balances

Cash balance

(also referred

to as deﬁ cit/

surplus)

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.

C1–C2–C31, or

C1–C2M, or

NFB+NCB

Net operating

balance (NOB)

Revenue minus expense.

Net operating balance is also equal to change in net worth due to

transactions.

1–2

Gross operating

balance (GOB)

Revenue minus expense, excluding consumption of ﬁ xed capital. 1–2+23

Net lending/net

borrowing (NLB)

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

Primary cash

balance

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

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

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.

NLB+24

NLB+24–1411

Other Macroeconomic Fiscal Indicators

Above-the-line

transactions

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.”)

1, 2, and 31, or

C1, C2, and C31

Below-the-line

transactions

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.”)

32 and 33, or

NFB and NCB

Fiscal burden 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

Tax burden Revenue in the form of taxes. 11

Direct taxes Taxes that take into account individual circumstances of taxpayers (e.g.,

taxes on individual and corporate income).

111+1131+1132+1136

Indirect taxes 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 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.

1133+1135

Government

ﬁ nal

consumption

expenditure

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.

21+22+23+282–142

Gross saving 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).

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)

(continued)

81 The Government Finance Statistics Analytic Framework

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.

31.1–31.2–31.3

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, or

31+23

Gross capital

formation

Acquisition minus disposals of produced nonﬁ nancial assets, which comprise

ﬁ xed assets, inventories, and valuables.

311.1–311.2+312+313

Gross ﬁ xed

capital

formation

Acquisitions minus disposals of ﬁ xed assets. 311.1–311.2

Net interest

expense

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

Expense plus net investment in nonﬁ nancial assets; or expenditure. 2+31, or 2M

Transfer

payments

excluding grants

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. 32–33, or 82–83

Domestic

ﬁ nancing

Transactions in ﬁ nancial assets minus transactions in liabilities, both with

resident institutional units (domestic debtors/creditors).

321–331, or 821–831

Foreign

ﬁ nancing

Transactions in ﬁ nancial assets minus transactions in liabilities, both with

nonresident institutional units (external debtors/creditors).

322–332, or 822–832

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.

8212+8213–8312–8313

Domestic

nonbank

ﬁ nancing

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.

(821–8212–8213)–(831–

8312–8313), or

8211+8214+8215+8216–

8311–8314–8315–8316

Wealth and Debt Indicators

Accounts

payable

Stock position in other accounts payable, which comprise trade credit and

advances, and miscellaneous other items due to be paid.

6318

Arrears

Stock position in amounts unpaid and past the due date for payment. 6M5

Contingent

liabilities

Obligations that do not arise unless a particular, discrete event(s) occurs in

the future.

6M6

Total pension

and insurance

liabilities

Stock position in insurance, pension, and standardized guarantee scheme

liabilities plus net obligations for social security beneﬁ ts.

6306+6M7

Gross debt 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

(continued)

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).

(63–6305–6307)–(62–

6205–6207), or

6301+6302+6303+6304+

6306+6308–6201–6202–

6203–6204–6306–6308

Gross debt, net

of highly liquid

assets

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.)

63–6305–6307–6201, or

6301+6302+6303+6304+

6306+6308–6201

Net ﬁ nancial

wealth

Net ﬁ nancial worth equals the stock position in ﬁ nancial assets minus stock

position in liabilities.

62–63, or 6M1

Net worth Stock position in assets minus stock position in liabilities at end of reference

period.

61+62–63, or 6

Total change in

net worth

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.)

–6

, or (61+62–63)

–

(61+62–63)

, or NOB+9

83 The Government Finance Statistics Analytic Framework

Table 4A.2 Fiscal Indicators Requiring Additional Data

Fiscal Indicator Related Term in Statistical Methodologies

Resource revenue 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.

Resource expense 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 operating balance excluding interest expense for gross debt sustainability analysis or

excluding net interest expense for net debt sustainability analysis.

Nonresource

net lending/net

borrowing

Nonresource operating balance minus net investment in nonresource related nonﬁ nancial assets.

Nonresource

primary net

lending/net

borrowing

Nonresource net lending/net borrowing excluding interest expense for gross debt sustainability

analysis or excluding net interest expense for net debt sustainability analysis.

Overall ﬁ scal

balance

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 primary

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.

Cyclically adjusted

balance

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).

Cyclically adjusted

primary balance

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

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.

Fiscal impulse Change in the structural primary balance between two reporting periods. (Often also calculated

using the [overall] structural balance, or the cyclically adjusted [primary] balance.)

Gross ﬁ nancing

needs

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.)

Concessional loans 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.

Development

spending

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

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.

Revenue

 is chapter de nes the concept of revenue and de-

scribes the manner in which revenue is classi ed.

Deﬁ ning Revenue

5.1 Revenue (1) is an increase in net worth re-

sulting from a transaction. Revenue transactions, as

de 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 Ta xe s (11)

are compulsory, unrequited

amounts receivable by government units from in-

stitutional units. Taxes can be receivable in cash

or in kind.

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

 e numbers in parentheses a er each classi cation category are

the GFS classi cation codes. Appendix 8 provides all classi cation

codes used in the GFS framework.

 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.

Revenue receivable in kind will not be recorded when using

the cash basis of recording—no cash  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

 nes, penalties, and most social security contribu-

tions, are not considered taxes (see paragraph 5.23).

 ese types of revenue have, under certain condi-

tions, an element of exchange and are therefore not

classi 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 identi ed and

classi ed as social contributions, grants, and other

revenue.

5.4 Social contributions [GFS]

(12) are actual

or imputed revenue receivable by social insurance

schemes to make provision for social insurance

bene ts payable.

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.  ese contributions secure

entitlement to social bene ts payable to the con-

tributors, their dependents, or their survivors when

certain social risks arise.  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 de 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

[GFS] indicates that an item has the same name but di erent

coverage in the 2008 SNA.

Social contributions [GFS](12) revenue excludes amounts

receivable as employment-related pension and other retirement

contributions that create a liability for future bene ts payable (see

paragraphs 4.50 and 5.95).

85 Revenue

eliminated in consolidation so that only grants from

foreign governments and international organizations

would remain in the general government accounts.

Grants may be classi 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)  nes, penalties, and forfeits;

(iv) transfers not elsewhere classi 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.  ese refund transactions

are recorded as a reduction in revenue, with a corre-

sponding reduction in  nancial assets or an increase

in liabilities.

5.8 Some transactions are exchanges in assets

and/or liabilities and should not be recorded as rev-

enue.  e disposal of a non nancial asset, other than

inventories,

by sale or barter does not a ect net

worth and these transactions are not revenue.  ey

are transactions in non 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.  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.  ese are transactions

in  nancial assets or liabilities as described in para-

graphs 9.3–9.4.

5.9 For the purposes of  scal analysis, additional

aggregations of revenue could be calculated, such as

the  scal burden, direct versus indirect taxes, and

Similarly, refunds of expense are recorded as a reduction in

expense, rather than revenue (see paragraph 6.4).

For a description of the treatment of inventories, see paragraphs

8.44–8.47.

revenue related to natural resources. A discussion

of these supplementary  scal indicators and their

uses in  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).  e application of the

general rule to various types of revenue is indicated in

each section of the classi 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 signi -

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  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 e ect, this is a  nancial advance made to

government by the payee. It constitutes a liability of

the government and an asset of the payee.  is liabil-

ity is extinguished as the revenue falls due in future

periods.

5.14 In practice, however, some  exibility is per-

mitted as the accrual recording of revenue can be dif-

 cult to implement because government accounting

86 Government Finance Statistics Manual 2014

systems o en record revenue only on a cash basis.  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.  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  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.

Such circumstances include advances for

provision of goods and services to be delivered in the

future, and grants for the construction of  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

 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.  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.  e amount that is

realistically expected to be collected may sometimes

be in 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.  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.  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.  us, the di 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.  is requires an adjustment that allows

the excessive increase in net worth previously recorded

to be corrected.

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 identi ed. As such, a correction

to reduce revenue, with a corresponding correction

 ese corrections in transactions recorded for revenue receiv-

ables should be distinguished from the case where a speci c

debtor is deemed bankrupt and amounts receivable are deemed to

be uncollectable (see paragraph 10.57).

87 Revenue

(reduction) in other accounts receivable (3208), should

be recorded.  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.  e actual collection, however, may be in a later

period, possibly much later.

The Classiﬁ cation of Revenue

5.21 Revenue comprises heterogeneous elements,

classi ed according to di erent characteristics de-

pending on the type of revenue. For taxes, the clas-

si cation scheme is determined mainly by the base

on which the tax is levied. Revenue other than taxes

is classi ed by the nature of the economic  ow, and

in some cases by the source from which the revenue

is derived.  e summary classi 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 classi ca-

tion structure provides guidance on the minimum

requirements for internationally comparable classi -

cations of revenue, analytical needs may necessitate

further detailed classi 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  scal indicators in

 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).

T axes (11)

5.23 Taxes are compulsory, unrequited amounts

receivable by government units from institutional

units. In GFS, taxes are classi ed mainly according

to the base on which the tax is levied. Normally, des-

ignating a tax for a particular use does not a ect its

classi 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-

si ed as a social security contribution (see paragraphs

5.45 and 5.96). Otherwise, it is classi 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 bene 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  nes and penalties imposed for the attempted eva-

sion of taxes should be recorded as interest (1411),

or  nes, penalties, and forfeits (143) and not as taxes.

However, it may not be possible to separate receiv-

ables of interest,  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  e coverage, timing, and valuation of tax rev-

enue in GFS and the 2008 SNA are identical, but the

classi cation systems di er.  e 2008 SNA classi 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).  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  nal consumers, or

whether they are current or capital taxes.

In GFS,

taxes are classi ed into six major categories: (i)taxes

on income, pro ts, and capital gains; (ii) taxes on

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 Revenue 12 Social contributions [GFS]

11 Taxes 121 Social security contributions [GFS]

111 Taxes on income, proﬁ ts, and capital gains 1211 Employee contributions [GFS]

1111 Payable by individuals 1212 Employer contributions [GFS]

1112 Payable by corporations and other

enterprises

1213 Self-employed or unemployed contributions

[GFS]

1113 Other taxes on income, proﬁ ts, and

capital gains

1214

122

1221

1222

1223

131

1311

1312

132

1321

1322

133

1331

1332

141

1411

1412

1413

1414

1415

1416

142

1421

1422

1423

1424

143

144

1441

14411

14412

1442

145

1451

1452

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 units

Current

Capital

Other revenue

Property income [GFS]

Interest [GFS]

Dividends

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

Capital claims

112 Taxes on payroll and workforce

113 Taxes on property

1131 Recurrent taxes on immovable property

1132 Recurrent taxes on net wealth

1133 Estate, inheritance, and gift taxes

1135 Capital levies

1136

114

1141

11411

11412

11413

11414

1142

1143

1144

1145

11451

11452

1146

115

1151

1152

1153

1154

1155

1156

116

1161

1162

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

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

Indicates that a further breakdown may be analytically useful and is presented in detailed tables.

89 Revenue

payroll and workforce; (iii)taxes on property; (iv)taxes

on goods and services; (v)taxes on international trade

and transactions; and (vi)other taxes.  ese catego-

ries are described in the various sections on the re-

spective tax categories.

5.26  e classi cation of taxes in this manual is

quite similar to the classi cation employed in Revenue

Statistics, which is published annually by the Organ-

isation for Economic Co-operation and Develop-

ment.  e two primary di erences in the classi 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

classi cation level, Revenue Statistics di ers in the fol-

lowing aspects: (i)payable tax credits are recorded as

negative taxes to the extent that the payable tax credit

o 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 identi 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  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-

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.  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  ows in the GFS. However, because the

government policy objectives could be achieved al-

ternatively through a subsidy or other direct outlays,

for  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 bene ciary household

or corporation a 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-

e ciary. Under a payable tax credit system, the credits

payable can be awarded to nontaxpayer bene 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.  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 o en not

connected with the assessment of the taxable event,

and should be shown as a current transfer classi ed

according to the purpose of the credit and the nature

of the recipient:

•  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

•  e transfer is an implicit social assistance ben-

e t (272) if receivable by households intended

to provide for the needs that arise from certain

events or circumstances (see paragraph 6.101),

•  e transfer is classi ed as transfers not elsewhere

classi ed (282) if receivable by individuals, pri-

vate nonpro 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 re ect the economic substance

of government intervention in the economy.

 is

treatment di ers from the treatment of the imputation

system of corporate income tax (see paragraph 5.44

Tax attribution

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  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.  e full amount of tax

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 re ected, as well as the subsidy (25) to the producers of

the exports.

Similar attribution principles could be applied to subsidies or

social bene ts.

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,

classi ed as the relevant category of sales of goods and

services (142).  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 di 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.

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  ere may also be circumstances where a tax is

imposed under the constitutional or other authority of

a government unit or an international organization,

but participating governments individually set the

tax rate in their jurisdictions.  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 speci c tax on behalf

of government. In this case, the taxes collected by the

public corporations should be recorded as transac-

tions in  nancial assets and liabilities for the collect-

ing agent, and the full amount collected should be

 ese respective shares of the proceeds should re 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 di erence

should be recognized.

For a discussion on the tax attribution in the case of suprana-

tional authorities and regional cooperation, see Appendix 5.

91 Revenue

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  e attribution of church or “zakat” taxes requires

some further consideration.  e treatment of these taxes

depends on the sector classi 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 de nition of taxes set out in paragraphs

5.2 and 5.23.  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).  ese taxes

should be classi 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,

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  nancial transactions classi 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.  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.

 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 classi ed as transfers

from households to religious organizations when compiling

national accounts.

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 su cient indication that

such contributions to the religious organizations are indeed a tax.

Tax categories

Taxes on income, proﬁ ts, and capital

gains(111)

5.41 Taxes on income, pro ts, and capital gains

(111) consist of taxes assessed on the actual or pre-

sumed incomes of institutional units.  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.  ese taxes, o en

referred to as income taxes, include:

• Taxes on individual or household income— 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 bene 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 bene t distributions), etc., a er deducting

certain allowances in accordance with tax laws.

Taxes on the income of the owners of unincor-

porated enterprises

are included here. Also

included are income taxes on the income of fam-

ily estates and trusts where the bene ciaries are

individuals.

• Taxes on the income of corporations— ese

consist of corporate income taxes, corporate

pro ts taxes, corporate surtaxes, etc. Such taxes

are usually assessed on the total incomes of

corporations—with corporations understood as

in macroeconomic statistics.  is item includes

taxes on the income of units such as partner-

ships, sole proprietorships, estates,

and some

trusts that are recognized as corporations.  is

covers income from all sources and not simply

pro ts generated by production. Also included

are income taxes on trusts where the bene cia-

ries are corporations.

• Taxes on capital gains— ese consist of taxes

on the capital gains (including capital gains dis-

tributions of investment funds) of persons or

For a de nition and discussion of unincorporated enterprises,

see paragraphs 2.32–2.33.

 ese types of estates are recognized as quasi-corporations and

generally classi ed as captive  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.  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—

 ese are taxes payable on the amounts receiv-

able by winners.  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, pro ts, and capital gains

are attributed as being payable by either individuals

(1111) or corporations and other enterprises (1112).

 ese individuals, corporations, and other enter-

prises may be resident or nonresident institutional

units. Taxes on income, pro ts, and capital gains

are classi ed as other taxes on income, pro 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 classi ed under this cat-

egory, identi 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 identi ed as a subcategory of taxes payable by

corporations (see Table 5.2). Income taxes on trusts,

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, pro ts,

and capital gains (1113), depending on the insti-

tutional unit that bene ted from the income (see

paragraph 5.41). Income taxes payable by nonpro t

institutions serving households or corporations are

recorded as taxes on corporations.  ese taxes may

be levied on actual or presumed income and prof-

its, and usually only on realized capital gains.  e

amount of income subject to tax is usually less than

gross income because various deductions are per-

mitted. A pro 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 pro ts liable

to corporate income tax.  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.  is

treatment di ers from the general treatment of tax

credits described in paragraph5.29.  e total tax paid

by the corporation is attributed to corporations and

other enterprises (1112).  e associated tax credit is

for the bene 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  xed amount per

person employed.  ey do not include:

Table 5.2 Detailed Classiﬁ cation of Taxes on

Income, Proﬁ ts, and Capital Gains (111)

111 Taxes on income, proﬁ ts, and capital gains

1111 Payable by individuals

1112 Payable by corporations and other

enterprises

1,2

1113 Other taxes on income, proﬁ ts, and capital

gains

11131 Payable by general government

1,2

11132 Unallocable taxes on income, proﬁ ts, and

capital gains

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the iden-

tiﬁ cation of those taxes related to speciﬁ c natural resources or

environmental taxes.

93 Revenue

• Payments earmarked for social security schemes,

which are classi ed as social security contribu-

tions (121)

• Taxes paid by the employees themselves out of

their wages or salaries, which are classi ed as

taxes on income, pro 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.  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 speci c types

of property o 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.

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 speci 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  ve cat-

egories: (i) recurrent taxes on immovable property;

(ii)recurrent taxes on net wealth; (iii)estate, inheri-

tance, and gi 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.  e taxes can be levied on pro-

prietors, tenants, or both.  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-

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).

ally de ned as the value of a wide range of movable

and immovable property minus liabilities incurred on

that property.

5.51 Estate, inheritance, and gi taxes (1133)

cover taxes on transfers of property at death and on

gi s, including gi 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

bene ciaries and/or their relationship to the deceased.

5.52 Capital levies (1135)

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.  ey

may be payable by households or enterprises.  ey in-

clude taxes on net wealth levied to meet emergency

expenditures or to e 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.  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 classi ed in taxes on use

of goods and on permission to use goods or perform ac-

tivities (1145).

Estate, inheritance, and gi taxes (1133) are one of the two

categories of taxes that are considered to be capital taxes in the

2008 SNA.  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, gi s, or other transfers.

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  nancial transactions (1134 in

the GFSM 2001) were reclassi 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 classi ed

elsewhere:

• Taxes on immovable property that are levied on

the basis of a presumed net income should be

recorded as taxes on income, pro 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, pro 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 (o en referred to as royalties)

should be recorded in rent (1415). Payments for

licenses that allow the bene ciary to carry out the

business of exploitation of land and subsoil assets

are classi 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, pro 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)

• Pro ts of  scal monopolies (1143)

• Taxes on speci 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 speci 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  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 General taxes on goods and services

11411 Value-added taxes

1,2

11412 Sales taxes

1,2

11413 Turnover and other general taxes on goods

and services

1,2

11414 Taxes on ﬁ nancial and capital

transactions

1,2

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could allow for the iden-

tiﬁ cation of these taxes related to speciﬁ c natural resources or

environmental taxes.

95 Revenue

in this tax category. Conversely, refunds of these taxes

when goods are exported are recorded as a reduction

of the taxes within this category.  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  nal pur-

chasers.  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  xed capital formation (i.e.,

only the net amount of VAT is recorded a 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.  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)

5.61 Taxes on  nancial and capital transactions

(11414) are taxes levied on the change in ownership of

 is item was classi ed as 1134 in the GFSM 2001 (see footnote

21).

property, except those classi ed as gi s, inheritance,

or estate transactions.  ese taxes are recorded as taxes

on the services of the unit selling the asset. Included

are taxes on the purchase and sale of non nancial or

 nancial assets (including foreign exchange or secu-

rities), taxes on checks and other forms of payment,

and taxes levied on speci c legal transactions, such as

the validation of contracts and the sale of immovable

property.  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 certi 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-

speci c unit tax on a prede ned limited range of

goods. Excises are usually levied at di 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 speci 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 classi ed as

arising from excises rather than from import duties.

 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 speci c services (1144). Excises

exclude those taxes that are levied as general taxes on

goods and services (1141); pro ts of  scal monopolies

(1143); customs and other import duties (1151); or

taxes on exports (1152).

Proﬁ ts of ﬁ scal monopolies (1143)

5.63 Pro ts of  scal monopolies (1143) cover

that part of the pro ts of  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.  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

pro ts over some notional “normal” pro ts should be

recorded as taxes, while the “normal” pro ts are re-

garded as dividends (1412) or withdrawals of income

from quasi-corporations (1413). However, it is recog-

nized that it may be di cult to estimate this amount,

and, in practice, the value of the taxes should be taken

as equal to the amount of the pro ts actually payable

from  scal monopolies to government. Any reserves

retained by  scal monopolies are excluded.  is tax is

recorded when the payment takes place rather than

when the pro 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 o ces and telecommunications, railways), it

should not be treated as a  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 pro ts receivable from marketing

boards or other enterprises dealing with international

trade are similar to  scal monopoly pro ts, but are clas-

si ed as pro ts of export or import monopolies (1153).

5.66  e treatment of lotteries and other gam-

bling activities deserves special mention.  e con-

cept of  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  scal mo-

nopolies (see paragraph 5.64), in principle, the “nor-

mal” pro 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-

 ed as pro ts on  scal monopolies (1143). However, in

practice it may be di cult to estimate the “normal”

pro ts, and the taxes should be taken as equal to the

amount of pro ts actually payable to government.

5.67 Governments that have monopoly powers

over lotteries and other gambling activities o en del-

egate the organization of these activities to nonpro t

institutions serving households, with a view to a  nal

distribution of the pro ts earned, through social

transfers.  is delegation of functions normally re-

quires the nonpro 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

classi ed as public corporations (see paragraph 2.104)

that constitute a  scal monopoly.

5.68 Depending on the administrative arrange-

ments, the distribution of the pro ts earned may be

done in two ways: (i)the 

scal monopoly transfers its

pro ts to a government unit (classi ed as a tax in prof-

its of  scal monopolies (1143)), and the government

unit then transfers the pro ts to the population; or

(ii)the  scal monopoly transfers the pro 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 pro ts to govern-

ment as described in (i) (see paragraph 3.28).

Taxes on speciﬁ c services (1144)

5.69 Taxes on speci c services (1144) are levied

on payments for speci c services.  ese taxes are

levied on services such as transportation (including

airport and other passenger taxes),

insurance, bank-

ing, entertainment, restaurants, and advertising. Also

If these taxes are based exclusively on international travel, they

are classi ed as other taxes on international trade and transactions

(1156) (see paragraph 5.92).

97 Revenue

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 classi ed as taxes on speci c services.

5.70  is category also includes the implicit taxes

resulting from the central bank imposing a rate of in-

terest other than the market rates.  e central bank’s

main responsibility is to formulate and carry out mon-

etary policy as part of economic policy. It therefore

o en acts di erently than other  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 di 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).  is procedure is analo-

gous to and consistent with the practice of treating the

di 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  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, classi ed in taxes on

income, pro ts, and capital gains (111)

• Pro ts transferred to government from state lot-

teries and other gambling enterprises regarded

as pro ts of  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, classi ed as taxes on  -

nancial and capital transactions (11414)

• Stamp tax revenues that cannot be assigned to

taxes on services or other transactions, classi 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).

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

for the issuance of a license or permit that are not

commensurate with the cost of the control function

of government.  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.

 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 speci c

permission is granted by issuing a license or other cer-

ti 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:

•  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.  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 con rm the applicant has

not been convicted of a crime).  e payment of

the fee in such a case is not commensurate with the

control function that the government exercises.

•  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 quali 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 bene ting from the services and is borne by

those bene ting.  e payment is recorded as a

tax only if it is out of proportion to the costs of

producing the services.

5.74 More speci cally, the following types of fees

are considered taxes:

• Fees where the payer of the levy is not the re-

ceiver of the bene t, such as a fee collected from

98 Government Finance Statistics Manual 2014

slaughterhouses to  nance a service provided to

farmers

• Fees where government is not providing a spe-

ci c service commensurate with the levy even

though a license may be issued to the payer, such

as a hunting,  shing, or shooting license that

is not accompanied by the right to use speci c

government-owned natural resources

• Fees where bene ts are received only by those

paying the fee but the bene 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 bene 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.

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-

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 classi ed as a premium in the category pre-

miums, fees, and claims related to nonlife insurance and standard-

ized guarantee schemes (145).  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.  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 classi 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 con ned to taxes

on the ownership or tenancy of immovable property

and such taxes are usually a percentage of the assessed

property value.  e taxes included in categories 1132

and 1136 are con 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 quali 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  nite pe-

riod does not re ect a disposal of an asset and should

be classi 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-

si 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 classi 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 identi able in the latter (see Table5.4).

99 Revenue

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

 xed amount, on a schedule according to the

kind of business, or on the basis of various indi-

cators such as  oor space, installed horsepower,

capital, or shipping tonnage would be included.

It would not cover business taxes levied on gross

sales, which would be classi 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.

 is category also includes all cases where gov-

ernment issues licenses to limit the number of

units operating in a particular  eld where the

limit is  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 e ect creating monopoly

pro ts for the approved operators and recover-

ing some of the pro ts as the fee.  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.  e timing

di 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  nancial liability (other accounts payable)

for government.  e di erence between the

prepaid tax value of the permit and the market

value of the permit represents a marketable con-

tract (nonproduced non 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  shing, and taxes on the

ownership of pets when the amount payable is not

commensurate with the administrative cost.  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.

Table 5.4 Detailed Classiﬁ cation of Taxes on Use

of Goods and on Permission to Use

Goods or Perform Activities (1145)

1145 Taxes on use of goods and on permission to

use goods or perform activities

11451 Motor vehicle taxes

11452 Other taxes on use of goods and on

permission to use goods or perform

activities

114521 Business and professional licenses

114522 Pollution taxes

114523 Radio and television licenses

114524 Licenses and permits for households

114525 Other taxes on the use of goods and

on permission to use goods or perform

activities not elsewhere classiﬁ ed

Further 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.

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  xed amount per

unit of quantity or weight, but can be a percentage of

value.  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 classi 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.  ese

taxes are classi 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.  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.  e duties may be deter-

mined on a speci c or ad valorem basis, but they must

be restricted by law to imported products. Included

are duties levied under the customs tari schedule

and its annexes, including surtaxes that are based on

the tari schedule, consular fees, tonnage charges,

statistical taxes,  scal duties, and surtaxes not based

on the customs tari schedule.  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 classi ed as arising from excises

rather than from import duties (see paragraph 5.62

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 Pro ts of export or import monopolies (1153)

include the pro 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.  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 pro ts remitted to

government by the monopolistic enterprises or mar-

keting boards are considered to be taxes, classi ed as

pro ts of export or import monopolies (1153). While

in principle only the excess of the monopoly pro ts

over some notional “normal” pro ts should be treated

as taxes, it is di cult to estimate this amount, and in

practice the value of the taxes should be taken as equal

to the amount of the pro ts actually payable from the

export or import monopolies to government.  is

tax is recorded when the payment to the government

takes place rather than when the pro ts were earned

and does not include the retained reserves of the en-

terprises or marketing boards.

If an enterprise of this type generates pro 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.

Table 5.5 Detailed Classiﬁ cation of Taxes on

International Trade and Transactions

(115)

115 Taxes on international trade and transactions

1151 Customs and other import duties

1152 Taxes on exports

1153 Proﬁ ts of export or import monopolies

1154 Exchange proﬁ ts

1155 Exchange taxes

1156 Other taxes on international trade and

transactions

Further 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.

101 Revenue

5.87 Property income receivable from export or

import enterprises or marketing boards that do not

represent monopoly pro ts should be recorded as

dividends (1412) or withdrawals of income from quasi-

corporations (1413). Fiscal monopoly pro ts receiv-

able from public enterprises or marketing boards

dealing in commodities domestically, outside of in-

ternational trade, should be recorded under pro ts of

 scal monopolies (1143).

5.88 Exchange pro ts (1154) include the pro 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.

 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 o 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

pro 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 di erent

categories of transactions; the rates favor some cat-

egories and discourage others.  e net proceeds as a

result of these transactions are calculated as implicit

taxes or subsidies (see paragraph 6.89).  e amount

of the implicit tax or subsidy for each transaction can

be calculated as the di 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 o cial rates used for external transactions.

5.90 Exchange pro ts are o 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 classi ed accord-

ing to its nature.  ese lump-sum payments may

include components of dividends, exchange pro ts,

interest, and/or equity withdrawals.  is category for

exchange pro ts should not include any payments to

government of exchange pro 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

pro 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 classi ed as a withdrawal of equity rather

than a tax. Any operational pro ts transferred to gov-

ernment should be classi 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 uni ed exchange rate or at di 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.  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

classi ed, and unidenti ed taxes.  e item is subdi-

vided into other taxes payable solely by business (1161)

and other taxes payable by other than business or un-

identi able (1162).  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,

pro 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  nancial and capital transactions (11414). Examples

would be revenues from the sale of stamps required

to be a 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 speci c services

(1144). Similarly, stamp duties on  nancial transac-

tions would be shown as taxes on  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-

e ts payable. Social contributions [GFS] (12) exclude

contributions receivable under employment-related

pension and other retirement schemes that create a

liability for future bene ts payable. Social contribu-

tions are further classi ed according to the nature of

the payee and the nature of the scheme that received

these contributions (see Table 5.6).  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 bene ts, payable in cash and in kind, to the

contributors, their dependents, or their survivors.

 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  scal burden and other analytical uses.

Social contributions are classi ed as social security

contributions (121) or other social contributions (122)

depending on the type of scheme receiving them.

5.95  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

 e institutional units involved, classi cation, and record-

ing of  ows and stock positions related to social protection are

described in Appendix 2.

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 bene ts.

 ese transactions should be recorded in GFS as in-

currence of liabilities for future pension and other

retirement bene ts payable.  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.

The boundary between social contributions

and other categories of taxes

5.96 Compulsory transfers can be classi 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

bene ts.  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

 e 2008 SNA allows some  exibility regarding the recording

of pension entitlements of unfunded pension schemes sponsored

by government for all employees. Given the di erent institutional

arrangements in countries, and using this  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).

Table 5.6 Detailed Classiﬁ cation of Social

Contributions [GFS] (12)

12 Social contributions [GFS]

121 Social security contributions [GFS]

1211 Employee contributions [GFS]

1212 Employer contributions [GFS]

1213 Self-employed or unemployed

contributions [GFS]

1214 Unallocable contributions [GFS]

122 Other social contributions [GFS]

1221 Employee contributions [GFS]

1222 Employer contributions [GFS]

1223 Imputed contributions [GFS]

Further 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.

103 Revenue

assessed on a di erent base and earmarked for fund-

ing social protection schemes are classi 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 classi ed as taxes on income, pro ts, and

capital gains (111), even if earmarked for the pay-

ment of social bene 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 bene ts are classi-

 ed as taxes on payroll or workforce (112). Similarly,

compulsory levies on the use of fuel are classi ed as

excises (1142), even though some of it could be ear-

marked to  nance social bene ts to victims of motor

vehicle accidents. In these cases, if the government

unit that levies the tax and the unit providing the

social bene ts are not the same, a subsequent grant

should be recorded to the unit providing the social

bene 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

bene t of the contributors to the scheme.  ese con-

tributions are classi 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)

5.98 Other social contributions [GFS] (122) are ac-

tual and imputed contributions receivable by social

insurance schemes operated by employers on behalf

of their employees. Unlike social security schemes,

social insurance schemes for employees generally tie

the level of bene 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.  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 bene 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.

As described in detail in paragraphs

A2.64–2.66, in this situation, existing employees may

be considered as being protected against various spec-

i 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 bene 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 de 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

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-

si ed  rst by the type of unit providing the grant and

then by whether the grant is current or capital.

5.102  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.  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

de 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 de nition of a tax,

subsidy, or a social contribution (see paragraph 3.16).

If doubt exists regarding the character of a grant, it

should be classi 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 non 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

classi ed as current grants. Aid of a capital nature

receivable from resident and nonresident general

governments and international organizations is clas-

si 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

non nancial asset in the accounts of the donor gov-

ernment. In this case, there is no e ect in the net

lending/net borrowing, because the counterpart

entry for the positive e ect in the net worth (the

transfer of wealth implied by the grant revenue) is

a transaction in non 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 non nancial asset quite di 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 di 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

satis ed and the receiving unit has an unconditional

claim recorded under other accounts receivable

(3208). In some cases, a potential grant recipient has

Table 5.7 Detailed Classiﬁ cation of Grants (13)

13 Grants

131 From foreign governments

1311 Current

1312 Capital

132 From international organizations

1321 Current

1322 Capital

133 From other general government units

1331 Current

1332 Capital

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of subsectors and individual units (see Table 3.1).

105 Revenue

a legal claim when it has satis ed certain conditions,

such as the prior incurrence of expenses for a spe-

ci 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.  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  nancial assets and

natural resources at the disposal of another unit.

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  nancial assets (SDRs, deposits, debt secu-

rities, loans, and other accounts receivable) for put-

ting these  nancial assets and other resources at the

disposal of another institutional unit .

 e  nancial

assets giving rise to interest are all claims of creditors

over debtors. Under the accrual basis of recording,

Property income [GFS] (141) di ers due to the treatment of

 nancial intermediation services indirectly measured (FISIM) in

interest [GFS] (1411).

Interest [GFS] (1411) di ers due to the treatment of FISIM (see

paragraph 6.81 and Appendix 7).

the amount of outstanding debt increases as interest

accrues continuously over the period that the  nan-

cial asset exists, and the amount due to the creditor

declines as the payments are made on the debt by

the debtor.  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  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  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

14111 From nonresidents

14112 From residents other than general

government

14113 From other general government units

Further 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.

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  xed in monetary terms and it does not en-

title the holders to a  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 reclassi cation between

own funds, reserves, and undistributed pro ts.

5.112 Although dividends represent a part of in-

come that has been generated over a substantial period

of time, o 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 classi 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).  e sector of the counterparty to

dividends receivable should be identi ed separately

to allow for consolidation of the general government

and public sectors.

5.114 Distributions of pro ts by public corpora-

tions may take place irregularly and may not be ex-

Government or public sector units, in their capacity as share-

holders, may in some cases also acquire equity by transferring

non nancial assets to a corporation.

plicitly labeled as dividends. Nevertheless, dividends

include all distributions of pro ts by corporations to

their shareholders or owners, by whatever name they

are called, including pro ts of central banks trans-

ferred to government units, pro ts transferred or

distributed from the operation of monetary authority

functions outside the central bank, and pro ts trans-

ferred by state lotteries that compete with other pri-

vately organized lotteries. Distributions of pro ts of

 scal monopolies (1143) and pro ts of export or import

monopolies (1153), however, are classi 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

o 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.  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, o en referred to as “super-dividends,” are o 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  nancial assets, speci 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

Table 5.9 Detailed Classiﬁ cation of Dividends

(1412)

1412 Dividends

14121 From nonresidents

14122 From residents

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of subsectors and individual units (see Table 3.1).

107 Revenue

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  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  nancial advance to the shareholder

in transactions in  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 income

that the owner withdraws from the quasi-corporation.

By de nition, quasi-corporations

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.  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 non -

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.

See paragraph 5.116 for a discussion on distributable income.

 e criteria to identify quasi-corporations are described in

paragraph 2.33.

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.

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.  ese reserves are liabilities

toward the bene 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 bene 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).  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.  e  rst of these is the dividends dis-

tributed to investment fund shareholders.  e second

is retained earnings attributed to investment fund

shareholders.  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  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

Investment income disbursements by de nition also include

investment income attributed to participants in pension schemes.

However, public sector institutional units are not entitled to

pension bene 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 in nite life makes it available to a lessee in return

for a regular payment recorded as property income

and described as rent.

5.123 On the accrual basis of recording, rent ac-

crues continuously to the asset’s owner throughout

the period of the contract.  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 di 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 e ect, the user controls

the use of the resource during this time with little, if

any, intervention from the legal owner.  is option

leads to recording a transaction in an asset, classi 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.  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  xed in advance in monetary

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.

terms and is measured by the value at basic prices

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

 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).  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 “a er-tax rent.”  e adoption of this convention

re ects the true economic nature of the transactions

involved in the accounts of both parties.

Rent on subsoil assets

5.129  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 de 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.

Basic prices are prices before taxes on products are added

and subsidies on products are subtracted.

109 Revenue

5.130 General government units may grant leases

to other institutional units that permit them to extract

these deposits over a speci ed period of time in return

for a payment or series of payments.  ese payments

are o 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 speci ed periods of time.  e rent may

take the form of periodic payments of  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).

Rentals are payments made under

an operating lease to use a  xed asset belonging to a

unit where the owner maintains and replaces as nec-

essary, and makes available the  xed asset on demand

to lessees.  e di 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  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 di 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

 e rentals paid by tenants of buildings are treated as payments

for the provision of real estate activities or housing services.

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 pro ts, then it should be classi ed as taxes

on income, pro ts, and capital gains (111). Payments

related to the gross value of production should be

classi ed as other taxes on goods and services (1146).

Payments for a license or permit to conduct extrac-

tion operations should be classi 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-

vestment

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 income

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.

 e imputed remittance

Direct investment is a category of cross-border investment

associated with a resident in one economy having control or a sig-

ni cant degree of in uence on the management of an enterprise

that is resident in another economy (see the BPM6, paragraphs

6.8 and 11.40–11.47).

Distributable income is discussed in paragraph 5.116.

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).  e rationale behind

this treatment is that, because a direct investment en-

terprise is, by de nition, subject to control or in 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).

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 classi 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  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 signi cant.  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 signi 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 signi cant.  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

 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.

market establishments, their sales are included in this

category when compiling statistics for the public sec-

tor, unless the sales are of a speci 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 non nancial assets other than

inventories are disposals of non 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.  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 classi 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

Table 5.10 Detailed Classiﬁ cation of Sales of

Goods and Services (142)

142 Sales of goods and services

1421 Sales by market establishments

1422 Administrative fees

1423 Incidental sales by nonmarket

establishments

1424 Imputed sales of goods and services

Detailed 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.

111 Revenue

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.  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.  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 de 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.  e counterpart of this amount

should be recorded as an imputed sale of a  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  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.

5.143 In principle,  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  nes or other penalties from the taxes to

which they relate. In this case, the  nes and penalties

relating to a particular tax are recorded together with

that tax, and  nes and penalties related to unidenti -

able taxes are classi ed as other taxes (116).

5.144 Most  nes, penalties, and forfeits are deter-

mined at a speci c time.  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  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 ful lled.

Transfers not elsewhere classiﬁ ed (144)

5.145 Transfers not elsewhere classi ed (144) re-

ceivable include subsidies, as well as gi s and transfers

from individuals, private nonpro t institutions, non-

governmental foundations, corporations, or sources

other than governments and international organiza-

tions.  ese transfers could be classi 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-

si ed consistently by both parties (see paragraph3.18).

Transfers not elsewhere classi ed (144) comprise current

transfers not elsewhere classi ed (1441) (comprising

subsidies (14411) and other current transfers not else-

where classi ed (14412)), as well as capital transfers not

elsewhere classi 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

nonpro 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-

 ed (14412) are gi s and transfers of a current nature

(other than grants or subsidies) from individuals, pri-

vate nonpro t institutions, nongovernmental foun-

dations, or corporations.  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 classi ed

(1442) are gi s and transfers of a capital nature (other

than grants) from individuals, private nonpro 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.  e

payments may be awarded by courts of law or

settled out of court.  ey include payments of

compensation for damages caused by major ex-

plosions, oil spillages, etc.

• International aid of a capital nature receivable

a er natural disasters from nonresidents other

than international organizations and foreign

governments

International aid receivable from resident and nonresident gen-

eral government units and international organizations is classi 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 de -

cits accumulated over two or more years

• Legacies or large gi s receivable by government

or public sector units, including gi 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  nance gross  xed capital formation: for ex-

ample, transfers for the construction or purchase

of hospitals, schools, museums, theaters, and cul-

tural centers, or gi s to universities to cover the

costs of building new residential colleges, librar-

ies, laboratories, etc.

• Capital transfers from corporations, quasi-

corporations, nonpro t institutions serving

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

e ective liability toward them

• Amounts receivable in excess of the expected

value of liabilities assumed for the provision of

pension entitlements

• 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

Where a realistic expectation exists that such amounts will

be repayable, as indicated by certain criteria (see Box 6.3), the

transaction should be classi ed as the acquisition of a  nancial

asset. A regular transfer covering an operating de cit is recorded

as a subsidy.

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.

Amounts receivable up to the expected value of the liabilities

should be recorded as transactions in  nancial assets and liabili-

ties (i.e., the incurrence of a liability) (see paragraph 9.67).

Table 5.11 Detailed Classiﬁ cation of Transfers

Not Elsewhere Classiﬁ ed (144)

144 Transfers not elsewhere classiﬁ ed

1441 Current transfers not elsewhere classiﬁ ed

14411 Subsidies

1,2,3

14412 Other current transfers not elsewhere

classiﬁ ed

1,3

1442 Capital transfers not elsewhere classiﬁ ed

1,3

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of subsectors and individual units (see Table 3.1).

Further breakdown/“of which” lines could also identify whether

these subsidies are subsidies on products or production.

Further breakdown/“of which” lines could also identify whether

these transfers are related to speciﬁ c natural resource or environ-

mental revenue.

113 Revenue

Table 5.12 Detailed Classiﬁ cation of Premiums,

Fees, and Claims Receivable Related

to Nonlife Insurance and Standardized

Guarantee Schemes (145)

145 Premiums, fees, and claims receivable related

to nonlife insurance and standardized

guarantee schemes

1451 Premiums, fees, and current claims

receivable

14511 Premiums receivable

14512 Fees receivable for standardized

guarantee schemes

14513 Current claims receivable

1452 Capital claims receivable

Further 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 di cult for the parties to identify these exception-

ally large settlements consistently, so as a simplifying

convention, all nonlife insurance claims are classi ed

as current transfers, unless it is necessary to record

a capital transfer to be consistent with the national

accounts.

receivable

by insurance schemes to provide entitle-

ment to insurance against risks; claims receivable from

insurance schemes by bene 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.

 e types of insurance and standardized guarantee

schemes, terminology used in insurance, and the sta-

tistical recording of  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 classi ed according to the

sector of the counterparty (see Table 5.12).

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

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-o guarantees are recorded as administrative fees

(seeparagraph5.138).

See Appendix 4 for an illustration of the recording of transac-

tions and stock positions related to insurance, including stan-

dardized guarantees.

Expense

 is chapter de nes the concept of expense and de-

scribes the manner in which expense is classi ed.

Deﬁ ning Expense

6.1 Expense (1) is a decrease in net worth resulting

from a transaction. Expense transactions as de ned

in GFS have counterpart entries either in a decrease

in assets or an increase in liabilities—thereby de-

creasing net worth.  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).

 ese responsibilities are largely ful lled through ex-

pense transactions, which are classi ed in two ways

in GFS: an economic classi cation and a functional

classi cation.

6.2  e economic classi cation of expense identi-

 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  xed capital

all relate to the costs of producing nonmarket (and,

in certain instances, market) goods and services by

government. Subsidies, grants, social bene ts, and

transfers other than grants relate to transfers in cash

or in kind, and are aimed at redistributing income

and wealth.

6.3  e functional classi cation of expense pro-

vides information on the purpose for which an

expense was incurred. Examples of functions are

education, health, and environmental protection.  e

functional classi cation is described in the annex to

this chapter.

In addition, the economic and func-

tional classi cations can be cross-classi 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.

 ese transactions are treated as a reduction in ex-

pense, with a corresponding reduction in liabilities or

an increase in  nancial assets.

6.5 Some transactions are exchanges in assets and/

or liabilities and should not be recorded as expense.

 e acquisition of a non nancial asset by purchase or

barter does not a ect net worth, and such transactions

are not an expense.  ey are transactions in non -

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.  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.  ese are transac-

tions in  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

In GFS, the functional classi cation is applied to expenditure—

that is, the sum of expense transactions and net investment in

non nancial assets.

115 Expense

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.

However, in practice, as described in paragraphs

8.45–8.47, the change in inventories is o en not re-

corded for each transaction, but rather calculated as

a residual from information on stock positions and

 ows in inventories. Other applications of the accrual

basis to speci c categories of expense transactions are

indicated in each section of the economic classi 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-

 cation of expense, and the remainder of this chapter

describes each category in detail.

While the summary

GFS expense classi cation structure provides guid-

ance on the minimum requirements for internation-

ally comparable classi cations of expense, analytical

needs may necessitate further detailed classi cations

to be added as subitems in national data presentations.

 ese additional subitems may be presented either as

a comprehensive breakdown of the standard item, or

presented as “of which” lines.  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).

Where these goods are used in own-account capital formation to

create another asset, such as a  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.

See also Appendix 8, Table A8.2, for the detailed classi cations.

Compensation of Employees [GFS]

(21)

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.

 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)

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 non nancial assets

for own use, is directly recorded as a component of the

cost of the acquisition of non 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 classi 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).

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

[GFS] indicates that an item has the same name but di erent

coverage in the 2008 SNA.

 e numbers in parentheses a er each classi cation category are

the GFS classi cation codes. Appendix8 provides all classi cation

codes used in the GFS framework.

Compensation of employees is described in the 2008 SNA,

paragraphs 7.28–7.70.

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

 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

 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.  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.  ese deductibles are

o 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 6.1 Summary Economic Classiﬁ cation of Expense

2 Expense 27 Social beneﬁ ts [GFS]

21 Compensation of employees [GFS]

271 Social security beneﬁ ts [GFS]

211 Wages and salaries [GFS] 2711 Social security beneﬁ ts in cash [GFS]

2111 Wages and salaries in cash [GFS] 2712 Social security beneﬁ ts in kind [GFS]

2112 Wages and salaries in kind [GFS] 272 Social assistance beneﬁ ts [GFS]

212 Employers’ social contributions [GFS] 2721 Social assistance beneﬁ ts in cash [GFS]

2121 Actual employers’ social contributions [GFS] 2722 Social assistance beneﬁ ts in kind [GFS]

2122 Imputed employers’ social contributions [GFS] 273 Employment-related social beneﬁ ts [GFS]

241

242

243

251

252

253

261

2611

2612

262

2621

2622

263

2631

2632

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

To private enterprises

To other sectors

Grants

To foreign governments

Current

Capital

To international organizations

Current

Capital

To other general government units

Current

Capital

2731 Employment-related social beneﬁ ts in

cash [GFS]

2732 Employment-related social beneﬁ ts in

kind [GFS]

28 Other expense

281 Property expense other than interest

2811 Dividends

2812 Withdrawals of income from

quasi-corporations

2813 Property expense for investment income

disbursements

2814

2815

282

2821

2822

283

2831

2832

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

Capital claims

Indicates that further breakdown may be analytically useful and is presented in detailed tables.

117 Expense

Wages and salaries in cash [GFS] (2111)

6.13 Wages and salaries in cash

are the amounts

payable in cash, or any other  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

 e use of the term “cash” should not be viewed as denot-

ing the cash basis of recording, but rather denotes monetary

remuneration.

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 bene 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.  ey are thus

regarded as being paid by the employer to the

employee.

6.14 In some instances, an employee bene 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).  e

bene t may be “purchased” from the employer by

forgoing some salary.  e attraction of such schemes

o 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 bene ts

“purchased” and be recorded as payable in cash—the

cost of acquiring the bene 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

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.

Table 6.2 Detailed Classiﬁ cation of Compensation

of Employees [GFS] (21)

21 Compensation of employees [GFS]

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

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of the types of compensation of employees payable.

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:

•  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 di erent parts of the

country or to another country

•  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 bene ts

payable by governments to their employees in the

form of:

• Children’s, spouse’s , family, education, or other

allowances in respect of dependents

• Payments made at full, or reduced, wage or salary

rates to workers absent from work because of ill-

ness, accidental injury, maternity leave, etc.

• Severance payments to workers or their survi-

vors who lose their jobs because of redundancy,

incapacity, accidental death, etc.

 ese social bene 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-

e 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

If it is di 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.

performed. As indicated in Table 6.2, wages and

salaries in kind [GFS] (2111) exclude amounts con-

nected with own-account capital formation.  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 di erence between the full value

of the goods and services and the amount payable by

the employees.  ese goods and services provided

in kind by the government to its employees are not

necessary to enable them to perform their work.  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.  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 o ce canteen

(for practical reasons, it is not necessary to make

estimates for meals and drinks consumed as part

of o cial entertainment or during business travel)

• Clothing or footwear that employees may choose

to wear frequently outside of the workplace and

while at work

• Housing services or accommodation of a type

that can be used by all members of the household

to which the employee belongs

•  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

•  e value of the interest forgone

by employers

when they provide loans to employees at reduced

 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.  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.

119 Expense

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 options

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 bene 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 bene 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 bene ts for their employ-

ees. Employers’ social contributions are payable by

employers for the bene 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, o en a social security fund or a pub-

lic  nancial corporation. It is administratively more e -

cient for the employer to pay the contributions on behalf

of their employees, rather than each employee making

individual payments.  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

Under a stock option agreement, the employer gives an em-

ployee the option to buy stocks or shares at a speci ed price at a

future date (see paragraphs 9.77–9.81).

scheme.

 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,  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 bene ts for their

employees.  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, su cient to exactly match the increases in em-

ployees’ social bene t entitlements.  ese imputed

employers’ social contributions may relate to pension

and to nonpension bene 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 bene 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 bene ts payable). In this situation, employees

 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.  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 e ciency.

120 Government Finance Statistics Manual 2014

may be considered as being protected against various

speci ed needs or circumstances, even though no re-

serves are built up to provide for future entitlement to

bene 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.

 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 bene 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.  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 di cult to decide

how large such imputed contributions should be.  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 bene 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  e imputation of employers’ social contribu-

tions related to employment-related pension bene ts

is in 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 de 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 de ned-bene t pension scheme, there is

an imputed contribution recognized, equal to

the increase in bene 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.

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.  e fact that the value of imputed

contributions for a noncontributory scheme may be set

equal to the value of bene ts payable does not mean

that the bene ts themselves are recorded as part of

compensation of employees. Rather, the employee has a

pension asset that is reduced when bene ts are payable.

When a pension manager is a unit di erent from the

administrator, and the responsibility for any de 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.

Ex-

cluded are:

• Consumption of  xed capital (23)

•  e use of goods and services in own-account

capital formation, which should be recorded as

the acquisition of non nancial assets (see para-

graph 8.3)

Some de ned-bene t pension schemes may have  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).

Use of goods and services is closely related to intermediate

consumption in the 2008 SNA.  e relationship between the two

concepts is explained in Appendix7. Intermediate consumption

is described in the 2008 SNA, paragraphs6.213–6.239.

121 Expense

• Goods purchased by government and distrib-

uted without transformation, which should be

recorded as some type of transfer in kind; these

transfers are classi ed as subsidies (25), grants

(26), social bene ts (27), or current transfers not

elsewhere classi 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

o en coincide for inputs of services but not for goods,

which may be acquired some time in advance of their

use.  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,

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 bene 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.  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.  is amount

will not include the value of goods paid for in prior

periods, but used in the current period.

6.32  e boundaries between use of goods and

services and other expenditure items, such as com-

As described in paragraph 7.75, inventories may include ma-

terials and supplies, work in progress,  nished goods, goods for

resale, and military inventories. See paragraphs 8.44–8.47 for a

discussion on transactions in inventories.

pensation of employees, transfers, or acquisition of

non 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.  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 speci 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.  e

right to control or to direct work performed and

how it shall be performed is a strong indication of an

employer-employee relationship.  e method of mea-

suring or arranging for the payment is not important

as long as the employer has e 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

Table 6.3 Relationship between Inventories (612)

and Use of Goods and Services (22)

612

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

412 Plus/Minus: Holding gains/losses

512 Plus/Minus: Other volume changes

612

Minus: Closing stock position of inventories

22 Equals: Use of goods and services

122 Government Finance Statistics Manual 2014

a service—for example, when subcontracts are en-

tered into.  erefore, other criteria should also be

used to de ne more clearly the employer-employee

relationship.  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 bene 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 classi ed (282).

Such transfers may entail the transfer of government-

owned  xed assets, the transfer of goods held in inven-

tories, the construction of  xed assets, or the purchase

and subsequent transfer of either  xed assets or goods

and services for current consumption. Examples are

transfers of food, clothing, blankets, and medicines as

emergency aid a 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 a er a natural disaster.

 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.

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 bene ts in kind or distrib-

uted to households in particular circumstances, such

as following a natural disaster. Such social bene ts can

 e treatment in the 2008 SNA di ers because national ac-

counts have the purpose to calculate production, transfers, and

consumption.  erefore, the SNA treatment is to record the cost

of production and the imputed sale of the goods and services to

the  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).

123 Expense

be distributed through social security schemes; so-

cial insurance schemes operated for the bene t of

government employees, their dependents, or survi-

vors; or social assistance. A common type of social

bene 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.

Bene ts for government employees and dependents

typically include general medical services not related

to the employee’s work,

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 bene ts in kind or distributed to households in

particular circumstances, are classi ed as social bene 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 speci 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.  ese include payments by public corpo-

rations of membership dues or subscriptions to mar-

ket nonpro t institutions (NPIs) serving businesses,

such as chambers of commerce or trade associations,

Should these bene ts be related to their employment contract,

they will be included in compensation of employees (21).

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 di 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 classi ed as a

grant (26), or otherwise as current transfers not

elsewhere classi ed (2821).

The boundary between use of goods

and services and the acquisition of

nonﬁ nancial assets

6.43 Goods acquired for use as  xed assets or valu-

ables, or for use in own-account capital formation, are

classi ed as acquisitions of  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).  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  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

signi cant part of the value of the total stock of ma-

chinery and equipment, they may be regarded as  xed

assets and their acquisition and disposal by public

sector units recorded under the net acquisition of

non nancial assets.

6.44 Goods and services acquired to increase in-

ventories of materials and supplies, work in progress,

 nished goods, and goods for resale are included in

changes in inventories (312), a type of non nancial

asset (see paragraph 7.75).

6.45 Goods and services consumed for the ordi-

nary maintenance and repair of  xed assets constitute

use of goods and services. However, major renova-

tions, reconstructions, or enlargements of existing

 xed assets are recorded as acquisitions of  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  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 bene 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-

si ed as acquisitions of  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.  e issuance of the coins or notes is a

 nancial transaction that does not involve revenue or

expense. Commemorative coins that are not actually

in circulation as legal tender are classi ed as non -

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  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  ere is a signi cant conceptual di erence

between rentals of  xed assets under an operating

lease and the acquisition of an asset under a  nan-

cial lease. Under an operating lease, (see paragraph

A4.6) the lessor remains the economic owner of the

 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  nancial lease (see

paragraphs 8.17 and A4.10), the lessee becomes the

economic owner of the  xed asset and payments are

recorded as payments of interest and repayments of

principal by the lessee to the lessor, and thus do not

a 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 classi 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  nancial services should al-

ways be classi ed as use of goods and services. How-

ever, some transactions include an implicit fee for

 nancial services that is not recorded separately in

GFS.  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,  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  xed capital is the de-

cline, during the course of the reporting period, in

the current value of the stock of  xed assets owned

and used by a government unit as a result of physical

125 Expense

deterioration, normal obsolescence, or normal acci-

dental damage.

 e concept of consumption of  xed

capital is identical to the concept used in the 2008

SNA. However, the amount of consumption of  xed

capital [GFS] (23) expense recorded in GFS may di 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

non nancial assets are produced on own-account, the

consumption of  xed capital related to that produc-

tion process is recorded in GFS as part of the cost of

acquisitions of the  xed assets rather than expense

(see paragraphA7.25).

6.54 Consumption of  xed capital may deviate

considerably from depreciation as recorded in gov-

ernment  nancial records. Consumption of  xed cap-

ital is a forward-looking measure that is determined

by future rather than past events—it is determined

by the bene 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

 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  xed as-

sets (historic cost) over subsequent reporting periods.

Consumption of  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  xed

assets used are not actually to be replaced, the amount

of consumption of  xed capital charged as a cost of

production should be su cient to enable the assets to

be replaced, if desired.

6.55 Consumption of  xed capital is estimated

with respect to all  xed assets owned by government

Consumption of  xed capital is described in the 2008 SNA in

paragraphs6.240–6.257.

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  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  e calculation of the consumption of  xed

capital re ects assumptions about normal rates of

physical deterioration, obsolescence, and accidental

damage. Although some  xed assets, such as roads

or railway tracks, may appear to have in 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  xed assets are

scrapped or demolished only because they have be-

come obsolete. Consequently, consumption of  xed

capital must include an allowance for anticipated

obsolescence. Any di 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  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  res, storms, accidents

due to human error, etc.) are also included under

consumption of  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 di 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  xed capital excludes the loss

of value when  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

signi cantly shorten the service life of an existing  xed

asset.  ese events are recorded as other economic

 ows and recorded as an other change in the volume of

assets (see paragraph 10.66). Holding gains and losses

Table 6.4 Detailed Classiﬁ cation of Consumption

of Fixed Capital [GFS] (23)

23 Consumption of ﬁ xed capital [GFS]

Consumption of ﬁ xed capital [SNA]

Minus: Related to own-account capital formation

Further 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).

126 Government Finance Statistics Manual 2014

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.

Box 6.1 The Calculation of Consumption of Fixed Capital

due to changes in the price of the asset must also be ex-

cluded from consumption of  xed capital.  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  xed capital, the

 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 e ciency is expected to diminish.

Consumption of  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

127 Expense

assumed.

Box 6.1 provides a more comprehensive

explanation of the calculation of consumption of

 xed capital.

6.60 Conceptually, costs of ownership transfer on

the acquisition of non nancial assets should be written

o as consumption of  xed capital over the period the

asset is expected to be held by the purchaser rather than

over the whole life of the asset.  is approach re ects

the assumption that the bene ts provided by the asset

must be su 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 bene 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 non nancial asset is estimated at

the time of the acquisition of the asset and is written

o over the period that the owner expects to hold the

asset), except for the terminal costs, which should be

written o over the whole life of the asset. If an asset

is disposed of before the costs of ownership transfer

are completely written o , 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

 ows occurred. Since no cash  ows are associated

with consumption of  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  nancial

assets (SDRs, deposits, debt securities, loans, and other

accounts receivable)

for putting these  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).  e li-

abilities giving rise to interest expense are all claims of

creditors upon debtors.  e liabilities generating the

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  xed capital.

Financial assets and their classi cation are described in

Chapter7.

Table 6.5 Detailed Classiﬁ cation of Interest (24)

24 Interest [GFS]

Interest [SNA]

Plus: FISIM

241 To nonresidents

242 To residents other than general government

243 To other general government units

Further 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  nancial

or non nancial resources (as in the case of  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.  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  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 de ned indi-

cator, or some combination of these. Interest normally

is not payable until the expense has accrued.  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.  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.

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  ows occur. In this case,

only principal repayments will reduce the debtor’s li-

ability.  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.

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  xed rate instruments, this approach

assumes that interest expense is determined for the

entire life of a  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 e ective yield, established at

the time of security issuance, is used to calculate the

amount of accrued interest in each period to matu-

rity.  e accrual of interest should be calculated by the

compound interest method.

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  nal payment of inter-

est is made together with a repayment of the original

amount borrowed.  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

 ere are three approaches for de ning and measuring interest

for traded debt instruments: debtor approach, creditor ap-

proach, and acquisition approach (see the BPM6, paragraphs

11.52–11.53).

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.

as interest expense is incurred. Any periodic payment

of the accrued interest reduces the principal to the

amount originally borrowed.

6.69 Some debt instruments may have a grace

period

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 speci 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.

 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  nal yield is roughly similar to what it would

have been under normal conditions over the total life

of the instrument.  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 return

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.

6.71 Certain  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 e 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.  e di erence

 e grace period is the period from the disbursement of the

loan until the  rst payment due by the debtor.

If a prepayment fee or a penalty for prepayment is paid, it

should be classi ed as a service fee under use of goods and services

(22), and not as interest.

See the 2013 EDS Guide, paragraph 2.98 and Box 2.4, for a

discussion on internal rate of return.

 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.

129 Expense

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.  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.  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.

 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 di 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 di 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.  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.  e method of

determining the accrued interest expense is identi-

cal to the case of a discounted instrument except that

the premium (the di 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.  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

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 o en structured with periodic

payments that incorporate both interest and prin-

cipal payments.  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).  e item is one that

normally changes over time in response to market

pressures.  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  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  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 a 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.  ere are two approaches,

130 Government Finance Statistics Manual 2014

depending on whether the index is based on a broad

or narrow reference item.

• 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:



 e amount resulting from the indexation of

the coupon payment (as described in paragraph

6.76) that is attributable to the reporting period



 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.

 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  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

di 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.

 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).  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  ows, and stock positions for these instru-

ments should be calculated using the same principles

 ese approaches are discussed in more detail in the 2008

SNA, paragraphs 17.274–17.282, and the BPM6, paragraphs

11.59–11.65.

that apply to foreign-currency-denominated instru-

ments (see paragraph 9.11) .

6.79 For debt securities with embedded deriva-

tives, the recording for accrued interest on the  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 di erent interest rate for arrears

was stipulated in the original debt contract, in which

case this stipulated interest rate should be used.  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  e interest expense payable to  nancial in-

termediaries recorded in GFS di ers from the amount

recorded in the 2008 SNA. Interest [GFS] (24) does

not partition interest to separately record a service

fee. A  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  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

 nancial intermediaries would need to be reduced

by the value of the fee for the services.

 ese fees,

known as FISIM, can be estimated only indirectly by

compilers of the national accounts because data for all

depositors and borrowers of  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,  nes,

or other penalties from the taxes to which they relate,

Similarly, any interest receivable from  nancial intermediaries

would need to be increased by the value of the implicit service fee

that has reduced the interest receivable.

131 Expense

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 classi ed as a tax payable from one

government unit to another and classi ed as a com-

ponent of transfers not elsewhere classi ed (282) (see

paragraph 6.122). For purposes of consolidation, the

relevant government units should be identi 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)

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 in uence

levels of production, the prices at which outputs are

sold, or the pro 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  nancial transactions by the distributing agency.

Subsidies are described in the 2008 SNA, paragraphs

7.98–7.106.

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  nal consumers, and are current transfers only,

not capital transfers. Transfers that government units

make directly to households as consumers and most

transfers to nonpro t institutions serving households

are recorded as either social bene ts (27) or transfers

not elsewhere classi 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,

nonpro t institutions serving households, and house-

holds can receive subsidies in their capacity as pro-

ducers. To be classi 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 nonpro t institutions) that

employ members of a speci ed profession or people

with a speci 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 bene ts to households.

6.87 As indicated in Table 6.6, subsidies may be

classi ed according to the institutional sector of the

recipients. Subsidies to public corporations (251) and

to private enterprises (252) are further subdivided into

non nancial or  nancial corporations and enterprises.

Table 6.6 Detailed Classiﬁ cation of Subsidies (25)

Subsidies

251 To public corporations

2511 Public nonﬁ nancial corporations

2512 Public ﬁ nancial corporations

252 To private enterprises

2521 Private nonﬁ nancial enterprises

2522 Private ﬁ nancial enterprises

253

To other sectors

Further breakdown/“of which” lines could identify whether

these subsidies are subsidies on products or production.

Further 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 nonpro 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 speci cally used in the GFS

classi cation structure, the 2008 SNA further identi-

 es subsidies according to whether they are payable

on speci 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.  e subsidy may be a

speci c amount of money per unit of quantity of a

good or service, or it may be calculated ad valorem

as a speci ed percentage of the price per unit. A sub-

sidy may also be calculated as the di erence between

a speci 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.  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)

• Implicit subsidies resulting from the operation

of an o 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,

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.  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.  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 policy

• 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 policy

• 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 speci 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  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 e 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 classi ed (2822).

• Transfers made by governments to other resident

or nonresident units to  nance all or part of the

In these cases, the subsidy is calculated as the di erence be-

tween the purchase and the selling price.

Transfers to corporations and quasi-corporations to cover

large operating de cits accumulated over two or more years are

recorded as capital transfers not elsewhere classi ed (2822).

133 Expense

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).

Box 6.2 Implicit Subsidies of Central Banks

costs of their acquiring non nancial assets other

than inventories—these payments are recorded

either as capital grants (26) or as capital transfers

not elsewhere classi ed (2822).

• Extraordinary payments into social insurance

funds, in so far as these payments are designed

to increase the actuarial reserves of these funds:

 ese payments are recorded either as capital

grants to other general government units (2632)

or as capital transfers not elsewhere classi ed

(2822).

• Transfers made by general government units to

corporations and quasi-corporations to cover

large operating de cits accumulated over two or

more years, or exceptional losses due to factors

outside the control of the enterprise:  ese pay-

ments are recorded as capital transfers not else-

where classi ed (2822) (see Box 6.3).

•  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 non nancial enterprise that does

not have the ability to make repayments due to

trading losses accumulated over several  nancial

years):  ese transactions are recorded as capital

grants to other general government units (2632) or

as capital transfers not elsewhere classi ed (2822)

if the bene 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

 ese payments are recorded as capital grants to

other general government units (2632) or as capi-

tal transfers not elsewhere classi ed (2822).

• Transfers to households (o en called “subsidies”)

but intended to supplement household income

or defray household expense:  ese do not relate

to production activities and should therefore be

included in the relevant category of social ben-

e ts (27).

• Increases in equity in corporate enterprises of

general government:  ese are recorded as trans-

actions in the  nancial instrument equity and

investment fund shares (3205) if an e ective  -

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:  ese payments are recorded

as capital transfers not elsewhere classi 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:  ese payments are re-

corded as social bene 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 de 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

classi ed  rst by the type of unit receiving the grant

and then by whether the grant is current or capital.

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.

Box 6.3 Transactions with Public Corporations

135 Expense

6.93  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).  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 identi 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).  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-

 ed as current.  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  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)

6.96 Social bene 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.  ese bene ts are payable in

cash or in kind to protect the entire population or spe-

ci c segments of it against certain social risks. Social

risks are events or circumstances that may adversely

a ect the welfare of the households concerned either

by imposing additional demands on their resources

or by reducing their income. Examples of social ben-

e ts are the provision of medical services, unemploy-

ment compensation, and social security pensions. For

 e institutional units involved, classi cation, and record-

ing of  ows and stock positions related to social protection are

described in Appendix 2.

a complete discussion on social protection, see Ap-

pendix 2.

6.97 Not all social bene ts as de ned in the 2008

SNA are classi ed in this GFS expense item (see

Table6.8). Social bene ts [GFS] (27) exclude:

•  e payment of pensions and other retirement

bene ts through employment-related social

schemes, which are recorded in GFS as reduc-

tions in liabilities.

• Goods and services produced by government and

transferred to households are expense transac-

tions not classi ed as social bene ts. Instead, the

expense transactions are recorded as production

expenses as part of compensation of employees,

use of goods and services, and consumption of

 xed capital, as appropriate.

6.98 Social bene ts are classi ed  rst according to

the type of social protection arrangement governing

their payment: social security, social assistance, or

employment-related social insurance schemes, and

In the 2008 SNA, all payments of pension and other retirement

bene 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 (de ned contributions or de ned bene ts), are  rst

recorded as transfer payments to households in the use of income

account, and then as a change in pension entitlements in the

 nancial account. Subsequently, the reductions in liabilities are

recorded as an adjustment entry made to remove any inconsis-

tency between the bene ts and the change in liabilities.

In the 2008 SNA, when a general government unit produces

goods and services that are distributed as social bene 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 bene ts.

Table 6.7 Detailed Classiﬁ cation of Grants (26)

26 Grants

261 To foreign governments

2611 Current

2612 Capital

262 To international organizations

2621 Current

2622 Capital

263 To other general government units

2631 Current

2632 Capital

Further breakdown/“of which” lines could allow for the identiﬁ -

cation of subsectors and individual units (see Table 3.1).

136 Government Finance Statistics Manual 2014

then by whether the payment was made in cash or

in kind.  ese bene ts are divided between pensions

and nonpension bene ts.

6.99 Social security bene ts [GFS] (271) are so-

cial bene ts expense payable in cash or in kind to

households by social security schemes (see paragraph

A2.33). Typical social security bene ts in cash [GFS]

(2711) include extended sickness and invalidity ben-

e ts, maternity allowances, children’s or family al-

lowances, unemployment bene ts, retirement and

survivors’ pensions, and death bene ts.

6.100 Social security bene ts in kind [GFS] (2712)

typically consist of goods and services purchased

from a market producer on behalf of households and

bene ts related to the reimbursements of costs of

goods and services purchased by households in accor-

dance with the rules of the scheme.

 ese bene 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.

Although these reimbursements (partial or in full) are normally

paid in cash, they are recorded as social bene 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 bene ts [GFS] (272) are

transfers payable in cash or in kind to households to

meet the same needs as social insurance bene ts but

that are not made under a social insurance scheme.

Eligibility to receive such bene ts is not dependent

on having elected to participate as demonstrated by

the payment of contributions. Social assistance ben-

e ts therefore exclude all bene ts payable by social

security funds.

6.102 Social assistance bene ts may include those

bene 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

bene ts.

• Contributions to social insurance schemes were

made on behalf of households who cannot oth-

erwise a ord to participate in the scheme, in

order to secure entitlement to the bene ts of the

scheme for them.

• Social insurance bene ts are deemed to be inade-

quate to cover the needs in question, so the social

assistance bene ts are being paid in addition.

• Implicit social assistance bene ts were paid re-

sulting from payable tax credits (see paragraph

5.31).

• As a matter of general social policy.

6.103 Social assistance bene 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 classi ed (282).

6.104 Employment-related social bene ts [GFS]

(273) are social bene 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).  e kinds of bene ts provided relate

to nonpension bene 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,

Table 6.8 Detailed Classiﬁ cation of Social

Beneﬁ ts(27)

27 Social beneﬁ ts [GFS]

Social beneﬁ ts [SNA]

Minus: Social beneﬁ ts related to reductions in

liabilities

Minus: Cost associated with the own

production of goods and services

transferred to households

271 Social security beneﬁ ts [GFS]

2711 Social security beneﬁ ts in cash [GFS]

2712 Social security beneﬁ ts in kind [GFS]

272 Social assistance beneﬁ ts [GFS]

2721 Social assistance beneﬁ ts in cash [GFS]

2722 Social assistance beneﬁ ts in kind [GFS]

273 Employment-related social beneﬁ ts [GFS]

2731 Employment-related social beneﬁ ts in

cash [GFS]

2732 Employment-related social beneﬁ ts in

kind [GFS]

A similar breakdown could be applied to other subcategories of

social beneﬁ ts, as relevant.

137 Expense

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  e payment of employer social bene ts is

o en made out of the government’s own resources

without involving an insurance enterprise or an au-

tonomous or nonautonomous pension fund. To re 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).  ese imputed

values are equal to the value of the employment-re-

lated social bene ts payable in this item.

6.106 When using the accrual basis of record-

ing, the payment of pensions and other retirement

bene 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-

e ts [GFS] (2731).

Other Expense (28)

6.107 Other expense comprises property expense

other than interest (281), transfers not elsewhere clas-

si 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  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 classi 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

(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 pro ts by public corporations may take

place irregularly and may not be explicitly labeled as

dividends. Nevertheless, except for distributions by

 scal, export, or import monopolies, dividends in-

clude all distributions of pro ts by public corpora-

tions to their shareholders or owners.

 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 o 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, o en referred to as “super-

dividends,” require special consideration. See para-

graphs5.115–5.116 for a description of the treatment

Distributions of pro ts by  scal, export, and import monopolies

are recorded as taxes payable (see paragraphs 5.63–5.68 and 5.86).

 erefore, in expense, these amounts payable are classi ed as

transfers not elsewhere classi ed (282).

Table 6.9 Detailed Classiﬁ cation of Dividends

(2811)

2811 Dividends

28111 To nonresidents

28112 To residents

Further breakdown/“of which” lines could allow for the

identiﬁ cation of subsectors and individual units (see Table 3.1).

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 de 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.  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.  e sale of

inventories,  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 bene ts and calls under

standardized guarantee schemes.  e reserves are li-

abilities toward the policyholders or bene ciaries.

Any income receivable from the investment of the

corresponding assets should be attributed as the prop-

erty income of the policyholders or bene ciaries, and

therefore a property expense is recorded to re 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.

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 bene 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: de ned-contribution schemes and de ned-

bene t schemes. Under both schemes, the operator

of the scheme records a property expense attributed

to policyholders to re ect changes in the liability out-

standing for the pension entitlements.  ese changes

may arise from investment income and the change in

value due to the passage of time.

6.117 With a de ned-bene t scheme, the future

pension bene ts are de ned by some formula nor-

mally related to participants’ length of service and

salary.  e nominal values of the pension bene ts

payable in the future are determined actuarially based

on estimates of variables, such as expected retire-

ment ages, mortality rates, expected in ation, and

expected salary increases.  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

For a description of  ows and stock positions related to

insurance and standardized guarantee schemes, see paragraphs

A4.66–A4.80.

139 Expense

of additional contributions and property income, the

payment of bene ts, changes in the actuarial assump-

tions, and the passage of time.  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 bene ciaries and the passage of

time, which occurs because the future bene ts are dis-

counted over fewer reporting periods.

6.118 With de ned-contribution schemes, the

level of contributions to the fund, rather than the level

of bene ts, is guaranteed by the employer. All de ned-

contribution schemes are funded (see paragraph

A2.55), and the liability of a de ned-contribution

scheme is equal to the current market value of the

fund’s assets.  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 re ected in holding losses on the

scheme’s unit’s liability to the bene ciaries.

6.119  e increase/decrease in the value of invest-

ment fund shares (or units), other than from other

economic  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.  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.

Reinvested earnings on foreign direct

investment (2815)

6.121 Reinvested earnings are the direct inves-

tor’s share of the retained earnings of the direct in-

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.  e imputed remittance of these

retained earnings is classi 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.  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 classi ed (282)

payable include a number of gi s and transfers to in-

dividuals, private nonpro t institutions, nongovern-

mental foundations, corporations, or government

units that are not included in other categories of

transfers and serve quite di erent purposes. Trans-

fers not elsewhere classi ed (282) are subdivided

into current transfers not elsewhere classi ed (2821)

and capital transfers not elsewhere classi 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, nonpro t institutions

serving households, public non nancial corpora-

tions, public  nancial corporations, or private cor-

porations (see Table 6.10).

Current transfers not elsewhere

classiﬁ ed (2821)

6.123  e most important types of current trans-

fers included here are:

• Current transfers to nonpro t institutions serving

households:  ese transfers usually consist of cash

140 Government Finance Statistics Manual 2014

in the form of membership dues, subscriptions, and

voluntary donations, whether made on a regular

or occasional basis.

Such transfers are intended

to cover the costs of the production of nonpro 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-

e ts.  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  nes im-

posed by one unit of general government or pub-

lic corporations on another government unit or

public corporation:  ese transfers are subject to

elimination by consolidation.

• Net nonpayable tax credits: When, due to tim-

ing di 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-

 ed as subsidies or social bene ts:  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:  ese payments

can be either compulsory payments awarded by

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 bene 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  nal consumption other than social bene ts.

Capital transfers not elsewhere

classiﬁ ed (2822)

6.124  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:  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, nonpro t institutions serving

households, households, and nonresidents in

cash or in kind, to  nance all or part of the costs

of acquiring non nancial assets, to cancel or as-

sume a debt by mutual agreement with the debtor

without acquiring an e ective  nancial claim on

the original debtor (see Box6.3).

• Transfers payable to corporations and quasi-

corporations to cover large operating de cits ac-

cumulated over two or more years.

• Payment of interest or other debt service cost on

behalf of other producer units without acquiring

an e 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.

 is expense category excludes amounts payable for the acquisi-

tion of equity (see paragraph 9.49).

Where a realistic expectation exists that such amounts will

be repayable, as indicated by certain criteria (see Box 6.3), the

transaction should be classi ed as the acquisition of a  nancial

asset. A regular transfer covering an operating de cit is recorded

as a subsidy.

Amounts payable up to the value of the liability assumed should

be recorded as transactions in  nancial assets and liabilities (i.e.,

the reduction in liabilities) (see paragraphs 9.66–9.67).

Table 6.10 Detailed Classiﬁ cation of Transfers

Not Elsewhere Classiﬁ ed (282)

282 Transfers not elsewhere classiﬁ ed

2821 Current transfers not elsewhere classiﬁ ed

2822 Capital transfers not elsewhere classiﬁ ed

Further breakdown/“of which” lines could allow for the

identiﬁ cation of subsectors and individual units (see Table 3.1).

141 Expense

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 bene 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-

 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.

 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.

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-

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.

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 di cult for the parties

to identify these events consistently, so as a sim-

plifying convention, all nonlife insurance claims

are classi ed as current transfers, unless it is nec-

essary to record a capital transfer to be consistent

with the national accounts.

Table 6.11 Detailed Classiﬁ cation of Premiums,

Fees, and Claims Payable Related to

Nonlife Insurance and Standardized

Guarantee Schemes (283)

283 Premiums, fees, and claims payable related

to nonlife insurance and standardized

guarantee schemes

2831 Premiums, fees, and current claims payable

28311 Premiums payable

28312 Fees payable for standardized guarantee

schemes

28313 Current claims payable

2832 Capital claims payable

Further breakdown/“of which” lines could allow for the

identiﬁ cation of subsectors and individual units (see Table 3.1).

Annex: Classiﬁ cation of the Functions

ofGovernment

 is annex describes the classi cation of expenditure

according to the functions of government.

Introduction

6.126  e Classi cation of Functions of Gov-

ernment (COFOG) is a detailed classi 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 classi cations

referred to as classi cations of expenditure according

to purpose.

COFOG provides a classi 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 e ec-

tiveness of government programs in those areas. In

contrast, the Classi cation of Environmental Activi-

ties (CEA) is a functional classi cation that covers a

more limited but specialized activity.

6.127 While the COFOG as used in this Manual

fully agrees with the OECD/UN classi cation, the

concept is applied slightly di 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-

 nancial assets. Transactions in  nancial assets and

COFOG was produced by the Organisation for Economic Co-

operation and Development (OECD) and was published together

with the other three classi cations in United Nations (UN), Clas-

si cations of Expenditure according to Purpose (New York, 2000).

 e other classi cations are the Classi cations of Individual

Consumption According to Purpose (COICOP), the Classi ca-

tion of the Purpose of Nonpro t Institutions Serving Households

(COPNI), and the Classi cation of the Outlays of Producers Ac-

cording to Purpose (COPP).

CEA is one of the classi 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-

si 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  nancial

assets and liabilities are usually fungible, to such an

extent that a functional classi cation of these  nanc-

ing activities may be less useful.

Structure of COFOG Classiﬁ cations

6.128  e classi cation codes of COFOG are

somewhat di erent from the structure of other GFS

classi cation codes.  e functions are classi ed

using a three-level scheme.  ere are 10  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 classi 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 pre x

“7” has been added to align the COFOG codes with

other GFS classi 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.  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 non 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

143 Expense

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

7 Total expenditure

701 General public services 706 Housing and community amenities

7011 Executive and legislative organs, ﬁ nancial and

ﬁ scal affairs, external affairs

7061

7062

7063

7064

7065

7066

707

7071

7072

7073

7074

7075

7076

708

7081

7082

7083

7084

7085

7086

709

7091

7092

7093

7094

7095

7096

7097

7098

710

7101

7102

7103

7104

7105

7106

7107

7108

7109

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.

7012 Foreign economic aid

7013 General services

7014 Basic research

7015 R&D General public services

7016 General public services n.e.c.

7017 Public debt transactions

7018 Transfers of a general character between

different levels of government

702 Defense

7021 Military defense

7022 Civil defense

7023 Foreign military aid

7024 R&D Defense

7025 Defense n.e.c.

703 Public order and safety

7031 Police services

7032 Fire protection services

7033 Law courts

7034 Prisons

7035 R&D Public order and safety

7036 Public order and safety n.e.c.

704 Economic affairs

7041 General economic, commercial, and labor

affairs

7042 Agriculture, forestry, ﬁ shing, and hunting

7043 Fuel and energy

7044 Mining, manufacturing, and construction

7045 Transport

7046 Communication

7047 Other industries

7048 R&D Economic affairs

7049 Economic affairs n.e.c.

705 Environmental protection

7051 Waste management

7052 Waste water management

7053 Pollution abatement

7054 Protection of biodiversity and landscape

7055 R&D Environmental protection

7056 Environmental 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 re ect the organizational structures of

governments. Not only might time series be distorted

by organizational changes, but at a speci 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 di 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 bene 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.  e COFOG functions are de 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:

•  e use of such services is usually passive and

does not require the explicit agreement or active

participation of all the individuals concerned.

•  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.  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.

 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.

•  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.

•  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) bene t to the rest of the community.  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 bene ts to the rest of the community, in gen-

eral, the individuals concerned derive the main ben-

e 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 bene 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

145 Expense

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.

 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.  ese sections cover

expenditure on general administration, regulation,

research that is not recorded as investment in non-

 nancial assets, and so on.  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.  is distinction is used for the

computation of  nal consumption expenditure and

actual  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  nal consump-

tion of government and households, in addition to

their  nal consumption expenditure, can be computed.

 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  e units of classi cation are, in principle,

individual transactions. Each purchase of goods and

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 classi 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 o en have to be assigned to all transactions

of agencies, o 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 classi cation, it

may happen that the smallest entity that can be iden-

ti 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 classi cation cannot serve all ana-

lytic purposes.  e selection of functions in COFOG

is based on judgment.  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 classi 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, classi ed according to

the function the goal of the research and development

most closely serves.  us, COFOG statistics must be

used with care to be sure that the desired coverage is

obtained for a speci 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

classi 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 di culties may arise with regard

to subsidies.  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.

 ese political objectives are not to be confused with

functions as the term is used in COFOG. Hence, a

government subsidy to shipyards is classi ed under

manufacturing (70442), and grants to hospitals are

classi ed under hospital services(7073) regardless of

the ultimate purposes. Subsidies and grants designed

chie 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

classi ed under general labor a airs(70412).

Consumption of Fixed Capital

6.146 It is likely that consumption of  xed capital

will be di cult to allocate by function, especially if

only aggregated  gures for total government capital

stock and consumption of  xed capital are compiled.

In these circumstances, approximations will have to

be used. One possibility may be to distribute con-

sumption of  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  xed capital among

functions in proportion to the net acquisition of  xed

assets over a number of earlier years.

6.147 Another caution regarding the use of

COFOG statistics relates to net investment in non-

 nancial assets. Because expenditure classi ed by

COFOG includes consumption of  xed capital as an

expense, and includes it in the calculation of net in-

vestment in non nancial assets (deducted from ac-

quisition minus disposals), the consumption of  xed

capital will net out in COFOG data. However, if a

functional classi cation is compiled for expense items

only, this will include consumption of  xed capital

representing part of the resource cost of using previ-

ously acquired  xed assets.

Cross-Classiﬁ cation of Expenditure

6.148  e economic and functional classi cations

of expenditure can be cross-classi ed as illustrated

in Table6A.2. A cross-classi cation of COFOG with

each of the categories of the economic classi cation of

expense is analytically useful.  e cross-classi cation

allows an analysis of:

•  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

•  e changes in the composition of expenditure

over time to serve speci c policy objectives

• Comparison of how speci c functions are car-

ried out by di erent governments.

6.149 Table 6A.2 includes a column for each major

economic type of expense and for net investment in

non nancial assets. As indicated earlier, this classi -

cation is needed to compile data on the actual  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 Classi ca-

tion of the Functions of Government (COFOG) has

three levels of detail: Divisions, Groups, and Classes.

147 Expense

 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.  e classi cation numbers have been modi-

 ed slightly to conform with the coding system of this

Manual.  e numeral “7” is pre 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.

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: o ce of the chief executive at all levels of gov-

ernment—o 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 sta s

attached to chief executive o ces and legislatures;

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

Consumption 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.

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 o ces, o ces of heads of de-

partments of local governments, interdepartmental

committees, etc. concerned with a speci c function

(classi ed according to function).

70112 Financial and ﬁ scal affairs (CS)

• Administration of  nancial and  scal a airs and

services; management of public funds and public

debt; operation of taxation schemes

• Operation of the treasury or ministry of  nance,

the budget o 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  nancial and  scal a airs and services.

Includes:  nancial and  scal a airs and services at all

levels of government.

Excludes: underwriting or  otation charges and inter-

est payments on government loans (70170); supervi-

sion of the banking industry (70411).

70113 External affairs (CS)

• Administration of external a airs and services

• Operation of the ministry of external a airs

and diplomatic and consular missions stationed

abroad or at o 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 a airs (70411); tourism a 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

 is group covers services that are not connected with

a speci c function and that are usually undertaken by

central o ces at the various levels of government. It

also covers those services connected with a particular

function that are undertaken by such central o 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

149 Expense

methods, the description, evaluation and classi -

cation of jobs, the administration of civil service

regulations, and similar matters.

Excludes: personnel administration and services

connected with a speci c function (classi 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 speci c function

(classi 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 o ces, centralized computer and data

processing services, etc.

Excludes: other general services connected with a spe-

ci c function (classi 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.

Excludes: applied research and experimental develop-

ment (classi ed by function).

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 speci 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 di erent levels of govern-

ment (7018).

7017 PUBLIC DEBT TRANSACTIONS

70170 Public debt transactions (CS)

• Interest payments and expense for underwriting

and  oating government loans.

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 di 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 a 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: o ces of military attachés stationed abroad;

 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 a 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

De 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 a airs and services that cannot be

assigned to (7021), (7022), (7023), or (7024).

Excludes: administration of war veterans’ a airs (7102).

703 PUBLIC ORDER AND SAFETY

7031 POLICE SERVICES

70310 Police services (CS)

• Administration of police a airs and services,

including alien registration, issuing work and

travel documents to immigrants, maintenance

of arrest records and statistics related to police

work, road tra c regulation and control, preven-

tion of smuggling, and control of o shore and

ocean  shing

• Operation of regular and auxiliary police forces,

of port, border, and coast guards, and of other

151 Expense

special police forces maintained by public au-

thorities; operation of police laboratories; opera-

tion or support of police training programs.

Includes: tra c wardens.

Excludes: police colleges o ering general education in

addition to police training (7091), (7092), (7093), or

(7094).

7032 FIRE PROTECTION SERVICES

70320 Fire protection services (CS)

• Administration of  re prevention and  re ght-

ing a airs and services

• Operation of regular and auxiliary  re brigades

and of other  re prevention and  re ghting ser-

vices maintained by public authorities; operation

or support of  re prevention and  re ghting

training programs.

Includes: civil protection services such as mountain res-

cue, beach surveillance, evacuation of  ooded areas, etc.

Excludes: civil defense (70220); forces especially trained

and equipped for  ghting or preventing forest  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  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.

7035 R&D PUBLIC ORDER AND SAFETY

De 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 a 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 a airs and services, including general

foreign commercial a airs; formulation and im-

plementation of general economic and commer-

cial policies; liaison among di 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 a airs of a par-

ticular industry (classi ed to (7042) through (7047)

as appropriate).

70412 General labor affairs (CS)

• Administration of general labor a 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 di 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 a airs and services

• Grants, loans, or subsidies to promote general

labor policies and programs.

Excludes: labor a airs of a particular industry (classi ed

to (7042) through (7047) as appropriate); provision of

social protection in the form of cash bene ts and ben-

e ts in kind to persons who are unemployed (71050).

7042 AGRICULTURE, FORESTRY, FISHING,

AND HUNTING

70421 Agriculture (CS)

• Administration of agricultural a airs and services;

conservation, reclamation, or expansion of arable

land; agrarian reform and land settlement; super-

vision and regulation of the agricultural industry

• Construction or operation of  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 a 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 a 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  re ghting and  re

prevention services, and extension services to

forest operators

• Production and dissemination of general infor-

mation, technical documentation, and statistics

on forestry a airs and services

• Grants, loans, or subsidies to support commer-

cial forest activities.

Includes: forest crops in addition to timber.

70423 Fishing and hunting (CS)

 is class covers both commercial  shing and hunt-

ing, and  shing and hunting for sport.  e  shing and

hunting a airs and services listed here refer to activi-

ties that take place outside natural parks and reserves.

• Administration of  shing and hunting a airs

and services; protection, propagation, and ratio-

nalized exploitation of  sh and wildlife stocks;

153 Expense

supervision and regulation of freshwater  shing,

coastal  shing, ocean  shing,  sh farming, wild-

life hunting, and issuance of  shing and hunting

licenses

• Operation or support of  sh hatcheries, exten-

sion services, stocking or culling activities, etc.

• Production and dissemination of general infor-

mation, technical documentation, and statistics

on  shing and hunting a airs and services

• Grants, loans, or subsidies to support commer-

cial  shing and hunting activities, including the

construction or operation of  sh hatcheries.

Excludes: control of o shore and ocean  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)

 is class covers coal of all grades, lignite, and peat,

irrespective of the method used in their extraction

or bene ciation, and the conversion of these fuels to

other forms, such as coke or gas.

• Administration of solid mineral fuel a 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 a 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 a airs

(classi ed to the appropriate class of group 7045).

70432 Petroleum and natural gas (CS)

 is class covers natural gas, lique ed petroleum gases

and re 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

a airs and services; conservation, discovery,

development, and rationalized exploitation of

petroleum and natural gas resources; supervision

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 a airs and services

• Grants, loans, or subsidies to support the pe-

troleum extraction industry and the industry

re ning crude petroleum and related liquid and

gaseous products.

Excludes: petroleum or gas transportation a airs

(classi ed to the appropriate class of group 7045).

70433 Nuclear fuel (CS)

• Administration of nuclear fuel a 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 a airs and services

• Grants, loans, or subsidies to support the nuclear

materials mining industry and the industries

processing such materials.

Excludes: nuclear fuel transportation a airs (classi ed

to the appropriate class of group 7045); disposal of ra-

dioactive wastes (70510).

70434 Other fuels (CS)

• Administration of a 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)

 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 a 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 a 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 chie y to provide electricity.

Excludes: nonelectric energy produced by wind or

solar heat (70436).

70436 Nonelectric energy (CS)

• Administration of nonelectric energy a airs and

services that chie 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)

 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

a 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 a 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 a 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 a 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: a airs and services concerning the coal pro-

cessing industry (70431), the petroleum re nery in-

dustry (70432), or the nuclear fuel industry (70433).

70443 Construction (CS)

• Administration of construction a 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 a airs and services.

Includes: issuance of certi 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

155 Expense

utilities, cultural facilities, etc. (classi ed according

to function); development and regulation of housing

standards (70610).

7045 TRANSPORT

70451 Road transport (CS)

• Administration of a 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 speci 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 tari 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 tra 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 a 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.)

• 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 tari 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 a 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 tari 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 a 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.)

• Supervision and regulation of air transport

users (registration, licensing, and inspec-

tion of aircra , 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 tari 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  ying by private individuals.

Excludes: grants, loans, and subsidies to aircra man-

ufacturers (70442).

70455 Pipeline and other transport (CS)

• Administration of a airs and services concerning

operation, use, construction, and maintenance of

pipeline and other transport systems (funiculars,

cable cars, chairli 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 tari 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 a 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, speci cation of markets to be served and

tari s to be charged, etc.)

• Production and dissemination of general infor-

mation, technical documentation, and statistics

on communication a 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 a 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

157 Expense

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 (classi ed according to func-

tion); food and other such subsidies applicable to par-

ticular population groups or individuals (710).

70472 Hotels and restaurants (CS)

• Administration of a airs and services concern-

ing construction, extension, improvement, oper-

ation, and maintenance of hotels and restaurants

• 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 a 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 a airs and services;

promotion and development of tourism; liaison

with the transport, hotel, and restaurant indus-

tries and other industries bene ting from the

presence of tourists

• Operation of tourist o ces at home and abroad,

etc.; organization of advertising campaigns, in-

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,  ood

control, irrigation, navigation, and recreation.

• Administration of a 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 a 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 (classi ed according to

main function).

7048 R&D ECONOMIC AFFAIRS

De nitions of basic research, applied research, and

experimental development are given under (7014)

and (7015).

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 a airs

• Grants, loans, or subsidies to support applied re-

search and experimental development related to

general economic, commercial, and labor a 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,  shing, and hunting

158 Government Finance Statistics Manual 2014

• Grants, loans, or subsidies to support applied

research and experimental development related

to agriculture, forestry,  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.

Excludes: basic research (70140).

70484 R&D Mining, manufacturing, and

construction (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

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).

7049 ECONOMIC AFFAIRS N.E.C.

70490 Economic affairs n.e.c. (CS)

• Administration, operation, or support activities

relating to general and sectoral economic a airs

that cannot be assigned to (7041), (7042), (7043),

(7044), (7045), (7046), (7047), or (7048).

705 ENVIRONMENTAL PROTECTION

 e breakdown of environmental protection is based

upon the Classi 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 O ce of

the European Communities (Eurostat).

7051 WASTE MANAGEMENT

 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 undi 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.

159 Expense

Waste disposal includes  nal placement of waste for

which no further use is foreseen by land 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

 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

 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

 is group covers activities relating to ambient air and

climate protection, soil and groundwater protection,

noise and vibration abatement, and protection against

radiation.

 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

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 a 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

 is group covers activities relating to the protection

of fauna and  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

De 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

• 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 a 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 a 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 bene ts and bene ts

in kind to help households meet the cost of housing

(71060).

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  nancing planned

developments

• Production and dissemination of general in-

formation, technical documentation, and sta-

tistics on community development a airs and

services.

Excludes: plan implementation—that is, the ac-

tual construction of housing, industrial buildings,

streets, public utilities, cultural facilities, etc. (clas-

si 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 a 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 a 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).

161 Expense

7064 STREET LIGHTING

70640 Street lighting (CS)

• Administration of street lighting a airs; de-

velopment and regulation of street lighting

standards

• Installation, operation, maintenance, upgrading,

etc. of street lighting.

Excludes: lighting a airs and services associated with

the construction and operation of highways (70451).

7065 R&D HOUSING AND COMMUNITY

AMENITIES

De 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.

Includes: administration, operation, or support activi-

ties relating to housing and community amenities that

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 classi ed to groups (7071) through (7074) as

appropriate.

7071 MEDICAL PRODUCTS, APPLIANCES,

AND EQUIPMENT

 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.  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

• Administration, operation, or support of the pro-

vision of pharmaceutical products.

162 Government Finance Statistics Manual 2014

70712 Other medical products (IS)

• Provision of medical products such as clinical

thermometers, adhesive and nonadhesive ban-

dages, hypodermic syringes,  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, arti 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  tting costs; repair of thera-

peutic appliances and equipment.

Excludes: hire of therapeutic equipment (70724).

7072 OUTPATIENT SERVICES

 is group covers medical, dental, and paramedical

services delivered to outpatients by medical, dental,

and paramedical practitioners and auxiliaries.  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).

70721 General medical services (IS)

 is class covers the services provided by general

medical clinics and general medical practitioners.

General medical clinics are de ned as institutions

that chie y provide outpatient services that are not

limited to a particular medical specialty and that are

chie y delivered by quali 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)

 is class covers the services of specialized medical

clinics and specialist medical practitioners.

Specialized medical clinics and specialist medical

practitioners di 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.

Includes: services of orthodontic specialists.

Excludes: dental clinics and dentists (70723); services of

medical analysis laboratories and x-ray centers (70724).

70723 Dental services (IS)

 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.  ey are

not necessarily supervised or sta ed by dentists; they

may be supervised or sta 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

163 Expense

specialist dental clinics and by dentists, oral hy-

gienists, or other dental auxiliaries.

Includes:  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 de 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.

 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 chie 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.

Hospitals are de ned as institutions that o er in-

patient care under direct supervision of quali 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 sta of lower quali cation

than medical doctors.

 e group does not cover facilities such as mili-

tary  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 sta , food

and drink, accommodation (including sta 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 quali ed medical doctor (70733).

70732 Specialized hospital services (IS)

Specialized hospitals di 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 quali ed medical doctor (70733).

164 Government Finance Statistics Manual 2014

70733 Medical and maternity center

services (IS)

• Provision of medical and maternity center

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 chie 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

• Administration, inspection, operation, or sup-

port of nursing and convalescent home services.

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 quali ed

doctors; public health service laboratories.

Excludes: medical analysis laboratories (70724); labo-

ratories engaged in determining the causes of disease

(70750).

7075 R&D HEALTH

De 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.

Includes: laboratories engaged in determining the causes

of disease.

Excludes: basic research (70140).

7076 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 a 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.  ey include activities such as formulation

165 Expense

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 a 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  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 (chie 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 (classi ed to the appropriate class of Divi-

sion 709).

7082 CULTURAL SERVICES

70820 Cultural services (IS)

• Provision of cultural services; administration of

cultural a 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

of cultural events (concerts, stage and  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 chie y to attract

tourists.

Excludes: cultural events intended for presentation be-

yond national boundaries (70113); national, regional,

or local celebrations intended chie 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

a 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 o 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 a airs

• Provision of facilities for religious and other

community services, including support for their

operation, maintenance, and repair

• Payment of clergy or other o 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

De 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: a 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 a 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 classi ed to groups (7091) through

(7096) as appropriate.

 e breakdown of education is based upon the

level categories of the 1997 International Standard

Classi cation of Education (ISCED-97) of the United

Nations Educational, Scienti c and Cultural Organi-

zation (UNESCO).

 is division includes military schools and col-

leges where curricula resemble those of civilian in-

stitutions, police colleges o ering general education

in addition to police training, and the provision of

education by radio or television broadcasting. Ex-

penditure so incurred is classi 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

167 Expense

• 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 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)

• Provision of tertiary education at ISCED-97 level 5

• Administration, inspection, operation, or sup-

port of universities and other institutions provid-

ing tertiary education at ISCED-97 level 5

• Scholarships, grants, loans, and allowances to

support students pursuing tertiary education at

ISCED-97 level 5.

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 de 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-

 nable by level

• Scholarships, grants, loans, and allowances to

support students pursuing education programs

not de 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

chie 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).

7097 R&D EDUCATION

De 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 a 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 a airs and services.

 e social protection functions and their de nitions

are based on the 2008 European System of Integrated

Social Protection Statistics (ESSPROS) of the Statisti-

cal O 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 bene ts and bene ts in kind speci ed in groups

(7101) through (7107) are classi ed under (7071),

(7072), or (7073) as appropriate.

7101 SICKNESS AND DISABILITY

71011 Sickness (IS)

• Provision of social protection in the form of cash

bene ts or bene 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 bene ts, such as  at-rate or earnings-

related sick leave payments and miscellaneous

payments provided to help persons temporarily

unable to work due to sickness or injury

• Bene 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

bene ts or bene 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 bene 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 bene 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

• Bene 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 a 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

169 Expense

participate in leisure and cultural activities or to

travel or to participate in community life.

Excludes: cash bene ts and bene 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

bene ts and bene 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 bene 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

a 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

• Bene 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 a 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 bene 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

bene ts and bene ts in kind to persons who are

survivors of a deceased person (such as the per-

son’s spouse, ex-spouse, children, grandchildren,

parents, or other relatives)

• Administration, operation, or support of such

social protection schemes

• Cash bene ts, such as survivors’ pensions, death

grants, and other periodic or lump-sum pay-

ments to survivors

• Bene 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

bene ts and bene ts in kind to households with

dependent children

• Administration, operation, or support of such

social protection schemes

• Cash bene ts, such as maternity allowances,

birth grants, parental leave bene ts, family or

child allowances, and other periodic or lump-

sum payments to support households and help

them meet the costs of speci c needs (e.g., those

of the lone parent families or families with hand-

icapped children)

• Bene ts in kind, such as shelter and board pro-

vided to preschool children during the day or

part of the day,  nancial assistance toward pay-

ment of a nurse to look a 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

bene ts and bene ts in kind to persons who are

capable of work and available for work but are

unable to  nd suitable employment

• Administration, operation, or support of such

social protection schemes

• Cash bene ts, such as full and partial unemploy-

ment bene ts, early retirement bene 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

• Bene 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 bene ts and bene 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 bene ts

in kind to help households meet the cost of hous-

ing (recipients of these bene ts are means-tested)

• Administration, operation, or support of such

social protection schemes

• Bene 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

bene ts and bene 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 bene ts, such as income support and other

cash payments to the destitute and vulnerable

persons to help alleviate poverty or assist in dif-

 cult situations

• Bene 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

De 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 bene ts and bene ts in kind to victims of  res,

 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 a airs and services

that cannot be assigned to (7101), (7102), (7103),

(7104), (7105), (7106), (7107), or (7108).

 is chapter and the following three chapters are con-

cerned with the stock position and  ows of assets and

liabilities.  is chapter de nes assets, liabilities, and net

worth, and describes their classi 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.

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 non nancial as-

sets,  nancial assets, liabilities, and net worth.  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  ows of all

previous periods. A highly abbreviated version of a

balance sheet is shown in Table7.1.

7.2  e existence of a set of balance sheets inte-

grated with the  ows enables analysts to take a com-

prehensive view when monitoring and assessing

economic and  nancial conditions and the behavior

of public sector units. Balance sheet information on

 nancial assets held by, and liabilities owed to, other

entities supports the analysis of the  nancial risks

and vulnerabilities of the general government or

public sector. Similarly, with regard to claims and li-

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 o 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.

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  nancial ratios, while

data on the stock position of  xed assets are useful

in studies of their investment behavior and needs for

 nancing.

7.3  is chapter  rst de nes assets and liabilities

in general and the two major types of assets,  nan-

cial and non nancial assets.  e following section

describes the principles used to value assets and lia-

bilities.  e chapter then describes the detailed classi-

 cation of assets and liabilities and the types of assets

and liabilities included in each category of the clas-

si cation.  e  nal sections describe net worth, rec-

ommended memorandum items, and a supplemental

cross-classi cation of  nancial assets or liabilities by

sector of the counterparty.

Deﬁ ning Assets and Liabilities

7.4  is section describes economic and legal own-

ership of an asset, as well as the asset boundary used

in GFS and other macroeconomic statistics.  ese

concepts are then used to de ne liabilities,  nancial

assets, and non 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.,  nancial leases discussed in

paragraph 7.158

•  e legal owner of resources, such as goods

and services, natural resources,  nancial assets,

and liabilities, is the institutional unit entitled by

law and sustainable under the law to claim the

The Balance Sheet

172 Government Finance Statistics Manual 2014

bene 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.

•  e economic owner of resources, such as goods

and services, natural resources,  nancial assets,

and liabilities, is the institutional unit entitled to

claim the bene ts associated with the use of these

resources by virtue of accepting the associated

risks.

7.6 As de ned in paragraph 3.42, an asset is a store

of value representing a bene t or series of bene 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 bene 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 bene ts by

functioning as a store of value. In addition:

• Some bene ts are derived by using assets, such

as buildings or machinery, in the production of

goods and services.

• Some bene ts consist of property income, such

as interest, dividends, and rent receivable by the

owners of  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 bene ts. For example, a government

may own land in a national park with the intention

that its bene ts accrue directly to the community at

large.

7.9 To be an economic asset, a resource must also

be able to supply economic bene ts given the technol-

ogy, scienti c knowledge, economic infrastructure,

available resources, and relative prices existing at a

given time or expected in the foreseeable future.  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 e 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 su cient for the land to be classi ed

as an economic asset. Nonetheless, even if ownership

rights can be enforced, if the assets are not capable of

bringing any economic bene ts to their owners, they

should be excluded.

7.11 Governments use assets to produce goods and

services much like corporations. For example, o ce

buildings, together with the services of government

employees, o ce equipment, and other goods and

services, are used to produce collective or individual

services, such as general administrative services. In

addition, however, governments o en own assets

whose services are consumed directly by the general

Table 7.1 Balance Sheet

Assets

Opening

balance

Closing

balance Liabilities and net worth

Opening

balance

Closing

balance

Nonﬁ nancial assets

Liabilities

Financial assets

Net worth

Total assets

Total liabilities and net worth

Memorandum items

Classiﬁ ed by categories of assets and liabilities as needed.

173 The Balance Sheet

public and assets that need to be preserved because

of their historic or cultural importance.  us, when

the asset boundary is applied to the general govern-

ment sector, it o en incorporates a wider range of as-

sets than is normally owned by a private organization.

 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,  re engines, o ce buildings, furni-

ture, and computers

• Infrastructure assets, which are immovable non-

 nancial assets that generally do not have al-

ternative uses and whose bene 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 inde nitely because

they have unique historic, cultural, educational,

artistic, or architectural signi 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.

 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  nancial assets and liabilities prior to

the condition(s) being ful 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

Exclusive economic zones are the area of sea and seabed extend-

ing from the shore of a country claiming exclusive rights to them.

employment-related pension “provisions”) are

liabilities.

• No liability is recognized on the balance sheet

for government’s implicit obligations to pay so-

cial security bene 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

bene 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  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.

Deriving Deﬁ nitions for Assets and

Liabilities

7.14  is section de nes liabilities and  nancial

claims, from which it then derives the de nitions of

 nancial and non nancial assets.

7.15 As de ned in paragraph 3.45, a liability is

established when one unit (the debtor) is obliged,

under speci 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 speci 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  nancial

claim on the debtor. A  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,  nancial

claims are unconditional. Financial claims consist of

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 o through consump-

tion of  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),  nancial de-

rivatives and employee stock options, and equity and

investment fund shares.

• Debt instruments are  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,

and by events that require future transfer of pay-

ments.

For a liability to be considered debt it

must exist and be outstanding.

• In contrast,  nancial derivatives are  nancial

instruments of which the underlying contracts

involve risk transfer.  us, rather than supplying

funds or other resources, a derivative contract

shi s the exposure to the e 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

 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

 xed or predetermined monetary claim on the

corporation. Equity and investment fund shares

do, however, entitle their owners to bene ts in the

form of dividends and other ownership distribu-

tions, and they o 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 a 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  -

nancial claim, because it is not the liability of any

 ese liabilities could include those arising from taxes, penalties

(including penalties arising from commercial contracts), and

judicial awards at the time they are imposed.

 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. Monetary gold does, however, provide

economic bene ts by serving as a store of value

and a means of international payment to settle

 nancial claims and  nance other types of trans-

actions. As a result, monetary gold in the form

of bullion is, by convention, treated as a  nancial

asset. Monetary gold in the form of unallocated

gold accounts is a  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  nancial claims

plus gold bullion held by monetary authorities

as a

reserve asset.

7.17 Non nancial assets are economic assets other

than  nancial assets.  e main categories of non -

nancial assets are: produced assets (such as  xed as-

sets, inventories, and valuables) and nonproduced

assets (such as natural resources, contracts, leases,

and licenses, and goodwill and marketing assets).

Non nancial assets are stores of value and provide

bene ts either through their use in the production of

goods and services or in the form of property income.

Unlike  nancial claims, non nancial assets have no

counterpart liability—that is, the owner of the non-

 nancial asset does not have a claim on another in-

stitutional unit. Non 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 classi ed as  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.

• Va lu ab l es are produced assets of considerable

value that are not used primarily for purposes of

production or consumption, but are held primarily

Government units typically do not ful ll functions of monetary

authorities and thus would not hold  nancial assets in the form of

gold bullion.

175 The Balance Sheet

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,  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).  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.  is amount depends on

the economic bene ts that the owner of the asset can

derive by holding or using it.  e remaining bene ts

expected to be received from most assets diminish with

the passage of time, which will reduce the value of the

asset.  e remaining bene ts of some assets, such as

valuables, may increase with the passage of time.  e

value of the remaining bene 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  nancial instru-

ments is also useful for some purposes.  is value

is typically established by reference to the terms of a

contract between the debtor and creditor.  e nomi-

nal value of a debt instrument re ects the value of the

debt at creation plus any subsequent economic  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,

and other

volume changes.

7.22  e current market value for non nancial

assets (except land) includes all costs of ownership

transfer and for  nancial assets excludes these costs.

For more details, see paragraphs 8.6–8.8.

Accumulated revaluations arising from market price changes

reconcile nominal value with market value.

7.23  e value of  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.

 ese two methods, together with values observed in

markets, are discussed in paragraphs 7.26

–7.33.

7.25  e following paragraphs describe possible

methods of estimating current market prices. Addi-

tional guidance on the valuation of speci c types of

assets and liabilities is included in the relevant parts

of the section that describes the classi cation of assets

and liabilities. Because the valuation of liabilities is the

same as the valuation of the corresponding  nancial

assets, in most cases, the remainder of this chapter

will refer only to  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  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 o 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 di erent classes of assets held by

sectors and of di 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  nancial markets—

such as bills, bonds, debentures, negotiable certi -

cates of deposits, asset-backed securities, etc.—should

be valued at market value and, in the case of liabilities,

at nominal value as well.

In some countries, another

example of a market in which assets may be traded

in su 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  xed capital in the

case of  xed assets, and any other di erences between

the existing asset and a newly produced asset.  is ad-

justment for consumption of  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.

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  nancial assets in the

form of debt instruments) are normally not traded

and, therefore, lack generally observable market val-

ues.  is means that these values have to be estimated

by using the nominal value as a proxy (see paragraph

7.122

• Nontraded debt instruments: Debt instruments

(as well as the corresponding  nancial assets in

the form of debt instruments) not generally traded

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.

Amounts previously recorded as expense are based on the aver-

age prices of the asset over the reporting period.

See the PSDS Guide, Chapter 2.

(or tradable) in organized or other  nancial

markets—namely, loans, currency and deposits,

and other accounts payable/receivable—should

be valued at nominal value.  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

 ows (such as arising from indexation) that a ect

the value of the amount outstanding.  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  ows.

• Debt instruments that do not accrue interest: For

debt instruments (as well as the corresponding

 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 re ects the time to maturity and

an appropriate existing contractual rate, such as

for similar debt instruments (see also paragraph

3.118).

• Repayment speci ed in terms of commodities

or other goods: For some instruments, such as a

loan, repayment may be speci 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  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:  e value of the commodities, other

goods, or services to be provided for extinguish-

ing a trade credit liability (and the correspond-

ing  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 re ects the time to

177 The Balance Sheet

maturity and an appropriate existing contractual

rate, and interest should accrue until actual pay-

ment is made.

• Nontraded debt instruments with uncertain

nominal values: For nontraded debt instruments

(as well as the corresponding  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.  e values

of most non nancial assets change, re ecting changes

in market prices. At the same time, initial acquisition

costs are reduced by consumption of  xed capital

(in the case of  xed assets) or amortization or deple-

tion

(in the case of other non nancial assets) over

the expected life of the asset. In principle, the value

of such a non 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  xed capital, amortization, or depletion.  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 o ered for sale. For ex-

ample, the principle could be applied as follows for

these assets:

• In the absence of observed market values, most

 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

See Box 6.1 for guidance on the calculation of consumption of

 xed capital.

See paragraph 10.52.

costs (appropriately revalued using a relevant

speci c or commodity price index) minus an al-

lowance for depletion.

7.32  e perpetual inventory method (PIM) is

commonly used to estimate the written-down replace-

ment cost of a category of assets, especially tangible

 xed assets. With this method, the value of the stock is

based on estimates of acquisitions and disposals that

have been accumulated (a er deduction of the accu-

mulated consumption of  xed capital, amortization,

or depletion) and revalued over a long enough period

to cover the acquisition of all assets in the category.

 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.

Present Value of Future Returns

7.33 In some cases, current market prices may

be approximated by the present value

of the future

economic bene ts expected from a given asset.  is

method may be feasible for a number of  nancial

assets, naturally occurring assets, and intangible as-

sets. For example, timber and subsoil assets are assets

whose bene 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.  e

economic bene 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)

7.34 At the  rst level of classi cation, there are

four categories of non nancial assets.  e  rst three

categories are produced assets— xed assets (611), in-

ventories (612), and valuables (613)—and the fourth

consists of all nonproduced assets (614).  e summary

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).

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  ow.”

 e numbers in parentheses a er each classi cation category

are the GFS classi cation codes. Appendix8 provides all classi -

cation codes used in GFS.

178 Government Finance Statistics Manual 2014

classi cation of non nancial assets is shown in

Table 7.2; more detailed classi cations of these cat-

egories are provided in the discussions of the various

types of  xed assets, where relevant.

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.  e distinguishing

feature of a  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  xed assets

 e classi cation of assets and liabilities in this chapter is

supplemented by description of transactions in Chapters 8 and9,

while other economic  ows related to these assets and liabilities

are described in Chapter 10.

because they can be used only once. Fixed assets are

further classi ed as buildings and structures (6111),

machinery and equipment (6112), other  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  xed assets. In the remainder of this section,

it is noted when a particular type of  xed asset is likely

to be more accurately valued by another method.

7.37  e production of some  xed assets may

span two or more reporting periods.  ese non nan-

cial assets should be re ected on the balance sheet,

in principle, when economic ownership changes, as

evidenced by the transfer of risks and bene ts associ-

ated with the asset. For high-value  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 classi ed as  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

 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  xed assets rather than inventories of work

in progress.  ese general principles also apply to the

production of cultivated assets (see paragraph 7.62

7.38 Fixed assets acquired under a  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).

 e acquisition is treated as being  nanced by a  -

nancial claim, classi 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

Table 7.2 Summary Classiﬁ cation of

Nonﬁ nancial Assets

61 Nonﬁ nancial assets

611 Fixed assets

6111 Buildings and structures

61111 Dwellings

61112 Buildings other than dwellings

61113 Other structures

61114 Land improvements

6112 Machinery and equipment

61121 Transport equipment

61122 Machinery and equipment other than

transport equipment

6113 Other ﬁ xed assets

61131 Cultivated biological resources

61132 Intellectual property products

6114 Weapons systems

612 Inventories

613 Valuables

614 Nonproduced assets

6141 Land

6142 Mineral and energy resources

6143 Other naturally occurring assets

61431 Noncultivated biological resources

61432 Water resources

61433 Other natural resources

6144 Intangible nonproduced assets

61441 Contracts, leases, and licenses

61442 Goodwill and marketing assets

179 The Balance Sheet

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  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  nance initia-

tive (PFI), or some other similar shorthand.  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  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  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  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.  e value of buildings

and structures includes the costs of site clearance and

preparation and the value of all  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 identi able because of particular historical,

national, regional, local, religious, or symbolic sig-

ni cance.  ey are accessible to the general public,

and visitors are o 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  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 signi 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  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 identi 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 bene 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

Table 7.3 Classiﬁ cation of Buildings and

Structures

6111 Buildings and structures

61111 Dwellings

61112 Buildings other than dwellings

61113 Other structures

61114 Land improvements

180 Government Finance Statistics Manual 2014

considerable extent on location and may include land

values.  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).  is technique will probably also

apply to many other public buildings and structures

since their characteristics are o en speci 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 o ce buildings, schools, hospitals, build-

ings for public entertainment, warehouses and in-

dustrial buildings, commercial buildings, hotels, and

restaurants. Public monuments identi 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.  e costs of site clearance

and preparation are also included. Public monuments

are included if identi cation as dwellings or buildings

other than dwellings is not possible. Also included are

the construction of sea walls, dikes,  ood barriers, etc.

intended to improve the quality and quantity of land

adjacent to them.  e infrastructure necessary for

aquaculture, such as  sh farms and shell sh beds, is

also included. Further examples are:

• Highways, streets, roads, bridges, elevated high-

ways, tunnels, railways, subways, and air eld

runways

• Sewers, waterways, harbors, dams, and other

waterworks

• Sha s, tunnels, and other structures associated

with mining mineral and energy resources

• 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 o en a ect land belonging to several owners

and which are o en carried out by government, are

classi ed as other structures (61113).

7.50 Land improvements represent a category of

 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 a 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  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.  is is conceptually equal to the dif-

ference in value between the land concerned in an

unimproved or natural state and its value a er the im-

provements have been made, taking into account price

changes.  e costs of ownership transfer on all land

are, by convention, included with land improvements.

Consumption of  xed capital and the costs of owner-

ship transfer are discussed in paragraphs 6.53–6.60.

Machinery and equipment (6112)

7.52 Machinery and equipment (6112) cover

transport equipment, machinery for information,

computer, and telecommunications (ICT) equipment,

181 The Balance Sheet

and machinery and equipment not elsewhere classi-

 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  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  nancial lease are classi 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-

 ed under this category; weapons systems (6114) form

a separate category (see paragraph 7.74).

7.53 Machinery and equipment are classi 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, aircra , motorcycles, and

bicycles. Markets for existing automobiles, aircra ,

and some other types of transportation equipment

may be su 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  is category consists of all machinery and

equipment other than transport equipment. A dis-

tinction is made between information, computer, and

telecommunications (ICT) equipment (611221) and

machinery and equipment not elsewhere classi 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  is category includes all machinery and equip-

ment not classi ed in any of the other machinery and

equipment categories.

Types of assets that would be

included are general- and special-purpose machinery;

o 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

classi 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  xed assets consist of cultivated biologi-

cal resources (61131) and intellectual property products

(61132), as shown in Table 7.5.

All items under the United Nations’ Central Product Classi -

cation (CPC), version 2.0, categories 43–48, are included here,

except for categories 452 and 472, which are classi ed under

Information, Computer, and Telecommunications (ICT) Equip-

ment.Formoredetails,see http://unstats.un.org/unsd/cr/registry/

cpc-2.asp.

Table 7.4 Classiﬁ cation of Machinery and

Equipment

6112 Machinery and equipment

61121 Transport equipment

61122 Machinery and equipment other than

transport equipment

611221 Information, computer, and

telecommunications (ICT) equipment

611222 Machinery and equipment not

elsewhere classiﬁ ed

182 Government Finance Statistics Manual 2014

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, dra

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  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  nished product once only when

they are ultimately felled are not  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  xed assets.

7.62 In general, when the production of  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.  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  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  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 classi 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 bene t in production

because use of the knowledge is restricted by means of

legal or other protection.  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.  e knowledge remains an asset as long

as its use can create some form of monopoly pro 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 classi ed as:

• Research and development (611321)

• Mineral exploration and evaluation (611322)

Table 7.5 Classiﬁ cation of Other Fixed Assets

6113 Other ﬁ xed assets

61131 Cultivated biological resources

611311 Animal resources yielding repeat

products

611312 Tree, crop, and plant resources yielding

repeat products

61132 Intellectual property products

611321 Research and development

611322 Mineral exploration and evaluation

611323 Computer software and databases

6113231 Computer software

6113232 Databases

611324 Entertainment, literary, and artistic

originals

611325 Other intellectual property products

183 The Balance Sheet

• Computer so ware and databases (611323)

• Entertainment, literary, and artistic originals

(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 so ware and ar-

tistic originals, are used in two forms.  e  rst is the

original copy.  is is frequently controlled by a single

unit but exceptions exist, as explained in the remain-

der of this section.  e original is used to make copies

that are, in turn, supplied to other institutional units.

 e copies may be sold outright or made available

under a license:

• A copy sold outright may be treated as a  xed

asset if it satis 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  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  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  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

part or whole of the original to the unit holding

the license to reproduce.

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.  e value of research

and development should be determined in terms of

the economic bene ts it is expected to provide in

the future.  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-

e t to its owner does not constitute a  xed asset and

should be treated as an expense. Only research and

development that meets the criteria to be a non nan-

cial asset should be included in this category.

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-

ci cally, research and development undertaken by

government units, universities, nonpro 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.

 ese valuations need to be increased for changes in

prices and reduced because of consumption of  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.

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).

 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.  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.  e information obtained from exploration

in 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.  ese costs should include a return

to the  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.  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 o

should be revalued to the prices and costs of the cur-

rent period.

7.69 Computer so 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 so ware.

 is category can be further divided into computer

so ware (6113231) and databases (6113232).

7.70 Computer so ware (6113231) includes com-

puter programs, program descriptions, and sup-

porting materials for both systems and applications

so ware that is expected to be used for more than

one year.  e so 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  les of data organized in such a way as to permit

resource-e ective access and use of the data.  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  e value of computer so 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.

So ware and databases acquired in previous years

and not yet fully written o should be revalued to cur-

rent prices.

7.72 Entertainment, literary, and artistic origi-

nals (611324) are original  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.  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 classi 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.  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 aircra , tanks, missile carriers and launchers, etc.

Weapons systems are treated as  xed assets.  e mili-

tary weapons systems comprising specialized vehicles

and other equipment, such as warships, submarines,

military aircra , 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.  erefore, military weapons

systems should be classi ed as  xed assets and this

classi cation of military weapons systems as  xed as-

sets should be based on the same criteria as for other

 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,

185 The Balance Sheet

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

classi cation as  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 classi ed as materials and sup-

plies (61221), work in progress (61222),  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 di erent economic function.

7.76 Inventories consist of stocks of:

• 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  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

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

o ce supplies, fuel, and foodstu s. Every public sec-

tor unit may be expected to hold some materials and

supplies, if only o ce supplies. Materials and supplies

o en can be valued on the basis of the current market

prices for the same goods.

Work in progress (61222)

7.80 Work in progress (61222) consists of goods

and services that are not yet su 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.  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

bene ts associated with the incomplete asset, or when

evidenced by speci c clauses in a contract of sale or

purchase. In these exceptions, the partially complete

products are recorded as the acquisition of  xed assets

rather than work in progress.

7.81 Work in progress can take a wide variety of

di 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.

For example, it may be sold under exceptional circumstances,

such as the liquidation of a public sector unit.

Table 7.6 Classiﬁ cation of Inventories

612 Inventories

61221 Materials and supplies

61222 Work in progress

61223 Finished goods

61224 Goods for resale

61225 Military inventories

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.  e value of standing

timber and other cultivated crops may be estimated

by discounting the future proceeds of selling the  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  nished goods only if they produce goods for

sale or transfer to other units. Inventories of  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 bene ciaries, but they are not otherwise trans-

formed. Any general government unit that sells goods

for economically signi cant prices, such as a museum

gi shop, is likely to possess an inventory of goods for

resale.  is category also includes goods purchased by

general government units for provision free of charge

or at prices that are not economically signi 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  xed assets, most single-use items

are treated as inventories, but some types of missiles

with highly destructive capability may be treated as

 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.  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 signi cant value fashioned out of pre-

cious stones and metals, collections, and miscel-

laneous other valuables.

Many items  tting the description of a valuable

that are owned by general government units will be

classi ed as machinery and equipment not elsewhere

classi 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  re,

the , 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.

187 The Balance Sheet

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 bene ts can be derived by their own-

ers by holding or using them.  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, o 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  xed assets as part of land improvements and

are subject to consumption of  xed capital.  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 di 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-

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 classi 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  nancial lease.  is

may most o en occur in connection with a  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.

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.  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

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 sha s, wells, and other subsoil extraction

facilities are  xed assets in the form of other structures

(61113) rather than subsoil assets.

7.98  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 di 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. ( 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.)

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,  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

See Appendix 4, Box A4.1, for a description of the criteria to

distinguish between rent and asset sales of natural resources.

units. Examples are virgin forests and  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  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.  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 speci c activities or to produce certain spe-

ci c goods or services and to exclude other units from

doing so except with the permission of the owner.  e

owners of the assets may be able to earn monopoly

Table 7.7 Classiﬁ cation of Other Naturally

Occurring Assets

6143 Other naturally occurring assets

61431 Noncultivated biological resources

61432 Water resources

61433 Other natural resources

614331 Radio spectrum

614332 Natural resources not elsewhere

classiﬁ ed

189 The Balance Sheet

pro 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 satis ed:

•  e terms of the contract, lease, or license spec-

ify a price for the use of an asset or provision of

a service that di 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 di erence.

7.106  ese kinds of contracts are regarded as as-

sets only if the existence of the legal agreement confers

bene ts on the holder in excess of the price payable

to the lessor, owner of the natural resource, or permit

issuer,

and the holder can realize these bene 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 signi cant and if holders can actu-

ally exercise the right to realize the price di erence

Also see 2008 SNA, Chapter 17, part 5.

by on-selling the asset. In this case, a suitable mar-

ket price necessarily exists.  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 speci c

activities (614413), and entitlement to future goods and

services on an exclusive basis (614414).

Marketable operating leases (614411)

7.108 Marketable operating leases (614411) are

third-party property rights relating to  xed assets.  e

lease confers economic bene ts to the holder in excess

of the fees payable and the holder can realize these

bene ts legally and practically, through transferring

them. An example is where a tenant of a building has

a  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  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 e ective economic ownership rights over the

use of the spectrum. To decide whether ownership is

e 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 speci 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 pro ts, (ii)the monopoly pro 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.

For a description of the recording of these permits issued by

government see paragraphs A4.18–A4.52.

Table 7.8 Classiﬁ cation of Intangible

Nonproduced Assets

6144 Intangible nonproduced assets

61441 Contracts, leases, and licenses

614411 Marketable operating leases

614412 Permits to use natural resources

614413 Permits to undertake speciﬁ c activities

614414 Entitlement to future goods and

services on an exclusive basis

61442 Goodwill and marketing assets

190 Government Finance Statistics Manual 2014

Such permits are issued mainly by government but

may also be issued by other units.

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

e ect creating monopoly pro ts for the approved

operators and recovering some of the pro 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 pro ts

at least equal to the cost of the license.  is permis-

sion to create monopoly pro ts creates an asset for the

holder if the licensee can realize these pro ts by on-

selling the asset—that is, the license is tradable.  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 pro 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  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.  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

o en prepared to pay a premium above the net value

of its individually identi ed and valued assets and li-

abilities.  is excess is described as goodwill and re-

 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

to the value of individual assets because they are used

in combination with each other.

7.114 Goodwill cannot be separately identi ed and

sold to another party.  e value has to be derived by

deducting the value of assets and liabilities classi 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 re 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  e value of goodwill and marketing assets

is the di 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 identi 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, identi 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  e balance sheet entry for goodwill and

marketing assets is the written-down value of the entry

that appears as a transaction in  nancial assets and lia-

bilities when an enterprise is taken over or when a mar-

keting asset is sold.

 ese entries are not revalued.

Financial Assets (62) and Liabilities (63)

7.118 Financial assets and liabilities were de ned

in paragraphs 7.15–7.16.  e classi cations of  nan-

cial assets and liabilities are based primarily on the

As explained in paragraph 10.55, the amortization of goodwill

and marketing assets over their service or legal lives is an other

economic  ow.

191 The Balance Sheet

liquidity and legal characteristics of the instruments

that describe the underlying creditor-debtor relation-

ships.  e liquidity of a  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.  at

is, their legal ownership is readily transferred from one

unit to another unit by delivery or endorsement. While

any  nancial instrument can potentially be traded, se-

curities are designed to be traded, usually on organized

exchanges or “over the counter.” ( 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  nancial derivatives, such as warrants,

are sometimes considered to be securities.

7.120 In addition to classifying  nancial assets and

liabilities by the characteristics of the  nancial instru-

ment, they can also be classi ed according to the resi-

dence of the other party to the instrument (the debtors

for  nancial assets and the creditors for liabilities).

Residence is de ned in paragraphs2.6–2.21.  e clas-

si cations of  nancial assets and liabilities by instru-

ment are shown in Table7.9.

7.121 Because a given  nancial instrument creates

both a  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  nancial assets

unless there is a speci c need to refer to liabilities.

7.122 As discussed in paragraphs 3.113 and 7.20–

7.25, in principle, all  nancial assets should be valued

at market value.

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 instruments

market value on the balance sheet date means that:

A discussion of Islamic banking instruments and how they can

be treated in terms of the classi cation of  nancial assets and

liabilities can be found in the MFSM, Appendix 2.

 at value, however, may di 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.

All liabilities except equity and investment fund shares, and  nan-

cial derivatives and employee stock options are debt instruments.

• 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  nancial assets and liabilities, most

typically deposits, debt securities, loans, and other

accounts payable/receivable, require the debtor to

pay interest.  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)  nancial assets acquired by government

units in support of their  scal policies

are classi ed

di erently from  nancial assets acquired for liquidity

management.  e distinction between  nancial assets

acquired for public policy purposes and  nancial as-

sets acquired for liquidity purposes is not included in

the GFS classi cation of  nancial assets.  is distinc-

tion rests on the judgment of the analyst of the par-

ticular purpose for employing  nancial assets.

Monetary gold and Special Drawing Rights

(SDRs) (6201, 6221, 6301, 6321)

7.125 On the  nancial assets side, this category

comprises monetary gold and SDRs, and on the li-

abilities side it comprises only SDRs (see paragraph

7.128).  e counterparties to this  nancial asset and

liability are nonresidents.

Monetary gold (62011, 62211)

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)

 is is o en referred to as “public policy lending” or “policy

lending” and is treated akin to expenditure in the calculation of

the overall balance.

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  nancial claim on the debtor.

 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 classi 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

62 Financial assets 63 Liabilities

6201 Monetary gold and Special Drawing Rights

(SDRs)

6301 Special Drawing Rights (SDRs)

62011 Monetary gold

62012 Special Drawing Rights (SDRs)

6202 Currency and deposits 6302 Currency and deposits

6203 Debt securities 6303 Debt securities

6204 Loans 6304 Loans

6205 Equity and investment fund shares 6305 Equity and investment fund shares

62051 Equity 63051 Equity

62052 Investment fund shares or units 63052 Investment fund shares or units

6206 Insurance, pension, and standardized

guarantee schemes [GFS]

6306 Insurance, pension, and standardized

guarantee schemes [GFS]

62061 Nonlife insurance technical reserves 63061 Nonlife insurance technical reserves

62062 Life insurance and annuities entitlements 63062 Life insurance and annuities entitlements

62063 Pension entitlements [GFS] 63063 Pension entitlements [GFS]

62064 Claims of pension funds on pension

manager

63064 Claims of pension funds on pension

manager

62065 Provisions for calls under standardized

guarantee schemes

63065 Provisions for calls under standardized

guarantee schemes

6207 Financial derivatives and employee stock

options

6307 Financial derivatives and employee stock

options

62071 Financial derivatives 63071 Financial derivatives

62072 Employee stock options 63072 Employee stock options

6208 Other accounts receivable 6308 Other accounts payable

62081 Trade credit and advances 63081 Trade credit and advances

62082 Miscellaneous other accounts receivable 63082 Miscellaneous other accounts payable

621 Domestic debtors 631 Domestic creditors

6212–

6218

Same instrument breakdown as above, but

excluding monetary gold and SDRs

6312–

6318

Same instrument breakdown as above, but

excluding SDRs

622 External debtors 632 External creditors

6221–

6228

Same instrument breakdown as above 6321–

6328

Same instrument breakdown as above

and unallocated gold accounts with nonresidents that

give title to claim the delivery of gold.

All monetary

gold is included in reserve assets or is held by interna-

tional  nancial organizations. Only gold that is held

as a  nancial asset and as a component of reserve as-

sets is classi ed as monetary gold.  erefore, except in

limited institutional circumstances,

gold bullion is a

 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

See the BPM6, paragraphs 5.74–5.78, for a detailed discussion

of gold bullion and gold accounts.

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 speci c piece of gold.  e ownership of the gold

remains with the entity placing it for safe custody.

When held as reserve assets, allocated gold accounts

are classi ed as monetary gold. Otherwise, allocated

gold accounts are treated as representing the owner-

ship of a non 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 classi ed as monetary gold. Unallocated

193 The Balance Sheet

accounts not held as reserve assets, and all unallocated

gold account liabilities, are classi 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

 nancial asset with no corresponding liability.

7.129 Any gold held by a government unit that

does not satisfy the de nition of monetary gold is not

a  nancial asset and is included in nonmonetary gold

as a non nancial asset, most likely valuables (613) but

possibly inventories (612).

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.  e Special Drawing Rights

Department of the IMF allocates SDRs among mem-

ber countries of the IMF (collectively known as the

participants).  e allocation of SDRs is a liability of the

member country and interest accrues on this liability.

7.132 SDR holdings represent each holder’s un-

conditional right to obtain foreign exchange or other

reserve assets from other IMF members.  ese  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.

Nonmonetary gold is a good and classi ed under non nancial

assets as valuables, if held primarily as a store of value, and classi-

 ed as inventories of materials and supplies, if used in a produc-

tion process (such as jewelry or dentistry).

 e IMF has also designated a limited number of international

 nancial institutions as holders of SDRs.

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  nancial assets.  e allocation and holdings

are recorded on a gross basis.  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  nance or treasury).  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  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  nancial in-

strument, SDRs may also be used as a unit of account

in which other debt instruments can be expressed.

 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  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  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 classi ed as non 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 de nitions of

domestic and foreign currency.) Domestic currency

has a  xed nominal value.  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.  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

o ces or other government units may accept deposits

from the public, acting like a sort of rural  nancial

institution as a secondary activity. Public  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 classi ed as deposits. (Claims on the IMF

evidenced by loans should be included in loans.) Re-

payable margin payments in cash related to  nancial

derivative contracts (see paragraph 7.219) can also be

classi 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, dra , giro order,

direct debit/credit, or other direct payment facility.

Nontransferable deposits comprise all other  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

 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.  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 o . If the di erence between the nominal

and fair values is signi cant, the fair value of such de-

posits could be shown as an additional memorandum

item to the balance sheet.  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  nancial in-

struments serving as evidence of a debt.  e security

normally speci 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  -

nancial markets.

7.144 Bills are de ned as securities (usually short-

term) that give holders the unconditional rights to

receive stated  xed sums on a speci ed date. Bills

are issued and usually traded in organized markets

at discounts to face value that depend on the rate of

195 The Balance Sheet

interest and the time to maturity. Examples of bills are

treasury bills, negotiable certi cates of deposit, bank-

ers’ acceptances, promissory notes, and commercial

paper.

7.145 A banker’s acceptance is created when a

 nancial corporation endorses, in return for a fee, a

dra or bill of exchange and the unconditional prom-

ise to pay a speci c amount at a speci ed date. Inter-

national trade is o en  nanced in this way. A banker’s

acceptance is classi 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

 nancial corporation; in turn, the  nancial corpora-

tion acquires an asset because it has a claim on its cus-

tomer. A banker’s acceptance is treated as a  nancial

asset from the time of acceptance, even though funds

may not be exchanged until a later stage.

7.146 Bonds and debentures are securities that

give the holders the unconditional right to  xed pay-

ments or contractually determined variable payments

on a speci ed date or dates.  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 (o 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.

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 derivatives

are not classi ed as  nancial derivatives. If a primary

instrument, such as a security or loan, contains an em-

Appendix 1 of the EDS Guide provides a glossary of  nancial

instruments, including banker’s acceptances.

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.

An embedded derivative arises when a derivative feature is

inserted in a standard  nancial instrument and is inseparable

from the instrument.

bedded derivative, the instrument is valued and clas-

si ed according to its primary characteristics—even

though the value of that security or loan may well

di 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 di 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, classi ed as a  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 reclassi ed (through other changes in the volume

of assets) from loans to debt securities under certain

circumstances. For such reclassi 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-o er

spreads.

7.150 Nonparticipating preferred stocks or shares

are those that pay a  xed income but do not provide for

participation in the distribution of the residual value

of an incorporated enterprise on dissolution.  ese

shares are classi ed as debt securities. Bonds that are

convertible into equity should also be classi 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 speci ed assets or income streams.  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  nancial assets—for

example, mortgages and credit card loans. A general

government unit may issue debt securities backed by

speci c streams of earmarked revenue.  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

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 reclassi 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).  e function of stripping is that investor

preferences for particular cash  ows can be met in

ways di erent from the mix of cash  ows of the origi-

nal security.  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  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  nancial markets—such as bills,

bonds, debentures, negotiable certi 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.  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  ows, while mar-

ket value is based on the price at which it is traded in

a  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).  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.  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  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.

 is category includes overdra s, mort-

gage loans, loans to  nance trade credit and advances,

repurchase agreements,  nancial assets and liabilities

created by  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-

classi ed under debt securities (see paragraph 7.149).

However, if traded only occasionally, the loan is not

reclassi ed under debt securities.

7.158 A  nancial lease involves imputing a loan. A

 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  nancial lease, the

lessee is deemed to be the owner, even though legally

the leased good remains the property of the lessor.

 is is because the risks and rewards of ownership

have been, de facto, transferred to the lessee.  is

change in ownership is deemed to have been  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 speci ed price, with a commitment to re-

purchase the same or similar securities at a  xed price

either on a speci ed future date (o en one or a few

days hence) or with an open maturity.

 e economic

nature of the transaction is that of a collateralized loan

A loan is distinguished from a deposit on the basis of the repre-

sentation in the documents that evidence them.

An open maturity exists when both parties have the option to

agree daily to renew or terminate the agreement.

197 The Balance Sheet

(or a deposit

) because the risks and rewards of own-

ership of the securities remain with the original owner

(security provider).  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

speci 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.  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 o -market swap is a swap contract

that

has a nonzero value at inception as a result of having

reference rates priced di erently from current market

values—that is, “o -the-market.” Such a swap results

in a lump sum being paid, usually at inception, by

one party to the other.  e economic nature of an o -

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 ( nancial derivative).

Repurchase agreements that are included in the national

de nition of broad money should be classi ed as nontransferable

deposits. All other securities repurchase agreements should be

classi ed under loans.

A swap contract involves the counterparties exchanging, in

accordance with prearranged terms, cash  ows based on the

reference prices of the underlying items.

For more details, see the PSDS Guide, paragraphs 4.127–4.131.

7.163 Loans are recorded at nominal value (i.e., the

amount advanced plus interest accrued and not paid

minus any repayments).  e use of nominal values is

partly in 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, o 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  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  xed formula. Investment fund shares

have a specialized role in  nancial intermediation as

a kind of collective investment in other assets, and

should be identi 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, a 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  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 a 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 a 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.  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-

 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 di erent types of corpora-

tions (unlisted shares are o en issued by subsidiaries

and smaller businesses) and typically have di erent

regulatory requirements.

7.169 Other equity is equity that is not in the

form of securities.  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.  e ownership of many interna-

tional organizations is not in the form of shares and

should be classi 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.

7.170 Most general government units do not have

liabilities in the form of equity and investment fund

See the BPM6, paragraph A3.44.

shares. However, in two cases, it is possible to show a

general government unit with liabilities for equity and

investment fund shares.  e  rst relates to some units

(usually special purpose entities) that are established

legally as public corporations but carry out only  scal

and quasi- 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  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  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.  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.

Investment fund shares or units (62052,

62152, 62252, 63052, 63152, 63252)

7.174 Investment funds are collective investment

undertakings through which investors pool funds for

Incorporated corporations have a limited liability toward their

shareholders so that the minimum value of their equity is zero.

199 The Balance Sheet

investment in  nancial or non nancial assets.  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.

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, certi 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  ese reserves, entitlements, and provisions

for calls represent liabilities of a public sector unit as

 ese are discussed further in the BPM6, paragraphs 4.73–4.75.

the insurer, pension fund, or issuer of standardized

guarantees, and corresponding assets of the poli-

cyholders or bene ciaries. In the public sector, it is

usually public  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.

7.180  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.  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.  ese estimates will be the usual

source to compile statistics for this instrument.

7.182  e following paragraphs brie y de ne the

types of reserves, entitlements, and provisions appli-

cable to insurance, pension, and standardized guaran-

tee schemes.

Nonlife insurance technical reserves (62061,

62161, 62261, 63061, 63161, 63261)

7.183 Nonlife insurance

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

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.

 ese issues are discussed in detail in the 2008 SNA, paragraphs

17.76–17.224.

Nonlife insurance covers all risks other than life insurance, such

as accidents, sickness,  re, etc. A policy that provides a bene 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 speci 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.  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.  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.  is unearned premium is intended to provide

coverage for the  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.

 ey also include reserves for unexpired risks.  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 identi 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  nancial claims policyholders have against an

enterprise o ering life insurance or providing annui-

ties.  is category consists of liabilities of life insur-

ance companies and annuity providers for prepaid

premiums and accrued liabilities to life insurance

policyholders and bene ciaries of annuities. Life in-

surance and annuity entitlements are the obligation

to provide bene ts to policyholders, or to compensate

bene ciaries upon the death of policyholders,

and

thus are kept separate from shareholders’ funds.  ese

entitlements are regarded as liabilities of the insur-

ance companies and assets of the policyholders and

bene ciaries. Annuities entitlements are the actuarial

calculation of the present value of the obligations to

pay future income until the death of the bene ciaries.

7.188  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 bene ts.

Pension entitlements [GFS]

(62063, 62163,

62263, 63063, 63163, 63263)

7.189 As explained in paragraphs A2.5–A2.7, en-

titlements to social insurance bene ts are divided

between those relating to pensions and those relat-

ing to all other forms of bene ts (i.e., nonpensions).

 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

bene ts only when these reserves actually exist (see

paragraph 7.195). Furthermore, a distinction is made

between social security schemes and employment-

related schemes.  is section deals with entitlements

to employment-related pension schemes.

7.190 Pension entitlements are  nancial claims

that existing and future pensioners

hold against

 is is distinct from term insurance, which is regarded as non-

life insurance (see footnote 51).

In the commercial accounts of insurance corporations, some of

these obligations will be described as provisions for bonuses and

rebates.  is is the result of the insurance industry’s practice of

smoothing bene ts over time and retaining some bene ts until

the policy matures.

[GFS] indicates that an item has the same name but di erent

coverage in the 2008 SNA.

Existing and future pensioners include past and current employ-

ees, as well as existing pensioners, but exclude future employees.

201 The Balance Sheet

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.

 e nature of these claims, and the corresponding li-

abilities of the units operating the pension funds, de-

pends on the type of bene t promised.

7.191  e two main types of pension schemes are

de ned-bene t schemes and de ned-contribution

schemes.

In a de ned-bene t scheme, the level of

pension bene 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 de ned-

contribution scheme, the level of contributions to

the fund is set, but the bene 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.  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 bene ts. For a description of

the typology of social protection arrangements, see

Appendix 2.

7.193  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

bene ts under social security schemes.

 e implicit

obligation for future social security bene 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 bene ts

De ned-bene t schemes are sometimes referred to as “ nal sal-

ary schemes,” while de ned-contribution schemes are sometimes

referred to as “money-purchase schemes.”

Social security schemes are de ned in paragraphs 2.100–2.102.

that were due to be paid but have not yet been paid are

classi 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.

7.195 As well as pensions, some employment-

related schemes may have other related liabilities,

such as for health bene ts, which are included under

entitlements to nonpension bene ts.

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 bene 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 classi 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:

•  e liability of a de ned-bene t pension scheme

(including nonautonomous pension funds and

unfunded pension schemes) is the present value

of the promised bene ts.

•  e liability of a de 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.

7.198 Because the measurement of de ned-bene 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.

Funded schemes for social insurance other than pensions are

not common.

 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 de 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 de 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 di er-

ent from the administrator, and the responsibility for

any de 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 de cits

• A  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.

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

In contrast, one-o guarantees are individual, and guarantors

usually cannot reliably estimate the risk of calls. As a result, in

most cases, one-o 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.  is liability is called provisions for calls under

standardized guarantees.

7.202  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  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  nancial derivative contract is a  nancial

instrument that is linked to another speci c  nancial

instrument, indicator, or commodity and through

which speci c  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  nancial markets. Transactions and positions in  -

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  e risk embodied in a  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.

 e latter practice, which is termed o setability, occurs

in forward markets. O setability means that it is o en

203 The Balance Sheet

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  rst

derivative. Buying the new derivative is the functional

equivalent of selling the  rst derivative because the re-

sult is the elimination of the underlying  nancial risk.

 e ability to countervail the underlying risk in the

market is therefore considered the equivalent of trad-

ability in demonstrating value.  e outlay that would

be required to replace the existing derivative contract

represents its value; actual o 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  nan-

cial derivative reaches its settlement date, any un-

paid overdue amount is reclassi ed as other accounts

receivable/payable, as its value is  xed, and thus the

nature of the claim becomes debt.

7.207  e following types of  nancial arrange-

ments are not  nancial derivatives:

• A  xed-price contract for goods and services is

not a  nancial derivative unless the contract is

standardized so that the market risk therein can

be traded in  nancial markets in its own right.

For example, an option to purchase an aircra

from the manufacturer is not classi ed as a  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

 nancial derivatives. Insurance involves the col-

lection of funds from policyholders to meet fu-

ture claims arising from the occurrence of events

speci ed in insurance policies.  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 de nition of  nancial derivatives.  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 speci ed period—these are

known as credit derivatives (see paragraph 7.218).

• Contingent assets and liabilities, such as one-o

guarantees and letters of credit, are not  nancial

assets (as discussed in paragraph 7.251).

• Instruments with embedded derivatives are

not  nancial derivatives (see paragraph 7.148).

If the owner of the primary instrument sub-

sequently creates a new but reverse  nancial

derivative contract to o set the risk of the em-

bedded derivative, the creation of this new

 nancial derivative contract is recorded as a

separate transaction, which does not a ect the

recording of transactions and positions in the

primary instrument. However, detachable war-

rants are treated as separate  nancial deriva-

tives, because they can be detached and sold in

 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  nancial derivatives.

Timing delays include normal settlement periods

for spot transactions in  nancial markets.

7.208  ere are two broad types of  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 speci ed underlying item at a strike

price on or before a speci ed date.  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 speci ed underlying item (real or  nancial) at an

agreed-on contract price (the strike price) on or be-

fore a speci 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:

•

t 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 re 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  nancial derivative

option giving the owner the right but not the obliga-

tion to purchase from the issuer of the warrant a  xed

amount of an underlying asset, such as equities and

bonds, at an agreed contract price for a speci ed pe-

riod of time or on a speci 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 speci ed quantity of an underlying item

(real or  nancial) at an agreed-on contract price (the

strike price) on a speci ed date. Forward-type contracts

include futures and swaps (other than as discussed in

paragraph 7.215).  e term forward-type contract is

used because the term forward is o en used more nar-

rowly in  nancial markets (o en excluding swaps).

7.213 Futures are forward-type contracts traded

on organized exchanges.  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.

 e classi 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  ows based on the reference prices of the un-

derlying items. Swap contracts classi 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 di 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  nancial derivative con-

tract. Other types of arrangements also called swaps

but not meeting the foregoing de nition include gold

swaps (see paragraph 7.161 for a discussion of their

treatment), central bank swap arrangements,

and

credit default swaps (see paragraph 7.218).

7.216 For foreign currency  nancial derivative swap

contracts, such as currency swaps, it is necessary to dis-

tinguish between transactions in a  nancial derivative

contract and transactions in the underlying currencies.

At inception, the parties exchange the underlying  -

nancial instruments (usually classi ed as currency and

deposits or loans). At the time of settlement, the di 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  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 o -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 ( nancial

derivative).

Credit derivatives

7.218 Credit derivatives are  nancial derivatives

whose primary purpose is to trade credit risk.  ey are

designed for trading in loan and security default risk.

In contrast, the  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

See the BPM6, paragraphs 6.102–6.104.

205 The Balance Sheet

by the debtor of the underlying instrument. Like other

 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 o en subject to

margin calls. Margins are payments of cash or de-

posits of collateral that cover actual or potential ob-

ligations incurred.  e required provision of margin

re ects market concern over counterparty risk, es-

pecially in markets for futures and exchange-traded

options.  e classi 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 classi 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  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.  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 classi ed as transac-

tions in  nancial derivatives.

7.220  ese principles for the classi cation of mar-

gins also apply more generally to margin calls relating

to positions in other  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, o ered to employees of the

company as a form of remuneration. Employee stock

options have similar pricing behavior to  nancial de-

rivatives, but they have a di 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  nancial markets without restriction, it

is classi ed as a  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 date

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.

A 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  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  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

 e terms grant date, vesting date, and exercise date are de ned

in paragraph 9.77.

 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.  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

 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  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 classi ed as a debt security.

Trade credit and advances exclude trade credits that

meet the de nition of a loan.

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 bene ts, and similar

items.  ey also include payments due under  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, o en

called “deposits,” should be recorded here rather than

in currency and deposits.  ese “deposits” are repay-

able only when speci 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 identi ed if the amounts are

substantial.

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  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 reclassi 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  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 de nition of a loan, it should be

reclassi ed as a loan.

7.227 Other accounts receivable/payable should

be recorded at nominal value. By de 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 de 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-

ci c meaning, which may di er from the understanding

of these terms within the context of accounting.

7.230 When an autonomous pension fund oper-

ates as a de ned contribution scheme, the net worth

will be zero, because by de nition the claims on the

pension fund are equal to the assets of the fund. How-

ever, a de ned-bene 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 bene 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 de ned as the di 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

207 The Balance Sheet

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.  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).  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  e net  nancial worth (6M2) of an insti-

tutional unit (or grouping of units) is the total value

of its  nancial assets minus the total value of its li-

abilities.  is balancing item is o en cited because of

the general government and public sectors’ in uence

on the  nancial system and also because of the dif-

 culties in valuing government-unique non nancial

assets.

Debt

Gross debt

7.236 Tot al gross debt—o en referred to as “total

debt” or “total debt liabilities”—consists of all liabili-

ties that are debt instruments. A debt instrument is

de ned as a  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.  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.

For a detailed discussion on the compilation of public sector

debt, see the PSDS Guide.

Table 7.10 Classiﬁ cation of Memorandum Items

to the Balance Sheet

6M2 Net ﬁ nancial worth

6M3 Gross debt at market value

6M4 Gross debt at nominal value

6M35 Gross debt at face value

6M36 Net debt at market value

6M37 Net debt at nominal value

6M38 Net debt at face value

6M391 Concessional loans at nominal value

6M392 Implicit transfers resulting from loans at

concessional interest rates

6M5 Arrears

6M6 Explicit contingent liabilities

6M61 Publicly guaranteed debt

6M62 Other one-off guarantees

6M63 Explicit contingent liabilities not

elsewhere classiﬁ ed

6M7 Net implicit obligations for future social

security beneﬁ ts

6M8 Nonperforming loan assets at fair value

6M81 Nonperforming loan assets at nominal

value

The 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).

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)

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  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 shi 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 speci ed in the footnotes

to the balance sheet.

7.239  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.  e

nominal value of a debt instrument at any moment in

time is the amount that the debtor owes to the credi-

tor.  is is a measure of value from the viewpoint of

the debtor.

Gross debt at face value (6M35)

7.242  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.  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

 nancial assets corresponding to debt instruments.

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 de 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 bene t to the borrower in the

form of a transfer equal to the di erence between the

actual interest payable and the amounts that would

 is category calculates net debt as total debt liabilities minus

all  nancial assets corresponding to debt instruments. For some

purposes, it may be useful to net individual debt instruments

against their corresponding  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  nancial asset may not be analytically

useful because, typically, speci c types of assets are not earmarked

to repay speci c types of liabilities. Debt net of highly liquid as-

sets is, in most cases, equal to gross debt minus  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  nancial assets.

209 The Balance Sheet

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.

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.  e  rst shows the stock of conces-

sional loans at nominal value (6M391).  e second

shows an estimate of the value of the bene 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 de 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.

For debt liabilities, arrears arise when principal or in-

terest payments are not made when due. For expense

and the acquisition of non 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

 e one-o bene t at the point of loan origination can be calcu-

lated as being equal to the di erence between the nominal value

of the debt and its present value using a relevant market discount

rate.  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 o cial lending involving an inten-

tion to convey a bene 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).  e

di 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.

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.

for goods and services or non nancial assets and such

amounts payable are not settled on delivery, other ac-

counts payable for these goods and services or non -

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  nancial instrument when it goes into arrears,

this change should be recorded as a reclassi 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 signi 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  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  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  scal risks

and

may arise from deliberate public policy or from un-

foreseen events, such as a  nancial crisis. Contingent

liabilities are obligations that do not arise unless a

particular, discrete event(s) occurs in the future. A key

di erence between contingent liabilities and liabilities

is that one or more conditions must be ful lled before

At the most general level,  scal risks may be de ned as any

potential di erences between actual and expected  scal outcomes

(e.g.,  scal balances and public sector debt). Contingent liabilities

are a speci c source of potential  scal risk.

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.

7.252 A distinction is made between explicit and

implicit contingent liabilities. Explicit contingent li-

abilities are de ned as legal or contractual  nancial

arrangements that give rise to conditional require-

ments to make payments of economic value.  e re-

quirements become e 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 a 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 bene ts (see paragraph 7.261), are impor-

tant factors in  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.

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  nancial derivatives and provisions for calls

under standardized guarantee schemes are liabilities

on the balance sheet. On the other hand, one-o guar-

antees are contingent liabilities.

7.254 Explicit contingent liabilities comprise:

• Publicly guaranteed debt (6M61), which is one-

o guarantees in the form of loan and other

debt instrument guarantees (see paragraphs

7.259–7.260)

Uncertainty about the potential size of liabilities does not make

them contingent liabilities.

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 bene ts—o en the larg-

est implicit contingency of government.

• Other one-o guarantees (6M62) for other

than publicly guaranteed debt (see paragraphs

7.259–7.260)

• Explicit contingent liabilities not elsewhere classi 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 cases



Indemnities, which are commitments to ac-

cept the risk of loss or damage another party

might su 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  nancial institution)



Potential payments resulting from PPP

arrangements.

7.255 Information on the stock positions of one-o

guarantees is relevant for public  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 signi -

cant, information on other one-o guarantees (6M62)

and explicit contingent liabilities not elsewhere classi ed

(6M63) should also be included as a memorandum

item to the balance sheet, at nominal value.

One-o

guarantees are discussed in paragraphs 7.256–7.260.

One-off guarantees

7.256 One-o guarantees comprise those types of

guarantees where the debt instrument is so particular

that it is not possible to calculate the degree of risk

A pending legal case may also be a contingent asset—for

example, a case in which the government has claimed damages

against another party.

Limitations of this approach are that it o 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.  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.  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.

211 The Balance Sheet

associated with the debt with any degree of accuracy.

In contrast to standardized guarantees, one-o guar-

antees are individual, and guarantors are not able to

make a reliable estimate of the risk of calls.

7.257 In most cases, a one-o guarantee is consid-

ered a contingent liability of the guarantor. Liabilities

under one-o guarantees continue to be attributed

to the debtor, not the guarantor, unless and until the

guarantee is called.

7.258 In contrast, a one-o guarantee granted by

government to a corporation in  nancial distress and

with a very high likelihood to be called is treated as if

the guarantee is called at inception.

 e activation

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,

Figure 7.2 Overview of Liabilities and Contingent Liabilities in Macroeconomic Statistics

Includes liabilities for nonautonomous unfunded employer pension schemes.

Excludes liabilities for nonautonomous unfunded employer pension 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

entitlements

• Equity and investment fund shares

• Other financial derivatives and employee

stock options

• Other accounts payable

One-off

guarantees

Loan and other

debt instrument

guarantees (publicly

guaranteed debt)

Other one-off

guarantees

Other implicit

contingent

liabilities

Net implicit obliga-

tions for future social

security benefits

Other explicit

contingent

liabilities

Explicit

contingent

liabilities

Implicit

contingent

liabilities

Contingent

liabilities

Liabilities

Guarantees in the

form of financial

derivatives

Provisions for calls

under standardized

guarantee schemes

Guarantees

212 Government Finance Statistics Manual 2014

of such a one-o guarantee is treated as debt

assumption

and this liability is part of the public sec-

tor unit’s balance sheet.

7.259 One-o guarantees may be grouped into

loan and other debt instrument guarantees and other

one-o guarantees:

• Loan and other debt instrument guarantees—

or one-o 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 de ned as debt

liabilities of public and private sector units, the

servicing of which is contractually guaranteed by

public sector units.

• Other one-o 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  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-speci 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.  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  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) di er from the other types

of one-o guarantees.  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).

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-

o guarantees, no  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 bene ts—such as re-

tirement bene ts (other than employment-related

pensions) and health care bene ts—payable in the fu-

ture.

 ese implicit obligations to pay social security

bene ts in the future are not contractual obligations

and are therefore not recorded on the balance sheet

(see paragraph 7.252).  e present value of social

security bene 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.  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 bene 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  les for

bankruptcy.  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).

In contrast, social security bene 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.

213 The Balance Sheet

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  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),

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  e preceding section discussed the clas-

si cations of  nancial assets and liabilities based on

the characteristics of the instrument underlying the

claim. For a fuller understanding of  nancial assets

and liabilities of the general government or the pub-

lic sector, the counterparties to these  nancial rela-

tionships should also be considered. For example, a

classi cation of liabilities according to the economic

sectors providing the  nancing (i.e., the sources of

funding) complements the classi cation by type of

 nancial instrument. Information on debtor-creditor

relationships between sectors and subsectors is essen-

tial for proper consolidation of GFS. A classi cation

of  nancial assets and liabilities according to whether

the counterparty is a public or private non nancial or

 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  nan-

cial claims. As a result, it is possible to cross-classify

the  nancial instruments of  nancial claims with the

sector of the counterparty, making a distinction be-

tween resident and nonresident units.

 is supple-

mental classi cation is presented in Table 7.11, which

should be compiled separately for  nancial assets and

liabilities.

 e concepts nominal value and fair value are described in

paragraph 3.115.

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.

See Chapter 2 of this Manual, and the 2008 SNA, Chapter 4, for

a description of sector classi cation. Issues in the identi cation of

counterparties of traded debt securities are discussed in the PSDS

Guide, Chapter 7.

Classiﬁ cation of Debt Liabilities and

Financial Assets Corresponding to Debt

Instruments by Maturity

7.266 A supplementary classi cation of debt li-

abilities and  nancial assets corresponding to debt

instruments by maturity and type of  nancial instru-

ment provides information on the liquidity dimensions

of debt.  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 de ned as payable on demand or

with a maturity of one year or less.  is category

includes arrears and interest on arrears.

• Long-term is de 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  nal contractually scheduled

payment date, or

• Remaining maturity or residual maturity, which

is the period from the reference date (balance

sheet date) until the  nal contractually scheduled

payment date.

7.268  is Manual recommends a three-way clas-

si 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  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.  e

classi cation codes in Table 7.12 correspond to those

in Table 7.9; only a su 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

gold

and

SDRs

Currency

and

deposits

Debt

securities Loans

Equity and

investment

fund shares

Insurance,

pension, and

standardized

guarantee

schemes [GFS]

Financial

derivatives

and

employee

stock options

Other

accounts

receivable/

payable

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 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

Gold 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.

Zero 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).

215 The Balance Sheet

Table 7.12 Classiﬁ cation of Debt Liabilities and Financial Assets Corresponding to Debt Instruments by

Maturity and by Type of Debt Instrument

Short-

term, by

original

maturity

(a)

Long-term by original maturity

Short-

term by

remaining

maturity

(a) + (b)

With

payment

due in one

year or less

(b)

With payment

due in more

than one year =

Long-term

by remaining

maturity (c)

Total

(b) + (c)

Financial assets corresponding to debt instruments 62.1 62.2 62.3 62.4 62.5

Monetary gold and Special Drawing Rights (SDRs) 6201.1 6201.2 6201.3 6201.4 6201.5

Currency and deposits 6202.1 6202.2 6202.3 6202.4 6202.5

Debt securities 6203.1 6203.2 6203.3 6203.4 6203.5

Loans 6204.1 6204.2 6204.3 6204.4 6204.5

Insurance, pension, and standardized guarantee

schemes [GFS]

6206.1 6206.2 6206.3 6206.4 6206.5

Nonlife insurance technical reserves 62061.1 62061.2 62061.3 62061.4 62061.5

Life insurance and annuities entitlements 62062.1 62062.2 62062.3 62062.4 62062.5

Pension entitlements [GFS] 62063.1 62063.2 62063.3 62063.4 62063.5

Claims of pension funds on pension manager 62064.1 62064.2 62064.3 62064.4 62064.5

Provisions for calls under standardized

guarantee schemes

62065.1 62065.2 62065.3 62065.4 62065.5

Other accounts receivable 6208.1 6208.2 6208.3 6208.4 6208.5

Trade credit and advances 62081.1 62081.2 62081.3 62081.4 62081.5

Miscellaneous other accounts receivable 62082.1 62082.2 62082.3 62082.4 62082.5

Domestic 621.1 621.2 621.3 621.4 621.5

Same instrument breakdown as above, but

excluding monetary gold and SDRs

6212.1–

6218.1

6212.2–

6218.2

6212.3–

6218.3

6212.4–

6218.4

6212.5–

6218.5

External 622.1 622.2 622.3 622.4 622.5

Same instrument breakdown as above

6221.1–

6228.1

6221.2–

6228.2

6221.3–

6228.3

6221.4–

6228.4

6221.5–

6228.5

Debt instruments (= gross debt) 63.1 63.2 63.3 63.4 63.5

Special Drawing Rights (SDRs) 6301.1 6301.2 6301.3 6301.4 6301.5

Currency and deposits 6302.1 6302.2 6302.3 6302.4 6302.5

Debt securities 6303.1 6303.2 6303.3 6303.4 6303.5

Loans 6304.1 6304.2 6304.3 6304.4 6304.5

Insurance, pension, and standardized guarantee

schemes [GFS]

6306.1 6306.2 6306.3 6306.4 6306.5

Nonlife insurance technical reserves 63061.1 63061.2 63061.3 63061.4 63061.5

Life insurance and annuities entitlements 63062.1 63062.2 63062.3 63062.4 63062.5

Pension entitlements [GFS] 63063.1 63063.2 63063.3 63063.4 63063.5

Claims of pension funds on pension manager 63064.1 63064.2 63064.3 63064.4 63064.5

Provisions for calls under standardized

guarantee schemes

63065.1 63065.2 63065.3 63065.4 63065.5

Other accounts payable 6308.1 6308.2 6308.3 6308.4 6308.5

Trade credit and advances 63081.1 63081.2 63081.3 63081.4 63081.5

Miscellaneous other accounts payable 63082.1 63082.2 63082.3 63082.4 63082.5

Domestic 631.1 631.2 631.3 631.4 631.5

Same instrument breakdown as above, but

excluding SDRs

6312.1–

6318.1

6312.2–

6318.2

6312.3–

6318.3

6312.4–

6318.4

6312.5–

6318.5

External 632.1 632.2 632.3 632.4 632.5

Same instrument breakdown as above

6321.1–

6328.1

6321.2–

6328.2

6321.3–

6328.3

6321.4–

6328.4

6321.5–

6328.5

This category includes arrears and interest on arrears.

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 di 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.  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.

 is chapter describes transactions in non nancial as-

sets and their classi 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  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  ows—

transactions and other economic  ows—both of which

can a ect stock positions of assets and liabilities.  is

chapter describes the transactions that a ect stock po-

sitions of non nancial assets. Chapter9 describes the

transactions that a ect stock positions of  nancial as-

sets and liabilities, and Chapter10 describes other eco-

nomic  ows.

8.2 For each category of non nancial assets, there

is an accounting identity linking successive balance

sheets.

 e identity states that:

 e value of a category of non nancial assets

on the balance sheet at the beginning of the re-

porting period

plus

 e total value of that category of non nancial as-

sets acquired in transactions during the reporting

period

minus

 e total value of that category of non nancial as-

sets disposed of in transactions during the reporting

minus

 e value of consumption of  xed capital for that

category of non nancial assets during the report-

ing period

With the exception of consumption of  xed capital, the same

identity could be applied to  nancial assets and liabilities.

plus

 e net value of other economic  ows that a ect

that category of non nancial assets during the re-

porting period

equals

 e value of the category of non nancial assets

on the balance sheet at the end of the reporting

period.

 is identity requires that transactions, other eco-

nomic  ows, and stock positions be recorded consis-

tently with regard to time of recording and valuation.

 e accounting rules governing these factors are de-

scribed in Chapter3.

8.3 Transactions can change stock positions of

non nancial assets in di erent ways and all must be

accounted for.  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  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  xed assets (i.e., own-

account  xed capital formation).  ese transac-

tions are classi ed as acquisitions of  xed assets

(and shown as a memorandum item).

• Renovations, reconstructions, or enlargements

that signi cantly increase the productive capac-

ity or extend the service life of an existing  xed

asset are classi ed as acquisitions of  xed assets

even though physically they function as part of

the existing asset. Land improvements are a sep-

arate category of  xed assets, distinct from the

nonproduced land asset.

Transactions in Nonﬁ nancial Assets

218 Government Finance Statistics Manual 2014

• Consumption of  xed capital is an internal trans-

action that records the decrease in the value of

 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  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

non nancial assets are labeled acquisitions. With the

exception of consumption of  xed capital, all transac-

tions that decrease a unit’s holdings of non nancial

assets are labeled disposals.  us, the results of trans-

actions in a particular category of non nancial assets

can be presented either as total acquisitions, total dis-

posals, and consumption of  xed capital, or as net in-

vestment in non nancial assets.

 e net investment in

a non nancial asset is its acquisitions minus disposals

minus consumption of  xed capital.  e gross invest-

ment in a non nancial asset is its acquisitions minus

disposals (i.e., consumption of  xed capital is not taken

into account). On a cash basis, the purchases minus the

sales of non nancial assets are referred to as the net

cash out ow from investment in non nancial assets.

8.5  e remainder of this chapter  rst describes

costs of ownership transfer, valuation, time of re-

cording, consumption of  xed capital, and netting of

transactions that a ect non nancial assets and then

provides details on the classi cation of transactions

that a ect speci c categories of non nancial assets.

Costs of Ownership Transfer

8.6 Costs of ownership transfer are the costs as-

sociated with acquiring and disposing of non nancial

assets (other than inventories

) and consist of:

• All professional charges or commissions incurred

by both units acquiring or disposing of an asset,

 e net investment in inventories is referred to as “changes in

inventories.” Net investment in non nancial assets can be positive

or negative.

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 costs

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  e costs of ownership transfer on  xed as-

sets, valuables, and nonproduced assets are treated as

transactions in  xed assets. In particular, transactions

in the:

• Costs of ownership transfer on  xed assets are

recorded as transactions in the relevant  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  xed asset

• Costs of ownership transfer on nonproduced as-

sets other than land are recorded in  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).

In the case of some signi 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

land ll, there may be large costs associated with rehabilitation of

the site.  ese are referred to collectively as terminal costs.

219 Transactions in Nonﬁ nancial Assets

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.

 ese costs of ownership transfer should be written

o as consumption of  xed capital, as discussed in

paragraph 6.60. Interest and other  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  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.

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 di erent from their value

when acquired.

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.  e costs of ownership

transfer on nonproduced assets other than land are

recorded as a separate category of  xed assets, costs

In GFS, it is assumed that market prices of  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  xed capital used for own-account production of these

assets.  is treatment also applies to the production of valuables

and major improvements to land when carried out on own

account.

Holding gains on inventories are discussed in paragraphs

10.16–10.17.

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 non nancial assets on a nonmarket basis as an

element of their  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.

Usually, however, there is

not an active market for the assets and it is di 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  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 non nancial as-

sets, this time is when the economic ownership of the

non 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)

in non nancial assets

are, in principle, recorded the moment when eco-

nomic ownership changes, which o en may depend

on the provisions in the sales contract. When change

of ownership is not obvious, the time of recording by

the transaction partners

may be a good indication

and, failing that, the moment when there is a change

in physical possession or control.

8.15  e time of recording of the acquisition of a

new non nancial asset depends on how the asset is

acquired.

 e expense o en will be a capital transfer to a market enterprise

and classi ed as capital transfers not elsewhere classi 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).

 ese acquisitions and disposals are excluded from a pure cash

basis of recording.

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  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

 xed assets to be recorded.

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.  e pro-

ducing unit e 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 classi ed as an

acquisition of the  xed asset as work takes place.

8.16 Consumption of  xed capital, in principle,

should be recorded continuously throughout each

reporting period. In practice, consumption of  xed

capital can be computed only a 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  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  xed capital is an internal

transaction that re ects the fact that an institutional

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  xed assets is

recorded by the  nal owner until the other accounts receivable/

payable are exhausted.

unit used up a portion of each of its  xed assets through

its productive activities during the reporting period

and the value of those assets declined correspondingly.

As a result, consumption of  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  xed asset, so that there is no impact on expenditure

nor net lending/net borrowing (see paragraph 4.20).

 e recording of consumption of  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-

 nancial assets other than inventories be presented

as acquisitions, disposals, and consumption of  xed

capital, as indicated in Table8.1.  e net investment

in a category of non nancial assets is computed as

acquisitions minus disposals minus consumption of

 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

o en impossible to estimate individual transactions

in inventories (see paragraphs 8.44–8.47). Inventories

are not subject to consumption of  xed capital.

Classiﬁ cation and Recording of

Transactions in Nonﬁ nancial Assets

8.21  e classi cation of transactions in non nan-

cial assets is shown in Table8.1.  e table summarizes

transactions in non nancial assets as acquisitions,

disposals, and consumption of  xed capital.

8.22  e classi cation of transactions in non nan-

cial assets is identical to the classi cation of stock po-

sitions in non nancial assets employed in Chapter7

(Table7.2). Chapter7 also provides full de nitions of

the assets included in each category, and those de -

nitions are not repeated here.  is chapter provides

guidance applicable to transactions a ecting all or

most categories of non nancial assets.  e remain-

der of this section provides guidance only on those

transactions for which the general guidance may not

be su cient.

8.23 In addition to the classi cation of transac-

tions in non nancial assets described in this chapter,

the Classi cation of the Functions of Government

(COFOG) can also be applied to the acquisitions

221 Transactions in Nonﬁ nancial Assets

Table 8.1 Classiﬁ cation of Transactions in Nonﬁ nancial Assets

Acquisitions of Disposals of

Consumption of

ﬁ xed capital

Net investment

in nonﬁ nancial

assets

Nonﬁ nancial assets 31.1 31.2 31.3 = 23 31

Fixed assets 311.1 311.2 311.3 311

Buildings and structures 3111.1 3111.2 3111.3 3111

Dwellings 31111.1 31111.2 31111.3 31111

Buildings other than dwellings 31112.1 31112.2 31112.3 31112

Other structures 31113.1 31113.2 31113.3 31113

Land improvements 31114.1 31114.2 31114.3 31114

Machinery and equipment 3112.1 3112.2 3112.3 3112

Transport equipment 31121.1 31121.2 31121.3 31121

Other machinery and equipment 31122.1 31122.2 31122.3 31122

Information, computer, and

telecommunication (ICT) equipment

311221.1 311221.2 311221.3 311221

Machinery and equipment not

elsewhere classiﬁ ed

311222.1 311222.2 311222.3 311222

Other ﬁ xed assets 3113.1 3113.2 3113.3 3113

Cultivated biological resources 31131.1 31131.2 31131.3 31131

Animal resources yielding repeat

products

311311.1 311311.2 311311.3 311311

Tree, crop, and plant resources

yielding repeat products

311312.1 311312.2 311312.3 311312

Intellectual property products 31132.1 31132.2 31132.3 31132

Research and development 311321.1 311321.2 311321.3 311321

Mineral exploration and evaluation 311322.1 311322.2 311322.3 311322

Computer software and databases 311323.1 311323.2 311323.3 311323

Computer software 3113231.1 3113231.2 3113231.3 3113231

Databases 3113232.1 3113232.2 3113232.3 3113232

Entertainment, literary, and artistic

originals

311324.1 311324.2 311324.3 311324

Other intellectual and property

products

311325.1 311325.2 311325.3 311325

Costs of ownership transfer on

nonproduced assets other than land

31133.1 31133.2 31133.3 31133

Weapons systems 3114.1 3114.2 3114.3 3114

Inventories

312

Materials and supplies 31221

Work in progress 31222

Finished goods 31223

Goods for resale 31224

Military inventories 31225

Valuables 313.1 313.2 313

Nonproduced assets 314.1 314.2 314

Land 3141.1 3141.2 3141

Mineral and energy resources 3142.1 3142.2 3142

Other naturally occurring assets 3143.1 3143.2 3143

Noncultivated biological resources 31431.1 31431.2 31431

Water resources 31432.1 31432.2 31432

Other natural resources 31433.1 31433.2 31433

Radio spectra 314331.1 314331.2 314331

Natural resources not elsewhere

classiﬁ ed

314332.1 314332.2 314332

222 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 capital

Net investment

in nonﬁ nancial

assets

Intangible nonproduced assets 3144.1 3144.2 3144

Contracts, leases, and licenses 31441.1 31441.2 31441

Marketable operating leases 314411.1 314411.2 314411

Permits to use natural resources 314412.1 314412.2 314412

Permits to undertake speciﬁ c activities 314413.1 314413.2 314413

Entitlement to future goods and

services on an exclusive basis

314414.1 314414.2 314414

Goodwill and marketing assets 31442.1 31442.2 31442

Memorandum items

Own-account capital formation 3M1

Compensation of employees 3M11

Use of goods and services 3M12

Consumption of ﬁ xed capital 3M13

Other taxes on production minus other

subsidies on production

3M14

Consumption 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).

In 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)

8.24  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  xed assets. To determine the amount of these

costs that should be recorded as the value of own-

account production of  xed assets during the reporting

period, a distinction between major improvements of

assets and maintenance of assets is necessary.  e sec-

tion on Fixed Assets  rst describes how to distinguish

transactions that should be recorded as acquisitions of

 xed assets from transactions that should be recorded

as expense related to maintenance.  e recording of

transactions in speci 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

 e numbers in parentheses a er each classi cation category

are the GFS classi cation codes. Appendix8 provides all classi -

cation codes used in GFS.

service lives, or both, are classi ed as acquisitions

of  xed assets. On the other hand, maintenance and

repair of  xed assets constitute an expense classi ed

as the use of goods and services (22) (as mentioned in

paragraph 6.45). By de nition, however, major im-

provements do not lead to the creation of new assets

that can be separately identi 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:

•  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.

•  e major renovations, reconstructions, or en-

largements increase the performance or capac-

ity of existing assets or signi 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 re tting or restructuring of the interior

of a building also quali es.

223 Transactions in Nonﬁ nancial Assets

8.27 Maintenance and repairs are distinguished by

two features:

•  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.  ey are current costs that cannot

be avoided if the  xed assets are to continue to be

used.  e owner or user cannot a ord to neglect

maintenance and repairs as the expected service

life may be drastically shortened otherwise.

•  ey do not change the  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  xed asset.

Buildings and structures (3111)

8.28 In addition to the transactions re 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  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. A 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  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.

However, when

the special archaeological, historical, or cultural sig-

ni cance of a structure or site not already recorded in

the balance sheet is  rst recognized, it is recorded as

an other change in the volume of assets, as explained

in paragraph 10.50.

8.31  e costs of land improvements (31114) are

recorded as transactions and, in subsequent periods,

Consumption of  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.

transactions in consumption of  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

classi ed as acquisitions of structures and not as im-

provements to land.  ese assets are used separately

from the land through which they are drilled or

bored.  e costs of ownership transfer on land are in-

cluded, by convention, with land improvements, and

these costs are written o over the period the owner

expects to own the land.

Machinery and equipment (3112)

8.33  e determination of which goods should be

classi ed as machinery and equipment is normally

straightforward. However, as explained in paragraphs

6.43 and 7.40, some  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

a er year and the value of similar plants and ani-

mals produced on own account.

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

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  xed assets (see paragraphs 7.60–7.61).

224 Government Finance Statistics Manual 2014

other changes in the volume of assets. Consumption

of  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  e net investment in livestock that are culti-

vated for the products they yield year a 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  xed

capital.

8.36  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  xed capital.  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 so ware and databases (311323)

• Entertainment, literary, and artistic originals

(311324)

• Other intellectual and property products (311325).

8.38  e value of expenditure on research and de-

velopment (311321) should be determined in terms of

the economic bene 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

bene ts for its owner (see paragraphs 7.66–7.67).

8.39 As mentioned in paragraph 7.68, expenditure

incurred on exploration is classi 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  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 so ware and databases (311323)

include acquisitions of computer so ware that com-

prise programs, program descriptions, and sup-

porting materials for both systems and applications

so ware that are expected to be used for more than

one year.  e net investment in non nancial assets

in the form of computer so ware includes both the

initial development and subsequent extensions of

so ware, as well as acquisition of copies that are

classi ed as assets. So ware developed in-house is

valued at its cost of production.  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.  ese costs include the cost of preparing

data in the appropriate format, sta 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.

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 so ware component in a database that is

sold is available separately, it should be recorded as

the sale of so ware.

8.41  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 o 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 di cult to establish their market

value, which depends on the present value of the fu-

ture bene 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.

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).

225 Transactions in Nonﬁ nancial Assets

Costs of ownership transfer on

nonproduced assets other than land (31133)

8.42 Transactions in the costs of ownership transfer

on nonproduced assets

other than land are treated

as transactions in  xed assets because these costs are

considered a produced asset.  e costs of ownership

transfer on nonproduced assets other than land are

subject to consumption of  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  xed capital on these costs, are re-

 ected in the value of the respective nonproduced

assets.  e additional entries necessary for this treat-

ment are discussed in paragraph10.83.  e treatment

of costs of ownership transfer on nonproduced assets

is illustrated in Figure 8.1.

Weapons systems (3114)

8.43  e acquisitions and disposals of weapons

systems that meet the general de nition of assets in-

clude vehicles and other equipment such as warships,

submarines, military aircra , tanks, missile carriers

and launchers, etc.  e acquisitions of most single-use

weapons they deliver, such as ammunition, missiles,

rockets, bombs, etc., are classi 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 classi ed as  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.

In general, additions to and withdraw-

als from inventories should be recorded according to

the same principles used for recording transactions

in other non nancial assets. Additions to inventories

are recorded when products are purchased, produced,

or otherwise acquired, and withdrawals from inven-

Transactions in nonproduced assets are discussed in paragraphs

8.49–8.58.

 ese changes in inventories are as a result of transactions.  e

value of the stock of inventories may also change due to other

economic  ows.

tories are recorded when products are sold, used up

in production, transferred to a di erent category of

inventories, or otherwise relinquished.

8.45 In contrast to other non 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  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 non nancial assets.  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 re ect internal transactions. All additions to

and withdrawals from inventories, such as for use of

goods or investment in  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

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 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)

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)

Fixed

asset

Non-

produced

assets

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)

−

Stock positions

in nonproduced

assets other than

land

(6142, 6143, 6144)

Stock positions

in nonproduced

assets other

than land

(6142, 6143, 6144)

++=

Opening balance Transactions relating to costs of ownership

transfer on nonproduced assets

Closing balance

Stock position

in land

improvements

(61114)

Consumption of

fixed capital on

land improvements,

including on cost of

ownership transfer

on land

(31114.3)

Stock position

in land

improvements

(61114)

−

−=

Costs of ownership transfer on land:

Costs of ownership transfer on nonproduced assets other than land:

• Acquisitions minus

disposals of land

improvements

(31114.1 − 31114.2)

• Transactions in

cost of ownership

transfer on land

(3114.1)

Acquisitions minus

disposals of

nonproduced assets

other than land

(3142.1 − 3142.2)

(3143.1 − 3143.2)

(3144.1 − 3144.2)

• 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.

227 Transactions in Nonﬁ nancial Assets

speci c  xed asset or possibly valuables (313). In

other words, the balancing entry depends on the

nature of the production process.  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.  e counterpart

transactions are reduction in other assets, such

as materials and supplies, and the other costs

incurred in production.

When production is

completed, all work in progress is reclassi ed as

 nished goods (31223).  is reclassi 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.  e di erence be-

tween the prices payable for the inputs and their

current market prices is a holding gain or loss.

 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  xed assets.

• A good is  nished when its producer has com-

pleted its intended production process and such

inventories of  nished goods (31223) may be held

only by the units that produce them. When  n-

ished goods are sold or otherwise disposed of

(e.g., as compensation of employees in kind or

social bene ts in kind), a transaction must be

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

non nancial assets, such as work-in-progress inventories.

recorded to reduce inventories of  nished goods

(31223), which is balanced by an increase in use

of goods and services (22).  e distribution of

 nished goods as compensation of employees in

kind or social bene 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;  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.  e di erence between the “entering” and

“withdrawal” values of  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).  e di erence

between the value recorded as sales of goods and

services and use of goods and services is re 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.  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-

e ts (27), or current transfers not elsewhere classi-

 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 di er from the prices that were paid

to acquire them and the prices for which they

were sold.

Reductions in inventories are valued

in this way whether the goods withdrawn are

sold at a pro 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  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 di 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 signi cant for the services of

appraisers, auctioneers, and dealers. Units ful 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.

 e di 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.

Nonproduced Assets (314)

8.49 Transactions re ecting a change in the own-

ership of nonproduced assets should be recorded in

the same manner as transactions in existing  xed as-

sets.  e recording of the costs of ownership transfer

on nonproduced assets other than land and the con-

sumption of  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.  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,

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

non nancial asset).

8.51 Buildings, or other structures, and plantations

are o 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 classi ed as the pur-

chase of a structure (i.e., as the acquisition of a  xed

asset in the form of buildings and structures (3111)).

A similar convention holds for plantations. In most

Costs relating to site clearance and preparation of land for

purposes of construction are excluded; these are classi ed as the

acquisition of buildings and other structures.

229 Transactions in Nonﬁ nancial Assets

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  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

di 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  ere is no consumption of  xed capital on

land, but there are transactions in consumption of

 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.  e

transactions in mineral and energy resources refer only

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 non 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 speci c activities and entitle-

ment to future goods and services on an exclusive

basis.  e speci c stocks and  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.  e amortization

of goodwill and marketing assets or other intangible

nonproduced assets is an other e conomic  ow rather

than a transaction (see paragraph 10.55).

Transactions in Financial Assets

andLiabilities

 is chapter describes transactions in  nancial assets

and liabilities and their classi 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  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  ows—transactions and other

economic  ows—both of which can a ect stock posi-

tions of assets and liabilities.  is chapter describes

the transactions that a ect stock positions of  nancial

assets and liabilities, and Chapter10 describes other

economic  ows.

9.2  e accounting identity given in paragraph8.2

for non nancial assets also holds for  nancial assets

and liabilities.

 e identity states that:

 e value of a category of  nancial assets (liabili-

ties) on the balance sheet at the beginning of the

reporting period

plus

 e total value of that category of  nancial assets

(liabilities) acquired (incurred) in transactions

during the reporting period

minus

 e total value of that category of  nancial assets

(liabilities) disposed of (extinguished) in transac-

tions during the reporting period

plus

 e net value of other economic  ows that a ect

that category of  nancial assets (liabilities)

For ease of expression, assets will o en be used as a reference to

both assets and liabilities.

equals

 e value of the category of  nancial assets (li-

abilities) on the balance sheet at the end of the re-

porting period.

 is identity requires that transactions, other eco-

nomic  ows, and stock positions be recorded consis-

tently with regard to classi cation, time of recording,

and valuation.  e accounting rules governing these

factors are described in Chapter3.

9.3 Transactions can change stock positions of  -

nancial assets or liabilities in di erent ways and all

must be accounted for.  e more important types of

transactions follow:

• Transactions involving revenue, expense, the

transfer of economic ownership of a good or

non nancial asset, or the provision of a service

or labor almost always entail a counterpart entry

in transactions in  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  nancial assets (other accounts

receivable) and/or liabilities (other accounts pay-

able) when the timing of the exchange does not

coincide.  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 re ected as another type of  nancial

asset or liability, such as other accounts receiv-

able or payable.

• New  nancial claims are o en created by trans-

actions in which a creditor advances funds to

a debtor.  e creditor then acquires a  nancial

asset and the debtor incurs a liability.

• Some transactions in  nancial assets and liabili-

ties are simply exchanges of  nancial instruments.

231 Transactions in Financial Assets andLiabilities

• Financial claims are normally terminated by

transactions. In some cases, the debtor pays the

creditor the funds stipulated by the  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  nancial

instrument by means of a transaction.

•  e trading and settlement of  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.  us, the results of transactions

in a particular category of  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  nancial assets are never combined with

transactions that change the same category of liabili-

ties.  at is, in GFS, the net acquisition of loans is not

presented as the increase in loans held as  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 non nancial

assets equals net lending (+) / net borrowing (–). If the

operating balance is not exhausted by the net invest-

ment in non nancial assets, the resulting surplus is

called net lending (+). Alternatively, if the net oper-

ating balance is not su cient to cover the net accu-

mulation of non nancial assets, the resulting de cit

is called net borrowing (–). Transactions in  nancial

assets and liabilities explain how net lending/net bor-

rowing is  nanced by means of changes in holdings of

 nancial assets and liabilities—that is, total  nancing.

In other words, the net acquisition of  nancial assets

minus the net incurrence of liabilities is conceptually

equal to net lending/net borrowing.

9.6  e remainder of this chapter describes  rst

the valuation, time of recording, netting, and con-

solidation of transactions that a ect  nancial assets

and liabilities. It then provides details on transactions

that a ect speci c categories of  nancial assets and

liabilities.  e classi cation of transactions in  nan-

cial assets and liabilities by residence and sector of the

counterparty is also discussed.

Valuation

9.7  e value of an acquisition or disposal of an ex-

isting  nancial asset or liability is its exchange value—

that is, the current market price.  e value of a newly

created  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  nancial assets and

liabilities.  ey are expense transactions classi 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.  e di 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  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 di 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  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  nancial lease is usually the value of the

non nancial asset leased (if no initial down payments

or fees are involved).  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.

If a transaction expressed in a for-

eign currency involves the creation of a  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  nancial asset

or liability, then both transactions are valued at the

exchange rates e ective when each takes place.

9.12 Government units or public corporations may

acquire or dispose of  nancial assets on a nonmarket

basis as an element of their  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 in 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.  e degree

of concessionality can also be enhanced with grace

periods

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 e 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-

 e di 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).  e service charge may be estimated from the aver-

age trade margin spread between the buying and selling rates. If

not signi cant or not practical to identify, it is recommended to

disregard any service charge in GFS.

 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  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  nancial in-

strument occurs, such as the accrual of interest and

subsequent reduction when debt service payments

are made.

 is time is usually clear when the transac-

tion involves an exchange of existing  nancial assets

or the simultaneous creation or extinction of a  nan-

cial asset and a liability. In most cases, it will be when

the contract is signed or when money or some other

 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 di erent

dates because they acquire the documents evidencing

the transaction at di erent times.  is variation usually

is caused by the process of check clearing or the length

of time checks are in the mail.  e amounts involved in

such “ 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  -

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  nancial asset or li-

ability involves a non nancial component, the time of

recording is determined by the non 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  nancial lease is created, the loan implicit in the

transaction is recorded when control of the  xed asset

changes.

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.

233 Transactions in Financial Assets andLiabilities

9.16 Some transactions, such as the accrual of interest

expense and its treatment as borrowing of an additional

amount of the  nancial instrument, take place continu-

ously. In this case, the transaction in the associated  -

nancial asset or liability also takes place continuously.

Netting and Consolidation of Flows

Netting

9.17 Transactions in  nancial assets and liabilities

are presented in Table9.1 as the net acquisition of each

category of  nancial asset and the net incurrence of

each category of liability.  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 non 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  nancial instrument is held

both as a  nancial asset and a liability, transactions in

 nancial assets are presented separately from transac-

tions in liabilities rather than netting transactions in li-

abilities against transactions in  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,  rst, an aggregation of all  ows

and stock positions within an agreed analytical frame-

work, followed by the elimination, in principle, of all

 ows and stock positions that represent relationships

among the units or entities being consolidated.

9.19 Transactions in  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  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 de ned as amounts that are both unpaid

and past the due date for payment. In principle,

amounts payable for any expense, for acquisition of

non 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).

9.21 Some types of  nancial assets and liabilities,

most notably debt securities, loans,  nancial deriva-

tives, and other accounts receivable/payable, mature

at scheduled dates, or series of dates, when the debtor

is required to make speci ed payments to the creditor.

If the payments are not made as scheduled, the debtor

has e ectively obtained additional  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  nancial instrument when it goes into arrears, this

change should be recorded as a reclassi cation in the

form of other changes in the volume of the  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  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.  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 Monetary gold and Special Drawing Rights (SDRs) 3301 Special Drawing Rights (SDRs)

32011 Monetary gold

32012 Special Drawing Rights (SDRs)

3202 Currency and deposits 3302 Currency and deposits

3203 Debt securities 3303 Debt securities

3204 Loans 3304 Loans

3205 Equity and investment fund shares 3305 Equity and investment fund shares

32051 Equity 33051 Equity

32052 Investment fund shares or units 33052 Investment fund shares or units

3206 Insurance, pension, and standardized guarantee

schemes [GFS]

3306 Insurance, pension, and standardized guarantee

schemes [GFS]

32061 Nonlife insurance technical reserves 33061 Nonlife insurance technical reserves

32062 Life insurance and annuities entitlements 33062 Life insurance and annuities entitlements

32063 Pension entitlements [GFS] 33063 Pension entitlements [GFS]

32064 Claims of pension funds on pension manager 33064 Claims of pension funds on pension manager

32065 Provisions for calls under standardized

guarantee schemes

33065 Provisions for calls under standardized

guarantee schemes

3207 Financial derivatives and employee stock options 3307 Financial derivatives and employee stock options

32071 Financial derivatives 33071 Financial derivatives

32072 Employee stock options 33072 Employee stock options

3208 Other accounts receivable 3308 Other accounts payable

32081 Trade credit and advances 33081 Trade credit and advances

32082 Miscellaneous other accounts receivable 33082 Miscellaneous other accounts payable

321 Domestic debtors 331 Domestic creditors

3211–

3218

Same instrument breakdown as above, but

excluding monetary gold

3312–

3318

Same instrument breakdown as above, but

excluding SDRs

322 External debtors 332 External creditors

3221–

3228

Same instrument breakdown as above 3321–

3328

Same instrument breakdown as above

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 non 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 classi cation of transac-

tions in  nancial assets by type of  nancial instrument

and residence.  is classi cation is consistent with

the classi cation of the same  nancial assets and li-

abilities employed in Chapter7 (Table7.9). Chapter7

also provides full de nitions of the  nancial assets or

liabilities included in each category, and those de -

nitions are not repeated here.  e remainder of this

section provides guidance only on those transactions

for which the general guidance may not be su cient.

9.25 In principle, the classi cation of transactions

in  nancial assets and liabilities by residence is based

on the residence of the units that are a party to the

transaction being recorded.  e classi cation of stock

positions in  nancial assets and liabilities in a unit’s

balance sheet (see paragraph 7.264) is based on the

residence of the issuer of  nancial instruments (as-

sets), and the residence of the holder of the  nancial

instruments (liabilities). If a transaction in  nancial

235 Transactions in Financial Assets andLiabilities

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 (reclassi cation) should be recorded to main-

tain the integrated GFS framework of  ows and stock

positions (see also paragraphs 9.85–9.87 and 10.79).

In practice, available information may not permit the

identi cation of the two parties to the transaction.

 erefore, transactions recorded in the source data for

external transactions in  nancial assets and liabilities

may include those that take place not only between

residents and nonresidents but also between two resi-

dents in nonresident  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  nancial leasing.  e special features of these

types of transactions are described in Appendix3.

9.27  e classi cation of  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.

Monetary Gold and Special Drawing Rights

(SDRs) (3201, 3211, 3221, 3301, 3321)

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  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  nancial as-

sets are classi ed by residence of the counterparty, the

counterpart liability to transactions in monetary gold

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.

 e numbers in parentheses a er each classi cation category are

the GFS classi cation codes. Appendix8 provides all classi cation

codes used in the GFS framework.

is shown as external because monetary gold can be

held only as part of foreign reserves.

9.29 Transactions in monetary gold can take place

only between two monetary authorities or between a

monetary authority and an international  nancial or-

ganization. If the monetary authority adds to its hold-

ings of monetary gold by acquiring newly mined gold

or existing gold o ered on the private market, then

the gold so acquired is said to have been monetized.

No transaction in  nancial assets should be recorded.

Instead, the acquisition of the gold should  rst be

recorded as a transaction in non nancial assets, and

then the reclassi cation of the gold as monetary gold

should be recorded as an other economic  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  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  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.  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  nancial obligations.

9.32 At the time of the SDR allocation, the amounts

recorded as SDR allocations (liabilities) and holdings

( nancial assets) are identical and on the same public

sector unit’s balance sheet.  is public sector unit—

as o cial holder—may, subsequently, exchange some

or all of its SDR holdings ( nancial asset) with other

o cial holders for a freely usable currency(ies) or to

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.  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  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 e 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  nancial assets, most likely

deposits.

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).  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 classi 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-

Seigniorage pro ts (i.e., the di 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 reclassi ed as monetary gold (see paragraph

10.84).

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.  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  xed in advance, accrued interest

is determined using the original yield-to-maturity. A

single, e ective yield—established at the time of the

security issuance—is used to calculate the amount of

accrued interest in each period to maturity.  is ap-

proach is known as the “debtor approach.”

9.37 Most debt securities have a  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:

•  e amount of money income receivable from

coupon

payments each period, plus

•  e amount of interest accruing each period at-

tributable to the di 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

See also BPM6, paragraph 9.20.

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 di er

from the accrued interest if debt securities are issued at a discount

or a premium.

237 Transactions in Financial Assets andLiabilities

securities is given by the periodic coupon payments.

If coupon payments are  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.

 e di 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 di erence

between the issue and redemption prices and its re-

investment in an additional quantity of the debt secu-

rity.  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 di 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,

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.  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  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.

 e issue price is the actual amount paid—that is, a er the

discount has been subtracted or premium added.

It is possible for loans and other  nancial instruments to be

index linked and the same transactions would be recorded.

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  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,

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

una 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  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  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  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  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.  is change in economic ownership is

As explained in paragraph 7.148, securities with an embedded

derivative are classi ed entirely as debt securities. A separate

 nancial derivate component is not recorded.

238 Government Finance Statistics Manual 2014

 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 o over the period of

the lease.  e implication of treating a  nancial lease

as a loan is that interest accrues on the loan.  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.  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.  e economic nature of an

o -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 ( 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  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

non nancial assets, are treated as purchases of equity

by the owner of the quasi-corporation.  is includes

new  nance made available for use by the enterprise

in purchasing  xed assets, accumulating inventories,

acquiring  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 de 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 classi ed (2822).

If government makes

a transfer to a public corporation to  nance all or part

of the costs to  nance its acquisition of non nancial

assets, this also is recorded as equity unless there is no

reasonable expectation of a su cient rate of return on

the investment, in which case the transfer is recorded

as capital transfers not elsewhere classi 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).

 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.  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-o 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 reclassi cation of existing as-

sets and liabilities, which is recorded as an other eco-

nomic  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 re 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.

See Box 6.3 for more details.

239 Transactions in Financial Assets andLiabilities

9.51 From time to time, corporations restructure

their shares and may o er shareholders a new number

of shares for each share previously held.  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 classi 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.

A capital contribution to an international

organization or nonpro 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.

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  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 classi ed as a sale of equity.  e govern-

ment is assumed to have converted the unit to a quasi-

corporation immediately prior to disposal by means of

a reclassi cation of assets, which should be recorded

as an other economic  ow. If the assets disposed of do

not constitute a complete institutional unit, then the

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 classi ed (2821).

 e public corporation is reclassi ed to a private corporation

through an entry in other changes in the volume of assets and

liabilities, as explained in Chapter 10.

transactions should be classi ed as a disposal of the

individual non nancial and/or  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 con scation or ap-

propriation.  ere is no payment to the owners (or

the compensation is not commensurate with the fair

value of the assets).  is is not the result of a transac-

tion by mutual agreement.  e di 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).

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.  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).

 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 re 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  -

nancial assets in their capacity as holders of nonlife

insurance policies. Public corporations can engage

 e same treatment would apply to the acquisition of land or

any other non nancial asset under a compulsory sale.

240 Government Finance Statistics Manual 2014

in all types of insurance activities.

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.  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 bene 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  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.  e relevant transactions

in revenue and expense are discussed in paragraphs

5.149–5.151 and 6.125.

It is assumed that general government units do not operate life

insurance schemes and do not purchase life insurance policies.

 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.

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  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.  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 de ned-bene 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 bene ts will increase the

unit’s liability for pension entitlements.  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 bene ts paid should be recorded as an

expense in the form of employment-related social ben-

e ts [GFS] (273).

 e cash treatment di 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 bene 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.

241 Transactions in Financial Assets andLiabilities

9.65 For a de 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 disbursement

) minus bene ts

payable.  e same transactions in  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 bene t pay-

ments in cash.

9.66 On occasion, large one-o transactions (lump

sums) may occur between a government and another

institutional unit, o en a public corporation, linked

to pension reforms or to privatizations of public

corporations.  e goal may be to make the public cor-

poration competitive and  nancially more attractive

by removing existing pension liabilities from the bal-

ance sheet of the corporation.  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 di erence.  e assumer (government)

records an increase in liabilities for pension en-

titlements, an increase in the relevant  nancial

and/or non nancial assets, and an expense in the

form of capital transfer to the public corporation

(see paragraph 6.124).  e public corporation

records a decrease in liabilities for pension en-

titlements, a decrease in  nancial and/or non-

 nancial assets, and revenue in the form of a

capital transfer from government.

Holding gains and losses generated by the investment of

cumulated pension entitlements are not included in investment

income.

• 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 di erence (see paragraph 5.148).

 e public corporation records a decrease in li-

abilities for pension entitlements, a decrease in  -

nancial and/or non 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 classi ed as pension

entitlement liabilities.  ese obligations are gradually

extinguished as the bene ts are paid out. As noted in

paragraph 7.261, net implicit obligations for future

social security bene 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

de 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.  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  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  nancial derivatives contract is treated

as a payment for a service. In many cases, however,

 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

 nancial derivatives.

9.71 At inception:

•  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  nan-

cial derivative because risk exposures of equal

value are usually being exchanged.  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

o -market swaps. (In addition, there may be a

service charge for the issue.)

•  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 a 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  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  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  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  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  nancial derivatives—especially

futures or exchange-traded options. As discussed in

paragraph 7.219, repayable margins in cash are clas-

si ed as transactions in deposits or other accounts

receivable/payable, and nonrepayable margins are

classi ed as transactions in  nancial derivatives.

9.76 At settlement, either a cash payment is made

or an underlying item is delivered.

• When a  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  nancial derivative asset

is recorded. When a cash settlement payment is

made, a reduction of a  nancial derivative liabil-

ity is recorded.

• When an underlying item is delivered, two trans-

actions are recorded:



 e transaction involving the underlying item

is valued at the market price at the time.  e

entry for the underlying item is recorded under

the relevant heading (goods,  nancial instru-

ment, etc.).



 e transaction involving the derivative is val-

ued as the di erence, multiplied by the quantity,

between the market price for the underlying

item and the strike price speci 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

243 Transactions in Financial Assets andLiabilities

(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.

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).  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 classi 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 re ects the di 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  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

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).

9.83 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 bene 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  is category is used to bridge the timing dif-

ference between the occurrence of economic events

and the time the actual cash  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  nancial  ows and

the role they play in government  nance, it is o en

important to know not just what types of liabilities a

general government unit uses to  nance its activities

and what types of  nancial assets it holds as invest-

ments. It is also important to know which sectors

are providing the  nancing and what types of  nan-

cial assets are held. In addition, it is o en necessary

to analyze  nancial  ows between subsectors of the

general government sector or the public sector.  ese

 ows of funds may be analyzed in a from-whom-to-

whom framework.

Table9.2 presents a classi cation

of transactions in  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

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

changes in the volume of assets (reclassi cation)

should be recorded to maintain the integrated GFS

framework of stock positions and  ows (see para-

graphs 9.25 and 10.79).

9.87  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  nancing receivable from non-

resident units, but also the types of nonresident units

supplying the  nancing.

In GFS, therefore, the sec-

O en, in cases of traded debt securities, this will show only the

initial holders.

Table 9.2 Net Acquisition of Financial Assets and Net Incurrence of Liabilities Classiﬁ ed by Residence of

the Counterparty

82 Net acquisition of ﬁ nancial assets 83 Net incurrence of liabilities

821 Domestic debtors 831 Domestic creditors

8211 General government 8311 General government

8212 Central bank 8312 Central bank

8213 Deposit-taking corporations except the

central bank

8313 Deposit-taking corporations except the

central bank

82131 Public deposit-taking corporations except

the central bank

83131 Public deposit-taking corporations except

the central bank

82132 Private deposit-taking corporations 83132 Private deposit-taking corporations

8214 Other ﬁ nancial corporations 8314 Other ﬁ nancial corporations

82141 Other public ﬁ nancial corporations 83141 Other public ﬁ nancial corporations

82142 Other private ﬁ nancial corporations 83142 Other private ﬁ nancial corporations

8215 Nonﬁ nancial corporations 8315 Nonﬁ nancial corporations

82151 Public nonﬁ nancial corporations 83151 Public nonﬁ nancial corporations

82152 Private nonﬁ nancial corporations 83152 Private nonﬁ nancial corporations

8216 Households and nonproﬁ t institutions serving

households

8316 Households and nonproﬁ t institutions serving

households

822 External debtors 832 External creditors

8221 General government 8321 General government

8227 International organizations 8327 International organizations

8228 Financial corporations other than international

organizations

8328 Financial corporations other than international

organizations

82281 Central banks 83281 Central banks

82282 Financial corporations not elsewhere

classiﬁ ed

83282 Financial corporations not elsewhere

classiﬁ ed

8229 Other nonresidents 8329 Other nonresidents

tor classi 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 classi cation of the stock

positions of debt liabilities and  nancial assets corre-

sponding to debt instruments by maturity and type

of  nancial instrument is of particular interest and is

shown in Table 7.12. If analytically useful, the same

classi cation structure could be applied for transac-

tions in these debt liabilities and  nancial assets cor-

responding to debt instruments.

 is chapter describes the other economic  ows that are

recorded in the government  nance statistics frame-

work.  e two major categories are holding gains and

losses and other changes in the volume of assets.

Introduction

10.1 Other economic  ows are changes in the

volume or value of assets or liabilities that do not re-

sult from transactions.  is chapter describes the two

major categories of other economic  ows that change

net worth:

• A holding gain or loss

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.

• 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 reclassi -

cation of existing assets.

Revaluation may also be used with the same meaning as holding

gain or loss.

A holding gain or loss always a ects net worth.  e words gain

and loss are used in reference to the direction of the change in

net worth. A  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  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  nancial assets can be assumed to

refer also to liabilities.

Other Economic Flows

Table 10.1 Statement of Other Economic Flows

(Abbreviated)

9 Change in net worth due to other economic

ﬂ ows

91 Nonﬁ nancial assets

92 Financial assets

93 Liabilities

4 Change in net worth due to holding gains and

losses

41 Nonﬁ nancial assets

42 Financial assets

43 Liabilities

5 Change in net worth due to other changes in

the volume of assets and liabilities

51 Nonﬁ nancial assets

52 Financial assets

53 Liabilities

Note: See Table 10.2 for a detailed classiﬁ cation of other economic

ﬂ ows.

10.2 Other economic  ows are recorded in a State-

ment of Other Economic Flows; an abbreviated ver-

sion is shown in Table 10.1.  e balancing item to

this statement is described as the change in net worth

due to other economic  ows, which is de 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.

•  e balancing item change in net worth due to

holding gains (or revaluations) is de ned as the

sum of the positive or negative holding gains on

all assets and liabilities.

•  e balancing item change in net worth due to

other changes in the volume of assets is de ned

as the sum of the positive and negative other

changes in the volume of assets and liabilities.

10.3 Many other economic  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

246 Government Finance Statistics Manual 2014

increase net worth. In contrast, other economic  ows

related to reclassi cations do not a ect total net

worth.  ese reclassi 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-

si cation of a loan when it becomes negotiable (see

paragraph 7.149).

10.4 Other economic  ows are classi ed by the

type of asset or liability a ected.  e classi cation

of assets and liabilities given in Chapter 7 is used

for this purpose. In Table10.2, total other economic

 ows are classi ed as being either holding gains and

losses or other changes in the volume of assets. In ad-

dition, other economic  ows can be classi ed by the

type of event that caused the  ow in as much detail

as needed for  scal analysis.  e types of holding

gains or speci 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 classi 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 di 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.  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.  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  e holding gain is recorded when the price

change occurs, which may be at a di erent time from

when the holding gain is realized.  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:

•  e decline in the value of the  xed assets due to

physical deterioration, normal rates of obsoles-

cence, and normal accidental damage should be

recorded as consumption of  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.  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 re 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-

 nancial assets are generally not as readily available as

for  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

247 Other Economic Flows

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 5 9

Nonﬁ nancial assets 41 51 91

Fixed assets 411 511 911

Buildings and structures 4111 5111 9111

Dwellings 41111 51111 91111

Buildings other than dwellings 41112 51112 91112

Other structures 41113 51113 91113

Land improvements 41114 51114 91114

Machinery and equipment 4112 5112 9112

Transport equipment 41121 51121 91121

Machinery and equipment other than transport equipment 41122 51122 91122

Other ﬁ xed assets 4113 5113 9113

Cultivated biological resources 41131 51131 91131

Intellectual property products 41132 51132 91132

Weapons systems 4114 5114 9114

Inventories 412 512 912

Materials and supplies 41221 51221 91221

Work in progress 41222 51222 91222

Finished goods 41223 51223 91223

Goods for resale 41224 51224 91224

Military inventories 41225 51225 91225

Valuables 413 513 913

Nonproduced assets 414 514 914

Land 4141 5141 9141

Mineral and energy resources 4142 5142 9142

Other naturally occurring assets 4143 5143 9143

Noncultivated biological resources 41431 51431 91431

Water resources 41432 51432 91432

Other natural resources 41433 51433 91433

Intangible nonproduced assets 4144 5144 9144

Contracts, leases, and licenses 41441 51441 91441

Goodwill and marketing assets 41442 51442 91442

Financial assets 42 52 92

Monetary gold and Special Drawing Rights (SDRs) 4201 5201 9201

Currency and deposits 4202 5202 9202

Debt securities 4203 5203 9203

Loans 4204 5204 9204

Equity and investment fund shares 4205 5205 9205

Equity 42051 52051 92051

Investment fund shares or units 42052 52052 92052

Insurance, pension, and standardized guarantee schemes [GFS] 4206 5206 9206

Nonlife insurance technical reserves 42061 52061 92061

Life insurance and annuities entitlements 42062 52062 92062

Pension entitlements [GFS] 42063 52063 92063

Claims of pension funds on pension manager 42064 52064 92064

Provisions for calls under standardized guarantee schemes 42065 52065 92065

Financial derivatives and employee stock options 4207 5207 9207

Financial derivatives 42071 52071 92071

Employee stock options 42072 52072 92072

248 Government Finance Statistics Manual 2014

Table 10.2 Classiﬁ cation of Other Economic Flows (concluded)

Holding gains

and losses

Other changes in

the volume of assets

Total other

economic ﬂ ows

Other accounts receivable 4208 5208 9208

Trade credit and advances 42081 52081 92081

Miscellaneous other accounts receivable 42082 52082 92082

Domestic debtors 421 521 921

Same instrument breakdown as above, but excluding

monetary gold

4212–4218 5212–5218 9212–9218

External debtors 422 522 922

Same instrument breakdown as above 4221–4228 5221–5228 9221–9228

Liabilities 43 53 93

Special Drawing Rights (SDRs) 4301 5301 9301

Currency and deposits 4302 5302 9302

Debt securities 4303 5303 9303

Loans 4304 5304 9304

Equity and investment fund shares 4305 5305 9305

Equity 43051 53051 93051

Investment fund shares or units 43052 53052 93052

Insurance, pension, and standardized guarantee schemes [GFS] 4306 5306 9306

Nonlife insurance technical reserves 43061 53061 93061

Life insurance and annuities entitlements 43062 53062 93062

Pension entitlements [GFS] 43063 53063 93063

Claims of pension funds on pension manager 43064 53064 93064

Provisions for calls under standardized guarantee schemes 43065 53065 93065

Financial derivatives and employee stock options 4307 5307 9307

Financial derivatives 43071 53071 93071

Employee stock options 43072 53072 93072

Other accounts payable 4308 5308 9308

Trade credit and advances 43081 53081 93081

Miscellaneous other accounts payable 43082 53082 93082

Domestic creditors 431 531 931

Same instrument breakdown as above 4312–4318 5312–5318 9312–9318

External creditors 432 532 932

Same instrument breakdown as above 4321–4328 5321–5328 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 a 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.  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 de 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

249 Other Economic Flows

asset leads to a positive real holding gain, and a

decrease in the relative price of an asset leads to a

negative real gain.

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)

10.13 Estimating the holding gains on  xed assets

is complicated by the fact that the value of a  xed

asset changes as a result of consumption of  xed cap-

ital as well as price changes. Consumption of  xed

capital, however, is valued in terms of the average

prices prevailing during a reporting period.  us,

estimating the change in the price of a given  xed

asset of a given age and condition is critical for esti-

mating both consumption of  xed capital and hold-

ing gains.

10.14 Holding gains may occur on existing  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  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 di 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,

Information on the calculation and interpretation of neutral and

real holding gains is in the 2008 SNA, paragraphs 12.87–12.93.

 e numbers in parentheses a er each classi cation category are

the GFS classi cation codes. Appendix8 provides all classi cation

codes used in GFS.

however, when the characteristics of new assets are

much improved by technical progress.

Inventories (412)

10.16  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 di 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  res, and other exceptional events.

Estimating the prices and quantities involved in

these events may be di cult.

10.17  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 di 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.

In general, if assumptions are

made, they should cover as short a period as possible.

When there are high rates of in ation, estimating

holding gains accurately in this way becomes more

important.

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.

Also see the 2008 SNA, paragraph 12.99.

250 Government Finance Statistics Manual 2014

Valuables (413)

10.18  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  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.  is is because consumption of  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  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 non nancial asset is disposed of in a

market-related transaction

at a value that is di erent

from the balance sheet value of the asset immediately

prior to disposal, a revaluation should be recorded to

re ect the current market value of the asset in the bal-

ance sheet.  is applies to all non nancial assets but

not to scrap.

Monetary gold and Special Drawing Rights

(SDRs) (4201, 4221, 4301, 4321)

10.21  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  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.

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).

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  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

 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-o 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.  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.  e converse treatment applies to

bonds issued at a premium.

10.26  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  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.

251 Other Economic Flows

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.

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 o 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  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  nancial assets resulting from price changes is a

holding gain or loss.

10.31 Several events can a 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 a ect the

market price per share, such as market perceptions on

the pro tability of the corporation and when shares

go ex-dividend. Valuation changes in shares are re-

corded as holding gains and losses.

10.33 As explained in paragraph 7.229, net worth

is zero for quasi-corporations

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 bene ts of de ned-bene t schemes.

 e value of these liabilities can change for several

reasons, one of which is the passage of time.  e li-

ability is computed as the present value of the future

bene 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 de ned-bene t pension

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 bene ts.  e liability should be

reviewed periodically and revalued as necessary for

changes in market interest rates.

10.38 At  rst sight, it would seem that there are no

other economic  ows involved for a de ned-bene 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 de ned-bene t pension

scheme is that the level of bene t entitlements is de-

termined by a formula, there are other factors that

may intervene to a ect changes in the level of entitle-

ments.  ese factors include a price escalation clause,

changes in the formula used to determine bene ts,

and demographic assumptions about lifespan.

10.39  e factors that change the level of entitle-

ments (i.e., changes in the formula used to determine

the bene 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  e impact of promotions, merit increases,

and other real salary increases on entitlements is a

special case.

Many de ned-bene t pension schemes

use a formula to set bene ts based on either the  nal

salary or average salary as a key determinant.  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.  is is a signi cant

bene 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 bene 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).

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 de ned-

contribution pension scheme whenever a holding gain

is recorded with respect to the assets of the fund.  e

investment of accumulated pension entitlements of a

de ned-contribution pension scheme leads to hold-

ing gains (and possibly losses).  ese come about

through the management of investment in assets held

by the fund.  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.  us,  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  e value of a  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.  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  ere may be an unusually long time

be-

fore payment is due on an outstanding debt liability

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.

253 Other Economic Flows

(or the corresponding  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 re 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.

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:

• 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

•  e e ects of external events—exceptional and

unexpected—on the economic bene ts derivable

from assets (and corresponding liabilities)

• Changes in classi cation.

10.47 Many other volume changes occur at speci 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.  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 bene ts. If a resource that

is known to exist but is not classi 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 bene ts or

 e distinctions made here are only for purposes of description;

the GFS classi cations do not specify this breakdown.

because the owner is no longer willing or capable of

exercising ownership rights over the asset.

10.49  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:

•  e economic recognition of produced assets

• Entry and exit from the asset boundary of natu-

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.  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 o .

• Public monuments are included with dwellings,

buildings other than dwellings, or other struc-

tures, as appropriate, in the classi cation of

 xed assets (see paragraphs 7.42–7.43). When

the special archaeological, historical, or cultural

signi cance of a structure or site not already re-

corded in the balance sheet is  rst recognized,

it is classi 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 o 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 o , may be

assessed as having the status of a public monu-

ment. If the monument was previously written

o , then its recognition as a public monument

is recorded as an economic appearance of an

asset. If it was previously classi ed as another

type of asset, it is recorded as a reclassi 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 signi 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, classi 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.  e recognition of

the value of a previously unvalued item is o en

necessitated by a sale (e.g., at auction).  e sale

is recorded as a transaction under the disposal

of non nancial assets only a er the asset  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 non 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,  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 di 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. O en, the date at which

the  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— e value of

these resources may increase in the balance sheet

by the discovery of new exploitable deposits,

whether as a result of systematic scienti 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— e natural growth of noncul-

tivated biological resources, such as natural forests

and  sh stocks, may take various forms:a stand

of natural timber may grow taller, or  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  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.  is recording would be consistent with

the gross recording of transactions in acquisitions

and disposals described under the net investment

in non nancial assets. In practice, however, many

countries will record natural growth net because

only the net physical measures are likely to be

available.  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.

•  e depletion of natural forests,  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.

Land may also make its economic

For the treatment of land improvements, including land recla-

mation, see paragraphs 7.49–7.51.

255 Other Economic Flows

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  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 signi 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  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  sh-

ing to ensure the survival of  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.  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.  e degradation may be the

anticipated result from regular economic activity

or less predictable erosion and other damage to

land from deforestation or improper agricultural

practices.

•  e di 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  rst recorded as other changes in the vol-

ume of assets and, subsequently, form the basis of a

transaction (or series of transactions).  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.  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 o the cost

of the asset).  e rate at which the value is written

down should be in accordance with internationally

accepted accounting standards.  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.  e

di 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.  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  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.

 erea 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.  e rate at which it is written

down should be in accordance with internationally

accepted accounting standards.  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  nancial claim

can no longer be collected because of the debtor’s

bankruptcy or other factors. If so, the creditor

writes o the debt and removes the claim from

its balance sheet by means of an entry in other

changes in the volume of assets.

• Cancellations of employee stock options are re-

corded as other changes in the volume of assets.

10.58  e creation of SDRs (referred to as allocations

of SDRs) and the extinction of SDRs (cancellations of

Usually, debt is written o as uncollectible because of the bank-

ruptcy or liquidation of the debtor; however, it may sometimes be

written o for other reasons, such as a court order.  e write-o

may be full or partial; partial write-o 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 o . In contrast, as described in

paragraphs 6.124 and A3.7–A3.9, a reduction in a  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.

The Effect of External Events on

the Value of Assets

10.59  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.  ese are cata-

strophic losses, uncompensated seizures, and other

changes in the volume of assets not elsewhere classi-

 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 signi 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.  ey

are usually sudden or one-time events of large pro-

portions.  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  ooding or wind dam-

age; destruction of cultivated assets by drought or

outbreaks of disease; and destruction of buildings,

equipment, or valuables in  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  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  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.

See paragraphs 7.131–7.134 and 9.31.

257 Other Economic Flows

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,  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.  e di 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  e value of a  xed asset is continuously re-

duced by consumption of  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  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 a ected by

volume changes.

Fixed assets (511)

10.64  e calculation of the consumption of  xed

capital re 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 e ect

of unforeseen environmental degradation on  xed as-

sets. Entries must, therefore, be made through other

changes in the volume of assets for the decline in the

value of the  xed assets from, for example, the unfore-

seen e ects of acidity in the air and acid rain on build-

ing surfaces or vehicle bodies.

See paragraphs 10.39–10.40 and A2.54.

10.66  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  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  e amount included for normally expected

damage—as included in the calculation of consump-

tion of  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  xed assets due to these events.

While these losses may be larger than normal, they

are not on a scale su ciently large to be considered

catastrophic—they are therefore included in other

volume changes not elsewhere classi ed.

10.68 As explained in paragraph 6.60, costs of

ownership transfer should, in principle, be written o

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 o , 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  xed asset (or in some cases,

work-in-progress inventories) as recorded in the bal-

ance sheet should be written o through an other

change in the volume of assets.

Exceptional losses in inventories (512)

10.70 Exceptional inventory losses from  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.

 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 bene ts is usually

determined when the contract is entered into, tak-

ing account of mortality data available at that time.

Any subsequent changes will a ect the liability of the

annuity provider toward the bene 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 de ned-bene t pension schemes, the

level of bene 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.

 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-

 ned-bene t pension scheme, any changes in the value

of the liability due to changes in the formula used to

determine bene 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

bene 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

de ned-contribution schemes where the bene ts are

determined solely in terms of the contributions and

investment earnings of the scheme.

 e cases where changes in pension entitlements are recorded

as transactions are discussed in paragraphs 9.63–9.67.  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 di cult to determine in practice, with di erent situa-

tions prevailing in di erent countries.

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

signi 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  e composition of the general government

or public sector’s balance sheet may change because

there has been a reclassi cation of an entire institu-

tional unit, the structure of a unit, or a group of assets

and liabilities. A reclassi 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 reclassi 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 signi cant prices. When a unit

is reclassi 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  nancial asset, equity and investment fund shares, to

re ect the continued ownership or control of the unit

by a general government unit.  e reverse will be true

when a unit is reclassi 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 reclassi ed from being that of a public cor-

poration to a private corporation.

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.

In the balance sheet of the shareholder (such as government),

the privatization transaction will lead to a reduction in the  nan-

cial asset equity and investment fund shares.

259 Other Economic Flows

When two units are merged, all  nancial claims and

liabilities that existed between them are eliminated.

Symmetrically, when a unit splits into two or more

units, new  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 classi ed by counterparties,

this change in the debtor/creditor relationship should

be recorded as a reclassi 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.

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

classi cations of assets, there may be reclassi 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.  e change in classi 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  e use of a structure may be changed from

a dwelling to a government o ce building or vice

versa. If these types of structures are classi ed sepa-

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.

rately, then an entry in other changes in the volume

of assets is recorded.  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  xed assets

(see paragraph 8.28).

10.82 In all instances, work in progress needs to

be reclassi ed to  nished goods prior to sale, through

an entry in other changes in the volume of assets. In

principle, reclassi cation from one type of inventory

to another or from  xed assets to inventories should

not involve a change in value. If at the time of con-

version, the previous value is di 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 classi ed as  xed assets and

these costs are subject to consumption of  xed capi-

tal. To maintain the integration of stock positions and

 ows, the costs of ownership transfer of nonproduced

assets other than land and the consumption of  xed

capital relating to these costs are reclassi ed to the

respective nonproduced assets through an entry in

other changes in the volume of assets.

 is reclas-

si cation is considered to take place at the time of re-

cording the transactions in cost of ownership transfer

and consumption of  xed capital, respectively.

10.84 Some examples of changes in the classi ca-

tion of  nancial assets and liabilities are:

• When monetary gold held in the form of gold

bullion becomes a reserve asset, it enters the

 nancial assets in the balance sheet as a reclas-

si 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  rst

classi ed as inventory or a valuable.

 e same

Two entries are recorded in other changes in the volume of

assets: a reduction in the  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.

Gold is reclassi 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 reclassi 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-

si cation path; the monetary gold is reclassi 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 bene ts under a de ned-contribution

pension scheme are converted to annuities, a reclas-

si cation should be recorded from pension entitle-

ments to annuities entitlements.

• When loans become tradable in the conditions

stated in paragraph 7.149, a reclassi cation should

be recorded from loans to debt securities.

• If arrears arise and the contract provides for a

change in the characteristics of a  nancial in-

strument when it goes into arrears, this change

should be recorded as a reclassi cation in the

other changes in the  nancial assets and liabili-

ties account.  e reclassi 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 a er the derivative matures, the

amount due no longer represents a derivative be-

cause the value is  xed. It is therefore reclassi ed

under other accounts receivable or payable.

• Bonds that are convertible into equity are reclas-

si 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 reclassi 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).

 e creation and exhaustion of  nancial derivatives are transac-

tions in  nancial assets (and liabilities), not other changes in the

volume of assets.

 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 di erences with the

traditional approach to  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  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.  e changes

incorporated can broadly be summarized as method-

ological changes agreed to in the update of the 2008

SNA, clari cations on existing methodological guide-

lines, presentational changes, and editorial changes.

A1.3  e remainder of this appendix  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  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 di erence between the guidelines in this

Manual and the GFSM 1986.

Changes from the GFSM 2001

A1.4  e GFSM 2014 retains the basic conceptual

framework of its predecessor, the GFSM 2001. How-

ever, this Manual introduces improved treatments for

recent developments and speci 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.  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.  e dis-

cussion of the changes includes cross-references to the

relevant paragraphs in the chapters.

Chapter 1

A1.5 A de nition for  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  nance

statistics, starting in the early 1970s, is presented in

paragraphs 1.6–1.9.  is section also broadly outlines

the reasons for the update of the GFSM 2001.

A1.7  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 Bene ts (see paragraphs 1.18–

1.19).  ese supplementary statements are added to

the GFS framework due to their analytical usefulness

for users of  scal data.

A1.8  e valuation principle described in para-

graph 1.29 indicates that current market prices are

used to value economic  ows and stock positions.

 is principle is clari ed by indicating that market-

value equivalents are used for assets and liabilities that

are not traded in markets, or are traded infrequently.

A1.9  e important linkages between GFS and

other macroeconomic datasets are introduced in

Changes from the GFSM 2001

and GFSM 1986

APPENDIX

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  e delineation of general government and

public sector institutional units is clari ed.  e chapter

is reorganized to  rst delineate the domestic economy,

and then it describes institutional units and the types

of units that exist in macroeconomic statistics, before

de ning institutional sectors.  ese principles are then

applied to delineate the general government and pub-

lic sectors, and the practical application of the sector

classi cation principles to selected cases is described.

A1.11  e concept of residence is elaborated on to

align with guidance of 2008 SNA and BPM6 (see para-

graph 2.6).  e additional guidance includes de 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.  e treatment

of multiterritory regional enterprises (see paragraph

2.20) and currency union central banks (see paragraph

2.21) is explained.

A1.12  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 de ned and explained in

paragraphs 2.24 and 2.25, respectively.

A1.13  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 de ned and described in paragraphs

2.28–2.29, while legal or social entities are de ned,

and the types of legal or social entities described in

more detail (see paragraphs 2.30–2.38).

A1.14  e section on applying the de nition of

institutional unit to government introduces a discus-

sion on arti 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  e de nition and identi cation of non -

nancial and  nancial corporations sectors are presented

in detail (see paragraphs 2.52–2.57).  e additional

guidance is provided to clarify the distinction between

these corporations and government units.  is includes

the introduction of three broad classes of  n

ncial

corporations—namely,  nancial intermediaries,  nan-

cial auxiliaries, and other  nancial corporations—and

speci cally explains  nancial intermediation.

A1.16  e delineation of general government and

public corporations is clari ed using the concept of

market and nonmarket producers.  e application of

the concept economically signi 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 nonpro 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.

 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 classi 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 classi cation principles to se-

lected cases—these cases are the topics of frequently

asked questions. Included are: the identi cation of

quasi-corporations (see paragraph 2.125); distinguish-

ing head o ces and holding companies (see paragraph

2.128); restructuring agencies (see paragraph 2.129);

 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);

263 Changes from the GFSM 2001 and GFSM 1986

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  e annex to Chapter 2 of the GFSM 2001,

describing social protection, is subsumed in Appen-

dix 2 of the GFSM 2014.  is appendix presents

guidance on the identi cation and sectorization of

entities involved in social protection, as well as guid-

ance on the recording of the  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.  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 de nition of stock positions is provided

in paragraph 3.36.  e concepts economic bene ts and

ownership are used to de ne economic assets, before

a distinction is drawn between legal and economic

ownership in paragraphs 3.38–3.39.  ese concepts

are used to determine the asset boundary and de ne

assets and liabilities (see paragraphs 3.42–3.50).

A1.24  e GFSM 2014 reinstates a more balanced

approach between having both accrual and cash infor-

mation in an integrated statistical framework.  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  e time of recording dividends when using

an accrual basis of recording is de 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

services, non nancial assets, and many  nancial as-

sets and liabilities is de 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  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

gen

al 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  ows

(see paragraphs 3.126–3.129).

A1.31  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.  e

concept is de 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  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 Bene ts.

A1.36  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  e de nition and identi cation of policy

lending are elaborated on in Box 4.1.

A1.38  e composition of the item net change

in the stock of cash, as presented in the Statement of

Sources and Uses of Cash, is clari ed—the item refers

to the  nancial asset currency and deposits (3202),

and should not include other  nancial instruments or

overdra s (see paragraph 4.33).

A1.39  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.  e annex o ers an overview of how

analysts can use the data in GFS to build well-de ned

and internationally comparable  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  e rationale for de ning revenue as an

increase in net worth resulting from a transaction is

added in paragraph 5.1.

A1.42  e de nition of grants (13) is revised to no

longer refer to grants as noncompulsory transfers.  e

change accommodates cases where compulsory rev-

enue sharing occurs between government units.  e

de nition is also expanded to indicate that grants are

transfers that do not meet the de nition of a tax, sub-

sidy, or social contribution (see paragraphs 5.5 and

5.101).

A1.43 De nitions of the respective categories of

other revenue (14) are replaced by a de nition of the

main category other revenue (14), with only references

to the subcategories it comprises (see paragraph 5.6).

A1.44  e section on de 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  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 clari 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  e basis on which the classi cation of rev-

enue should be made is presented in paragraph 5.21,

while paragraph 5.22 describes the rationale for stan-

dardized summary classi 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  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, pro ts, and capital gains (11132) (see para-

graph 5.42 and Tables 5.1 and 5.2).  is change al-

lows the identi cation of those taxes receivable from

other general government units that are subject to

consolidation.

A1.49  e tax attribution rules are described in

paragraphs 5.33–5.38.  e tax attribution rules ap-

plicable to cases where the activities of the religious

organizations are funded from earmarked taxes

265 Changes from the GFSM 2001 and GFSM 1986

collected by general government are clari ed in para-

graph 5.39.

A1.50  e GFSM 2001 tax category for taxes on

 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 di erent classi -

cation code—namely, taxes on  nancial and capital

transactions (11414) (see paragraphs 5.52 and 5.61).

 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 de nition for excises is introduced in

paragraph 5.62.

A1.52  e concept pro ts on  scal monopolies

(1143) is clari 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  e coverage of taxes on speci 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  e coverage of taxes on use of goods and on

permission to use goods or perform activities (1145) is

clari 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 classi 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  e im

plicit taxes or

subsidies created by

multiple exchange rate regimes are introduced in

paragraph 5.89. Furthermore, it is clari ed that lump-

sum payments receivable by government from mon-

etary authorities should be disaggregated according to

the economic nature of the components of the pay-

ment (see paragraph 5.90).

A1.57  e concept social contributions (12) is

clari ed (see paragraph 5.94), speci cally making a

distinction between voluntary and compulsory con-

tributions, describing the  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  e treatment of grants is elaborated on,

speci 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  e time of recording dividends when using

an accrual basis of recording is clari ed to be when the

equity or shares go ex-dividend (see paragraphs 3.87,

5.112, and 6.109). In addition, it is clari ed that legally

constituted corporations, reclassi ed to be a general

government unit, could also distribute dividends

(see paragraph 5.113).  e treatment of dispropor-

tionately large dividends is clari ed (see paragraphs

5.115–5.116).

A1.60  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  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  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  e classi cation of administrative fees (1422)

is clari 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  e treatment of  nes and penalties im-

posed for evasion of taxes and bails set by courts is

clari ed in  nes, penalties, and forfeits (143) (see para-

graphs 5.143–5.144).

A1.65  e GFSM 2001 revenue categories for vol-

untary transfers other than grants (144) and miscella-

neous and unidenti ed revenue (145) are subsumed in

two new categories—namely, transfers not elsewhere

classi 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 classi ed (see paragraph 5.146), while the other

transfers are distinguished as other current transfers

not elsewhere classi ed (14412) (see paragraph 5.147)

and capital transfers not elsewhere classi ed (1442)

(see paragraph 5.148).

A1.66  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 identi 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  e rationale for de ning expense as a de-

crease in net worth resulting from a transaction is

added in paragraph 6.1.

A1.68  e distinction between economic classi ca-

tion of expense and functional classi cation of expense

is clari ed in paragraphs 6.2 and 6.3, respectively.

A1.69  e section on de 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  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 clari ed (see paragraphs 6.6–6.7).

A1.71  e de nition of compensation of employ-

ees is clari 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 bene ts is introduced (see paragraphs

6.23–6.26).

A1.73  e section on the use of goods and services

(22) is reorganized to: de 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

non 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).  ese are recognized as the ac-

quisition of a speci c category of non nancial assets

in the GFSM 2014 (see paragraph 8.43).

A1.75  e relationship between inventory (612)

and use of goods and services (22) is clari ed in

Table6.3.

A1.76  e treatment in GFS of the implicit fees for

 nancial services is explained (see paragraphs 6.52

and 6.81). 

ese implicit fees include items such as



ncial 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  e concept consumption of  xed capital

(23) is elaborated on.  e relation between consump-

tion of  xed capital as recorded in the 2008 SNA and

in GFS is explained (see paragraph 6.53).  e relation

267 Changes from the GFSM 2001 and GFSM 1986

between consumption of  xed capital and deprecia-

tion as used in government  nancial records is also

explained (see paragraph 6.54).  e calculation of

consumption of  xed capital is described in Box6.1.

Furthermore, the treatment of costs of ownership

transfer as a component of consumption of  xed capi-

tal is explained in paragraphs 6.60 and 8.42.

A1.78  e description of interest (24) is clari 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.  e recording of

interest related to index-linked securities is explained

in paragraphs 6.75–6.78. Furthermore, clari 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 clari ed.  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-

i ed that subsidies are receivable by all resident and

nonresident producers, and that units such as gen-

eral government units, nonpro ts institutions serving

households, and households can receive subsidies in

their capacity as producers (see paragraph 6.86).  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).  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 speci c reference to

the classi cation of “capital injections” into public

corporations.

A1.81  e de nition of grants (26) is revised to no

longer refer to grants as noncompulsory transfers.  is

change accommodates cases where compulsory rev-

enue sharing occurs between government units.  e

de nition is also expanded to indicate that grants are

transfers that do not meet the de nition of a tax, sub-

sidy, or social contribution (see paragraph 6.92).

A1.82  e treatment of grants in kind is elaborated

on, speci 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  e circumstances under which social as-

sistance bene ts (272) become payable are clari ed

to include contributions payable to social insurance

schemes on behalf of households who cannot oth-

erwise a ord to participate in the scheme (see para-

graph 6.102).

A1.84 

e distinction between imputations for

ployment-related nonpension social bene ts and

employment-related pensions and other retirement

bene ts is clari ed in paragraph 6.105.

A1.85  e time of recording dividends (2811)

when using an accrual basis of recording is clari ed

to be when the equity or shares go ex-dividend (see

paragraphs 3.87, 5.112, and 6.109).  e treatment of

disproportionately large dividends is clari ed (see

paragraphs 5.116 and 6.110).

A1.86  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 clari ed that rent (2814) includes

amounts payable under resource leases on land, sub-

soil resources, and on other natural resources.  e

measurement of such amounts payable is clari ed in

the context of the corresponding revenue item (see

paragraph 6.120).

A1.88  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  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 classi 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).  e transfers are

268 Government Finance Statistics Manual 2014

distinguished as current transfers not elsewhere classi-

 ed (2821) (see paragraph 6.123) and capital transfers

not elsewhere classi ed (2822) (see paragraph 6.124).

A1.90  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 identi 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  e discussion on the Classi 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 di ers from its application to

all outlays of government as used in the OECD/UN

classi cation (see paragraph 6.127 in the annex).

A1.93  e annex is reorganized to separately pres-

ent: the structure of COFOG classi 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 classi cation (see

paragraph 6.140); problems in identifying functions

of government (see paragraph 6.143); and the cross-

classi cation of expenditure (see paragraph 6.148). No

changes occurred in the functions themselves.

Chapter 7

A1.94  e usefulness of a set of balance sheets in-

tegrated with economic  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.  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  e asset boundary is clari ed to not in-

clude contingent assets and liabilities (see paragraph

7.13), and  nancial claims are clari ed to include:

debt instruments;  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  e GFSM 2001 treatment of monetary gold

and SDRs (6201/6301) as  nancial assets without a

corresponding  nancial claim is revised. In the GFSM

2014, only monetary gold in the form of gold bullion is

regarded as a  nancial asset without a corresponding

 nancial claim. Also, recognizing that transactions in

SDR holdings may be entered into by two domestic

units, the exclusion of SDRs from domestic  nancial

asset  ows is eliminated (see paragraphs 7.15 and

7.125–7.134, respectively).

A1.98  e concept of produced versus nonpro-

duced non nancial assets is introduced in paragraph

7.17–7.19.

A1.99  e valuation of assets and liabilities is elab-

orated on in paragraphs 7.20–7.25.  e usefulness of

nominal value of  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  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  e creation of notional units to own  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 clari ed in paragraph 7.42.

A1.103  e de nition and identi cation of dwell-

ings (61111) a

e clari 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  xed assets for land improvements (61114) is added.

 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 classi ed (see paragraph 7.57).

A1.106  e de nition and identi cation of cul-

tivated biological resources (61131) are clari ed, and

269 Changes from the GFSM 2001 and GFSM 1986

the time of recording when the production of these

 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  e de nition and identi 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 so ware and databases

(611323), entertainment, literary, and artistic origi-

nals (611324), and other intellectual property prod-

ucts (611325).  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

so ware is expanded to include databases (see para-

graphs 7.64–7.73).

A1.108 Weapons systems are introduced as a sepa-

rate  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.  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  e de nition of land (6141) is clari ed

and guidance is provided on the valuation of land (see

paragraphs 7.92–7.96).

A1.111  e GFSM 2001 category subsoil assets is

replaced by mineral and energy resources (6142).  e

ownership and recording of this category of asset are

elaborated on in paragraphs 7.97–7.99.

A1.112  e classi cation of other naturally occur-

ring assets (6143) is elaborated on. Subcategories for

speci c classes of other naturally occurring assets are

introduced, and their de nitions are clari ed (see

paragraphs 7.100–7.103 and Table 7.7).

A1.113  e category intangible nonproduced as-

sets (6144) is clari ed, and subcategories are intro-

duced for contracts, leases, and licenses (61441) and

goodwill and marketing assets (61442) (see paragraphs

7.104–7.117).

A1.114 N

gotiability is introduced as a distin-

guishable feature of securities (see paragraph 7.119).

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  nancial instruments are

elaborated on (see paragraphs 7.125–7.134).

A1.117  e coverage of currency and deposits

(6202/6302) is clari 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  e description of loans (6204/6304) is

expanded to clarify  nancial leases (see paragraph

7.158), gold swaps (see paragraph 7.161), and o -

market swaps (see paragraph 7.162).  e treatment of

securities repurchase agreements is clari ed as a col-

lateralized loan (see paragraph 7.159).  e valuation

of loans and treatment of nonperforming loans are

presented in paragraph 7.163.

A1.120  e category equity and investment fund

shares (6205/6305) is elaborated on to distinguish

various types of  nancial instruments (see paragraphs

7.164–7.177). Investment fund shares (62052/63053)

have a specialized role in  nancial intermediation and

are introduced as a separate category (see paragraphs

7.174–7.177).

A1.121  e category for the reserves of insurance,

pension and standardized guarantee schemes (6206/6306)

is clari 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  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, r

espectively).

A1.123  e category  nancial derivatives and em-

ployee stock options (6207/6307) is clari ed by de ning

270 Government Finance Statistics Manual 2014

the two concepts (see paragraphs 7.204 and 7.221, re-

spectively), describing the types of  nancial deriva-

tives (see paragraphs 7.209–7.218), and explaining the

use of margins (see paragraphs 7.219–7.220).

A1.124  e main balancing item on the balance

sheet, net worth (6), is clari ed and the relationship

with equity for public corporations explained (see

paragraphs 7.228–7.233).

A1.125  e items recorded as memorandum items

to the balance sheet are expanded to include: net  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 bene ts

(see paragraph 7.261), and nonperforming loans (see

paragraph 7.262).

A1.126  e classi cation of the counterparty of  -

nancial assets and liabilities by institutional sector is

introduced in paragraphs 7.264–7.265 and Table 7.11.

A1.127  e classi cation of debt liabilities and

their corresponding  nancial assets by maturity is in-

troduced in paragraphs 7.266–7.271 and Table 7.12.

Chapter 8

A1.128  e concept of net investment in non nan-

cial assets is introduced in paragraph 8.4, and a dis-

tinction drawn with gross investment in non nancial

assets (i.e., consumption of  xed capital is not taken

into account).

A1.129  e treatment of costs of ownership transfer

associated with acquiring and disposing of non nan-

cial assets (other than inventory) is clari ed (see para-

graphs 8.6–8.8).

A1.130  e valuation of transactions in non nan-

cial assets is elaborated to make a clear distinction be-

tween valuation of acquisitions and disposals of:  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 non -

nancial assets is clari 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).

A1.132  e classi cation of transactions in non -

nancial assets is identical to the classi cations of the

same stock positions introduced in Chapter 7 (see

paragraph 8.22 and Table 8.1).

A1.33  e treatment of public monuments as

buildings and structures (3111) is clari 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 clari 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 so ware and databases (311323) (see

paragraph 8.40), and entertainment, literary, and ar-

tistic originals (311324) (see paragraph 8.41).

A1.137 

e treatment of c

sts 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  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  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  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.

271 Changes from the GFSM 2001 and GFSM 1986

A1.142 Concessional loans and their treatment in

macroeconomic statistics are clari ed in paragraph

9.12.

A1.143 Arrears are de ned in paragraph 9.20, and

the recording of transactions related to arrears is de-

scribed in paragraphs 9.21–9.23.

A1.144  e classi cation of transactions in  nan-

cial assets and liabilities by instrument and residence

of the counterparty is described in paragraphs 9.24–

9.27.  e classi 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 clari 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  e impact of recording transactions be-

tween the owners of enterprises and the enterprise

is clari 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 clari ed in the

description of transactions in equity (32051/33051)

(see paragraphs 9.47–9.55).

A1.148  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 in u-

encing these reserves are elaborated on for each sub-

category of the reserves (see paragraphs 9.57–9.69).

A1.150  e coverage of  nancial derivatives and

employee stock options (3207/3307) is expanded to

separately identify employee stock options. Transac-

tions related to  nancial derivatives (32071/33071)

are clari 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  e classi cation of transactions in  nan-

cial assets and liabilities by sector and residence is in-

troduced in paragraphs 9.85–9.87 and Table 9.2.

A1.152  e classi cation of transactions in debt

liabilities and their corresponding  nancial assets by

maturity is introduced in paragraph 9.88. If analyti-

cally useful, the same classi cation structure could be

applied for transactions as what is depicted for stock

positions in Table 7.12.

Chapter 10

A1.153 Other economic  ows are described and

the two components of other economic  ows—

namely, holding gains and losses and other changes in

the volume of assets—are de ned in paragraph 10.1.

A1.154  e section on holding gains for particular

types of non nancial assets is elaborated on. Speci c

guidance is added on: the di 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  xed assets (see para-

graphs 10.13–10.15) and inventories (see paragraphs

10.16–10.17); valuables (see paragraph 10.18); and

non nancial assets disposed of during the reporting

period (see paragraphs 10.19–10.20).

A1.155  e impact of various events on the valua-

tion of  nancial instruments is elaborated on. Speci c

guidance is added on: monetary gold and SDRs (see

paragraphs 10.21–10.22);  nancial assets and liabilities

with  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  nancial derivatives and

employee stock options (see paragraphs 10.42–10.43).

A1.156 Paragraph 10.44 introduces holding gains

and losses related to  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 e ects of external

events, and changes in classi cations.

A1.158  e appearance or disappearance of  -

nancial assets and liabilities from the balance sheet is

elaborated on with speci 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  e e 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-

 ed (see paragraph 10.63).

A1.160 Paragraph 10.83 introduces the reclassi -

cation of costs of ownership transfer on nonproduced

assets other than land, and the consumption of  xed

capital relating to these costs.  e reclassi cation is

necessary to maintain the integration of stock posi-

tions and  ows.

A1.161 Paragraph 10.79 elaborates on the reclas-

si cations of negotiable securities necessary due to

secondary transactions.

A1.162  e reclassi 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

classi cation of  nancial assets and liabilities (see

paragraph 10.84).

Cross-Cutting Changes in Terminology

A1.163  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  ows are replaced by references

to economic  ows, while it is acknowledged that

 ows will o en be used as a short form for eco-

nomic  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 speci c

type of  nancial instrument.

• References to net acquisition of non nancial as-

sets are replaced with references to net investment

in non nancial assets—the former term is o en

misinterpreted as including only the acquisition

minus disposals of non nancial assets, while con-

sumption of  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 non nancial assets can now

be used to make a distinction for the including/

excluding of consumption of  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 t

align with 2008 SNA terminology.

• References to the expense for social contributions

(212) are replaced by references to employers’

social contributions (212)—this clari 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 classi cation, which include ex-

pense, acquisition of non nancial assets, and

transactions in  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.

273 Changes from the GFSM 2001 and GFSM 1986

• 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  xed assets (61132) are

replaced with references to intellectual property

products (61132)—this allows the terminology

in GFS to align with 2008 SNA terminology.  e

word “products” is included to make clear that

it does not include third-party rights, which are

nonproduced assets.

• References to securities other than shares

(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 insurance technical 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  nancial derivatives (6207/6307)

are replaced with  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, non 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 1986

Introduction

A1.164  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 de -

nitions, classi 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.  e GFS framework is also

more harmonized with other macroeconomic statisti-

cal frameworks than is the GFSM 1986.  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  e focus of the coverage of units in the

GFS framework is the general government sector as

de ned in the 2008 SNA. Its de nition is based on the

concept of an institutional unit, which is described

in Chapter 2.  e general government sector con-

sists of all resident government units and all resident

nonpro t institutions that are controlled by govern-

ment.  e coverage of the GFSM 1986 is de 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 ful llment of a  scal policy are excluded. In par-

ticular, all transactions related to the functions of the

monetary authority and other depository  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 ful 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  e time at which transactions and other

economic  ows are recorded is determined by the

principles of accrual accounting in the GFS frame-

work.  at is,  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,

 ows are recorded at an earlier time under the accrual

basis than under the cash basis.

A1.168 Recording  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  e accrual basis of recording permits the

di 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

di erence between the issue and redemption prices is

recorded as interest when the security is redeemed.

Coverage of Events

A1.170  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

a 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.  e GFSM 1986 incorporates in-kind trans-

actions only selectively and as memorandum items.

A1.171  e GFS framework includes other eco-

nomic  ows, which are all  ows other than trans-

actions that a ect a unit’s stock position of assets,

liabilities, and net worth. Other economic  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  ows are price changes and the destruction of

assets. By de nition, other economic  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 di 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.

 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 di er from both the nominal value

and the current market value.  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  e presentation of  ows on a gross or

net basis is, for the most part, the same in the GFS

framework and the GFSM 1986.  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

signi 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  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  ows oc-

curring during the period. As a result of this integra-

tion, all events that a ect the  nancial performance,

 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

275 Changes from the GFSM 2001 and GFSM 1986

liabilities.  e changes in the stock position of debt li-

abilities cannot be reconciled with the  ows recorded.

Flows in the GFSM 1986 represent only cash  ows

and will not account for changes in stocks related to

 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.  us,

revenue includes grants but excludes proceeds from

disposals of non nancial assets. In the GFSM 1986,

revenue is de ned as the set of all nonrepayable re-

ceipts other than grants.  us, revenue includes pro-

ceeds from disposals of non nancial assets.

A1.176 Similarly, expense in the GFS framework

is a decrease in net worth resulting from a transac-

tion. Purchases of non nancial assets do not a ect

net worth and are not considered expense transac-

tions.  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 non nancial assets are excluded. Ex-

penditure is de ned in the GFSM 1986 as the set of

all nonrepayable payments and includes purchases of

non nancial assets.

A1.177  e classi cations of revenue are substan-

tially di erent in the two manuals. Revenue in the

GFSM 1986 is classi 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

classi ed as taxes in the GFSM 1986, and other

social contributions to social insurance schemes

operated for the bene t of government employ-

ees, which are classi ed as nontax revenue in the

GFSM 1986.

• Other revenue in the GFS framework includes

most of the category of nontax revenue in the

GFSM 1986 plus capital transfers, which are clas-

si ed as capital revenue in the GFSM 1986.

• Capital revenue in the GFSM 1986 consists of

sales of non nancial assets and receipts of capital

transfers. Sales of assets are not revenue in the

GFS framework, but capital transfers are classi-

 ed as revenue.

A1.178 Expense/expenditure is classi ed in two

ways—by function and by economic type of trans-

action—in both the GFS framework and the GFSM

1986.  e classi cation by function in both manuals is

the Classi cation of Functions of Government (COFOG)

published by the United Nations.  e GFS framework

inco

porates the 2000 edition of COFOG.

A1.179  e classi cation of expense by economic

type in the GFS framework is broadly similar to the

corresponding classi cation in the GFSM 1986.  e

primary exception is that acquisitions of non nan-

cial assets are not considered an expense in the GFS

framework. Other changes include the following:

• Consumption of  xed capital is an expense in the

GFS framework. As a noncash expense, it is ex-

cluded from the GFSM 1986.

• Transfer payments are classi ed by type of pay-

ment in the GFS framework. In the GFSM 1986,

they are classi ed by the sector receiving the pay-

ment.  e major types of transfer payments are

subsidies, grants, social bene ts, transfers not

elsewhere classi ed, and premiums, fees, and

claims related to nonlife insurance and standard-

ized guarantee schemes.

A1.180 A new classi cation is dedicated to net in-

vestment in non nancial assets resulting from trans-

actions because they are not classi ed as revenue or

expense in the GFS framework.  e classi cation fol-

lows the parallel classi cation in the 2008 SNA, which

is based on the type of asset involved in the transac-

tion.  is classi cation includes consumption of  xed

capital because it represents a decline in the value of

 xed assets.

A1.181 “Lending minus repayments” is a category

of transactions in the GFSM 1986 representing the

net acquisition of  nancial assets for policy purposes,

and is classi ed together with expenditure for the

calculation of the overall de cit/surplus. In the GFS

framework, these transactions are classi ed together

with other transactions in  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  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  scal analysis must include a variety of con-

siderations and that no single measure is su cient for

all purposes. In the GFSM 1986, the analytic frame-

work is focused on a single balancing item, the overall

de cit/surplus, although provision is made for other

balancing items.

A1.183  e analytic framework of the integrated

GFS features several balancing items.  e Statement

of Operations includes the following:

•  e net operating balance, which is de ned as

revenue minus expense and represents the change

in net worth resulting from transactions

• Net lending/net borrowing, which is de ned as

the net acquisition of  nancial assets minus the

net incurrence of liabilities, or, alternatively, as

the net operating balance minus the net invest-

ment in non nancial assets; it is also equal to the

gross operating balance minus gross investment

in non nancial assets.

A1.184  e Statement of Sources and Uses of Cash

includes the cash surplus/de cit to indicate the bal-

ance of cash  ows from government operations and

the gross investment in non nancial assets. It is similar

to the overall de cit/surplus of the GFSM 1986 except

that net cash out ows from policy lending (lending

minus repayment of policy-related transactions in  -

nancial assets or liabilities) are not subtracted.

A1.185 Another balancing item in the GFS frame-

work is the overall balance, de 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  xed asset sales) are included as transactions

in  nancial items in calculating the overall  scal bal-

ance. It is the equivalent of the overall de 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  nancial worth, the

change in net worth, the change in net  nancial worth

(all related to the balance sheet), the change in net

worth from other economic  ows, the primary bal-

ance, and savings.  ere are no similar balancing

items in the GFSM 1986.

Harmonization with Other

Statistical Systems

A1.187  e GFS framework is harmonized with

other international macroeconomic statistical sys-

tems.  at is, the basic concepts, de nitions, and con-

ventions are the same to the extent possible, given the

objective of the GFS framework to provide data that

support  scal analysis.  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.

 is appendix describes the various organizational

structures used to provide social protection and the as-

sociated government  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 de ned set of social risks.

Social risks are de ned as events or circumstances

that may adversely a 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  is appendix describes the nature of social

protection, the boundary between social protection

and private insurance, and the criteria used in the

classi cation of social protection arrangements. A

typology of social protection arrangements is pre-

sented.  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  ow and stock positions. Examples of

the recording of speci c  ows related to various types

of social protection arrangements are presented in

tabular form.

 e Classi cation of Functions of Government (COFOG) (see

Annex to Chapter6) has a category labeled social protection, but

its scope di ers from social protection described here, notably by

excluding health care.

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 bene t from social protection in

di erent ways:

• Households could receive bene ts when they

meet certain eligibility criteria that originated

from a social risk without making any contribu-

tions.  ese bene ts are classi ed as an expense

that leads to a redistribution of income through

transfers.

• Households could make contributions and re-

ceive bene ts as transfers receivable in the event

of the occurrence of the speci ed social risks.

Neither the contributions nor the bene ts con-

stitute an exchange as no direct exchange of eco-

nomic value occurs.  e payment of the social

contribution entitles the contributor to some

contingent future bene ts.  e  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

bene t.

 ese social bene ts are classi ed as an

expense.

• Households (including employees, self-employed,

and unemployed) could make contributions (ac-

tual and imputed) to a scheme to accumulate

assets.  ey can withdraw from these accumu-

lated assets in the event of the occurrence of the

speci ed social risk. Examples are employment-

related pensions and other retirement bene ts,

compulsory saving schemes, and other types of

annuities.  e  nances of these arrangements

function similarly to life insurance schemes (see

paragraph A4.69).  ere is relatively little redis-

tribution among the various households holding

As described in paragraph 6.97, the category social bene ts

[GFS] di ers from social bene ts as de ned in the 2008 SNA.

Social Protection

APPENDIX

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.

 erefore, contributions and payments of these

bene ts are transactions in  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 bene 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 bene ts payable (see paragraphs 5.94–

5.100). As an expense, social bene 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  nancial assets and liabilities, clas-

si ed as insurance, pensions, and standardized guaran-

tee schemes (see paragraphs 7.178–7.202).

A2.5  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 bene ts

• All other social bene ts, collectively described as

nonpension social bene ts.

A2.6 Pensions and other retirement bene 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 su ering from a perma-

nent disability. As indicated in Figure A2.1, pensions

and other retirement bene ts are provided to individ-

uals via social assistance, social security, employment-

related pension schemes, or private insurance.

A2.7 Nonpension social bene ts include pay-

ments made to individuals when they are temporar-

ily unemployed, su ering from a medical condition,

or su ering from an event that prevents them from

working for a period.  e following list of typical non-

pension social bene ts illustrates their general nature:

•  e bene ciaries, or their dependents, require

medical, dental, and other treatments, or hos-

pital, convalescent, or long-term care as a result

of sickness, injuries, maternity needs, chronic

invalidity, old age, etc.  ese social bene ts are

provided in kind in the form of treatment or care

provided free or at prices that are not economi-

cally signi cant, or by reimbursing expense in-

curred by households or individuals.

•  e bene ciaries have to support dependents

of various kinds: spouses, children, elderly rela-

tives, physically or mentally disabled persons,

etc.  ese social bene ts are usually payable in

cash in the form of regular dependents’ or family

allowances.

•  e bene ciaries su er a reduction in income

as a result of not being able to work full-time.

 ese social bene 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-

voluntary unemployment, temporary layo s,

short-time working, sickness, accidental injury,

the birth of a child, etc.

•  e bene ciaries su er a reduction in income

because of the death of the main income earner.

 ese social bene ts are usually payable in cash,

o en in the form of regular allowances or, in

some instances, a lump sum.

•  e bene ciaries are provided with housing ei-

er free or at prices that are not economically

signi cant, or by reimbursing some of the ex-

pense they incur.

•  e bene 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 signi cant

to those subject

to social risks).

A2.8 Social bene 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-

e ts, they could be purchased by the unit providing

In this case, the social bene t will cover only the di erence be-

tween the normal price of such services and the price payable.

279 Social Protection

the bene 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 bene ts are provided indirectly, such

as through tax allowances, exemptions, and deduc-

tions; bene ts provided in this manner are not con-

sidered social bene ts in GFS. However, if social

bene 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 bene t payable by government (see para-

graphs 5.29–5.32).

A2.9 In GFS, a social bene t expense is always a

transfer payment because the bene 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-

 ts. Transfers are de ned and explained in more detail

in paragraph3.10.

A2.10 Social bene ts do not include transfers pay-

able in response to events or circumstances that are

not normally covered by social insurance schemes.

 erefore, transfers made in response to unusual

events, such as natural disasters or destruction dur-

ing wars, should be recorded as transfers not elsewhere

classi ed (282) in GFS (see paragraphs 6.122–6.126).

Boundary between Social Protection

and Private Insurance

A2.11 Social bene ts are provided by general gov-

ernment employers to their employees and their de-

pendents, or other units, such as trade unions and

nonpro t institutions serving households. Social ben-

e 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 bene 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,

Figure A2.1 Boundary between Social Protection and Private Insurance

Including deﬁ ned-contribution schemes, treated similar to life insurance.

Social Assistance Social Security

Schemes

Nonpension

Schemes

Pension

Schemes

Nonlife Insurance

Schemes

Life Insurance

Schemes

Amounts

receivable:

- None

Amounts

receivable:

Amounts

receivable:

Amounts

receivable:

Amounts

receivable:

- Social security

contributions

(revenue)

- Other social

contributions

(revenue)

- Incurrence of

liabilities through

actual and imputed

contributions

- Incurrence of

liabilities through

actual

contributions

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

Amounts

receivable:

- Premiums

(revenue)

Amounts payable:

- Claims (expense)

- Reduction in

liabilities through

pensions paid

Insurance

Social Insurance

Employment-Related Social

Insurance Schemes

Private Insurance

Social Protection

Individual Insurance

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 speci 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).

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 di 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 satis ed:

• Participation in the scheme is obligatory ei-

ther by law for a speci ed category of persons,

whether employed or unemployed, or under the

terms and conditions of employment of an em-

ployee, or group of employees.

•  e scheme is a collective one operated for the

bene 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  e premiums payable, and claims receiv-

able, under individual policies taken out under a

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 bene 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  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

bene 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

281 Social Protection

population), although possibly limited by eligi-

bility criteria, while employment-related schemes

provide bene ts as part of the conditions of

employment.

• Provide pension and other retirement bene ts, or

other types of social bene ts—Social protection

arrangements distinguish between those that

provide pensions and other retirement bene ts,

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.

and those that provide other types of nonpen-

sion bene ts, such as medical, unemployment,

disability, etc.  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.

• Autonomous versus nonautonomous—A so-

cial protection scheme is autonomous when a

Figure A2.2 Typology of Social Protection

Related to

government employee

schemes?

Defined

contributions?

Who are the

beneficiaries?

Actual

contributions?

Impute contributions

and treat similarly to

contributory schemes

Social Insurance

Scheme

Social Security Scheme

Autonomous Private

Pension Enterprise

Social Protection Typology

Yes

Social Assistance

Yes

Defined-contribution

pension scheme:

akin to life insurance

Whole (or large

segments) of the

population?

Employees and

their dependents?

Employment-Related

Social Insurance

Scheme

Provides mainly

pension benefits?

NoYes

Employment-Related

Pension Scheme

Autonomous Pension

Scheme

Nonautonomous

Pension Scheme

Unfunded Pension

Scheme

Yes

Employment-Related

Nonpension Benefit

Scheme

282 Government Finance Statistics Manual 2014

separate institutional unit exists

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

classi ed with the unit that controls it.

• De ned-contribution versus de ned-bene t

schemes—A de ned-contribution scheme is

one where the bene 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 de ned-bene t scheme, the ulti-

mate bene t is calculated by means of a formula

embodied in the terms of the social insurance

scheme.  ese bene 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 bene ts will be payable. If a segregated

fund is su cient to  nance the present value of

the future bene ts payable, the scheme is fully

funded. If the segregated fund is insu cient to  -

nance the net present value of the future bene ts

payable, it is underfunded. If the reserve is more

than su cient to  nance the net present value

of the future bene ts payable, it is overfunded.

For an unfunded scheme, contributions are not

held in a segregated fund (reserve). By de nition,

unfunded schemes have no separate pool of re-

serves and cannot be a separate institutional unit.

Typology of Social Protection

Arrangements

A2.18  e classi cation of social protection is

based on the type of social protection arrangement

governing the payment of the bene 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.  e units involved in the organization

and operation of social protection can be general gov-

ernment units, public corporations, nonpro t institu-

tions serving households, or private corporations.

 e de nition of an institutional unit and the criteria that an

entity must ful ll to be an institutional unit are described in

paragraph 2.22.

A2.19 Using the various aspects of the classi 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  ows

and stock positions, which di ers depending on the

type of arrangement.

A2.20  e  rst level in the typology of social pro-

tection is based on whether payments of contributions

are required to obtain entitlement to bene ts. Where

no contributions are required, social protection is

provided as a social assistance arrangement (see para-

graphs A2.25–A2.29).  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 bene 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 bene t of their employees are treated as if they

were contributory schemes because contributions are

imputed.  e amounts necessary to obtain coverage

against the speci 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  e next level in the typology of social pro-

tection is determined by whether the social insurance

is arranged as a de ned-contribution or de ned-

bene t scheme. De 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 de ned-contribution

schemes.

A2.22 Within social insurance, the types of bene -

ciaries covered by the scheme determine the next level

in the typology. When the bene 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 bene ts as a

group of employees, it is an employment-related social

insurance scheme, as discussed in paragraphA2.40.

283 Social Protection

A2.23  e typology of employment-related social

insurance schemes further distinguishes based on the

types of bene ts provided by the scheme: Employment-

related pension schemes provide pension and other

retirement bene ts and are discussed in paragraphs

A2.41–A2.59; employment-related nonpension social

insurance schemes provide nonpension bene ts and

are discussed in paragraphs A2.64–A2.66.  ese ben-

e ts may be provided in cash or in kind, similar to the

bene ts as described in paragraph A2.27.

A2.24 Employment-related pension and other re-

tirement bene 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

bene ts to all persons who are in need without any

formal requirement to participate as evidenced by the

payment of contributions.  e eligibility to receive

social bene ts is not conditional on the payment of

contributions by the protected persons or by other

parties on their behalf.  ere may, however, be spe-

ci c eligibility criteria, such as a “means test,” where

the expression indicates a maximum qualifying level

of income or assets.  e bene ts payable by such an

arrangement are social assistance bene ts. Social as-

sistance bene ts (272) are transfers payable in cash or

in kind to households to meet the same needs as social

insurance bene 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.  e bene ts

are payable to households, out of the unit’s general re-

sources, according to the speci ed criteria. Eligibility

is purely related to the criteria stipulated in the social

protection arrangement.

A2.27 Social assistance bene ts may be provided

in cash or in kind.  e classi cation of this expense

is further discussed in paragraphs 6.101–6.102, and

TableA2.1 illustrates the recording of  ows related to

social assistance. Social assistance bene 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 payable

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

31224 Inventories (goods for

resale)

3212 / 3318 Currency and deposits /

Other accounts payable

Government provides

goods

2722 Social assistance beneﬁ ts in

kind

31224 Inventories (goods for

resale)

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 payable

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,

use of goods and services,

and consumption of ﬁ xed

capital

3212 / 3318 Currency and deposits /

Other accounts payable

In 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.

The 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 bene ts in kind.

A2.28 A distinction should be made between so-

cial assistance bene 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 bene ts, they are not recorded as social

bene 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  xed capital (23).

• If a government unit reimburses corporations for

the cost of goods and services provided to tar-

geted social assistance bene ciaries, the transfers

are recorded as social assistance bene ts in kind.

 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 bene 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 bene ts will be

recorded on an accrual basis as an expense when all

eligibility criteria have been met and the bene ts be-

come payable. Although some bene ts, such as dis-

ability or maternity payments, may be payable over

several reporting periods, no liability for the future

 e economic substance of the transactions is recorded as if the

government purchased the goods and distributed them to the

bene ciaries.  e intermediate step of acquisition and disposal of

inventories of goods is netted out in the calculation of change in

inventories.

 is treatment di ers from the treatment in the 2008 SNA. See

Appendix 7, Box A7.1, for an explanation of the di erence in the

treatment of goods produced by government and transferred in

kind.

payments of social assistance bene ts should be re-

corded on the balance sheet of government. Other ac-

counts payable will be recognized only in cases where

a bene t accrued but remained unpaid at the end of a

reporting period.

However, to increase transparency

and allow an analysis of the sustainability of social

assistance policies, an estimate of the present value

of social assistance bene 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

bene ciaries, evidenced by the payment of contri-

butions (actual or imputed).  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

bene ts for a number of identi 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.  e payment of contributions

(corresponding to premiums in the case of direct

insurance) and bene 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.

 erefore, a social insurance scheme is an insurance

scheme for which the following two conditions are

satis ed:

•  e bene ts receivable are conditional on par-

ticipation in the scheme and constitute social

bene ts.

For example, assume person A has met the eligibility criteria

for unemployment payments in period t1, and is entitled to

receive bene ts for six periods. Because of administrative delays,

no bene t payment was made in the  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 bene ts for another one

month.  e full amount of bene 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.

285 Social Protection

• At least one of the following three conditions is

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.



 e scheme is a collective one operated for

the bene 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 bene ciary to be entitled to receive

the social bene ts covered by the scheme. A social in-

surance bene t is a social bene t payable because the

bene ciary participates in a social insurance scheme

and the identi ed circumstances have occurred.

A2.32 As indicated in paragraph A2.22, the types

of bene ciaries covered by the social insurance

scheme determine the next level in the typology of

this scheme (see Figure A2.2).  e individuals or

households eligible to receive social insurance ben-

e 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 bene ts

only to their employees, former employees, or their

bene 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 bene ts payable, as determined by the

employment contract, di er from those of the social

security scheme for nongovernment employee par-

ticipants, an employment-related scheme exists and

the  ows and stock positions of the two schemes

should be distinguished within the social security

fund (see paragraph 2.102).

Social security schemes

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.  ese schemes cover

a wide variety of programs, providing bene ts in cash

or in kind for old age, invalidity or death, survivors,

sickness and maternity, work injury, unemployment,

family allowance, health care, etc.  ere is not neces-

sarily a direct link between the amount of the con-

tribution payable by an individual and the bene 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  nancial transactions on their

own account qualify as institutional units.  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.  ese special types of

government units are identi 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).  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 bene ts provided or sources of  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

 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 de 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 bene ts for themselves or their dependents.

 e primary receipts of social security schemes are

social security contributions. As shown in Table5.1 in

Chapter5, social security contributions are classi 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 classi 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 bene ts [GFS] (271) payable

are current transfers and are classi ed as one of the so-

cial bene ts categories.  ese can further be classi ed

as being payable in cash or in kind (see Table 6.1). So-

cial security bene ts in kind can be provided to ben-

e ciaries in the same ways as social assistance bene ts

in kind (see paragraphs A2.27–A2.28). Ta bleA2.2 il-

lustrates the recording of some of the  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 bene ts that are

contingent on the event underlying the social risk oc-

curring. Nonetheless, the amount and timing of re-

ceipts of bene ts by bene 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 bene ts receivable.

 erefore, the link between bene ts and contribu-

tions is not considered su ciently strong to give rise

to a  nancial claim on the part of contributors.  e

potential individual claims of contributors (and there-

fore the corresponding government obligations) are

regarded as contingent. Also, because social security

bene 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 bene ts.

As a result, in GFS,

 e amounts of social security contributions receivable and

bene ts payable may be deliberately changed in order to achieve

objectives of government policy.  e change may have no direct

connection with the functions of social security. For example,

the contributions and bene ts may be raised or lowered in order

to in uence the level of aggregate demand in the economy, or to

ensure  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 bene ts is due.

A2.39 However, a high expectation exists that so-

cial security bene ts earned according to the exist-

ing laws will be payable in the future.  erefore, an

estimate equal to the net implicit obligations for fu-

ture social security bene 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

Bene 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 bene t to employees as part

of the conditions of employment. By de nition, these

schemes are contributory and, for government or

public sector units, protect only their own employ-

ees and dependents.  e provision of social insur-

ance bene 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.  erefore, employment-related

social insurance schemes give rise to requited ex-

pense transactions for government when the social

contributions became payable. To accurately re 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 bene ts

can be organized as a funded or unfunded social in-

surance scheme. Table A2.3 illustrates the recording

of some of the  ows of employment-related pensions.

A2.42  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

287 Social Protection

• 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  nancial

corporation.

A2.43  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  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 speci c accounts

or otherwise creating special reserves for the payment

of bene ts. Instead, the bene 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.

 is is also the case when the employer has established

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

3212 / 3218 Currency and deposits /

Other accounts

receivable

1211 / 1213 Social security

contributions: Employee

contributions/self-

employed, and unemployed

Social security contributions

receivable from employers

3212 / 3218 Currency and deposits /

Other accounts

receivable

1212 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 payable

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 payable

2.4 The government social security scheme provides goods purchased from market producers to qualifying beneﬁ ciaries

Social security scheme acquires

the goods

31224 Inventories (goods for

resale)

3212 / 3318 Currency and deposits /

Other accounts payable

Social security scheme provides

goods to households

2712 Social security beneﬁ ts

in kind

31224 Inventories (goods for

resale)

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

2712 Social security beneﬁ ts

in kind

3212 / 3318 Currency and deposits /

Other accounts payable

2.6 The government social security scheme produces and provides goods or services to the population in accordance

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 payable

Note: The net implicit obligation for future social security beneﬁ ts should be recorded as a memorandum item (see paragraph 7.261).

In 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.

The 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).

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 payable

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 payable

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

2121 Actual employers’ social

contributions

3212 / 3318 Currency and deposits /

Other accounts payable

Receipts of social contributions by

the pension fund account giving

rise to a liability

3212 / 3218 Currency and deposits /

Other accounts

receivable

3316 Insurance, pension, and

standardized guarantee

schemes

Government, as owner of

the pension fund account,

receives property income on the

investments of the pension fund

3212 / 3218 Currency and deposits /

Other accounts

receivable

1411 / 1412 Interest

Dividends

Government attributes the

property income to the policy

holders

2813 Property expense for

investment income

disbursements

3316 Insurance, pension, and

standardized guarantee

schemes

Government provides pension

beneﬁ t payments to eligible

beneﬁ ciaries

3316 Insurance, pension, and

standardized guarantee

schemes

3212 / 3318 Currency and deposits /

Other accounts payable

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

2731 Employment-related

social beneﬁ ts in cash

3212 Currency and deposits

Imputed social contributions as

component of compensation

of employees: accrual basis of

recording

2122 Imputed employers’

social contributions

3316 Insurance, pension, and

standardized guarantee

schemes

Government provides pension beneﬁ t

payments to eligible beneﬁ ciaries:

accrual basis of recording

3316 Insurance, pension, and

standardized guarantee

schemes

3212 / 3318 Currency and deposits /

Other accounts payable

Government recognizes the

increase in liability for beneﬁ t

entitlements due to time passing

2813 Property expense for

investment income

disbursements

3316 Insurance, pension, and

standardized guarantee

schemes

3.5 All deﬁ ned-beneﬁ t schemes can also be subject to other economic ﬂ ows

Pension liabilities increase due to

unilateral changes in conditions

of the scheme

5 Other changes in the

volume of assets and

liabilities

5316 Insurance, pension, and

standardized guarantee

schemes

Pension liabilities increase due to

changes in interest rates used to

calculate the present value of the

liability

4 Holding gains/losses 4316 Insurance, pension, and

standardized guarantee

schemes

In 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.

These 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.

289 Social Protection

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).  e eco-

nomic  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.

 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.  ese  ows are not eliminated in

consolidation because households are regarded as, re-

spectively, the recipient and payer.  ese  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 bene ts must be imputed.

 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 bene ts.  is

imputation recognizes the economic  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 bene ts to its employees

and  ags the risks associated with the future demands

on resources. When these pension bene ts are paid,

the payment is recorded as a reduction in liabilities.

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).  ese institutional units are con-

sidered to provide  nancial services (i.e., insurance/

pensions) to the household sector, and are therefore

When using the cash basis of recording, the only  ow recorded

for these unfunded pension schemes is the employment-related

social bene ts expense, with a counterpart entry as a decrease in

currency and deposits.  e expense is recorded when cash pay-

ments are made.

classi ed in the  nancial corporations sector.  ey are

classi ed as either private or public  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.  e

employment-related pension scheme is then managed

through an insurance enterprise or an autonomous

pension fund.  e employer’s primary responsibility

with respect to the scheme is to pay the social contri-

butions on behalf of its employees.  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

bene 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 de 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 de 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 di er-

ent from the administrator, and the responsibility for

any de 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 di erence is payable to the pension manager of the

scheme.  e pension manager records this claim on

the pension administrator as a  nancial asset, claims

of pension funds on pension managers (62064).

Although this  nancial asset e 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  nancial corpo-

ration that manages the employment-related pension

scheme for government employees, the corporation

will be part of the public  nancial sector, and the rel-

evant  ows and stock positions would be recorded

when compiling GFS for the public sector.  e receipt

of social contributions by this insurance enterprise or

pension fund gives rise to a liability, classi ed in the

 nancial instrument insurance, pensions, and stan-

dardized guarantee schemes (6306), and more spe-

ci cally in pension entitlements (63063).  e liability

originates from the obligation to pay future pension

bene ts—any subsequent payment of the bene ts will

be recorded as a reduction in this liability. Although

the social contributions are payable directly by the em-

ployer to the  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  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  nancial corporation, revenue

from the investment of the  nancial reserves should

be classi 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, classi ed as property expense

for investment income disbursements (2813), with a

counterpart entry that increases the liability to re-

 ect the policyholders’ increase in claims for pension

entitlements.

A2.53 Autonomous employment-related pension

schemes can be organized as a de ned-bene t pension

scheme or a de ned-contribution pension scheme.

Deﬁ ned-beneﬁ t pension schemes

A2.54 A de ned-bene t pension scheme is one

where the bene ts payable to an employee on retire-

ment are determined by the use of a formula, either

alone or as a minimum amount payable.  e level of

bene ts promised to participating employees is deter-

mined by a formula embodied in the terms of the so-

cial insurance scheme.  ese terms are usually based

on factors such as the participants’ length of service

and salary.

 e calculation of imputed contribu-

tions and net present value of future bene ts requires

advanced actuarial techniques, beyond the responsi-

bility of GFS compilers.  e present value of future

bene t entitlements increases each period because

there is one fewer period over which it is discounted.

 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-

 ect any change in the value of the liability because

of a change in the interest rate used to discount the

future bene ts. A change in the liability resulting

from a change in the bene 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 de ned-contribution pension scheme

is one where the bene ts payable to an employee on

retirement are de 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.  e risk of the scheme to

provide an adequate retirement income is thus borne

by the employee, and the bene ts that will be payable

depend on the assets of the fund.

For a de ned-

contribution pension scheme, a pension fund is al-

ways deemed to exist.

A2.56 Contributions to a de ned-contribution

pension scheme are invested on behalf of the employ-

ees as future bene ciaries.  e investment income on

the cumulated assets of the pension fund is recorded

as revenue for the fund, classi ed according to the na-

ture of the respective property income revenue (usu-

ally including interest (1411), dividends (1412), or

 ere are four sources of changes in pension entitlements in a

de ned-bene 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

bene ts to retirees of the scheme; and (iv)other factors—that is,

factors that are related to other changes in the volume of assets.

De ned-contribution schemes are also referred to as money-

purchase schemes.

291 Social Protection

rent (1415)).  e investment income is also recorded

as being distributed to the bene ciaries (classi ed as

property expense for investment income disbursements

(2813)), who are deemed to reinvest the income in the

pension fund as contributions.  erefore, the invest-

ment income payable on de ned-contribution en-

titlements is equal to the investment income on the

 nancial investments plus any net operating surplus

earned by renting land or buildings owned by the fund.

A2.57  e value of the pension entitlement liabil-

ity of a de ned-contribution pension scheme is the

market value of the  nancial assets held by the pen-

sion fund on behalf of the future bene ciaries. Any

changes in the market value of these investments of

the pension fund would include holding gains and

losses.  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.  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 de ned-contribution pension scheme,

the risks and costs associated with the scheme are

borne by the bene ciaries.  ere are no imputed con-

tributions for de 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.  is amount is recorded by the employer as the

sale of a  nancial service to the employees, classi 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  -

nanced from investment income retained by the fund

to meet its costs and generate a pro t.  erefore, in

keeping with the recording of insurance, the invest-

ment income generated is treated as being attributed

in full to the bene ciaries in the household sector who

use part of the income to purchase a  nancial service

from the fund, and reinvest the remainder with the

fund.

A2.59 As indicated in paragraphs A2.3 and A2.21,

de ned-contribution schemes are similar to life insur-

ance schemes.

However, a scheme that may be de ned

in terms similar to a de ned-contribution scheme, but

with a guaranteed minimum bene t speci ed, or other

hybrid schemes, should be treated as de ned-bene 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, o en a public

corporation, linked to pension reforms or to priva-

tization of the public corporations.  e goal may be

to make the corporation competitive, or  nancially

more attractive, by removing existing pension liabili-

ties from its balance sheet.  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  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 di erence.  e assumer (government) records an

increase in liabilities for pension entitlements, an in-

crease in the relevant  nancial and/or non nancial

assets, and an expense in the form of capital transfer

to the corporation (see paragraph 6.91).  e corpora-

tion records a decrease in liabilities for pension en-

titlements, a decrease in  nancial and/or non 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 di erence (see paragraph 5.148).

 e corporation records a decrease in liabilities for

pension entitlements, a decrease in  nancial and/or

non nancial assets, and an expense in the form of a

capital transfer to government.

 e treatment of the  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.  e pension obligations absorbed

by the social security fund continue to be classi ed as

pension entitlement liabilities.  ese obligations are

gradually extinguished as the bene 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 classi ed

under actual employers’ social contributions. For un-

funded schemes, the amount that would be required to

purchase equivalent social bene ts must be imputed by

the employer, and should be classi 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 classi ed under other social con-

tributions by employees.  e social bene ts provided

by the government are classi ed as an expense under

employment-related social bene ts. TableA2.4 illustrates

the recording of some of these  ows of employment-

related nonpension social insurance schemes.

A2.65 Some employers provide nonpension social

bene 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 speci ed social risks, even

though no reserves are built up to provide for future

entitlement to social security bene 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 bene ts.  ese amounts take into

account any actual contributions made by the em-

ployer or employee.  e amounts depend not only on

the levels of the bene 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.  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 di cult to

estimate such imputed contributions.  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 bene 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.  is

is a second best option as the value of the imputed

contributions may diverge from the unfunded non-

pension bene ts actually paid in the same period, due

to factors such as the changing composition and age

structure of the government labor force.

293 Social Protection

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

3212 / 3218 Currency and deposits /

Other accounts receivable

1221 Other social contributions:

Employee contributions

Social insurance contributions

receivable from employers

3212 / 3218 Currency and deposits /

Other accounts receivable

1222 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 payable

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

2731 Employment-related social

beneﬁ ts in cash

3212 / 3318 Currency and deposits /

Other accounts payable

4.5 Employer social insurance scheme provides goods purchased from market producers to employees in accordance

with the conditions of the scheme

Employer social insurance

scheme acquires the goods

31224 Inventories (goods for

resale)

3212 / 3318 Currency and deposits /

Other accounts payable

Employer social insurance

scheme provides goods to

households

2732 Employment-related social

beneﬁ ts in kind

31224 Inventories (goods for

resale)

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 payable

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 payable

Note: The net implicit obligation for future social security beneﬁ ts should be recorded as a memorandum item (see paragraph 7.261).

In 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.

The ﬂ ow of inventories will be recorded only in an inventory accounting system.

 is appendix provides guidance on selected issues that

may arise in the recording of  ows and stock positions

related to public sector debt.

Introduction

A3.1 In the recording of debt

of the general gov-

ernment or public sectors, complex methodological

issues can arise with regard to  ows (i.e., transactions

and other economic  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.  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 de 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 o 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.  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-

o s—unilateral actions that arise, for example,

when the creditor regards a claim as unrecover-

Gross debt and net debt are de 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  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 re 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.

• 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-

 ned as the voluntary cancellation of all or part of a

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.  ese transactions should be

considered under debt forgiveness, as counterpart funds are not

provided to the creditor.

Debt and Related Operations

APPENDIX

295 Debt and Related Operations

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 bene t. In

contrast, with debt write-o , 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).

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 a 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 speci 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  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  nancial asset would re ect the debt

forgiveness.

Debt Rescheduling and Reﬁ nancing

A3.10 Debt rescheduling and re nancing involve a

change in an existing debt contract and its replace-

ment by a new debt contract, generally with extended

debt service payments.

Debt rescheduling involves

rearrangements on the same type of instrument, with

Debt forgiveness is unlikely to arise between commercial

entities.

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 reclassi ca-

tion. In practice, these reclassi cation entries cancel out within

the same principal value and the same creditor as with

the old debt. Debt re nancing entails a di erent debt

instrument, generally at a di erent value, and possibly

with a di erent creditor.

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 re 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.  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,  xing the exchange rate at favorable

levels for foreign currency debt, and rescheduling the

payment of arrears, if any. In the speci 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 e ective could be classi ed

as either an e 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 de ned period ( ow

treatment) or as of a set date (stock treatment).

the same instrument category unless the original and new terms

have a di erent principal, di erent instrument classi cation, or

di erent maturity classi 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.

From the debtor perspective, debt re nancing may involve

borrowing from a third party to repay a creditor.  e de nition

of debt re nancing used here is a narrower concept re 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.  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  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 ful llment of certain conditions,

when the obligations fall due (such as multiyear Paris

Club rescheduling), entries are recorded only in the

period when the speci ed conditions are met.

Debt reﬁ nancing

A3.14 Debt re 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 di 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 o ers given by its creditor

(rather than a change in terms and conditions).

A3.15  e treatment of debt re nancing transac-

tions is similar to debt rescheduling.  e debt being

re nanced is extinguished and replaced with a new

 nancial instrument, or instruments.  e old debt is

extinguished at the value of the new debt instrument,

except for nonmarketable debt (e.g., a loan) owed to

o cial creditors.

A3.16 If the re 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.  e transaction is

recorded at the value of the new debt (re ecting the

current market value of the debt), and the di 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 o cial creditors and is nonmarket-

able, the old debt is extinguished at its original value

with the di 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  e balance sheet re 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 o 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 o 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  nance a particular project or policy. In es-

sence, public sector debt is extinguished and a non-

debt liability created in a debt conversion.

297 Debt and Related Operations

A3.21 A common example of debt conversion is

debt-for-equity swaps.

Determining the value of

the equity may be di 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 speci 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.  e debt is extin-

guished in return for a cash payment agreed between

the debtor and the creditor.  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 o 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 bene 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.

O 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).

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.  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, o er to provide funds to pay o

the debt obligation of another government unit owed

to a third party.

A3.27  e statistical treatment of debt assumption

depends on (i) whether the new debtor acquires an

e ective  nancial claim on the original debtor, and

(ii)if there is no e ective  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.

 is implies three possibili-

ties (see Figure A3.1):

•  e debt assumer (new debtor) acquires an ef-

fective  nancial claim on the original debtor.

 e debt assumer records an increase in debt li-

abilities to the original creditor, and an increase

in  nancial assets, such as in the form of loans,

with the original debtor as the counterparty.  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.  e value of the debt assumer’s

claim on the original debtor is the present value

For example, a central government unit o ering to provide funds

to pay o the debt of a local government unit owed to a bank.

An “e ective  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

An “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.

Does the new

debtor (assumer)

obtain an effective

financial claim

on the

original debtor?

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)?

Is the original

debtor a

going

concern?

NoYes

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.

Is the original

debtor a public

corporation?

The debt assumer

records an

expense in the

form of a

capital transfer/

grant to the

original debtor.

Yes

The debt assumer

records an increase

in financial

assets in the form

of equity owned in

the public corporation.

Yes

299 Debt and Related Operations

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 di erence between the

liability incurred and the  nancial asset acquired

in the form of loans. For the debt assumer, gross

debt increases by the amount of debt assumed.

•  e debt assumer (new debtor) does not acquire an

e ective  nancial claim on the original debtor.  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 bene t to the original

debtor.  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.  e original debtor records rev-

enue in the form of a capital transfer/grant, which

extinguishes the debt liability on its balance sheet.

 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.

•  e debt assumer (new debtor) does not acquire

an e ective  nancial claim and the original debtor

is a public corporation that continues to be a going

concern.  e debt assumption amounts to an in-

crease in the equity owned by the debt assumer in

the public corporation (original debtor).  e debt

assumer records an increase in debt liabilities to

the original creditor, and an increase in  nancial

assets in the form of equity and investment fund

shares.  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 non nancial assets (such as  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 non nancial asset(s). If the market value of

the non 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 di erence between

the value of the liability assumed and the market value

of the non 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  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-

ci 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 di culties rather than perma-

nent solvency problems.

A3.31  e treatment of debt payments on behalf

of others depends on whether the public sector unit

paying the debt acquires an e ective  nancial claim

on the debtor.

• If the paying unit obtains an e ective  nan-

cial claim on the original debtor, the paying

unit records an increase in  nancial assets (e.g.,

loans) and a decrease in currency and deposits.

 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

Debt payments on behalf of others are di 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  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).

• If the paying unit does not obtain an e ective  -

nancial claim on the original debtor, the paying

unit records an expense in the form of a capital

transfer—classi ed according to the nature of

the recipient—and a decrease in  nancial assets

in the form of currency and deposits.  e receiv-

ing unit (debtor) records a revenue in the form

of a capital transfer—classi 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-o s or write-downs refer to

unilateral reductions by a creditor of the amount owed

to it.  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 o on

the balance sheet of the government unit (creditor).

In contrast, a unilateral write-o 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-o or write-down is

a unilateral action and, therefore, recorded as other

changes in the volume of assets.  e  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.

If a bankruptcy still allows some of the debt to be settled, it is

possible that the creditor writes o only a part of the claim.

Provisions by the creditor for bad debts or expected losses

(sometimes referred to as “write-down”) are not recorded in

macroeconomic statistics.

A3.34 Although no transactions are recorded for a

debt write-o or write-down under the cash basis of

recording, the stock positions relating to these opera-

tions would be reduced, re ecting the debt write-o

or write-down.

New Money Facilities

A3.35 In some arrangements that assist the debtor

to overcome temporary  nancing di culties, new

money facilities are agreed with the creditor to repay

maturing debt obligations.  e two debt instruments

involved—the maturing debt obligation and the new

money facility—are treated separately.

A3.36  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

 nancial assets, the income and value of which are

su 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.  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  e sectorization of restructuring agencies

(also referred to as “defeasance structures”) is dis-

cussed in paragraphs 2.129–2.131.

301 Debt and Related Operations

Debt Concessionality

A3.39  ere is no consistent de 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.  e degree of

concessionality can be enhanced with grace periods,

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

e 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  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  nancial

distress. It is o en used when a government unit pro-

vides either short-term  nancial assistance to a corpo-

ration to help it survive a period of  nancial di culty,

or a more permanent injection of  nancial resources

to help recapitalize the corporation. A bailout may,

in e ect, constitute nationalization if the government

acquires control of the corporation it is bailing out.

Bailouts of  nancial institutions are a case in point.

 ey are likely to involve highly publicized, one-time

transactions o 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 signi cant  nancial support is provided to capi-

talize or recapitalize the corporation in  nancial dis-

tress.  e 2008 SNA uses “capital injections” to mean

 e grace period is the period from the disbursement of the

loan until the  rst payment due by the debtor.

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  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  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 o er.

A3.45 Broadly, two main issues arise with bailout

operations:

•  e  rst issue is the sectorization of the entity

or unit created to  nance or manage the sales

of assets and/or liabilities of the distressed cor-

poration.  e sectorization is important, in par-

ticular, for determining whether its transactions,

other economic  ows, and stock positions (debt

liabilities and other assets and liabilities) are

within the general government sector or public

corporations sector.

•  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  nance or to manage the defeasance

of impaired assets or repayment of liabilities of the

distressed corporation.

As is the case with all enti-

ties in macroeconomic statistics, the sectorization of

a restructuring agency should re ect the underlying

economic nature of the entity.  us, the sectorization

rules, as outlined in Chapter 2, should be applied to

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  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-

 ed in the general government sector because it

is not involved in  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 classi cation

as a government unit or a public  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  e assistance provided by government (or

another public sector unit) to the unit su ering  -

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 e ective  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 return

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  nancial assets in the

form of equity and investment fund shares, and

a decrease in  nancial assets (e.g., currency and

deposits) or an increase in liabilities, depending

on how the acquisition of equity is  nanced.

A realistic rate of return on funds is indicated by the intention

to earn a rate of return that is su cient to generate dividends or

holding gains at a later date, and that is a claim on the residual

value of the corporation.

 e corporation in  nancial distress records an

increase in  nancial assets (e.g., currency and de-

posits), and an increase in nondebt liabilities in

the form of equity and investment fund shares.

•  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 de cits accu-

mulated over two or more years, and exceptional

losses due to factors outside the control of the

enterprise.

A3.51  e unit providing the assistance records

expense in the form of a capital transfer and a de-

crease in  nancial assets (e.g., currency and deposits)

or an increase in liabilities, depending how this capital

transfer is  nanced.  e recipient records revenue in

the form of a capital transfer and an increase in  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.

•  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 o en buy loans from  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 reclassi ed as securities (see paragraphs

7.157 and 7.163) and also recorded at market

value.

303 Debt and Related Operations

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

An “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.

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.

NoYes

Yes YesNo No

A loan

Yes

An equity

injection

Yes

Does the investor

unit obtain

an effective

financial claim

on the corporation

in distress?

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)?

Is the

corporation

in distress

a going

concern?

The investor unit

records an increase

in financial assets

in the form of loans,

with the corporation

in distress as the

counterparty.

• 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).

Is the

corporation

in distress

a public

corporation?

The investor unit

records an expense

in the form of a

capital transfer/

grant to the

corporation in

distress.

What is the

legal form

of the “capital

injection”?

Can the investor

unit expect a

realistic return

on the investment?

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).

Is there a

portion of the

investment on

which no realistic

return can

be expected?

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 di erence in value is re-

corded as loans are recorded at nominal value

on the balance sheet. Any di 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-o 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 de cits accumulated over two or more years

or exceptional losses due to factors outside the

control of the enterprise, the capital injection is,

by de 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-

ci c purposes relating to public policy in order

to compensate a bank in  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

signi 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 arti cial subsidiary and should be classi ed

as part of the general government sector (its parent

unit). O en, such government arti cial subsidiaries

are set up as SPEs.  ese units, which are legally cor-

porations, should be classi 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  scal activities

through an entity that is resident abroad. For example,

a government may fund its outlays by issuing securities

abroad through an SPE.  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  scal operations un-

dertaken through nonresident entities are re ected in

the transactions and stock positions of the home gov-

ernment concerned.

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  scal purposes, the

statistical treatment in the accounts of that govern-

ment is as follows:

 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.

305 Debt and Related Operations

• 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.  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  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  ese entries are made symmetrically for

both the government and the borrowing entity.  e

entries do not a 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  -

nancial or non nancial assets, or the right to receive

speci c future  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

 nancing.  e securitization unit obtains its own  -

nancing by issuing debt securities using the assets or

rights to future  ows transferred by the originator as

collateral.

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 speci c  nancial or non nancial assets or

future revenue streams. A variety of assets or future

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.  e Handbook

also considers that securitization can occur when there is no

securitization unit or transfer of assets.

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 speci 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.

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  nancial intermediary in the

 nancial corporations sector.  e securitization unit

is o 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  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,

which is schemes in-

volving a true transfer (sale) of assets—from a

macroeconomic statistics perspective

—from

the original asset owner’s balance sheet to that

of the securitization unit

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.

“Type 2” schemes in the Handbook on Securities Statistics and

the “ rst case” of securitization in the 2008 SNA.

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.  e following must be considered: (i)  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,

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,

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,

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,

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,

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.  e securitization unit

uses the proceeds from selling the debt securities to

investors to  nance the acquisition of the assets.  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.  e gross debt of the securitization unit

increases as a result of the securities issued. If this

unit is a public  nancial corporation, its debt is part

of public sector debt. A resident securitization “unit”

controlled by a government unit that is an SPE but

Derived from the “ rst case” of securitization in the 2008 SNA.

 e “second case” of securitization in the 2008 SNA.

“Type 3” schemes in the Handbook on Securities Statistics.

“Type 1” schemes in the Handbook on Securities Statistics.

“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.

 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 su 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.

 e revenue stream continues to accrue to

government and government uses these proceeds to

repay the loan from the securitization unit.  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:

 e owner of a pool of assets buys credit default

When both the originator and the securitization unit are in the

public sector, this loan will be eliminated from public sector debt

through consolidation.

When both the originator and the securitization unit are in the

public sector, this loan will be eliminated from public sector debt

through consolidation.

307 Debt and Related Operations

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.

 e protection seller is-

sues a debt instrument.  e proceeds from the

issue of debt securities by the securitization unit

are invested in low-risk, low-return  nancial as-

sets (such as deposits), and the income accrued

on this investment, together with the premium

from the CDS,  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) su er losses for the

same value, a realized holding gain for the pro-

tection seller.

 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:  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.

 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

A credit default swap is a  nancial derivative whose primary

purpose is to trade credit default risk.

generated by the assets.  e assets remain on the bal-

ance sheet of the debt securities issuer (the original

asset owner), typically as a separate portfolio.  ere is

no securitization unit involved.  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  nancial derivatives, which are nondebt instru-

ments (see paragraph 7.215). However, o -market

swaps have a debt component.

A3.68 An o -market swap is a swap contract that

has a nonzero value at inception as a result of having

reference rates priced di erently from current market

values—that is, “o -the-market.” Such a swap results

in a lump sum being paid, usually at inception, by

one party to the other.  e economic nature of an o -

market swap is a combination of borrowing (i.e., the

lump sum), in the form of a loan, and an on-market

swap ( nancial derivative).  e loan component of

an o -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 o -market reference rates include inter-

est rate and currency swaps.

A3.69 Because the economic nature of an o -market

swap is equivalent to a combination of a loan and a  -

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  e loan position is a liability of the party

that receives the lump sum, while the derivative posi-

tion may appear either on the  nancial asset or liabil-

ity side, depending on market prices on the balance

sheet date.

A3.71 Future streams of  ows relating to these

stock positions are also partitioned between those re-

lating to the loan and  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 e ective  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  nancial claims.  ese claims should not be

o set against each other in government  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  nancial claims) are

classi ed as domestic or external.

A3.74  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

e ective  nancial claim on unit(s) C, depends on:

•  e residence of the creditor(s) from which unit

A is borrowing (i.e., unit(s) B)

•  e residence of unit(s) C to which unit A is on-

lending the borrowed funds (see Table A3.1).

A3.75  e classi 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  nancial assets in

the form of currency and deposits.  ese events result

in an increase in the gross debt position of unit A, but

no change in its net debt position.

A3.76  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

 nancial assets in the form of currency and deposits.

Institutional unit A’s  nancial assets (e.g., loans) will

increase (debit) as a result of the on-lending to unit

C and its  nancial assets in the form of currency

and deposits will decrease (credit). If institutional

unit(s) C is classi ed to the same sector, subsec-

tor, or group of units as unit A, this debt liability

(and corresponding  nancial claim) is eliminated in

consolidation.

A3.77  e amortization of each of the debt liabili-

ties (and corresponding  nancial assets) is recorded

in the books of the unit in whose balance sheet the

debt liability appears.  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)  nancial

claims on unit C.  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.

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

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.)

2. Unit A on-lends

to unit(s) C

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.)

309 Debt and Related Operations

Stock Positions and Related Flows

with the IMF

A3.79  is section brie y describes the stock po-

sitions and  ows in countries’  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  rst have to deter-

mine in which public sector unit(s) to record the stock

positions and related  ows with the IMF. Stock positions

and  ows in  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  e IMF conducts its dealings with a mem-

ber through the  scal agency and the depository:

• Each member country designates a  scal agency

to conduct  nancial transactions with the IMF

on behalf of the member.

• Each member is also required to designate its

central bank as a depository for the IMF’s hold-

ings of the member’s currency.

In most mem-

ber countries, the central bank is both the  scal

agency and the depository.

A3.81  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 speci ed by the IMF.  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

 e  scal agency may be the member’s treasury (ministry of  -

nance), central bank, o cial monetary agency, stabilization fund,

or other similar agency.  e IMF can deal only with, or through,

the designated  scal agency.

If the member has no central bank, it shall designate such other

institution as may be acceptable to the IMF.

portion is shown as a transaction involving an

increase in external  nancial assets in the form

of currency and deposits—that is, the reserve

tranche position, which is a liquid claim on the

IMF (debit), o set by an equal reduction in exist-

ing external  nancial assets

(credit).

• Domestic currency component— e remaining

75 percent of the quota is payable in the mem-

ber’s own currency at the designated depository.

 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).  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.

 e promissory notes are encashable by the

IMF on demand.  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  ere are periodic reviews of the size of

member quotas. Recording transactions that re 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).  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

 e type of instrument varies.

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 o 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  nancing. A

member’s reserve position in the IMF constitutes part

of its reserve assets (external  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.  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.  e transaction is recorded

in the public sector unit’s accounts as a reduction in

the member’s external  nancial assets in the form of

currency and deposits (i.e., the reserve tranche po-

sition in the IMF), which is o set by an increase in

the member’s external  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  nancing for low-income countries) to

acquire additional foreign exchange from the IMF.

 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 classi 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 di 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,

re 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.

•  e concessional loans, also denominated in

SDRs, result in the member borrowing foreign

exchange with a commitment to repay. Such

loans do not a 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:

•  e central bank has a domestic  nancial claim

(loan) on the general government unit and the

general government unit has a domestic debt li-

ability to repay (principal and interest).

•  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  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.  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  nancial assets in the form of

currency and deposits.

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 re 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 o 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).  e

311 Debt and Related Operations

increase re ects the reduction in IMF holdings of the

member’s currency in the No. 1 Account and is o set

by an increase in the member’s liabilities relating to

currency and deposits.

Speci al Drawing Rights (SDRs)

A3.91  e SDR is an international reserve asset

created by the IMF in 1969.  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  nancial asset or liability position unto it-

self. Given that  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.

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  nancial asset.

 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  nancial asset and liability,

respectively.

A3.93  e SDR allocation is debt of the recipient

(i.e., the participant in the SDR Department), and

forms part of public sector debt.  e SDR holdings are

part of the public sector’s  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

See paragraph 7.264 for a discussion of the classi cation of the

counterparty by institutional sector.

government entity such as the ministry of  nance or

treasury).  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,

and are transferable among

them. At the time of the SDR allocation, the amounts

recorded as SDR allocations (liabilities) and holdings

( nancial assets) are identical and on the same public

sector unit’s balance sheet.  is public sector unit—

as o cial holder—may, subsequently, exchange some

or all of its SDR holdings ( nancial asset) with other

o 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.

 e IMF has prescribed a limited number of international

 nancial institutions as holders of SDRs.

Some Cross-Cutting Issues

 is appendix applies government  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 speci c events on revenue,

expense, and  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.  is appendix deals with three

such issues:

• 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 speci ed in terms of a

contract between two institutional units.  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 a 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.

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 a ect not

only the time of recording of transactions but also the

classi cation of transactions and the ownership of the

item subject to the agreement.  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  ree types of leases are recognized in

macro economic statistics: operating leases,  nancial

leases, and resource leases. Each of these leases relates

to the use of a non nancial asset. Fundamental to

the dis tinction between the di erent types of leases

is the di erence between legal and economic owner-

ship.  e legal owner of resources is the institutional

unit entitled by law and sustainable under the law to

claim the bene ts associated with the asset. By con-

trast, the economic owner of resources is entitled to

claim the bene ts associated with the use of the asset

in the course of an economic activity by virtue of ac-

cepting the associated risks.  is distinction between

legal and economic ownership is elaborated upon in

paragraphs 3.37–3.41 and 7.5.  e legal owner is o en

the economic owner as well. When they are di erent,

the legal own er has divested itself of the majority of

risks in return for agreed payments from the eco-

nomic owner.  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 non nancial

assets.

• In the case of  nancial leases, there is a di er-

ence between economic ownership and legal

APPENDIX

313 Some Cross-Cutting Issues

ownership of the asset. Financial leases can apply

to all non  nancial assets, including natural re-

sources under some circumstances.

A4.5  e following paragraphs discuss the treat-

ment of operating leases,  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.  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  xed asset may be subject to an operating lease.

 e character of operating leases may most easily be

de scribed in relation to  xed assets since operating

leases o en concern vehicles, o ce equipment (e.g.,

photocopiers), construction equipment, buildings,

etc.  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.  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.  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.

 e lessor is usually also re sponsible for ensuring that

elevators, heating, and ven tilation systems function

adequately.

A4.8 Operating leases o 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  eld,

the servicing and backup facilities provided by a les-

sor are important factors that may in 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  ow,

or tax liability.

A4.9  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  xed capital (23) on the  xed

asset involved is recorded in the accounts of the lessor.

Financial leases

A4.10 A  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.  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  nancial lease, the lessor records

a loan to the lessee with which the lessee acquires the

asset.  ere a 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 non nancial asset (the lessor) to the user

of the non nancial asset (the lessee).  e following

provisions in the lease contract would normally lead

to a lease being classi ed as a  nancial lease:

•  e lease contract transfers legal ownership of the

asset to the lessee at the end of the lease term, or

•  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 su ciently low

that the exercise of the option is reasonably cer-

tain, or

•  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

•  e lessee has the ability to continue the lease for

a secondary period for a payment substantially

lower than market value.

A4.12  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.  e lease is then considered to be an

operating lease. Financial leases are also called “ -

nance leases” or “capital leases,” highlighting that the

motivation (paragraphs A4.10–A4.11) is to  nance

the acquisition of a non nancial asset. Internation-

ally accepted ac counting practices generally recog-

nize  nancial leases in the same manner as in GFS.

A treatment akin to  nancial leases is also adopted for

some public-private partnerships

(PPPs) (see para-

graphs A4.58–A4.65 and the 2008 SNA, paragraphs

22.154–22.163).

A4.13  e statistical treatment of  nancial leases is

designed to capture the economic reality of such ar-

rangements, by treating assets under a  nancial lease

as if they were purchased and owned by the user.

 e lessee (economic owner) records the acquisition

of the asset that is  nanced by an imputed loan.  e

loan is redeemed through payments during the con-

tract (consisting of interest and original principal el-

At the time of publication of this Manual, the treatment of

 nancial and operating leases is under review by international

accounting standard setters.

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  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  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

 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.

 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 speci 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 speci 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 speci 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 in 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  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).

315 Some Cross-Cutting Issues

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.

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

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.

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

di erent sets of conditions that may apply to the use

of a natural resource:

•  e owner may permit the resource to be used

to extinction.  is option results in the sale (or

possi bly an expropriation) of the nonproduced

resource asset itself.

•  e owner may permit the resource to be used

for an extended period of time in such a way

that, in e ect, the user controls the use of the

resource during this time with little if any inter-

vention from the legal owner.  is permit leads

to the creation of an intangible nonproduced

asset classi ed as contracts, leases, and licenses

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

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

For the owner, classify the

amounts receivable as the

disposal of an intangible

nonproduced asset

in the form of contracts,

leases, and licenses

Yes

Does the owner allow

the use of the natural resource

to extinction?

Does the owner allow the

use of the natural resource

for an extended period,

with little or no

intervention?

For the owner, classify

the amounts receivable as

revenue in the form of

rent (1415)

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.

•  e owner can extend or withhold permission to

continued use of the asset from one year to the

next.  is option corresponds to a resource lease

on which rent is payable/receivable (see para-

graphs A4.16–A4.17).

A4.20  e di erences in treatment between the

vari ous options are not clear-cut.

 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  e considerations listed in Box A4.1 can

be seen as a more speci c parallel to the distinction

of economic ownership from legal ownership used in

distinguishing between operating and  nancial leases

described earlier.  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  e application of these principles to the

main types of natural resources is described in the

following text.

 e encumbered value of the resource is based on the present

value of future rental payments taking the existence of the lease

into account.  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 this issue articulated in the context of the case of mobile

phone licenses in SNA News and Notes, Volume 14, United Na-

tions, 2002.

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 e ective economic owner-

ship rights over the use of the spectrum.

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)).  e

latter situa tion applies always when licenses are

granted inde nitely.

• When the life span of the license is di erent from

the life span of the spectrum, the payment for a

license is treated as the sale of an intangible non-

produced asset classi 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.  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.  is re ects the

potential for a further sale of the right to use the spec-

trum for another period.

Land

A4.26 Land may be sold outright (i.e., when the

legal ownership is transferred from one institutional

unit to another)

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

To decide whether ownership is e ectively transferred, the six

criteria presented in Box A4.1 are to be considered.

 is recording ensures a neutral e ect on the net worth of the

overall economy during the life of the license.

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.

317 Some Cross-Cutting Issues

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 satis 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 o en

when the building is acquired. In such a case the pay-

ment is recorded as the acquisition of a nonproduced

asset, classi 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 classi 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.  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, classi ed as noncultivated

biological resources (31431).

• Sale of a permit—When licenses or permits is-

sued to use the natural resource, such as timber,

 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  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).  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.  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  sh with an economic

value are an asset, and the same considerations apply

to them as to other natural resources.

Two possibili-

ties exist for commercial  shing:

• Fishing quotas are permits that may be allocated

in perpetuity or for extended periods to par-

ticular institutional units—for example, where

 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 classi ed as per-

mits to use natural resources (614412) in the bal-

ance sheet.

It is not realistic to consider that permission would be given to

exhaust  sh stocks, but illegal  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.

319 Some Cross-Cutting Issues

• An alternative regime is to issue a permit for a

strictly limited period of time, less than a year,

to a nominated institutional unit, o en a non-

resident.  is is a common practice in some is-

lands in the South Paci 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  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).  is

treatment is not changed by the wider considerations

for com mercial  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  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.  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 di er from

land, timber, and  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.  is consider-

ation necessitates a di 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

it to another unit, this constitutes the sale of

the re source classi 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).

 e depletion of the resource itself is recorded as

other changes in the volume of assets.

Sharing Assets

A4.36  ere are two ways in which assets may be

shared, and the two cases require di erent treatments:

•  e asset may be wholly legally owned by two or

more units, each at di erent points in time.

• Alternatively, the risks of and bene 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 di erent units at di 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.  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  nancial lease is shown on

the balance sheet of the economic owner.  is

is consistent with the views that the value of the

asset represents the stream of future bene ts

coming from the asset and the economic owner

is the unit entitled to receive these bene 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.

 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  sh satisfy the

crite ria to be classi ed as intangible assets under per-

mits to use natural resources (314412), they are part

of the subclass of non 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 di erent units at a point in time is unusual.

 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.  is is most common when the participating

units are resi dent in di erent economies, as may be

the case with an airline, or in the case of some un-

incorporated joint ventures.  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.  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 di erent treatments apply to the two cases.

 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 a ect the government accounts.

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 e ect, creating monopoly pro ts for the

ap proved operators and recovering some of these

pro 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).  is principle

applies to all cases where government issues licenses

to limit the number of units operating in a particular

 eld where the limit is  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  e incentive to acquire such a license is the

licensees’ expectation that they acquire the right to

make monopoly pro 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.  e

asset  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.  ese types of assets are de-

scribed as permits to undertake a speci c activity

(614413).  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 pro ts.

A4.45 If the payment for the license is being

record ed on an accrual basis, the licensee has in the

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).

321 Some Cross-Cutting Issues

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 speci 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 re 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 pro 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 pro 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 speci c activity may be treated as an asset (permits

to undertake speci c activities (614413)) only when all

the following conditions are satis ed:

•  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  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.

•  e permit holder must be legally and practically

able to sell the permit to a third party.

•  e number of permits is limited, thereby allow-

ing the holder to make monopoly pro ts when

under taking the activity concerned.

•  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 satis ed, if

in practice the permits are not on-sold, it is not rel-

evant to record the permits as assets. If any of the

conditions is not satis 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 speci c activities (614413). ( 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.  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  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.  e timing

di erence between the payments received by govern-

ment for the permits and the time the emission oc-

curs gives rise to a transaction in  nancial liabilities

classi  ed as other accounts payable (3308) for gov-

ernment and a  nancial asset classi ed as other ac-

counts re ceivable (3208) for the holder.  e di erence

between the prepaid tax value of the permit and the

market value of the permit represents a marketable

contract (nonproduced non nancial asset) for the

holder.  e creation and disappearance of the non-

produced non  nancial asset are recorded as an other

change in volume of assets.

A4.50  e case of payments for discharging water

may be considered as an example of the di erent pos-

sible ways of treating the payments:

• If a payment to discharge water is a  ne imposed

by government intended to inhibit discharge, the

 ne should be treated as revenue for government

classi ed as  nes, penalties, and forfeits (143). If

such a  ne is imposed on government or public

sector units by another institutional unit, the  ne

is included in expense, classi ed as current trans-

fers not elsewhere classi 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.

323 Some Cross-Cutting Issues

• 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. Proli 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-

 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 non nancial assets in future. An examination

of the practice of purchasing the options of future air-

cra 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 non -

nancial assets is treated in the same way as a contract

for a named individual’s performance, the same clas-

si 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 classi -

cation of transactions arising from a contract. Permits

or licenses to use natural resources may constitute an

asset, as may permits to undertake speci 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 speci 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  ecting such third-party

property rights are always transitory: they exist only for

the length of the lease and where there is a di 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 speci 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  nancial lease,

the lessee may have the option of selling the asset, re-

paying the loan, and keeping the di 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 satis ed:

•  e lease speci es a predetermined price for the

use of an asset that di ers from the price the asset

could be leased for at the current time.

•  e lessee is able legally and practically to realize

this price di 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 signi cant and the lessee can actually exercise

the right to realize the price di erence.

324 Government Finance Statistics Manual 2014

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 e cient production and that

access to a broader range of  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 nonpro t institution as the

second unit. For ease of reference, the second unit

will be referred to as the private corporation.  ese

schemes are referred to by di erent names depending

on the type of contracts that are in place. Examples

are: private  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  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.  ese commonly include roads,

bridges, water supply and sewerage treatment works,

hospitals, prison facilities, electricity genera tion and

distribution facilities, and pipelines.

A4.60  e private corporation expects to recover

its costs and to earn an adequate rate of return on its

invest ment.  e government may make periodic pay-

ments during the contract period,

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.  e

price is o 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.  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

 e contract period refers to the length of the contractual

agreement between the parties involved in the PPP.

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.

325 Some Cross-Cutting Issues

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.

A4.61  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.  e private

corporation is responsible for acquiring/constructing

the  xed assets, although the acquisition/construction is

o en supported by the backing of the government.  e

contract o 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.

 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 bene ts from the major ity of the rewards.

“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.

Determining Economic Ownership of

PPP-Related Assets

A4.62  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 bene ts. With

a PPP, the legal and economic owner may be di erent

parties. Box A4.4 summarizes the associated risks to

be considered.

A4.63  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.

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.  e International

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

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  e following description of the statistical

treatment of PPPs is based on the guidelines prescrib ed

in the 2008 SNA.

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).

 e rec ording of these depends on the speci 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  nancial lease because of the similarity with

actual  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,

 e PSDS Guide presents examples of the recording of  nan cial

leases (see Box 4.11) and the recording of debt and  ows arising

from PPPs (see Box 4.16).

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.

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 signi 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  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  nancial claim (other ac-

counts receivable) as the counterpart entry.  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 di cult because it requires new

327 Some Cross-Cutting Issues

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  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,  nanced by the disposal of the asset.

 e capital transfer approach does not re ect the

underlying economic reality as well as the  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 speci ed event occurs.  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  is section describes types of insurance

and standardized guarantee schemes. It  rst de nes

some terminology and then provides statistical guid-

ance on the recording of the relevant  ows and stock

positions related to nonlife insurance and standard-

ized guaran tee schemes.

Types of Insurance and Standardized

Guarantee Schemes

A4.68  e most common form of insurance is

called direct insurance, whereby the policy is issued

by an insurer to another type of institutional unit.

 ere are two types of direct insurance—namely, life

and nonlife insurance. Both types of insurance in-

volve pooling risks. Insurers receive many (relatively)

Another form of insurance is provided by one insurer to an-

other insurer, which is referred to as reinsurance.

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.  is

investment income a ects the levels of premiums and

bene 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 bene ts during the policy pe-

riod. For policyholders, the bene 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.  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 bene ts.

Life insurance mainly redistributes premiums payable

over a period of time as bene ts payable later to the

policyholders or his/her bene ciaries. Essential ly, life

insurance premiums and bene ts are trans actions in

 nancial assets and liabilities and not trans actions in

revenue and expense. Public sector units’ involvement

in life insurance is most o 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.  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,  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 bene 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 speci ed con-

tingency occurs and not otherwise.  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.  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.

 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-

o guarantees based on two criteria:

•  ey are characterized by o 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  nancial institution, including, but not limited

to, insurance corporations. It is possible (but unlikely)

that non nancial corporations provide these kinds

of guarantees. However, govern ment units are o en

involved as the guarantor in standardized guarantee

schemes.  e most common examples are export credit

guarantees, deposit insur ance schemes,

and student

loan guarantees. Speci cally, when a govern ment unit

provides standardized guarantees without fees or at

such low rates that the fees are signi cantly less than

 is default risk establishes the liability arising from standard-

ized guarantees.

If participation in such a deposit insurance or other guar-

antees is compulsory—that is, if bene 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  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 classi ed as subsidies

(see para graph 6.89) and any transfers to cover large

operating de 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 De 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.  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 “bene 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  e actual premium (fee) is the amount pay-

able to the insurer (guarantor) to secure insurance

coverage for a speci 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  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.

 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

329 Some Cross-Cutting Issues

pre mium of 30, intended to provide coverage for the

 rst three months of the next reporting period.

A4.76 Net premiums are de ned as actual premi-

ums plus premium supplements minus the insurance

service charge payable by the policyholders. Premi-

ums are usually payable regularly, o en at the start

of an insurance period, whereas claims fall due later,

in the case of life insurance, o en many years later.

 e amounts accumulating between the periods the

premi ums were payable and when a claim becomes

payable create a liability (reserves) for the insurer.

 ese amounts are at the disposal of the insurer to

invest in assets and earn income from it.  e income

allows the insurance corporation to charge lower pre-

miums than would be the case otherwise.  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 (bene 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 a er the

event has happened.

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-

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.

payments of premiums, reserves held against out-

standing claims, and actuarial reserves held against

outstanding risks.  ese assets generate investment in-

come.  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.  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.

 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 o 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— e amount

of actual premiums (fees) receivable represents

premiums earned and prepayment of premi-

ums.

 e portion of actual premiums (fees)

receivable representing premiums (fees) earned

for the report ing period represents revenue, clas-

si ed as premi ums (14511) or fees for standard-

ized guarantees (14512), respectively. Prepaid

 ese recoveries could include recoveries from the insured,

reinsurance, defaulting borrowers, or third parties.

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.  erefore, the implicit

service charge is not recognized in GFS.

330 Government Finance Statistics Manual 2014

premiums (fees) re present a transaction in  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  -

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.  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.

 erefore, the insurer or guaran-

tor should attribute the property income to the

policyholders

by recording an expense, clas-

si ed as property expense for investment income

dis burse ments (2813).  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

 e attribution should, in principle, be made according to

the proportion of reserves (stock of reserves) attributed to the

di erent classes of insurance and policyholders. In practice, the

usual method is to distribute the investment income in propor-

tion to the actual premiums.

In the case of standardized guarantees, the institutional unit

that bene 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.  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 signi 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  e recording of  ows and stock positions

re lated to standardized guarantees di ers from the

rec ording of one-o 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 —  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.  e portion of actual premiums payable

representing premiums incurred for the report-

ing period is an expense, classi ed as premi-

ums (28311) or fees for stand ardized guarantees

(28312), respectively. Prepaid premiums repre-

sent a transaction in  nancial assets and liabili-

ties, and should be recorded as an increase in the

 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

331 Some Cross-Cutting Issues

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, classi ed as property income from investment

income disburse ments (1414).  e counterpart

entry to this revenue is an increase in the  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.  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,

regardless of whe ther paid, settled, or reported

during the reporting period.  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.  ese

claims receivable should be recognized as revenue

classi ed as premiums, fees, and current claims

(1451) or capital claims (1452), as relevant, and

with a counterpart entry as an increase in a  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  nancial assets.

Regional Arrangements

 is appendix describes various regional arrangements

for monetary and economic cooperation and the impli-

cations of these arrangements for government  nance

statistics.

Introduction

A5.1  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.  ese arrangements are o 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.  e statistical issues that may arise in

compiling harmonized data tend to be the same as

those addressed in the GFS framework: de nitions,

coverage, time of recording, frequency, classi cations,

and presentation formats. An e 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

classi 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.

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  nancial (e.g., regional

central or development banks) or non nancial (e.g.,

administrative or economic organizations).

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  is appendix presents the major types of

regional arrangements, and points out the main GFS

issues observed in each case.  e appendix then ex-

amines using GFS under regional arrangements and,

 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 tari 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 tari

(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

APPENDIX

333 Regional Arrangements

in certain sectors.

 is type of arrangement is di er-

ent from bilateral cooperation agreements between

two countries in commercial areas that have little im-

pact, if any, on GFS.

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 a ected by the institutional and administrative

organization of the customs union.

A5.8  e following paragraphs set out four pos-

sible types of regional arrangements:

• A designated agency levies,

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.

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.

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.

 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 di erent custom union members. In 2010,

Mercosur members agreed on a customs code that will allow the

 nal con rmation of a genuine customs union and the redistribu-

tion of customs duties among members.

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  nal discretion to set and vary the

rate of the tax.

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.

 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.  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.

 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.

Member countries of the Central American Common Market

(CACM) (Costa Rica, El Salvador, Guatemala, Honduras, Nicara-

gua) apply a common external tari 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  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 classi 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 classi ed as grants

to foreign governments(261) or grants to other general

government units(263).  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.  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  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  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  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

 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  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.  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

335 Regional Arrangements

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  nancial assets in the

form of currency and deposits (3202) for the collect-

ing government.  e di 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 di erent countries or jurisdic-

tions.  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  nancial resources within the economic union;

and (iii)the free movement of (individual and legal)

persons within the economic union.

Also, in an

economic union, speci c regional organizations are

created to support the functioning of the economic

union. Some form of cooperation and coordination

in  scal and monetary policy usually exists within an

economic union.

A5.20  is type of regional arrangement represents

greater cooperation than in a customs union agree-

ment (which may have been a  rst step) because the

members agree to harmonize a signi cant part of the

conditions in which economic activity is undertaken

over the whole union territory.  e main example is the

European Union (EU).  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.  e aim of such unions

is to unify markets by enlarging their size, improving

e 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  elds.  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 speci c enti-

ties endowed with the authority to manage an auton-

omous budget.  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  ere may be signi 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.  e  ows

involved are a small portion of total revenue and ex-

pense of the individual member states.

All require-

ments related to  scal policy are generally seen as

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.

In the European Union, the common budget amounted to about

1 percent of GDP of the union at the time of dra ing this Manual.

336 Government Finance Statistics Manual 2014

cooperation/coordination arrangements rather than

e ective common  scal policies.

Residence in an economic union

A5.24  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.

Recording some speciﬁ c transactions

related to regional organizations

A5.26  e common budget of the union that is man-

aged by a regional organization may be funded by dif-

ferent types of sources.  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 o 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.  ese tax  ows must

be recorded gross of any collection fees. If there are

speci c provisions related to collection fees (based on

actual expenses, a forfeited amount, or a percentage),

the latter should be considered as revenue generated

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  e union agencies may also be  nanced di-

rectly by contributions from the members, according

to agreed criteria. Such contributions may be agreed

portions of certain taxes and fees.  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.  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 bene t of the members of the union. Administra-

tive and operating costs impact mainly the economy

where the regional organization is physically located.

 ese amounts are usually not signi 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 bene t of the members of the eco-

nomic union impacts speci c categories of bene cia-

ries in the respective member countries. To accurately

record these transactions, the ultimate bene ciary

and nature of the expense should be identi ed regard-

less of the practical and/or institutional arrangements

for channeling the amounts payable from union agen-

cies to these economic bene ciaries.

• Where such expenses from the union budget

managed by the regional organization cover costs

directly bene 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

337 Regional Arrangements

on behalf of the union should, over time, be neu-

tral on the member government revenue and

expense.

For example, if the member govern-

ment receives amounts from the regional orga-

nization to distribute on behalf of the union to

bene ciaries, only transactions in  nancial assets

and liabilities should be recorded in the member

government accounts.  e national government

records the incurrence of a liability for amounts

received, classi ed as other accounts payable

(3308) that are distributable to other economic

bene ciaries.  e actual distribution to the ulti-

mate bene ciary reduces this account payable by

the government unit. For the bene 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-

si ed (144).  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 classi ed (282).

• Amounts distributable by government, acting

as an agent for the union, may take the form of

reimbursements claimed by the  nal bene ciary.

 ese claims are usually on the basis of docu-

ments evidencing spending by the bene ciaries.

Any amounts distributed by government on the

basis of such claims by the bene ciaries give rise

to a  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  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:

In some cases, by agreement, a part of the expense, in the

context of programs managed at the union level, may be  nanced

by the member government; for this portion of the expense the

impact on the member government  nances will not be neutral.



 e member government could decide to cover

the expense made by  nal bene ciaries from

the member government budget sources.  e

expense is recorded with a counterpart entry

in the reduction of the claims on the regional

organization. Such an expense should be clas-

si 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 classi ed (282).  e time of recording

the expense is determined by the time of the gov-

ernment decision to cover the expense.



 e regional organization could indicate that a

reimbursement by the member country should

not have been made.  e member government

could recover the funds from the bene 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  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

 ows. Compiling union accounts will allow an analy-

sis of the whole union’s  ows and stock positions.  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.  ere are di erent models—for instance,

a single central bank for the whole union (possibly

having only branches in the national economies)

or a federal-like system where national central banks

 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 speci c activities not directly

linked to monetary policy.

A5.33 However, the core characteristic of a mon-

etary union is that the monetary policy is exclusively

conducted at the union level.  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.  ey may,

however, perform some speci 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 di erent economies.

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-

 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

speci 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.  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 pro ts of such regional

central banks should be classi ed as income on the

 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  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.

 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.

See the BPM6, Appendix 3.

A5.37 In a monetary union, there is one single

monetary policy that interacts with  scal policies pri-

marily carried out at the national level of each mem-

ber country. At the same time,  scal conditions may

impact monetary policies.

A5.38  erefore, to conduct proper monetary pol-

icies, monitor macroeconomic imbalances in member

economies, and consolidate accounts for the union,

 scal statistics should be compiled in a consistent

manner for all members of the union. Consistency

in compiling  scal data will allow the accurate mea-

surement of di erences in aggregates such as the tax

burden, the share of government expense to GDP, the

respective weight of di erent types of taxes in the total

tax burden, the composition of expense, the imple-

mentation of budgetary rules, etc.

A5.39 Where coordinated  scal policies are agreed

in a union, the scope of such  scal cooperation/

coordination has consequences for the statistical re-

porting framework. Fiscal targets may be de 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/de 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.

A5.40 Coordinated  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 in 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

speci 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.  e statistical framework for a union should

be designed with a su cient degree of detail, and

should be applied by all members in a fully consistent

manner, in order to capture the relevant information

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.

339 Regional Arrangements

needed to monitor the progress with the implementa-

tion of  scal coordination objectives.

Harmonization Requirements for GFS

in Economic or Monetary Unions

A5.41  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 “ scal

policy rules” on speci 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 de nitions where it is observed that countries in

a union interpret these guidelines di 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  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  nancial support from government units (in the

form of subsidies, grants, and other current transfers).

Agreement on precise guidelines for the classi cation

and sectorization of such units is an important factor

in ensuring comparable data. When in doubt about

these classi cations, an appropriate dispute resolution

mechanism should exist. In this context, the concept

of economically signi cant prices might be clari 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.

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.  e di erences in time lags

between the economic events and the associated cash

 ows could distort the assessment of  scal stance

during a given year if a cash basis of accounting is

mainly used. It is, therefore, preferable that  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 di 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 de nition of gross and net

debt in a union departs from international agreed

de nitions of debt, the data should be clearly labeled,

and any departure from the required coverage and

standard de nition should be disclosed to the users of

the data. Debt instruments excluded from the union

de 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.)

 is appendix provides a generalized description of the

relationship between the government  nance statistics

reporting guidelines and the International Public Sector

Accounting Standards.

Introduction

A6.1  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  scal transparency. A government’s preparation

of  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).

 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 e ciently for

the dual purpose of generating GFS and accounting

information.

A6.2  e Task Force on Harmonization of Pub-

lic Sector Accounting, created in 2003, was the  rst

formal initiative at the international level with the

objective to harmonize statistical guidelines and ac-

counting standards.  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 di erences between the two reporting

systems. International organizations and the Inter-

national Public Sector Accounting Standards Board

(IPSASB) continue e orts to align guidelines as far as

possible, while identifying and reconciling unavoid-

able di 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 speci c di 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  is appendix focuses speci cally on the

links between GFS and IPSASs, because IPSASs are

international standards and recognized as best prac-

tice for public sector  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.

 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 di erences.

Comparison of IPSASs and GFS

Reporting Guidelines

A6.5  ere is considerable overlap between IPSASs

and GFS reporting guidelines.  is section provides a

generalized description of the relationship between

IPSASs and the GFS reporting guidelines, focusing

on the conceptual di erences that explain why the

two reporting frameworks di er in certain areas. It

provides a summary of how to reconcile these two

very similar yet—in important ways—di erent sets

of information. If suitable adjustments are made to

address the di erences described here, IPSAS-based

GFS and International Public Sector

Accounting Standards

APPENDIX

342 Government Finance Statistics Manual 2014

 nancial reporting information can be used as a high-

quality source for the data necessary for GFS reports.

Independent audit of IPSAS-based  nancial reports

enhances their reliability for GFS purposes.

A6.6  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.

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  e information provided here is at a high

level, and focuses on identi cation of di 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 speci 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 di erent stan-

dards.  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 Di erences between IPSASs and GFS report-

ing guidelines are of two main types: (i) underlying

conceptual di erences, and (ii) presentation and ter-

minology di erences.

Conceptual Differences between IPSASs

and GFS Reporting Guidelines

A6.9  e conceptual di 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) di erences for certain

types of assets and liabilities

• Revaluations and other volume changes.

See www.ifac.org/publications-resources/ipsass-and-government-

 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

di erent objectives for the two sets of  nancial infor-

mation produced. GFS reports are used to: (i) analyze

 scal policy options, make policy, and evaluate the

impact of  scal policies, (ii) determine the impact on

the economy, and (iii) compare outcomes nationally

and internationally.  e focus is on evaluating the

impact of the general government and public sector

on the economy, and the in uence of government

on other sectors of the economy.  e GFS reporting

framework was developed speci cally for public sec-

tor input to other macroeconomic accounts, although

a range of countries adopt GFS reporting for their

 scal reporting, and for measuring compliance with

 scal rules. By contrast, IPSAS-based  nancial state-

ments are used to: (i) evaluate  nancial performance

and position, (ii) hold management accountable, and

(iii) inform decision-making.

A6.12 Although the two sets of  nancial informa-

tion necessary to meet these di erent objectives have

many similarities, the di erent objectives do result in

some fundamental di erences in how and what infor-

mation is reported. For example, in GFS reports, one

distinction for transactions in  nancial assets and lia-

bilities is whether the counterparty of the transactions

is a resident or nonresident. In contrast, IPSAS-based

 nancial statements report these transactions accord-

ing to whether they are current or noncurrent assets

or liabilities, with classi cation also in terms of their

maturities and supplementary information provided

on risks.

Reporting entity

A6.13 One of the fundamental di erences between

GFS reporting guidelines and IPSASs relates to the

de nition of the reporting entity and the process of

consolidation (collectively o en referred to as “iden-

ti 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.  e focus of statis-

tical reporting is primarily on consolidated sectors

and subsectors. Although it is theoretically possible to

343 GFS and International Public Sector Accounting Standards

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  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.  e general

government sector does not include institutional units

primarily engaged in market activities.  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 identi able activity that prepares general

purpose  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-

 ed where one entity has the authority and capacity

to direct the activities of one or more other entities

so as to bene t from the activities of those entities. It

may also be exposed to a  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 de ned accord-

ing to the principle of exercisable power to govern the

 nancial and operating policies of another entity so as

to bene t from its activities.

A6.17  e requirement to consolidate entities dif-

fers in IPSASs and GFS. Under IPSAS 6, Consolidated

and Separate Financial Statements, consolidated  -

nancial statements are the  nancial statements of a

group of entities presented as those of a single entity.

 is means that a controlling entity will consolidate

the  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).  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  nancial information about the general

government sector. IPSAS 22, Disclosure of Finan-

cial Information about the General Government Sec-

tor, speci cally sets aside the application of IPSAS 6

while retaining the application of all other IPSASs.

 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  nancial information about each

of its segments.  e information provided includes

segment assets, liabilities, revenue, and expense.

Segments are usually de 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 di er

in their recognition criteria for certain liabilities, be-

cause GFS treats uncertainty about future economic

out ows di erently from IPSASs.  e e ect of this

di 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.  erefore,

345 GFS and International Public Sector Accounting Standards

GFS guidance is that probable exposures such as con-

tingencies and one-o guarantees should be disclosed

in memorandum items, until such time as these are

called. Some liabilities for government employee ben-

e 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 out 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

 nancial position (balance sheet).

A6.22  e key area of di erence is that of “provi-

sions,” which IPSASs de 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 out 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  is di erence with respect to liability recog-

nition will have consequential di 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 land 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-

ti 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  nancial and non nancial as-

sets are recognized. Revenue related to asset recogni-

tion is generally also reported at the same point. But

other di erences, such as asset measurement di er-

ences, can a ect the asset value recognized and there-

fore the amount of revenue recognized.  e timing

of revenue recognition may di er due to di 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  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  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  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

 nancial instruments, and an estimate of the value of

other assets/liabilities.  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 de 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.  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,  nancial liabilities (with

some exceptions) and  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  nancial instruments

are measured at fair value. Employee-related liabilities

and long-term provisions other than  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 o en encourage or require disclosure of

fair value, if there is a material di 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.

 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 di erences. Statisticians’ measurement prac-

tices can involve sampling, indexing to in ation, and

other estimation techniques that can generate di erent

values from those produced by  nancial accountants.

A6.30 IPSASs require disclosure of the valuation

basis for assets and liabilities.  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.  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 di erent from cost.

Treatment of revaluations and other

volume changes

A6.31 GFS di erentiates between transactions

(economic  ows by mutual agreement) and other

economic  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.

 is distinction is useful for  scal analysis. Other eco-

nomic  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  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.  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 di 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.  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.  e two main exceptions recorded in the

Statement of Changes in Net Assets/Equity (foreign ex-

change  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  nancial performance, partly because they

are viewed as outside of management’s control, and

347 GFS and International Public Sector Accounting Standards

partly because gains in one year may be reversed in

subsequent years.

Presentation and Terminology Differences

A6.34 Presentation and terminology di erences

between IPSASs and GFS reporting guidelines also

exist. As a result, the GFS and IPSAS  nancial state-

ments and disclosures look di erent, even though

the information reported is largely the same, apart

from the recognition and measurement di erences

discussed elsewhere in this paper.  is subsec-

tion describes the main presentation and terminol-

ogy di erences between GFS guidance and IPSAS

requirements.

A6.35  e main presentation and terminology dif-

ferences are as follows:

• Di erent names for the IPSAS equivalents of the

GFS statements.

•  e types of classi cation structures included in

the balance sheet (statement of  nancial posi-

tion), operating statement (statement of  nancial

performance), and cash  ow statement for the

two reporting frameworks di er, which, in some

cases, also necessitate di 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.

•  e way in which additional information about

the data is disclosed di ers in the two frameworks.

•  e de nition and/or value of key statement to-

tals (such as total assets, net worth, total revenue,

and surplus/de cit) may di er.

A6.36 Each of these main di erences is discussed

in paragraphs A6.37–A6.46.

Different names for statements

A6.37  e IPSAS equivalents to the GFS statements

have di erent names (see IPSAS 1, Presentation of Fi-

nancial Statements).  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.  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 “Pro t

and Loss Statement” are acceptable alternatives under

IPSASs.  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.”  e IPSAS equiva-

lent to the GFS Statement of Sources and Uses of Cash

is called a “Cash Flow Statement.”

A6.38 IPSAS  nancial statements may also include

a “Comparison of Budget and Actual Amounts,” for

which there is no GFS equivalent.  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  nancial statement or as additional

columns in the  nancial statements. A separate state-

ment must be used when the budget is on a di erent

basis from the actual reported results. For example,

if the budget is prepared on a cash basis, while the

results reported in  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  nancial statements through

the use of additional columns, and a separate state-

ment is not necessary.

Classiﬁ cation structures

A6.39  e GFS reporting guidelines classify and

group items in its statements di erently from IPSASs.

At the highest level, the terminology used for classi-

 cations is the same—for example, assets, liabilities,

revenue, and expense. However, within these items

there are conceptual di erences and di erences in the

structure of subclassi cations.  e di erences re ect

the di 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.  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  nancial assets and liabilities to be compiled.

However, GFS requires that assets be presented as  -

nancial or non nancial, which IPSASs do not require.

348 Government Finance Statistics Manual 2014

A6.40 For GFS, standardized economic and func-

tional classi cations serve the speci c objectives of:

(i)comparability of the accounts of various govern-

ment entities and subsectors, and (ii) international

comparability.  ese classi 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,  nancial assets and liabilities are classi 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 classi cation is important because  scal pol-

icy decisions on domestic versus foreign instruments

are based on di erent criteria, and also because this

classi cation allows the derivation of a government’s

impact on the balance of payments of the country.

IPSASs do not require this distinction.  e standard-

ized GFS presentation also allows the calculation and

comparison of analytical measures of  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.  e GFS economic

classi cation requires counterparty information for

 ows and stocks (balance sheet) to be reported as

standard line items.  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

 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  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.  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  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 signi cant impact for users be disclosed in notes

to the  nancial statements. Notes include a summary of

signi cant accounting policies.  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  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.  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

349 GFS and International Public Sector Accounting Standards

of prior year  gures for policy changes and errors is

not speci ed.

Mapping from IPSAS ﬁ nancial statement

aggregates to GFS aggregates

Total assets and total liabilities

A6.47 Some broad classi cation di erences exist

between the classi cation of assets and liabilities in

GFS and IPSASs.

• GFS classify assets and liabilities in terms of

whether they are  nancial or non nancial. IP-

SASs do not require assets and liabilities to be

grouped in these terms, nor do they require

summary totals for  nancial and non nancial

assets. However, they do require  nancial and

non nancial assets and liabilities to be separately

disclosed, which means that there is su cient

information in an IPSAS statement of  nancial

position (balance sheet) to determine totals for

 nancial and non nancial assets and liabilities.

• GFS classify  nancial assets and liabilities into

domestic and foreign. IPSASs do not use this

classi cation, although some of these disclosures

may be included in an entity’s risk management

disclosures related to  nancial instruments.

• GFS classify assets and liabilities according to

standardized GFS characteristics and purposes,

which can di er from the classi cations required

by IPSASs. For example, in IPSASs, the classi 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  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 di er from the GFS

classi cation.

Net worth

A6.48  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 speci c period is de ned

as total assets minus total liabilities.  e balance

sheet opening net worth + operating balance +

changes in all assets and liabilities due to other

economic  ows = balance sheet closing net

worth.

• According to IPSASs, net assets/equity is calcu-

lated as the opening net assets/equity + surplus/

de 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  ese di erences in the calculation of the

net balancing item primarily result from the di er-

ences between how GFS and IPSASs allocate items

to their respective statements (GFS showing other

economic  ows separately). In addition, it should be

noted that, in the GFS net worth concept, equity is

treated symmetrically as part of  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  nancial assets.

A6.50 In addition to these presentational di er-

ences, the values of these items can also di er due to

valuation and recognition di erences.

Revenue and expense

A6.51 Although the GFS and IPSAS accrual con-

cepts of revenue and expense are di erent, they can be

reconciled as follows:

• GFS revenue + other economic in ows = IPSAS

revenue + economic in ows recognized directly

in Statement of Changes in Net Assets/Equity

• GFS expense + other economic out ows = IPSAS

expense + out ows recognized directly in State-

ment of Changes in Net Assets/Equity.

A6.52 IPSASs refer to materiality as a classi cation

criterion for revenue and expense. In this context, GFS

requires reporting on standard items. In addition to

the economic classi cation (as shown), the GFSM 2014

and the SNA/ESA also have a Classi cation of Func-

tions of Government (COFOG).

A6.53 Under IPSASs and GFS, cash  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 di 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/

de 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.  ese valuation changes

are re ected in the Statement of Other Economic

Flows. For assets disposed of at prices di erent from

the valuation of the asset, it is deemed that such an

other economic  ow occurred right before disposal,

so that at disposal there is no gain or loss re ected in

the Statement of Operations.  erefore, the amounts

of revenue/expense recognized will di er from that

recorded under IPSASs.

Consumption of ﬁ xed capital (assets)

A6.54 In theory, the GFS concept of consump-

tion of  xed capital di ers from the IPSAS concept of

“depreciation.”  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.

 e GFS concept of consumption of  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  xed assets owned and used

by a producer as a result of physical deterioration,

normal obsolescence, or normal accidental damage.

Consumption of  xed capital is a forward-looking

measure that is determined by the bene 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  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  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

 xed capital.  e di erence will be large for govern-

ments that have a large stock of  xed assets, as many

governments do.

Operating balance

A6.56  e GFS net operating balance is calculated

in the same way as the IPSAS “surplus/de cit.” Both

are calculated as revenue minus expense. However, the

value of these two balancing items is likely to di er,

because there may be di erences between items in-

cluded in the GFS revenue and expense and those in-

cluded in IPSAS revenue and expense.  is di erence

can be mainly attributed to the conceptual di erence

in the treatment of other economic  ows.

 is appendix describes the relationships between gov-

ernment  nance statistics and national accounts, bal-

ance of payments and international investment position,

monetary and  nancial statistics, and the System of

Environmental-Economic Accounting (SEEA) Central

Framework.  is appendix is intended to provide an

overview of the major similarities and di erences between

government  nance statistics and other major datasets, as

well as an indication of how to reconcile the data in cases

where there are di erences in presentation.  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 speci cally, an understand-

ing of the linkages fosters consistency in the respective

datasets and supports whole-of-economy analysis.

A7.2  e institutional arrangements for compil-

ing and producing macroeconomic statistics di er

from country to country.  ese could range from a

single entity being responsible for the compilation

of source data and the  nal GFS to several national

agencies being involved in the compilation of various

components of the data. Agencies such as ministries

of  nance (MOFs), national statistics o ces (NSOs),

central banks (CBs), and other government agencies

may be involved.  e MOFs are o en involved in

compiling budget data from accounting and other

administrative records to monitor implementation

of the government budget. NSOs are o en respon-

sible for compiling, producing, and disseminating

macroeconomic statistics in line with the 2008 SNA

In this appendix, most references to the SNA concern the general

content of the volume rather than the citation of a speci c por-

tion of the text.  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.  ey may use source data from MOFs

that are based on national classi cations and make

necessary adjustments according to the require-

ment of the statistical guidelines. CBs are primarily

involved in compiling monetary and  nancial data

to allow them to monitor  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.

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.  e primary purpose

of GFS is to provide a comprehensive conceptual and

statistical reporting framework for analyzing and

evaluating  scal policy. In addition, detailed GFS also

provide a measurement of the impact of government

on other sectors of the economy.  erefore, these  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  e remainder of this appendix provides an

overview of the important similarities and di 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  nancial

statistics. Last, the appendix describes how the GFS

See Dziobek and Tanase, Institutional Cooperation between Cen-

tral Banks and the Statistical O ces for Producing Macroeconomic

Statistics, IFC Bulletin No 28, August 2008.

GFS and Other Macroeconomic

Statistics

APPENDIX

352 Government Finance Statistics Manual 2014

framework relates to the System of Environmental-

Economic Accounting (SEEA) Central Framework.

Where there are di erences in presentation, the ap-

pendix provides an indication of how to reconcile the

data.

Overview of Similarities and

Differences

A7.5  is Manual is harmonized with the 2008

SNA, which provides the conceptual basis for national

accounts.  e BPM6 serves as the standard frame-

work for statistics on the transactions and positions

between an economy and the rest of the world.  e

Monetary and Financial Statistics Manual (MFSM)

provides guidelines on compiling statistics for the  -

nancial corporations sector.  ese manuals are also

harmonized with the 2008 SNA.

A7.6 Broadly, the principles and concepts are de-

 ned in a consistent manner in all these statistical

manuals.  e delineation between resident and non-

resident entities, sectorization of the domestic econ-

omy, and de nitions and classi cations of  nancial

instruments are the same.  e accounting rules used

are the same with respect to basis of recording and val-

uation. While the accrual basis of recording  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  ows and stock posi-

tions of GFS are de 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 di 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  nances of government, and

the impact of government activities on the economy

through taxing, spending, borrowing, and lending.

 e SNA focuses on the linkages between sectors of

the economy, and the economic processes of produc-

Revision of the MFSM, 2000 edition, to align with the 2008 SNA,

is pending at the time of publication of this Manual.

tion, income generation and distribution, consump-

tion of goods and services, and accumulation.  e

balance of payments summarizes economic transac-

tions between residents and nonresidents during a

speci c period, while the international investment

position shows the value of the  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.  ese di erences in

focus require that the recording of government activi-

ties in GFS occasionally di er from the recording of

those activities in the other macroeconomic datasets.

However, such di erences are the exception to the

general principle, as consistent application of concep-

tual standards applies across related datasets. Where

there are di erences in presentation, reconciliation

of the di erences should routinely be made to ensure

consistency in the macroeconomic data.

Coverage and Accounting Rules

A7.9  e identi 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  -

nancial corporations. As described in paragraph 2.58,

the general government sector in GFS is de 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

 ve primary sectors in the SNA, it is recognized as an

additional grouping.

 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

 e de nition of public sector as de ned in the 2008 SNA,

Chapter 22, Section B, is identical to the de nition in paragraph

2.63 of this Manual.

353 GFS and Other Macroeconomic Statistics

particular, the rules for time of recording, the valu-

ation of  ows and stock positions, and the rules gov-

erning the gross or net recording of  ows and stock

positions are identical.

A7.11  e principal di 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  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 di erent accounts

are never consolidated so that balancing items are not

a 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 di 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  ows and

stock positions, with the  ows comprising transac-

tions and other economic  ows. While the recording

of  ows and stock positions are generally the same in

the two datasets, the accounts in which these are re-

corded di 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

public sectors, although the arrangement of the data

di ers and the actual  ows recorded di er in some

instances.  ese di erences could be summarized as

follows (see Table A7.1):

•  e GFS framework primarily records the opera-

tions of the general government or public sector

according to revenue, expense, and transactions

in non nancial and  nancial assets, and liabili-

ties.  ese transactions and other economic  ows

are integrated with balance sheets.  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  nancial account trans-

actions.  ese transactions and other economic

 ows are also integrated with balance sheets.

•  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.

•  e two datasets di 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.

•  e focus of the SNA is on various kinds of eco-

nomic processes.  erefore, where the recording

of a single transaction is su cient in GFS, mul-

tiple entries may be required in the SNA to cor-

rectly re ect all the relevant economic processes.

Comparison of the Accounts in GFS and

the SNA

A7.14  e GFS analytic framework consists of four

statements (see Chapter 4).  e Statement of Opera-

tions is a presentation of all transactions recorded in

the GFS framework. Other economic  ows are pre-

sented in the Statement of Other Economic Flows,

and

the stock positions are presented in the Balance Sheet.

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.

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.

Unfunded

employment-related

pension funds

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.

FISIM, insurance

services, and

fees related to

standardized

guarantees

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.

Transfers in kind—

goods and services

produced by

government

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.

Internal transactions

in respect of own-

account capital

formation

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  ows are presented in two accounts, and

stock positions are presented in the Balance Sheet.

 ere is no SNA equivalent to the GFS Statement of

Sources and Uses of Cash.

A7.16 Each  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-

tional units and the uses of these resources.  ese ac-

counts are balanced by introducing a balancing item

de ned residually as the di erence between the total

resources recorded on one side of the account and the

total uses recorded on the other side.  e balancing

item from one account is carried forward as the  rst

item in the following account, on the opposite side,

thereby making the set of accounts an articulated

whole.

A7.17 In the SNA, the sequence of transaction ac-

counts is grouped into current and accumulation ac-

counts.  e current accounts record the production of

goods and services, and the generation, distribution,

redistribution, and use of income.  e accumulation

355 GFS and Other Macroeconomic Statistics

Figure A7.1 Diagram of the Sequence of SNA Accounts

accounts record capital transfers, the acquisition and dis-

posal of assets and liabilities, and other economic  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.

Explicit provision is made in the SNA for  exibility in the

presentation of stock positions and  ows.  e accounts described

here comprise the basic presentation described in Chapters 6

through 13 of the 2008 SNA.

A7.18 As illustrated in Table A7.2, the GFS Statement

of Operations can be divided into three sections—

namely:

• Transactions a ecting net worth

• Transactions in non nancial assets

• Transactions in  nancial assets and liabilities.

 e GFS transactions a ecting net worth (revenue

and expense) are shown as transactions in the current

Allocation of Primary

Income Account

(Balance of primary incomes)

Generation of

Income Account

(Operating surplus/

mixed income)

Production Account

(Value added)

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)

Capital Account

(Net lending (+)/

net borrowing (-))

Financial Account

(Net lending (+)/

net borrowing (-))

Closing

Balance

Sheet

(Net worth)

Other

Changes in

Volume

Account

(Changes in net

worth due to

other changes

in volume)

Revaluation

Account

(Changes in net

worth due to

revaluations)

Alternative presentation

Opening

Balance

Sheet

(Net worth)

Note: Balancing items are shown in italics.

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 Balances and main

aggregates

Revenue, Expense

Net operating balance (or

change in net worth due

to transactions)

Production account Value added / GDP

Generation of income account Operating surplus and

mixed income

Allocation of primary income account Balance of primary

income / GNI

Secondary distribution of income

account

Disposable income / NDI

Use of disposable income account

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.

SNA accumulation accounts Balances and main

aggregates

Operating balance

minus net investment in

nonﬁ nancial assets

Net lending (+)/net

borrowing (–)

Capital account

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.

The 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).

Capital 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 non 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  nancial assets and liabilities correspond

to the transactions shown in the  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.  e di er-

ent placement of capital transfers means that the GFS

balancing item for the  rst section of the Statement

of Operations, the net operating balance, di ers from

saving, the  nal balancing item in the sequence of

current accounts in the SNA.  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  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 di er from the

SNA.  ese di erences are reconcilable.

A7.20  e GFS Statement of Other Economic Flows

covers all other economic  ows, classi ed by type of

asset or liability a ected and according to whether

the  ow is a holding gain or an other change in the

357 GFS and Other Macroeconomic Statistics

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 e 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.

A7.21  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 di erent institutional arrange-

ments in countries, some  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

di erent objectives of GFS and the SNA require

that a few transactions and other economic  ows

recorded in the various statements and accounts be

recorded and presented di erently.  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-

si cation codes.

Tables A7.3 and A7.4 indicate how

the GFS revenue and expense categories link with the

SNA classi cations, and Table A7.5 identi es the cor-

respondence of GFS and SNA transactions in non-

 nancial assets, with corresponding classi cation

codes.  e SNA also provides volume measures (in-

cluding of government components), an important

“Revaluations” and “holding gains” are used interchangeably in

the 2008 SNA.

 e SNA classi cation codes for transactions and other  ows

have the form of a letter: D for distributive transactions, F for

 nancial assets and liabilities, K for other changes in assets ac-

counts, or P for transactions in products, each followed by a num-

ber.  e SNA codes for the balance sheet are AN for non nancial

assets and AF for  nancial assets and liabilities.  e SNA coding

system uses the letter B for balancing items.  e GFS coding

system is presented in Appendix 8.

type of measure for  scal analysis that makes the

SNA complementary to GFS.

Current accounts

A7.23  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.  is section describes the GFS

linkages with each of these current accounts.

The production account

A7.24  e production account records the transac-

tions relating to the activity of producing goods and

services as de ned in the SNA.  e balancing item,

gross value added, is de ned as the value of output

minus the value of intermediate consumption.  e pro-

duction measure of gross domestic product is de 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  xed capital. Net value added is the

value of output minus the values of both intermediate

consumption and consumption of  xed capital. Inter-

mediate consumption of goods and services (P2) and

consumption of  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  nal use (P12),

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

Output for own  nal use in the SNA consists of products

retained by the producer for its own use as  nal consumption or

capital formation.  erefore, own-account capital formation, as

referred to in GFS, is a narrower de nition than the SNA concept

of output for own  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

1 REVENUE

11 Taxes

111 = D51 Taxes on income, proﬁ ts, and

capital gains

1111 > D51 Payable by individuals

1112 > D51 Payable by corporations and

other enterprises

1113 > D51 Other taxes on income, proﬁ ts,

and capital gains

112 > D29 Taxes on payroll and workforce

113 Taxes on property

1131 Recurrent taxes on immovable

property

1131.1 > D29 Payable by producers

1131.2 > D59 Payable by consumers

1132 Recurrent taxes on net wealth

1132.1 > D29 Payable by producers

1132.2 > D59 Payable by consumers

1133 > D91 Estate, inheritance, and gift taxes

1135 > D91 Capital levies

1136 Other recurrent taxes on

property

1136.1 > D29 Payable by producers

1136.2 > D59 Payable by consumers

114 Taxes on goods and services

1141 General taxes on goods and

services

11411 > D21 Value-added taxes

11412 Sales taxes

11412.1 > D2122 On imported goods and services

11412.2 > D214 On domestically produced goods

and services

11413 Turnover and other general

taxes on G&S

11413.1 > D214 Turnover taxes

11413.2 > D59 Expenditure taxes

11414 > D214 Taxes on ﬁ nancial and capital

transactions

1142 Excises

1142.1 > D2122 On imported goods

1142.2 > D214 On domestically produced

goods

1143 > D214 Proﬁ ts of ﬁ scal monopolies

1144 Taxes on speciﬁ c services

1144.1 > D2122 On imported services

1144.2 > D214 On domestically produced

services

1145 Taxes on use of goods and on

permission to use goods and

perform activities

11451 Motor vehicles taxes

11451.1 > D29 Payable by producers

GFS codes SNA codes GFS revenue categories

12 Social contributions

121 Social security contributions

1211 Employee contributions

1211.1 > D613 Of which: Insurance scheme

service charge (–)

1211.2 ~ D6131 Actual pension contributions

1211.3 ~ D6132 Actual nonpension contributions

1212 Employer contributions

1212.1 ~ D611 Actual social contributions

1212.11 ~ D6111 Actual pension contributions

1212.12 ~ D6112 Actual nonpension contributions

1212.2 ~ D612 Imputed social contributions

1212.21 ~ D6121 Imputed pension contributions

1212.22 ~ D6122 Imputed nonpension contributions

1213 > D613 Self-employed or unemployed

contributions

1214 > D613 Unallocable contributions

122 Other social contributions

1221 ~ D6132 Employee contributions

1222 ~ D6112 Employer contributions

1223 ~ D6122 Imputed contributions

13 Grants

131 From foreign governments

1311 > D74 Current

1312 Capital

1312.1 > D92 Investment grants

1312.2 > D99 Other capital transfers

132 From international organizations

1321 > D74 Current

1322 Capital

1322.1 > D92 Investment grants

1322.2 > D99 Other capital grants

133 From other general government units

1331 > D73 Current

1332 Capital

1332.1 > D92 Investment grants

1332.2 > D99 Other capital grants

14 Other revenue

141 Property income

1411 ~ D41 Interest

1412 ~ D421 Dividends

1413 ~ D422 Withdrawals of income from

quasi-corporations

1414 Property income from investment

income disbursements

1414.1 ~ D441 Insurance policy holders

1414.2 ~ D443 Collective investment funds

1415 = D45 Rent

1416 = D43 Reinvested earnings on foreign

direct investment

359 GFS and Other Macroeconomic Statistics

GFS codes SNA codes GFS revenue categories

11451.2 > D59 Payable by consumers

11452 Other taxes on use of goods and

on permission to use goods or

perform activities

11452.1 > D29 Payable by producers

11452.2 > D59 Payable by consumers

1146 Other taxes on goods and

services

1146.1 > D214 On products n.e.c.

1146.2 > D29 On production n.e.c.

1146.3 > D59 Payable by consumers

115 Taxes on international trade and

transactions

1151 Customs and other import duties

1151.1 = D2121 Import duties

1151.2 > D2122 Taxes on imports, excl. VAT and

import duties

1152 > D213 Taxes on exports

1153 Proﬁ ts of export or import

monopolies

1153.1 > D2122 Proﬁ ts of import monopolies

1153.2 > D213 Proﬁ ts of export monopolies

1154 Exchange proﬁ ts

1154.1 > D2122 Exchange proﬁ ts as taxes on

import, excl. VAT and import

duties

1154.2 > D213 Exchange proﬁ ts as export

taxes

1154.3 > D214 Exchange proﬁ ts as taxes on

products excl. VAT, import &

export taxes

1155 Exchange taxes

1155.1 > D2122 Exchange taxes as taxes on

import, excl. VAT and import

duties

1155.2 > D213 Exchange taxes as export taxes

1155.3 > D214 Exchange taxes as taxes on

products excl. VAT, import &

export taxes

1156 Other taxes on international

trade and transactions

1156.1 > D29 Payable by producers

1156.2 > D59 Payable by consumers

116 Other taxes

1161 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

Note: Nonstandard GFS items required for the SNA indicated in darker shaded rows.

n.e.c. = not elsewhere classiﬁ ed; VAT = value-added taxes.

GFS codes SNA codes GFS revenue categories

142 Sales of goods and services

142.1 > P11 Of which: sold at market prices

1421 Sales by market establishments

1422 Administrative fees

1423 Incidental sales by nonmarket

establishments

1424 Imputed sales of goods and

services

143 > D759 Fines, penalties, and forfeits

144 Transfers not elsewhere classiﬁ ed

1441 Current transfers n.e.c.

14411 Subsidies

14411.1 > D31 Subsidies on products

14411.2 > D39 Subsidies on production

144111 From other general government

units

144112 From international organizations

144113 From foreign governments

14412 > D759 Other current transfers n.e.c.

1442 > D99 Capital transfers n.e.c.

145 Premiums, fees, and claims

related to nonlife insurance and

standardized guarantee schemes

1451 Premiums, fees, and current

claims receivable

14511 > D71 Premiums receivable

14512 > D71 Fees receivable for standardized

guarantee schemes

14513 > D72 Current claims receivable

1452 > D99 Capital claims receivable

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

Table A7.3 Correspondence of GFS and SNA Revenue Transaction Categories (concluded)

360 Government Finance Statistics Manual 2014

nonmarket establishments and the output of market

establishments.  e output of the two types of estab-

lishments is derived quite di erently:

•  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  nished goods (31223).  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.

•  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 signi cant.

Instead, the output of nonmarket establishments

is de ned to be equal to the sum of their produc-

tion costs: compensation of employees (21), use

of goods and services (22), consumption of  xed

capital (23), other taxes on production paid, and

other subsidies on production received (as a neg-

ative value).

 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.

A7.27 In the national accounts, the total output

of the general government sector is allocated among

three components: market output, output for own

 nal use, and other nonmarket output.

• Output for own  nal use is the value of goods

and services produced for own  nal use or non -

nancial assets constructed for own use by general

government units.  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 o 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 establishments included in the general government sector

are usually a small fraction of the general government total output.

ment sector are not o ered for sale on the market

so that valuation should be based on the cost of

production.

• 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.



 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 prices

(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).



 e value of other nonmarket output can be

calculated residually as the total output of the

general government sector minus output for

own  nal use and market output.

A7.28 Intermediate consumption consists of the

goods and services consumed as inputs by a process

of production, excluding  xed assets whose con-

sumption is recorded as consumption of  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  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)

Sales of nonmarket goods or services at prices that are not

economically signi cant remain a part of the value of nonmarket

output (see the 2008 SNA, paragraph 6.132).

361 GFS and Other Macroeconomic Statistics

GFS codes SNA codes GFS Expense categories

27 Social beneﬁ ts [GFS]

271 Social security beneﬁ ts

2711 ~ D621 Social security beneﬁ ts in cash

2711.1 ~ D6211 Social security pension beneﬁ ts

2711.2 ~ D6212 Social security nonpension beneﬁ ts

2712 ~ D632 Social security beneﬁ ts in kind

272 Social assistance beneﬁ ts

2721 ~ D623 Social assistance beneﬁ ts in cash

2722 ~ D632 Social assistance beneﬁ ts in kind

273 Employment-related social beneﬁ ts

2731 ~ D6222 Employment-related social beneﬁ ts

in cash

2732 ~ D632 Employment-related social beneﬁ ts

in kind

281

Other expense

Property expense other than interest

2811 Dividends

2811.1 ~ D421 Dividends other than reinvested

earnings

2811.2 ~ D43 Reinvested earnings

2812 ~ D422 Withdrawals of income from

quasi-corporations

2812.1 ~ D422 Withdrawals of income from quasi-

corporations other than reinvested

earnings

2812.2 ~ D43 Reinvested earnings

2813 Property expense for investment

income disbursements

2813.1 ~ D441 Insurance policy holders

2813.2 ~ D442 Pension entitlements

2813.3 ~ D443 Collective investment funds

2814 = D45 Rent

2815 > D43 Reinvested earnings on foreign

direct investment

282 Transfers not elsewhere classiﬁ ed

2821 Current transfers n.e.c.

2821.1 > D29 Other taxes on production

2821.2 > D75 Miscellaneous current transfers

2821.3 > D751 Current transfers to NPISHs

2821.31 > D751nik Transfers other than in kind

transfers

2821.32 > D751ik Transfers in kind

2821.4 > D759 Other miscellaneous current

transfers

2821.41 > D759nik Transfers other than in kind

transfers

2821.42 > D759ik Transfers in kind

2822 Capital transfers n.e.c.

2822.1 > D91 Capital taxes

2822.3 > D99 Other capital transfers n.e.c.

GFS codes SNA codes GFS Expense categories

2 EXPENSE

21 Compensation of employees

[GFS]

21.1 > me By market establishments

21.2 > nme;

By nonmarket establishments

211 ~ D11 Wages and salaries

2111 ~ D111 Wages and salaries in cash

2112 ~ D112 Wages and salaries in kind

212 ~ D12 Employers’ social contributions

2121 ~ D121 Actual employer’s social

contributions

2121.1 ~ D1211 Actual pension contributions

2121.2 ~ D1212 Actual nonpension

contributions

2122 ~ D122 Imputed employers’ social

contributions

2122.1 ~ D1221 Imputed pension contributions

2122.2 ~ D1222 Imputed nonpension

contributions

22 ~ P2 Use of goods and services [GFS]

22.1 ~ me By market establishments

22.2 ~ nme;

By nonmarket establishments

23 ~ P51c Consumption of ﬁ xed capital

[GFS]

23.1 ~ me By market establishments

23.2 ~ nme;

By nonmarket establishments

24 ~ D41 Interest [GFS]

241 ~ D412 To nonresidents

242 ~ D412 To residents other than general

government

243 ~ D411 To other general government

units

25 = Subsidies

25.1 D31 Subsidies on products

25.11 D311 Import subsidies

25.12 D312 Export subsidies

25.13 D319 Other subsidies on products

25.2 D39 Subsidies on production

251 To public corporations

2511 To public nonﬁ nancial

corporations

2512 To public ﬁ nancial corporations

252 To private enterprises

2521 To private nonﬁ nancial

enterprises

2522 To private ﬁ nancial enterprises

253 To other sectors

2531 To nonproﬁ t institutions

2532 To general government units

2533 To households as producers

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

362 Government Finance Statistics Manual 2014

GFS codes SNA codes GFS Expense categories

26 Grants

261 To foreign governments

2611 > D74 Current

2612 Capital

2612.1 > D92 Investment grants

2612.2 > D99 Other capital grants

262 To international organizations

2621 > D74 Current

2622 Capital

2622.1 > D92 Investment grants

2622.2 > D99 Other capital grants

263 To other general government

units

2631 > D73 Current

2632 Capital

2632.1 > D92 Investment grants

2632.2 > D99 Other capital grants

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  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.

A7.30 Consumption of  xed capital (P51) in the

SNA is identical to the concept in GFS. However, the

amounts of consumption of  xed capital may di er

because of the di ering treatment of own-account

See the 2008 SNA, paragraphs A3.24–A3.27, for additional

details on the estimation of these services.

capital formation. Consumption of  xed capital as re-

corded in the national accounts should be equal to the

consumption of  xed capital [GFS] (23) plus the con-

sumption of  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  e distribution of income accounts are de-

composed into three main accounts.  ese separated

accounts each have di 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  e primary distribution of income account

shows how GDP is distributed to labor, capital, gov-

ernment, and, where necessary,  ows to and from the

rest of the world.  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 codes SNA codes GFS Expense categories

283 Premiums, fees, and claims

related to nonlife insurance and

standardized guarantee schemes

2831 Premiums, fees, and current claims

payable

28311 > D71 Premiums payable

28312 > D71 Fees payable for standardized

guarantees

28313 > D72 Current claims payable

2832 > D99 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

Table A7.4 Correspondence of GFS and SNA Expense Transaction Categories (concluded)

363 GFS and Other Macroeconomic Statistics

The generation of income account

A7.33  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.  e account starts with value added as a

resource and then includes as uses:

• Compensation of employees (D1)

• Other taxes on production

(D29) payable

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.)

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).

364 Government Finance Statistics Manual 2014

• Other subsidies on production (D39) receivable

as a negative use.

A7.34  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

 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  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  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.  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 classi ed in GFS as transfers not elsewhere

classi ed (282) in the subcategory current (2821).

Subsidies on production (D39) receivable are a por-

tion of the subsidies (14411) classi ed under transfers

not elsewhere classi ed (144).

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  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

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.  e balancing item is the balance of primary

income (B5), which represents the sector’s contribu-

tion to the national income.  e balance of primary

income or national income can be presented gross or

net of consumption of  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 classi 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 classi cation of taxes

based on common practices in tax administration.

 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  nal consumers.  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  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.

 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 classi cation of the type of

subsidies is quite di erent in the two datasets. In the

SNA, the subsidies are divided into subsidies on prod-

ucts (D31) and other subsidies on production (D39).

 e subsidies on products are divided further into

365 GFS and Other Macroeconomic Statistics

subsidies on imports (D311), exports (D312), and

other subsidies on products (D319). In GFS, to allow

consolidation of the public sector, subsidies are clas-

si 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-

 cation of the recipients.

A7.43  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.

 is imputed property income is also recorded as

payable by the bene 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-

tonomous, the transactions a ect only households

and the  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 de ned-

bene t pension scheme resulting from the passage

of time.  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).  e SNA values can be derived

from the detailed records of the pension schemes.

The secondary distribution of income account

A7.44  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).

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 bene 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  e net social contributions (D61) are the

actual and imputed contributions made by house-

holds to social insurance schemes.  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.  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.  e subcategories for net social contri-

butions are:

• Employers’ actual social contributions (D611)

• Employers’ imputed social contributions (D612)

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  e amount recorded for net social contri-

butions receivable by units operating social insurance

schemes can be di erent in the GFS and SNA datasets

due to di 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 bene ts directly as transac-

tions increasing the scheme’s liabilities for pension

entitlements (GFS item 33063) by the operator of the

scheme.

In the SNA, all social bene ts payable, in-

cluding pensions and other retirement bene ts, are re-

corded either in the secondary distribution of income

account as social bene 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 bene 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

bene ts payable.  ese bene 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, bene ts in

the form of goods and services produced by general

government units are not recorded as social bene 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 bene 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 bene cia-

ries.  ese transfers are recorded in the secondary

Actual and imputed contributions to pension and other retire-

ment bene 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 bene ciaries, accompanied by a sale of the out-

put to the bene 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  nes, penalties, and

forfeits (GFS revenue item 143), other current

transfers not elsewhere classi ed (GFS revenue

item 14412), current transfers not elsewhere clas-

si 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  e balancing item of the secondary dis-

tribution of income account is disposable income.

For households, this income can be used for  nal

consumption expenditure and saving. For non nan-

cial and  nancial corporations, disposable income

is income not distributed to owners of equity minus

taxes payable on income.  e disposable income can

be presented gross or net of consumption of  xed

capital.

The redistribution of income in kind account

A7.51  e redistribution of income in kind account

records social bene 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

367 GFS and Other Macroeconomic Statistics

concerned, this account is signi cant only for govern-

ment, households, and NPISHs.  e account records

two elements of the redistribution process.  e  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 signi cant.  e redistribution of

income in kind account records social transfers in kind

as resources for households and as uses of government

and NPISHs.  e balancing item of the redistribution of

income in kind account is adjusted disposable income.

A7.52  e Classi 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 bene 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  nal consumption (P4

inSNA).

The use of disposable income account

A7.53  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

 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  nal consumption

and saving. It measures that part of income, domesti-

cally or abroad, that is not used for  nal consump-

tion. Savings can be shown on a gross or a net basis

(depending on whether consumption of  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 non -

nancial nonproduced assets. Gross saving can also be

derived as disposable income minus  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:

Net lending/net borrowing

Minus: Capital grants/transfers receivable

Plus: Capital grants/transfers payable

Plus: Net acquisition of nonnancial assets.

To get from net saving to gross saving, consumption

of  xed capital needs to be added.

A7.55  e use of disposable income account and

the use of adjusted disposable income account calcu-

late saving as a balancing item.  e two measures of

saving are the same, but calculated di erently.

•  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.

•  e use of adjusted disposable income account

calculates saving as a balancing item using:



Adjusted disposable income as a resource



Actual  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.  e concept is implemented in the

SNA in two ways:  nal consumption expenditure

(P3) and actual  nal consumption (P4).  e di er-

ence between them is social transfers in kind (D63),

which represents the  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;

Plus: Purchases of goods and services that are

transferred to households without further

transformation;

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.

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);

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  nal consumers without further

transformation are classi ed as social security bene ts

in kind (GFS expense item 2712), social assistance ben-

e ts in kind (GFS expense item 2722), employment-

related social bene ts in kind (GFS expense item 2732),

or the in-kind portion of current transfers not else-

where classi ed (GFS expense item 2821), depending

on the nature and the organization of the distribution.

A7.59  e GFS expense categories for social ben-

e ts in kind include reimbursements to households

for purchases of goods and services receivable as so-

cial bene ts in kind, and direct purchases by general

government units of goods and services from market

producers and provided as social bene ts in kind.

In addition, the GFS item for transfers not elsewhere

classi ed (2821) may include purchases of goods and

services from market producers that are distributed

directly to households for  nal consumption other

than social bene 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.

When an existing good is sold, the amount receivable from its sale

is recorded as negative  nal consumption expenditure if the initial

outlay on the good was classi ed as  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).  is adjustment for the

change in pension entitlements is equal to:

 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.

 e di 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.  e  rst group

of accumulation accounts, comprising the capital

and  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  e capital account records transactions

linked to the acquisition of non nancial assets and

capital transfers.  e account starts with net saving,

the  nal balancing item of the current accounts, and

records transactions in non nancial assets and capital

transfers.  e balancing item is either net lending (+),

which measures the net amount available to  nance

other sectors, or net borrowing (–) which corresponds

to the net  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  xed capital

369 GFS and Other Macroeconomic Statistics

formation (P51g) minus the consumption of  xed

capital (P51c) is the net investment in  xed assets in

GFS (GFS item 311). As indicated in Table A7.5, the

2008 SNA classi cation of categories of non nancial

assets has been fully incorporated in GFS. However,

in the SNA,  xed assets are also classi ed into:

• Acquisition of new  xed assets (item 311.1/

P5111 in Table A7.5)

• Acquisition of existing  xed assets (item 311.1/

P5112 in Table A7.5)

• Disposal of existing  xed assets (item 311.2/

P5113 in Table A7.5).

 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  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  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).  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 gi

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

classi ed (2822) of the payee.

• Investment grants (D92) consist of all capital

transfers made by governments to other resident

or nonresident institutional units to  nance all or

part of the costs of their acquiring  xed assets.

 ese investment grants receivable/payable are a

component of capital grants receivable (GFS rev-

enue items 1312, 1322, or 1332), and a compo-

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 classi 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  e  nancial account in the SNA records

transactions in  nancial assets and liabilities, classi-

 ed by instruments. It therefore records the net ac-

quisition of  nancial assets, and the net incurrence

of liabilities.  e balancing item, net lending (+)/ net

borrowing (–), is in principle equal to the net lending

(+)/ net borrowing (–) in the capital account, although

measured di erently.

A7.69 Conceptually, the transactions recorded in

the  nancial account of the SNA are identical to the

transactions in  nancial assets and liabilities recorded

in GFS (see Table A7.6). At the general government

or public sector level the value of transactions in  -

nancial assets and liabilities could di er due to the

di 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

di 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  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 classi es

these changes according to speci 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 non nancial assets (K2), catastrophic

losses (K3), uncompensated seizures (K4), other

changes in volume not elsewhere classi ed (K5), and

changes in classi cation (K6). Source data for record-

ing these events should therefore provide for identi-

 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  e revaluation account in the SNA records

the same holding gains or losses as those recorded

in GFS (GFS items 4***).  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.  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.  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

di erence between nominal holding gains and

losses and neutral holding gains and losses.

The balance sheet

A7.72  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 le -hand side, and liabilities and

net worth on the right-hand side.  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.  e classi 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  nancial assets and liabilities could

di er due to the di erent approach to consolidation

(see paragraph A7.11). In practice amounts recorded

as stock positions may also di er in two cases:

• Liabilities in respect of employment-related pen-

sion schemes may di 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 di 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).

Comparison of the Analytical

Frameworks of GFS and the Balance

of Payments and the International

Investment Position

A7.73  e BPM6 serves as the standard frame-

work for statistics on the  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 de 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  e structure of the international statis-

tical framework is similar to the structure used in

the GFS framework, and comprises (i) the balance

 e SNA also provides volume measures (including of govern-

ment components)—an important type of information for  scal

analysis that makes the SNA complementary to GFS.

371 GFS and Other Macroeconomic Statistics

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

GFS codes SNA codes Nonﬁ nancial asset categories

31 Nonﬁ nancial assets

311 = P511 Fixed assets

3M1 > P1 Of which: Own-account capital formation

3M11 > D1 Own-account capital formation, compensation of employees

3M111 > D11 Wages and salaries

3M112 > D12 Employers’ social contributions

3M1121 > D121 Employers’ actual social contributions

3M11211 > D1211 Employers’ actual pension contributions

3M11211 > D1212 Employers’ actual nonpension contributions

3M1122 > D122 Employers’ imputed social contributions

3M11221 > D1221 Employers’ imputed pension contributions

3M11222 > D1222 Employers’ imputed non-pension contributions

3M12 > P2 Own-account capital formation, intermediate consumption

3M13 > P51c Own-account capital formation, consumption of ﬁ xed capital

311.1 < P5111 Acquisition of new ﬁ xed assets

311.1 < P5112 Acquisition of existing ﬁ xed assets

311.2 < P5113 Disposals of existing ﬁ xed assets

3111 Buildings and structures

31111 Dwellings

31112 Buildings other than dwellings

31113 Other structures

31114 Land improvements

3112 Machinery and equipment

31121 Transport equipment

31122 Machinery and equipment other than transport equipment

311221 ICT equipment

311222 Machinery and equipment not elsewhere classiﬁ ed

3113 Other ﬁ xed assets

31131 Cultivated biological resources

31132 Intellectual property products

31133 = P512 Costs of ownership transfer of nonproduced assets (other than land)

31134 Weapons systems

312 = P52 Inventories

31221 Materials and supplies

31222 Work-in-process

31222.1 me Of which: Market establishments

312221 Work-in-process on cultivated biological assets

312222 Other work-in-process

31223 Finished goods

31223.1 me Of which: Market establishments

31224 Goods for resale

31225 Military inventories

313 = P53 Valuables

314 NP Nonproduced assets

3141 > NP1 Land

3142 > NP1 Mineral and energy resources

3143 > NP1 Other naturally occurring assets

3144 Intangible nonproduced assets

31441 = NP2 Contracts, leases, and licenses

31442 = NP3 Goodwill and marketing assets

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 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

speci c time period; (ii) the other changes in  nan-

cial assets and liabilities, which show  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  nancial

asset and liability stock positions between the resi-

dents of an economy and nonresidents at a reporting

date.  e di erence between the opening and clos-

ing stock positions of the IIP is explained by the sum

of transactions and other changes in  nancial assets

and liabilities.

Linkages between GFS and Balance

of Payments and the International

Investment Position

A7.75  e BPM6 framework provides a sequence

of accounts, each encompassing a separate economic

process or phenomenon and a balancing item.  e

remainder of this section describes how the various

international accounts correspond to GFS.

The balance of payments

A7.76  e balance of payments summarizes eco-

nomic transactions between residents and nonresi-

dents during a speci c time period.  e di 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:

•  e current account shows  ows of goods and

services, primary income, and secondary income

between residents and nonresidents.

•  e capital account shows  ows for transactions

in nonproduced non nancial assets, and capital

transfers between residents and nonresidents.

•  e  nancial account shows net acquisition and

disposal of  nancial assets and liabilities.

•  e sum of the balances on the current and

capital accounts represents the net lending

(surplus) or net borrowing (de cit) by the resi-

dent economy with the rest of the world.  is

is conceptually equal to the net balance of the

 nancial account. It is also conceptually equal

to the sum of net lending/borrowing for all the

resident sectors.

The current account

A7.77  e current account shows  ows of goods

and services, primary income, and secondary income

between residents and nonresidents.  e balance on

this account, known as the current account balance,

shows the di erence between the sum of exports and

income receivable and the sum of imports and in-

come payable.  e current account balance represents

the saving-investment gap for the economy.

The goods and services account

A7.78  e goods and services account shows

transactions in items that are outcomes of produc-

tion activities.  e focus of the account is the point

at which goods and services

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  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. Speci 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  e goods and services account requires

that goods and services be classi ed according to the

nature of the good or service. One of these speci 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

Goods as used in this context include both consumer goods and

produced non nancial assets.

373 GFS and Other Macroeconomic Statistics

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

GFSM harmonized with other datasets

GFS codes 2008 SNA codes

Transaction

Stock

position Transaction

Stock

position

Financial assets

32 62 

Total by instrument:  

Monetary gold and SDRs 3201 6201 F1 AF1

Monetary gold 32011 62011 F11 AF11

SDRs 32012 62012 F12 AF12

Currency and deposits 3202 6202 F2 AF2

Currency 32021 62021 F21 AF21

Transferable deposits 32022 62022 F22 AF22

Other deposits 32023 62023 F29 AF29

Debt securities 3203 6203 F3 AF3

Loans 3204 6204 F4 AF4

Equity and investment fund shares 3205 6205 F5 AF5

Equity 32051 62051 F51 AF51

Investment fund shares or units 32052 62052 F52 AF52

Insurance, pension, and standardized guarantee schemes 3206 6206 F6 AF6

Nonlife insurance technical reserves 32061 62061 F61 AF61

Life insurance and annuities entitlements 32062 62062 F62 AF62

Pension entitlements

32063 62063 F63 & F65 AF63 & AF65

Claims of pension fund on pension manager 32064 62064 F64 AF64

Provisions for calls under standardized guarantees 32065 62065 F66 AF66

Financial derivatives and employee stock options 3207 6207 F7 AF7

Financial derivatives 32071 62071 F71 AF71

Employee stock options 32072 62072 F72 AF72

Other accounts receivable 3208 6208 F8 AF8

Trade credits and advances 32081 62081 F81 AF81

Miscellaneous accounts receivable 32082 62082 F82 AF82

Liabilities

33 63 

Total by instrument:  

Special Drawing Rights (SDRs) 3301 6301 F12 AF12

Currency and deposits 3302 6302 F2 AF2

Debt securities 3303 6303 F3 AF3

Loans 3304 6304 F4 AF4

Equity and investment fund shares 3305 6305 F5 AF5

Insurance, pension, and standardized guarantee schemes

3306 6306 F6 AF6

Financial derivatives and employee stock options 3307 6307 F7 AF7

Other accounts payable 3308 6308 F8 AF8

Both 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.

To 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 sta , 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.  erefore, their transactions

with residents of that territory or location are inter-

national transactions. However, all expenditure on

goods and services by locally engaged sta of the en-

clave is excluded from international transactions. In

addition, government supply of licenses and permits

to nonresidents that are classi 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.

 e GFS classi cations do not speci cally

require the identi cation of transactions in goods

and services with nonresidents. However, where these

transactions can be identi ed and classi cations are

built into the underlying general government sector ac-

counting system, the information should be provided

to balance of payments compilers.  e value of transac-

tions in goods and services entered into with nonresi-

dents in GFS may di 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  e primary income account shows primary

income  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

 nancial assets and renting natural resources to other

institutional units.

A7.83  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  e consistency in data between the GFS

and primary income account can be established only

to the extent that su cient supplementary details are

separately identi ed in GFS, or the underlying source

data.  e following linkages exist between the pri-

mary income account and GFS:

• Compensation of employees: To the extent that

the resident government employs nonresident

See the BPM6, paragraphs 10.173–10.181. e criteria for the

identi 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 o 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.  e GFS classi cations do

not speci cally require the identi cation of com-

pensation of employees to nonresidents. How-

ever, when such payments are identi ed in the

underlying source data system, the information

should be reported consistently in the GFS and

primary income account.

• Investment income:  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 di 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.  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

375 GFS and Other Macroeconomic Statistics

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.  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)

• Recurrent taxes on net wealth (GFS item 1132)

• Other recurrent taxes on property (GFS item

1136)

• General taxes on goods and services (GFS item

1141)

• Excises (GFS item 1142)

• Pro ts of  scal monopolies (GFS item 1143)

• Taxes on speci 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.

 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 di cult.

Also, the portion attributable to nonresidents may

vary from one tax category to the next and from one

year to the next.

The secondary income account

A7.86  e secondary income account in the bal-

ance of payments shows current transfers between

residents and nonresidents.  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.  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  e standard components of the second-

ary income account make a distinction at the  rst

level between current transfers receivable/payable by

general government and by other sectors, comprising

the  nancial corporations, non nancial corporations,

households, and NPISHs. For the general government,

these transfers include the transfers in respect of:

• Current taxes on income, wealth, etc.

• Social contributions

• Social bene 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 identi 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, pro ts and capital

gains (GFS item 111) and several other tax cat-

egories mainly payable by  nal consumers (see

paragraph A7.40).

• Social contributions (D61 in SNA) receivable

from nonresidents by general government sector

units or social bene

ts pa

yable to nonresidents

376 Government Finance Statistics Manual 2014

(D62 and D63 in SNA) may be di 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)

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  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 non nancial assets. It records acquisitions

and disposal of nonproduced non 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 non nancial assets consist

of  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).

 ere is full consistency in the macroeconomic statis-

tical framework with regards to the items of nonpro-

duced non 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

 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

non nancial assets, as is the case in the SNA and

GFS. It shows only transactions in nonproduced

non nancial assets. Transactions in produced non -

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 o en involved in these transfers,

which should be reported in a consistent way in GFS

and the capital account of the balance of payments.

 ese capital transfers consist of compulsory trans-

fers to governments, transfers under court orders, and

voluntary transfers.  ere may also be imputed capi-

tal transfers as a result of governments’ use of special

purpose entities resident in other economies, for  scal

purposes (see paragraph 2.138 and paragraphs 8.24–

8.26 of the BPM6).  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 identi able in the GFS accounts. In

the balance of payments capital account, debt

forgiveness received from nonresidents is re-

 ected as revenue in capital grants received from

either foreign governments, international or-

ganizations, or included in capital transfers not

elsewhere classi ed, when received from other

nonresident entities.  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 re ected as capital grants to foreign

governments or international organizations, or is

included in capital transfers not elsewhere classi-

 ed, when provided to other nonresident entities.

 e GFS expense is recorded in GFS items 2612,

2622, or 2822, respectively. A corresponding

377 GFS and Other Macroeconomic Statistics

reduction in the appropriate foreign  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:

 ese are capital transfers in cash or in kind made

by governments or international organizations

to other institutional units to  nance all or part

of the cost of their acquiring  xed assets. Gov-

ernment/public sector units can be the grantor

or recipient of these investment grants.  ese

transfers are recorded in GFS capital grants, as

described earlier.

• One-o 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 (de ned in paragraph 5.51):  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:  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-

 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 re ected as capital

grants to foreign governments, international or-

ganizations, or as capital transfers not elsewhere

classi 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  e  nancial account of the balance of

payments records transactions that involve  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 e ect on the stock of assets and li-

abilities, also in the integrated IIP statement.  e

net balance on the  nancial account is conceptually

equal to the sum of the balances on the current and

capital accounts (net lending (+)/net borrowing (–)).

 e  nancial account therefore measures how the

net lending to or net borrowing from nonresidents

is  nanced.

A7.94  e international accounts use functional

categories as the primary classi cation for each of

the  nancial transactions, other changes in assets and

liabilities, and stock positions.

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.

 is functional classi 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  nancial

account are also presented according to the  nancial

asset or liability instrument employed, the sector or

the resident counterpart to the transaction, and ma-

turity. Although the classi cation of  nancial assets

and liabilities as presented in GFS does not follow

 e term functional classi cation is used in a di erent context

in the classi cation of the functions of government.

378 Government Finance Statistics Manual 2014

a functional classi cation, it is fully consistent with

the instrument breakdown and sector classi cation

as used in the international accounts. As regards  -

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

 nancial account of the balance of payments.

The other changes in ﬁ nancial assets and

liabilities account

A7.95 In the international accounts, the other

changes in  nancial assets and liabilities account shows

changes in  nancial positions that arise for reasons

other than transactions between residents and nonresi-

dents.  ese changes are also called other  ows, and,

similar to GFS, they include holding gains and losses,

and other volume change in  nancial assets and liabili-

ties (including reclassi cations). Because of the impor-

tance of di 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 classi cation of

assets and liabilities by  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  ows in the two datasets, except

in the case of liabilities for pension entitlements that

may di er.

The international investment position

A7.96  e international investment position (IIP)

is a statistical statement that shows at a point in time

the value of:  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.  e di 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.  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-

 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 non nancial assets as well as  nancial assets

and liability positions between residents.

A7.97 As is the case for the  nancial account, the

highest level of classi cation used in the IIP is the

functional classi 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  nancial asset/liabil-

ity positions with nonresidents, as reported in the

GFS balance sheet, follow the same accounting rules

and classi 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  e MFSM is part of international macro-

economic statistical guidelines and can therefore be

seen as extending and elaborating on the 2008 SNA.

 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, classi cation of the various categories

of  nancial assets and liabilities, time of recording,

valuation, and data aggregation. On consolidation, the

MFSM follows GFS in consolidating sectoral balance

sheets.  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  e purpose of the MFSM is to provide

guidelines for the compilation and the presentation

of monetary and  nancial statistics. Monetary statis-

tics consist of a comprehensive set of stock and  ow

data on the  nancial and non nancial assets and li-

abilities of an economy’s  nancial corporations sec-

tor.  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

379 GFS and Other Macroeconomic Statistics

institutional units are aggregated into sectoral bal-

ance sheets, which contain the comprehensive data

for the  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  ows and stock

position data on  nancial assets and liabilities of all

sectors of an economy.  ese data are organized and

presented in formats designed to show  nancial  ows

among the sectors of an economy and corresponding

 nancial asset and liability positions. Also included in

monetary and  nancial statistics are the  ow of funds

data, presented in a matrix format. A detailed  ow of

funds accounting cross-classi es  nancial assets ac-

quired by each sector, by instrument with the coun-

terpart debtor sector. It also cross-classi es liabilities

incurred by each sector by instrument and coun-

terpart creditor sector.  erefore, this matrix shows

the  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

 nancial resources and users in an economy.

Linkages between GFS and Monetary and

Financial Statistics

A7.102 Linkages between GFS and the monetary

and  nancial statistics (MFS) result from the  nancial

relations between government and  nancial corpora-

tions. As clients (and in addition to holding currency),

governments hold deposit assets with  nancial corpo-

rations and contract liabilities by borrowing from and

selling debt securities to the corporations. As inves-

tors, governments generally are o en the sole owner

of public  nancial corporations or hold equity in other

 nancial corporations.  ese  nancial relationships

result in either a net claim of government on the  nan-

cial corporations or a net claim of these corporations

on government.  e net asset/liability position be-

tween the general/central government sector and the

 nancial corporations sector should be consistent, and

reconcilable in the two datasets.  e extent to which

these data are similar is o en a good indicator of the

consistency in macroeconomic statistics in a country.

A7.103 Di erences in the amounts reported as net

claims between the government sector and the  nan-

cial corporations sector could be used to check the

accuracy and consistency of the respective datasets.

Where the two sets of data are materially di erent,

the reasons for the di 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 di erences. Reasons for dif-

ferences can o en be found in:

• Coverage—In many cases, governments have nu-

merous accounts held in several  nancial institu-

tions.  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  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 con ned to budgetary

accounts, thereby not covering the data of the ex-

trabudgetary units. Di erences may also arise if

government has accounts with a  nancial institu-

tion, but this  nancial institution is not covered in

the monetary and  nancial statistics.

• Sectorization—Some of the statistical institu-

tional units may not be appropriately and con-

sistently identi ed and classi ed as general

government or public sector units or the sector

classi cation of the subsectors may be di erent

in the two datasets. For example, an institutional

unit that manages and organizes externally  -

nanced projects and foreign grants may not be

appropriately designated as a government ac-

count in  nancial corporations’ records.

• Classi cation and coverage of  nancial instru-

ments— e classi cation of  nancial instruments

included in  nancial assets and liabilities may dif-

fer, or an instrument may not be consistently clas-

si ed in the two datasets. For example, di 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 o 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.  e  nancial corporations

sector is o en more advanced in implementing

accrual accounting. O en, certain items may not

be correctly accrued to the time when the eco-

nomic event occurred—for example, they may

be using di erent methods to accrue discount or

premiums on bonds.

• Val uat ion—While conceptually both datasets

should follow the same valuation principles for

assets and liabilities, national practices may di er.

Where valuation di erences in source data exist,

di erences may occur between GFS and monetary

and  nancial statistics, unless valuation adjustments

are made when the respective datasets are prepared.

• Dematerializing of debt instruments—Where

governments issue tradable securities, they o 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 o en these

instruments are held by nominees of the  nan-

cial corporations sector, which may complicate

the identi cation of the owners of claims of the

government.  e complexity of determining

ownership of tradable instruments may further

introduce inconsistency in the data.

A7.104 Due to the  nancial asset/liability posi-

tions held between general/central government and

the  nancial corporations sector, some additional

revenue and expense  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.  ese

relate speci 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  nancial corporations sector.

Comparison of the Analytical

Framework of GFS and the System of

Environmental-Economic Accounting

Central Framework

A7.105  e System of Environmental-Economic

Accounting (SEEA) Central Framework is the in-

ternational statistical standard for environmental-

economic accounting.  e SEEA Central Framework

contains the internationally agreed standard con-

cepts, de nitions, classi cations, and accounting rules

and tables for producing internationally comparable

statistics on the environment and its relationship with

the economy.  e SEEA Central Framework is a mul-

tipurpose conceptual framework that presents the

stock positions and changes in these stock positions

( ows) of environmental assets.

Comparing the Accounts in GFS and SEEA

Central Framework

A7.106  e SEEA Central Framework follows a

similar accounting structure to the 2008 SNA and

this Manual, and uses consistent concepts, de ni-

tions, and classi 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 (o en measured in physical terms) with eco-

nomic information (o en measured in monetary

terms) in a single framework. However, given the

speci 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

 ows and stock positions in physical and monetary

terms, there are some limited di erences between

the SEEA Central Framework and the 2008 SNA.

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.  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

See SEEA Central Framework, paragraphs 1.39–1.52.

381 GFS and Other Macroeconomic Statistics

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.  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  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.

 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  e SEEA Central Framework relies on

basic environment statistics, such as statistics on

natural resources—for example water, energy, for-

est,  ows of materials and pollutants—which are

usually collected for speci c purposes.  e SEEA

Central Framework adds value to individual infor-

mation components by bringing them together to

inform integrated policies, evaluate trade-o s be-

tween di erent policies, and evaluate their impacts

across domains of the economy, the environment,

and society.

Linkages between GFS and SEEA Central

Framework

A7.111  ere is a wide range of transactions and

stocks positions related to the environment that are

recorded in the GFS framework.  e type of trans-

action o en  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 in 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  ows of taxes and subsidies

related to the environment.

A7.112 Many of the mechanisms by which economic

behavior is in 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.  ese transactions are recorded

in the GFS framework but are generally not separately

identi 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  e remainder of this section discusses pay-

ments to government related to the environment, and

payments by government related to the environment.

Environmental payments to government

Environmental taxes

A7.115  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, speci c, negative impact

on the environment. In practice, this de nition is ap-

plied by looking at all of the various taxes levied in a

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 de nition

may vary across countries, for the purposes of inter-

national comparison of environmental taxes, lists of

relevant taxes bases that satisfy this de nition have

been developed by the Organisation for Economic

Co-operation and Development and Eurostat.

A7.117  e consideration of the tax base in the

determination of the environmental status of a tax is

an exception to the general approach to de 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.  e primary purpose of taxation may some-

times be to create incentives to reduce environmental

pressures, or to raise revenue for the purpose of  -

nancing environmental protection. However, in many

cases, the speci c reason may not be stated and o 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.”

 ose taxes that are earmarked for environmental

protection are relevant in the calculation of environ-

mental protection expenditure.

A7.119  ere are four broad categories into which

environmental taxes are generally grouped.  ese are:

• Energy taxes— 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 identi 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.  e

treatment of payments for these permits is dis-

cussed later in this section.

• Transport taxes— 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  ights) are also

included here as are taxes related to the use of

roads.  e transport taxes may be “one-o ” 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— 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— 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 de nition of environmental taxes

because they are considered to have no in 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).  is lack of direct in-

 uence is also re ected in the deductible nature of

VAT for many taxpayers.  ere is one relatively spe-

ci 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 classi 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.

383 GFS and Other Macroeconomic Statistics

Other payments to government

A7.121 Only those payments that are consid-

ered to be taxes according to the de 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  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.  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  ere are certain environmental assets,

particularly mineral and energy resources, that are

owned by government, and payments to government

by extractors are o en required.  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.  ese are o 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 o 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 di 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

payment.  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.  ese payments to governments are treated as

 nes, penalties and forfeits (GFS item 143). It may well

be that some  nes and penalties are related to illegal

environmental activities—for example,  nes for pol-

luting water bodies.  e recording of environment-

related  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  ows is of in-

terest, the amounts to be recorded as environmental

should follow the same principles as applied in the case

of government  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-

si cation structure to speci cally identify these  ows.

A7.126 A particular instance of transfers between

institutional units concerns  ows between interna-

tional organizations and national governments and

other resident institutional units. In certain countries

these  ows may be signi 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  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.  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 de ned in GFS as subsidies (25), social ben-

e ts (27), grants (26), and transfers not elsewhere clas-

si 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.  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 re ects the value of indi-

vidual transfers within the program that have envi-

ronmental protection or resource management as

their primary purpose.

 is appendix provides all of the classi cation codes

used in the GFS framework.

A8.1 Classi cation codes are used in the GFS sys-

tem to identify types of transactions, other economic

 ows, and stock positions of assets and liabilities.  is

appendix presents in one place all of the codes that

were presented in Chapters 5 through 10.  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 non nancial

assets,  nancial assets, and liabilities. For  nancial as-

sets and liabilities, the code 3 signi es transactions

that have been classi ed by  nancial instrument.

A8.3  e  rst digit of the classi cation code for a

speci c type of other economic  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.  e  rst digit

for total other economic  ows is 9. For a stock posi-

tion in a type of asset or liability, the  rst digit of the

classi cation code is 6.

A8.4 Codes for transactions, other economic

 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.  at is, 311 refers

to transactions in  xed assets, 411 to holding gains

in  xed assets, 511 to other changes in the volume of

 xed assets, 911 to total other economic  ows in  xed

assets, and 611 to the stock position of  xed assets.

A8.5 Expense transactions and transactions in non-

 nancial assets (i.e., expenditure) can also be classi ed

using the Classi cation of Functions of Government

(COFOG), as described in the annex to Chapter 6. All

COFOG classi cation codes begin with 7.

A8.6 Transactions and stock positions in  nan-

cial assets and liabilities can be classi ed according

to the residence and institutional sector of the other

party to the  nancial instrument, as well as according

to the type of  nancial instrument. When classi ed

by residence and institutional sector of the counter-

party, the classi cation codes for transactions begin

with 8 and the classi cation codes for stock positions

begin with 68.  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 di er

for transactions in that instrument. As explained

in paragraph 9.25, in principle, the classi cation of

general government units’ transactions in  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 classi cation of

stock positions in  nancial assets and liabilities in

a government unit’s balance sheet is based on the

residence of the issuer of  nancial instruments (as-

sets), and the residence of the holder of the  nancial

instruments (liabilities). If a transaction in  nancial

assets or liabilities is between a resident and a non-

resident unit that involves an instrument originally

issued b

y a r

esident, an entry in other changes in

the volume of assets (reclassi cation) is recorded to

maintain the integrated GFS framework of  ows and

stock positions.

A8.7 In this appendix, the classi 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 classi cations. Such an expan-

sion can be accomplished by adding another digit to

any given classi cation code. For example, the clas-

si cation code for the stock of transport equipment

is 61121. If types of transport equipment were to be

classi ed separately, the codes 611211, 611212, and so

forth could be used.

GFS Classiﬁ cations

APPENDIX

386 Government Finance Statistics Manual 2014

Figure A8.1 The Classiﬁ cation Coding System for GFS

Flows

Stock positions

Transactions

Other economic flows

Expense

Revenue

Transactions in

nonfinancial

assets

classified by

type of asset

Transactions in

financial assets and

liabilities classified

by residence of the

counterparty and

by instrument

COFOG

(Expenditure =

expense +

transactions in

nonfinancial

assets)

Transactions in

financial assets

and liabilities

classified by

residence and

institutional

sector of the

counterparty

Stock positions

in financial assets

and liabilities

classified by

residence and

institutional sector

of the counterparty

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

Other changes in

the volume of

financial assets and

liabilities classified

by residence of the

counterparty and

by instrument

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

Holding gains/losses

in nonfinancial

assets classified

by type of asset

Classiﬁ cation of the Functions of Government

387 GFS Classiﬁ cations

Table A8.1 Classiﬁ cation of Revenue

1 Revenue 122 Other social contributions [GFS]

11 Taxes 1221 Employee contributions [GFS]

111 Taxes on income, proﬁ ts, and capital gains 1222 Employer contributions [GFS]

1111 Payable by individuals 1223 Imputed contributions [GFS]

1112 Payable by corporations and other enterprises 13 Grants

1113 Other taxes on income, proﬁ ts, and capital gains 131

1311

1312

132

1321

1322

133

1331

1332

141

1411

14111

14112

14113

1412

14121

14122

1413

1414

1415

1416

142

1421

1422

1423

1424

143

144

1441

14411

14412

1442

145

1451

14511

14512

14513

1452

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

11131 Payable by general government

11132 Unallocable taxes on income, proﬁ ts, and

capital gains

112 Taxes on payroll and workforce

113 Taxes on property

1131 Recurrent taxes on immovable property

1132 Recurrent taxes on net wealth

1133 Estate, inheritance, and gift taxes

1135 Capital levies

1136 Other recurrent taxes on property

114

1141

11411

11412

11413

11414

1142

1143

1144

1145

11451

11452

114521

114522

114523

114524

114525

1146

115

1151

1152

1153

1154

1155

1156

116

1161

1162

121

1211

1212

1213

1214

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]

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

2 Expense 27 Social beneﬁ ts [GFS]

21 Compensation of employees [GFS] 271 Social security beneﬁ ts [GFS]

211 Wages and salaries [GFS] 2711 Social security beneﬁ ts in cash [GFS]

2111 Wages and salaries in cash [GFS] 2712 Social security beneﬁ ts in kind [GFS]

2112 Wages and salaries in kind [GFS] 272 Social assistance beneﬁ ts [GFS]

212 Employers' social contributions [GFS] 2721 Social assistance beneﬁ ts in cash [GFS]

2121 Actual employers’ social contributions [GFS] 2722 Social assistance beneﬁ ts in kind [GFS]

2122 Imputed employers’ social contributions [GFS] 273 Employment-related social beneﬁ ts [GFS]

241

242

243

251

2511

2512

252

2521

2522

253

261

2611

2612

262

2621

2622

263

2631

2632

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 Employment-related social beneﬁ ts in

cash [GFS]

2732 Employment-related social beneﬁ ts in

kind [GFS]

28 Other expense

281 Property expense other than interest

2811 Dividends

28111 To nonresidents

28112 To residents

2812 Withdrawals of income from

quasi-corporations

2813 Property expense for investment income

disbursements

2814

2815

Rent

Reinvested earnings on foreign direct

investment

282 Transfers not elsewhere classiﬁ ed

2821 Current transfers not elsewhere classiﬁ ed

2822 Capital transfers not elsewhere classiﬁ ed

283 Premiums, fees, and claims related to nonlife

insurance and standardized guarantee schemes

2831 Premiums, fees, and current claims payable

28311 Premiums payable

28312 Fees payable for standardized guarantee

schemes

28313 Current claims payable

2832 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.

389 GFS Classiﬁ cations

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

Classiﬁ cation

of transactions

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

Net worth and its changes 3 4 5 9 6

Nonﬁ nancial assets 31 41 51 91 61

Fixed assets 311 411 511 911 611

Buildings and structures 3111 4111 5111 9111 6111

Dwellings 31111 41111 51111 91111 61111

Buildings other than dwellings 31112 41112 51112 91112 61112

Other structures 31113 41113 51113 91113 61113

Land improvements 31114 41114 51114 91114 61114

Machinery and equipment 3112 4112 5112 9112 6112

Transport equipment 31121 41121 51121 91121 61121

Machinery and equipment other

than transport equipment

31122 41122 51122 91122 61122

Information, computer, and

telecommunications (ICT)

equipment

311221 411221 511221 911221 611221

Machinery and equipment not

elsewhere classiﬁ ed

311222 411222 511222 911222 611222

Other ﬁ xed assets 3113 4113 5113 9113 6113

Cultivated biological resources 31131 41131 51131 91131 61131

Animal resources yielding

repeat products

311311 411311 511311 911311 611311

Tree, crop, and plant resources

yielding repeat products

311312 411312 511312 911312 611312

Intellectual property products 31132 41132 51132 91132 61132

Research and development 311321 411321 511321 911321 611321

Mineral exploration and

evaluation

311322 411322 511322 911322 611322

Computer software and

databases

311323 411323 511323 911323 611323

Computer software 3113231 4113231 5113231 9113231 6113231

Databases 3113232 4113232 5113232 9113232 6113232

Entertainment, literary, and

artistic originals

311324 411324 511324 911324 611324

Other intellectual property

products

311325 411325 511325 911325 611325

Cost of ownership transfer on

nonproduced assets other than land

31133 51133 91133

Weapons systems 3114 4114 5114 9114 6114

Inventories 312 412 512 912 612

Materials and supplies 31221 41221 51221 91221 61221

Work in progress 31222 41222 51222 91222 61222

Finished goods 31223 41223 51223 91223 61223

Goods for resale 31224 41224 51224 91224 61224

Military inventories 31225 41225 51225 91225 61225

Valuables 313 413 513 913 613

390 Government Finance Statistics Manual 2014

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

Classiﬁ cation

of transactions

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

Nonproduced assets 314 414 514 914 614

Land 3141 4141 5141 9141 6141

Mineral and energy resources 3142 4142 5142 9142 6142

Other naturally occurring assets 3143 4143 5143 9143 6143

Noncultivated biological resources 31431 41431 51431 91431 61431

Water resources 31432 41432 51432 91432 61432

Other natural resources 31433 41433 51433 91433 61433

Radio spectrum 314331 414331 514331 914331 614331

Natural resources not

elsewhere classiﬁ ed

314332 414332 514332 914332 614332

Intangible nonproduced assets 3144 4144 5144 9144 6144

Contracts, leases, and licenses 31441 41441 51441 91441 61441

Marketable operating leases 314411 414411 514411 914411 614411

Permits to use natural resources 314412 414412 514412 914412 614412

Permits to undertake speciﬁ c

activities

314413 414413 514413 914413 614413

Entitlement to future goods and

services on an exclusive basis

314414 414414 514414 914414 614414

Goodwill and marketing assets 31442 41442 51442 91442 61442

Financial assets 32 42 52 92 62

Monetary gold and Special Drawing

Rights (SDRs)

3201 4201 5201 9201 6201

Monetary gold 32011 42011 52011 92011 62011

Special Drawing Rights 32012 42012 52012 92012 62012

Currency and deposits 3202 4202 5202 9202 6202

Debt securities 3203 4203 5203 9203 6203

Loans 3204 4204 5204 9204 6204

Equity and investment fund shares 3205 4205 5205 9205 6205

Equity 32051 42051 52051 92051 62051

Investment fund shares or units 32052 42052 52052 92052 62052

Insurance, pension, and standardized

guarantee schemes [GFS]

3206 4206 5206 9206 6206

Nonlife insurance technical reserves 32061 42061 52061 92061 62061

Life insurance and annuities

entitlements

32062 42062 52062 92062 62062

Pension entitlements [GFS] 32063 42063 52063 92063 62063

Claims of pension funds on pension

manager

32064 42064 52064 92064 62064

Provisions for calls under

standardized guarantee schemes

32065 42065 52065 92065 62065

Financial derivatives and employee

stock options

3207 4207 5207 9207 6207

Financial derivatives 32071 42071 52071 92071 62071

Employee stock options 32072 42072 52072 92072 62072

Other accounts receivable 3208 4208 5208 9208 6208

Trade credit and advances 32081 42081 52081 92081 62081

Miscellaneous other accounts

receivable

32082 42082 52082 92082 62082

(continued)

391 GFS Classiﬁ cations

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

Classiﬁ cation

of transactions

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

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

3211–3218 4211–4218 5211–5218 9211–9218 6212–6218

External 322 422 522 922 622

Same instrument breakdown as above 3221–3228 4221–4228 5221–5228 9221–9228 6221–6228

Liabilities 33 43 53 93 63

Special Drawing Rights (SDRs) 3301 4301 5301 9301 6301

Currency and deposits 3302 4302 5302 9302 6302

Debt securities 3303 4303 5303 9303 6303

Loans 3304 4304 5304 9304 6304

Equity and investment fund shares 3305 4305 5305 9305 6305

Equity 33051 43051 53051 93051 63051

Investment fund shares or units 33052 43052 53052 93052 63052

Insurance, pension, and standardized

guarantee schemes [GFS]

3306 4306 5306 9306 6306

Nonlife insurance technical reserves 33061 43061 53061 93061 63061

Life insurance and annuities

entitlements

33062 43062 53062 93062 63062

Pension entitlements [GFS] 33063 43063 53063 93063 63063

Claims of pension funds on pension

manager

33064 43064 53064 93064 63064

Provisions for calls under

standardized guarantee schemes

33065 43065 53065 93065 63065

Financial derivatives and employee

stock options

3307 4307 5307 9307 6307

Financial derivatives 33071 43071 53071 93071 63071

Employee stock options 33072 43072 53072 93072 63072

Other accounts payable 3308 4308 5308 9308 6308

Trade credit and advances 33081 43081 53081 93081 63081

Miscellaneous other accounts

payable

33082 43082 53082 93082 63082

Domestic 331 431 531 931 631

Same instrument breakdown as

above, but excluding SDRs

3312–3318 4312–4318 5312–5318 9312–9318 6312–6318

External 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 3M1

Compensation of employees 3M11

Use of goods and services 3M12

Consumption of ﬁ xed capital 3M13

Other taxes on production minus

other subsidies on production

3M14

(continued)

392 Government Finance Statistics Manual 2014

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

Classiﬁ cation

of transactions

in assets and

liabilities

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

Net ﬁ nancial worth 3M2 4M2 5M2 9M2 6M2

Gross debt:

Gross debt at market value 3M3 4M3 5M3 9M3 6M3

Gross debt at nominal value 3M4 4M4 5M4 9M4 6M4

Gross debt at face value 3M35 6M35

Net debt:

Net debt at market value 3M36 4M36 5M36 9M36 6M36

Net debt at nominal value 3M37 4M37 5M37 9M37 6M37

Net debt at face value 3M38 6M38

Concessional loans:

Concessional loans at nominal value 6M391

Implicit transfers resulting from loans

at concessional interest rates

6M392

Arrears 6M5

Explicit contingent liabilities: 6M6

Publicly guaranteed debt 6M61

Other one-off guarantees 6M62

Net implicit obligations for future social

security beneﬁ ts

6M7

Nonperforming loan assets

Nonperforming loan assets at fair

value

6M8

Nonperforming loan assets at

nominal value

6M81

Transactions in each category of nonﬁ nancial assets may be further distinguished as acquisitions, disposals, and consumption of ﬁ xed capital

(see Table 8.1).

(concluded)

393 GFS Classiﬁ cations

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

liabilities

Classiﬁ cation of

stock positions in

ﬁ nancial assets and

liabilities

Change in net ﬁ nancial worth due to transactions / net ﬁ nancial worth 8 68 (=6)

Financial assets 82 (=32) 682 (=62)

Domestic debtors 821 (=321) 6821 (=621)

General government 8211 68211

Central bank 8212 68212

Deposit-taking corporations except the central bank 8213 68213

Public deposit-taking corporations except the central bank 82131 682131

Private deposit-taking corporations 82132 682132

Other ﬁ nancial corporations 8214 68214

Other public ﬁ nancial corporations 82141 682141

Other private ﬁ nancial corporations 82142 682142

Nonﬁ nancial corporations 8215 68215

Public nonﬁ nancial corporations 82151 682151

Private nonﬁ nancial corporations 82152 682152

Households and nonproﬁ t institutions serving households 8216 68216

External debtors 822 (=322) 6822 (=622)

General government 8221 68221

International organizations 8227 68227

Financial corporations other than international organizations 8228 68228

Central banks 82281 682281

Financial corporations not elsewhere classiﬁ ed 82282 682282

Other nonresidents 8229 68229

Liabilities 83 (=33) 683 (=63)

Domestic creditors 831 (=331) 6831 (=631)

General government 8311 68311

Central bank 8312 68312

Deposit-taking corporations except the central bank 8313 68313

Public deposit-taking corporations except the central bank 83131 683131

Private deposit-taking corporations 83132 683132

Other ﬁ nancial corporations 8314 68314

Other public ﬁ nancial corporations 83141 683141

Other private ﬁ nancial corporations 83142 683142

Nonﬁ nancial corporations 8315 68315

Public nonﬁ nancial corporations 83151 683151

Private nonﬁ nancial corporations 83152 683152

Households and nonproﬁ t institutions serving households 8316 68316

External creditors 832 (=332) 6832 (=632)

General government 8321 68321

International organizations 8327 68327

Financial corporations other than international organizations 8328 68328

Central banks 83281 683281

Financial corporations not elsewhere classiﬁ ed 83282 683282

Other nonresidents 8329 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.

The 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

Short-term,

by original

maturity

(a)

Long-term by original maturity

Short-

term by

remaining

maturity

(a) + (b)

With

payment

due in one

year or less

(b)

With

payment

due in

more than

one year

= Long-

term by

remaining

maturity

(c)

Total

(b) + (c)

Financial assets corresponding to debt instruments 62.1 62.2 62.3 62.4 62.5

Monetary gold and Special Drawing Rights (SDRs) 6201.1 6201.2 6201.3 6201.4 6201.5

Monetary gold 62011.1 62011.2 62011.3 62011.4 62011.5

Special Drawing Rights 62012.1 62012.2 62012.3 62012.4 62012.5

Currency and deposits 6202.1 6202.2 6202.3 6202.4 6202.5

Debt securities 6203.1 6203.2 6203.3 6203.4 6203.5

Loans 6204.1 6204.2 6204.3 6204.4 6204.5

Insurance, pension, and standardized guarantee

schemes [GFS]

6206.1 6206.2 6206.3 6206.4 6206.5

Nonlife insurance technical reserves 62061.1 62061.2 62061.3 62061.4 62061.5

Life insurance and annuities entitlements 62062.1 62062.2 62062.3 62062.4 62062.5

Pension entitlements [GFS] 62063.1 62063.2 62063.3 62063.4 62063.5

Claims of pension funds on pension manager 62064.1 62064.2 62064.3 62064.4 62064.5

Provisions for calls under standardized

guarantee schemes

62065.1 62065.2 62065.3 62065.4 62065.5

Other accounts receivable 6208.1 6208.2 6208.3 6208.4 6208.5

Trade credit and advances 62081.1 62081.2 62081.3 62081.4 62081.5

Miscellaneous other accounts receivable 62082.1 62082.2 62082.3 62082.4 62082.5

Domestic 621.1 621.2 621.3 621.4 621.5

Same instrument breakdown as above, but

excluding monetary gold and SDRs

6212.1–

6218.1

6212.2–

6218.2

6212.3–

6218.3

6212.4–

6218.4

6212.5–

6218.5

External 622.1 622.2 622.3 622.4 622.5

Same instrument breakdown as above 6221.1–

6228.1

6221.2–

6228.2

6221.3–

6228.3

6221.4–

6228.4

6221.5–

6228.5

Debt instruments (= gross debt) 63.1 63.2 63.3 63.4 63.5

Special Drawing Rights (SDRs) 6301.1 6301.2 6301.3 6301.4 6301.5

Currency and deposits 6302.1 6302.2 6302.3 6302.4 6302.5

Debt securities 6303.1 6303.2 6303.3 6303.4 6303.5

Loans 6304.1 6304.2 6304.3 6304.4 6304.5

Insurance, pension, and standardized guarantee

schemes [GFS]

6306.1 6306.2 6306.3 6306.4 6306.5

Nonlife insurance technical reserves 63061.1 63061.2 63061.3 63061.4 63061.5

Life insurance and annuities entitlements 63062.1 63062.2 63062.3 63062.4 63062.5

Pension entitlements [GFS] 63063.1 63063.2 63063.3 63063.4 63063.5

Claims of pension funds on pension manager 63064.1 63064.2 63064.3 63064.4 63064.5

Provisions for calls under standardized

guarantee schemes

63065.1 63065.2 63065.3 63065.4 63065.5

Other accounts payable 6308.1 6308.2 6308.3 6308.4 6308.5

Trade credit and advances 63081.1 63081.2 63081.3 63081.4 63081.5

Miscellaneous other accounts payable 63082.1 63082.2 63082.3 63082.4 63082.5

Domestic 631.1 631.2 631.3 631.4 631.5

Same instrument breakdown as above, but

excluding SDRs

6312.1–

6318.1

6312.2–

6318.2

6312.3–

6318.3

6312.4–

6318.4

6312.5–

6318.5

External 632.1 632.2 632.3 632.4 632.5

Same instrument breakdown as above 6321.1–

6328.1

6321.2–

6328.2

6321.3–

6328.3

6321.4–

6328.4

6321.5–

6328.5

This category includes arrears and interest on arrears.

395 GFS Classiﬁ cations

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

7 Total expenditure 706 Housing and community amenities

701 General public services 7061

7062

7063

7064

7065

7066

707

7071

7072

7073

7074

7075

7076

708

7081

7082

7083

7084

7085

7086

709

7091

7092

7093

7094

7095

7096

7097

7098

710

7101

7102

7103

7104

7105

7106

7107

7108

7109

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.

7011 Executive and legislative organs, ﬁ nancial and

ﬁ scal affairs, external affairs

7012 Foreign economic aid

7013 General services

7014 Basic research

7015 R&D General public services

7016 General public services n.e.c.

7017 Public debt transactions

7018 Transfers of a general character between different

levels of government

702 Defense

7021 Military defense

7022 Civil defense

7023 Foreign military aid

7024 R&D Defense

7025 Defense n.e.c.

703 Public order and safety

7031 Police services

7032 Fire protection services

7033 Law courts

7034 Prisons

7035 R&D Public order and safety

7036 Public order and safety n.e.c.

704 Economic affairs

7041 General economic, commercial, and labor affairs

7042 Agriculture, forestry, ﬁ shing, and hunting

7043 Fuel and energy

7044 Mining, manufacturing, and construction

7045 Transport

7046 Communication

7047 Other industries

7048 R&D Economic affairs

7049 Economic affairs n.e.c.

705 Environmental protection

7051 Waste management

7052 Waste water management

7053 Pollution abatement

7054 Protection of biodiversity and landscape

7055 R&D Environmental protection

7056 Environmental protection n.e.c.

Note: R&D = research and development; n.e.c. = not elsewhere classiﬁ ed.

Accrual basis of recording

In the accrual basis of recording,  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

bene ts for their employees ................................................................................6.21

Actual premium (fee)

 e actual premium (fee) is the amount payable to the insurer (guarantor) to

secure insurance coverage for a speci c event over a stated time period ..A4.74

Aggregates

Aggregates are summations of individual entries and elements in a class of

 ows or stock positions .................................................................................... 3.141

Allocated gold accounts

Allocated gold accounts provide ownership of a speci c piece of gold ..... 7.127

Amortized value of a loan

Amortized value of a loan re ects the gradual elimination of the liability by

regular payments over a speci ed period of time ......................................... 3.115

Ancillary activity

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

Arrears are de ned as amounts that are both unpaid and past the due date for

payment ............................................................................................3.71, 7.247, 9.20

Asset

An asset is a store of value representing a bene t or series of bene 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

Asset-backed securities and collateralized debt obligations are arrangements

under which payments of interest and principal are backed by payments on

speci ed assets or income streams .................................................................. 7.151

Balance of payments

 e balance of payments summarizes economic transactions between residents

and nonresidents during a speci c time period ............................................A7.76

Balance sheet

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

Balancing items are economic constructs obtained by subtracting one aggre-

gate from a second aggregate ........................................................................... 3.142

Banker’s acceptance

A banker’s acceptance is created when a  nancial corporation endorses, in re-

turn for a fee, a dra or bill of exchange and the unconditional promise to pay

a speci c amount at a speci ed date ............................................................... 7.145

Glossary

APPENDIX

397 Glossary

Bills

Bills are de ned as securities (usually short-term) that give holders the uncon-

ditional rights to receive stated  xed sums on a speci ed date ................... 7.144

Bonds and debentures

Bonds and debentures are securities that give the holders the unconditional

right to  xed payments or contractually determined variable payments on a

speci 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

 e budgetary central government is o 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

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

 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 non 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 grants are capital transfers receivable by government units, from other

resident or nonresident government units or international organizations, that

do not meet the de nition of a tax, subsidy, or a social contribution ..........5.103

Capital levies

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

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, gi s, or

other transfers .......................................................................................................5.52

Capital transfers

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 classi ed are gi s and transfers of a capital na-

ture (other than grants) from individuals, private nonpro t institutions, non-

governmental foundations, or corporations ....................................................5.148

Captive ﬁ nancial institutions

and money lenders

Captive  nancial institutions and money lenders are institutional units pro-

viding  nancial services other than insurance, where most of their assets or

liabilities are not available on open  nancial markets .....................................2.54

Cash basis of recording

In the cash basis of recording,  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 signi 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

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 inde nitely or over

a  nite but long period of time, in economic activities and transactions on a

signi cant scale .....................................................................................................2.12

Central bank

 e central bank is the national  nancial institution that exercises con trol over

key aspects of the  nancial system .................................................................. 2.118

Central government

subsector

 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.  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 de 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 de 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  ows is de 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)

A claim (bene 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

Collective service

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,  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 so ware includes computer programs, program descriptions, and

supporting materials for both systems and applications so 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  xed capital is the decline, during the course of the reporting

period, in the current value of the stock of  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

399 Glossary

Contracts, leases, and

licenses

Contracts, leases, and licenses are treated as assets only when both the fol-

lowing conditions are satis 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 di 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 di erence ........................................................................................................7.105

Control of a corporation

Control of a corporation is de ned as the ability to determine general corpo-

rate policy of the corporation ........................................................... 2.107, Box 2.2

Control of an NPI

Control of an NPI is de ned as the ability to determine the general policy or

program of the NPI ........................................................................................Box 2.1

Corporations

Corporations are de ned as entities that are capable of generating a pro t or

other  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 non nancial assets (other than inventories) ............................................8.6

Credit derivatives

Credit derivatives are  nancial derivatives whose primary purpose is to trade

credit risk ............................................................................................................ 7.218

Credit entry

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

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

Currency consists of notes and coins that are of  xed nominal values and are

issued or authorized by the central bank or government ............................ 7.135

Currency union

A currency union is de 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

Current account

 e current account shows  ows of goods and services, primary income, and

secondary income between residents and nonresidents ..............................A7.78

Current grants

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 de 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

A custom union is a form of regional arrangement whereby agreement exists

on a common tari (custom duties) vis-à-vis the other economies while the

movement of goods within the arrangement tends to be duty-free .............A5.6

Databases

Databases consist of  les of data organized in such a way as to permit resource-

e ective access and use of the data .....................................................................7.70

400 Government Finance Statistics Manual 2014

Debit entry

A debit entry is an increase in an asset, a decrease in a liability, or a decrease in

net worth...................................................................................................................................3.55

Debt assumption

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)

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

 nance a particular project or policy ..............................................................A3.20

Debt forgiveness (or debt

cancellation)

Debt forgiveness (or debt cancellation) is de 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 speci 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 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

Debt re 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 de 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 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

Debt securities are negotiable  nancial instruments serving as evidence of a

debt ...................................................................................................................... 7.143

Debt write-offs or

write-downs

Debt write-o s or write-downs refer to unilateral reductions by a creditor, of

the amount owed to it .......................................................................................A3.32

Deep-discount bonds

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

Defeasance

With defeasance, a debtor unit removes liabilities from its balance sheet by

pairing them with  nancial assets, the income and value of which are su cient

to ensure that all debt-service payments are met ..........................................A3.37

Deﬁ ned-beneﬁ t pension

scheme

A de ned-bene t pension scheme is one where the bene 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 de ned-contribution pension scheme is one where the bene ts payable to

an employee on retirement are de 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

401 Glossary

Depository receipts

Depository receipts are securities that represent ownership of securities listed

in other economies ............................................................................................ 7.167

Deposits

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

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

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

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,  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  xtures customarily installed in residences .....................7.44

Economic assets

Economic assets are resources over which ownership rights are enforced and

from which economic bene ts may  ow to the owners ........................ 3.43, 4.43

Economic classiﬁ cation of

expense

 e economic classi cation of expense identi es the types of expense incurred

according to the economic process involved ......................................................6.2

Economic ﬂ ows

Economic  ows re 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

Economic owner

 e economic owner of resources such as goods and services, natural re-

sources,  nancial assets, and liabilities is the institutional unit entitled to claim

the bene ts associated with the use of these resources by virtue of accepting the

associated risks.............................................................................................. 3.39, 7.5

Economic territory

Economic territory, in its broadest sense, can be any geographic area or juris-

diction for which statistics are required ..............................................................2.8

Economic unions

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 signi cant prices are prices that have a signi cant e 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  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, o ered to

employees of the company as a form of remuneration ................................ 7.221

Employers’ social

contributions

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 bene ts

for their employees ...............................................................................................6.19

Employment-related social

beneﬁ ts

Employment-related social bene ts are social bene 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

ser vices ...................................................................................................................2.25

Entertainment, literary, and

artistic originals

Entertainment, literary, and artistic originals are original  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

 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

An environmental tax is a tax whose tax base is a physical unit (or a proxy of

it) of something that has a proven, speci c, negative impact on the environ-

ment ................................................................................................................. A7.115

Equity

Equity consists of all instruments and records that acknowledge claims on the

residual value of a corporation or quasi-corporation, a er the claims of all

creditors have been met .................................................................................... 7.165

Establishment

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 gi taxes cover taxes on transfers of property at death

and on gi s, including gi 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

403 Glossary

Excises

Excises are taxes levied as a product-speci c unit tax on a prede ned limited

range of goods .......................................................................................................5.62

Expenditure

Expenditure is the sum of expense and the net investment in non 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 de ned as legal or contractual  nancial ar-

rangements that give rise to conditional requirements to make payments of

economic value .................................................................................................. 7.252

Extrabudgetary

General government entities with individual budgets not fully covered by the

main (or general) budget are considered extrabudgetary ...............................2.82

Face value

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

Fair value is a market-equivalent value de 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

 e  nancial account of the balance of payments records transactions that in-

volve  nancial assets and liabilities that take place between residents and non-

residents ..............................................................................................................A7.93

Financial assets

Financial assets consist of  nancial claims and gold bullion held by monetary

authorities as a reserve asset ...............................................................................3.48

Financial auxiliaries

Financial auxiliaries consist of  nancial corporations that are principally en-

gaged in activities associated with transactions in  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  nancial as-

sets and liabilities being transacted ....................................................................2.54

Financial claim

A  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

Financial corporations are corporations that are principally engaged in provid-

ing  nancial services, including insurance and pension fund services, to other

institutional units .............................................................................................. 2.115

Financial corporations sector

 e  nancial corporations sector consists of resident corporations that are

principally engaged in providing  nancial services, including insurance and

pension fund services, to other institutional units ..........................................2.53

Financial derivative contract

A  nancial derivative contract is a  nancial instrument that is linked to an-

other speci c  nancial instrument or indicator or commodity and through

which speci c  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  nancial markets ................................................................................. 7.204

Financial intermediaries

Financial intermediaries are institutional units that incur liabilities on their

own account for the purpose of acquiring  nancial assets by engaging in  nan-

cial transactions on the market...........................................................................2.54

404 Government Finance Statistics Manual 2014

Financial lease

A  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

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

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

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

Fixed assets are produced assets that are used repeatedly or continuously in

production processes for more than one year ........................................ 7.18, 7.35

Forfeits

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

Forward-type contract

A forward-type contract (forward) is an unconditional contract by which two

counterparties agree to exchange a speci ed quantity of an underlying item

(real or  nancial) at an agreed-on contract price (the strike price) on a speci-

 ed date ............................................................................................................... 7.212

Functional classiﬁ cation of

expense

 e functional classi cation of expense provides information on the purpose

for which an expense was incurred ......................................................................6.3

General government sector

 e general government sector consists of resident institutional units that ful-

 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 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

Gold swap

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

 e goods and services account shows transactions in items that are outcomes

of production activities .....................................................................................A7.78

Goods for resale

Goods for resale are goods acquired for the purpose of reselling or transferring

to other units without being further processed ................................................7.84

Government units

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

405 Glossary

Grants

Grants are transfers receivable by government units, from other resident or

nonresident government units or international organizations, and that do not

meet the de 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.  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 de ned as the value of output minus the value of interme-

diate consumption .............................................................................................A7.24

Historic cost

Historic cost, in its strict sense, re ects the cost at the time of acquisition, but

sometimes it may also re ect occasional revaluations ................................. 3.115

Holding gain or loss

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

Household

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

 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 a 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, su cient to exactly match the increases in employees’

social bene 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

An institutional sector groups together similar kinds of institutional units ac-

cording to their economic objective s, functions, and behavior .....................2.50

Institutional unit

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

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 bene t in production because use of the knowledge is re-

stricted by means of legal or other protection ..................................................7.64

Interest

Interest is a form of investment income that is receivable by the owners of cer-

tain kinds of  nancial assets (SDRs, deposits, debt securities, loans, and other

accounts receivable) for putting these  nancial assets and other resources at the

disposal of another institutional unit .............................................................. 5.108

Intermediate consumption

Intermediate consumption consists of the goods and services consumed as inputs

by a process of production, excluding  xed assets whose consumption is recorded

as consumption of  xed capital ............................................................................A7.28

International investment

position

 e international investment position (IIP) is a statistical statement that shows at

a point in time the value of:  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

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

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

Investment funds are collective investment undertakings through which investors

pool funds for investment in  nancial or non nancial assets ...........................7.174

Joint operating

arrangements

Joint operating arrangements can be in the form of jointly controlled operations

or jointly controlled assets ......................................................................................2.143

Joint venture

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

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

bene ts can be derived by their owners by holding or using them ....................7.92

Land improvements

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

Legal or social entity

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

Legal owner

 e legal owner of resources such as goods and services, natural resources,  nan-

cial assets, and liabilities is the institutional unit entitled by law and sustainable

under the law to claim the bene ts associated with the resource ................3.38, 7.5

Liability

A liability is established when one unit (the debtor) is obliged, under speci c

circumstances, to provide funds or other resources to another unit (the cred-

itor)........................................................................................................... 3.45, 4.45, 7.15

407 Glossary

Life insurance

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

Life insurance and annuities entitlements are  nancial claims policyholders have

against an enterprise o ering life insurance or providing annuities ................7.187

Listed shares

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

Loan

A loan is a  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  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 classi 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 signi cant

prices ...........................................................................................................................2.75

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 (cur-

rency or transferable deposits) ..............................................................................3.107

Market prices for

transactions

Market prices for transactions are de 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 signi 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 in uence the market for speci c

goods or services directly and/or indirectly ........................................................2.156

Marketable operating leases

Marketable operating leases are third-party property rights relating to  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

 e maturity of a debt instrument refers to the time until the debt is ex-

tinguished according to the contract between the debtor and the

creditor ...................................................................................................................... 7.266

Military inventories

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

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 gold is gold to which the monetary authorities (or others who are sub-

ject to the e ective control of the monetary authorities) have title and is held as a

reserve asset ..............................................................................................................7.126

Monetary transaction

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

Monetary union

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

Motor vehicle taxes include taxes on the use of motor vehicles or permission to

use motor vehicles .....................................................................................................5.80

Net debt

Net debt is calculated as gross debt minus  nancial assets corresponding to debt

instruments ..............................................................................................................7.243

Net ﬁ nancial worth

 e net  nancial worth of an institutional unit (or grouping of units) is the total

value of its  nancial assets minus the total value of its liabilities ............ 4.41, 7.235

Net investment in invento-

ries (change in inventories)

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

Net premiums are de ned as actual premiums plus premium supplements minus

the insurance service charge payable by the policyholders ..............................A4.76

Net value added

Net value added is the value of output minus the values of both intermediate con-

sumption and consumption of  xed capital .......................................................A7.25

Net worth

 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 gain

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

409 Glossary

Noncultivated biological

resources

Noncultivated biological resources consist of animals, birds,  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

Non nancial assets are economic assets other than  nancial assets ...............3.50

Nonﬁ nancial corporations

Non nancial corporations are corporations whose principal activity is the pro-

duction of market goods or non nancial services ..............................................2.114

Nonﬁ nancial corporations

sector

 e non nancial corporations sector consists of resident institutional units that

are principally engaged in the production of market goods or non 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,  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 signi 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  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 bene ts include payments made to individuals when they are

temporarily unemployed, su ering from a medical condition, or su ering from an

event that prevents them from working for a period ..........................................A2.7

Nonperforming loans

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  les for bankruptcy .............................7.262

Nonproﬁ t institutions

Nonpro 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, pro t, or other  nancial gain for the institutional units that establish,

control, or  nance them ...........................................................................................2.36

Nonproﬁ t institutions serv-

ing households

 e nonpro t institutions serving households (NPISHs) sector consists of resi-

dent nonmarket nonpro t institutions (NPIs) that are not controlled by govern-

ment ............................................................................................................................2.61

Notional resident unit

A notional resident unit is a unit identi 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

An o -market swap is a swap contract that has a nonzero value at inception as a

result of having reference rates priced di erently from current market values—

that is, “o -the-market” ............................................................................. 7.162, A3.68

On-balance sheet

securitization

On-balance sheet securitization involves debt securities backed by a future rev-

enue stream generated by the assets.  e assets remain on the balance sheet of the

debt securities issuer (the original asset owner), typically as a separate portfolio.

 ere is no securitization unit involved ..............................................................A3.66

One-off guarantees

One-o 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

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 e ective  nancial

claim on unit C .......................................................................................................A3.72

Operating leasing

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

Option contract

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-

 ed underlying item at a strike price on or before a speci ed date ..................7.209

Original maturity

Original maturity is the period from the issue date until the  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 classi ed are gi s and transfers of a current

nature (other than grants or subsidies) from individuals, private nonpro t institu-

tions, nongovernmental foundations, or corporations ......................................5.147

Other economic ﬂ ows

Other economic  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

bene 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 classi ed .........................................................................7.73

Other public ﬁ nancial

corporations

Other public  nancial corporations comprise all resident  nancial corporations,

except public deposit-taking corporations, controlled by general government

units or other public corporations ........................................................................2.121

411 Glossary

Other recurrent taxes on

property

Other recurrent taxes on property include all recurrent taxes on property other

than immovable property or net wealth .................................................................5.53

Other revenue

Other revenue is all revenue receivable excluding taxes, social contributions, and

grants ..................................................................................................................5.6, 5.106

Other social contributions

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 subsidies on production are subsidies that enterprises receive as a con-

sequence of engaging in production but that are not related to speci c pro-

duc ts ............................................................................................................................6.90

Other taxes

Other taxes cover revenue from taxes levied predominantly on a base or bases not

elsewhere classi ed, and unidenti ed taxes ...........................................................5.93

Other taxes on goods and

services

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 activities

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

Own funds are de ned as the di erence between total assets (at market values)

and total liabilities excluding shares and other equity (at market value) .........7.231

Partitioning

Partitioning records a transaction that is a single transaction from the perspective

of the parties involved as two or more di erently classi ed transactions .........3.29

Pension entitlements

Pension entitlements are  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 bene 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 speci c activity is an asset for the holder when: (i)the

permits are limited in number and so allow the holders to earn monopoly pro ts,

(ii)the monopoly pro 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

 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 bene 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 bene 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

 e primary income account shows primary income  ows between resident and

nonresident institutional units .............................................................................A7.82

Production measure of gross

domestic product

 e production measure of gross domestic product is de 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

Pro ts of  scal monopolies cover that part of the pro ts of  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  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  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

 e public corporations subsector consists of all resident corporations controlled

by government units or by other public corporations ........................................2.104

413 Glossary

Public deposit-taking

corporations

Public deposit-taking corporations are  nancial corporations controlled by gen-

eral government units or other public corporations whose principal activity is  -

nancial intermediation and who have liabilities in the form of deposits or  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  nancial corporations controlled by general government units or

other public corporations are part of the public  nancial corporations sub-

se c tor .........................................................................................................................2.115

Public monuments

Public monuments are identi able because of particular historical, national, re-

gional, local, religious, or symbolic signi cance ...................................................7.42

Public nonﬁ nancial corpora-

tions subsector

All resident non nancial corporations controlled by general government units

orother public corporations are part of the public non 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

 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

Quasi-corporation

A quasi-corporation is (i) either an unincorporated enterprise owned by a resi-

dent institutional unit that has su 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 e 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 signi cant

amount of production in the economic territory over a long or inde nite period

of time .........................................................................................................................2.33

Quasi-ﬁ scal operations

Quasi- scal operations are government operations carried out by institutional

units other than general government units ..............................................................2.4

Real holding gain

A real holding gain is de 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

Realized holding gain

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

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

wealth

Recurrent taxes on net wealth cover taxes levied regularly on net wealth ........5.50

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

Remaining maturity or residual maturity is the period from the reference date

(balance sheet date) until the  nal contractually scheduled payment date .....7.267

Rent (expense)

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 (revenue)

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

Rerouting records a transaction as taking place through channels that di 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

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

Residence

 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

Resource lease

A resource lease is an agreement whereby the legal owner of a natural resource

that macroeconomic statistics treat as having an in 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 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

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

Securities are debt and equity instruments that have the characteristic feature of

negotiability .............................................................................................................. 7.119

Securities lending

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 speci ed date or on demand ...................................7.160

415 Glossary

Securities repurchase agree-

ment (repo)

A securities repurchase agreement (repo) is an arrangement involving the sale of

securities for cash, at a speci ed price, with a commitment to repurchase the same

or similar securities at a  xed price either on a speci ed future date (o en one or

a few days hence) or with an open maturity ........................................................7.159

Securitization

Securitization occurs when a unit, named the originator, conveys the ownership

rights over  nancial or non nancial assets, or the right to receive speci c future

 ows, to another unit, named the securitization unit. In return, the securitization

unit pays an amount to the originator from its own source of  nancing.  e secu-

ritization unit obtains its own  nancing by issuing debt securities using the assets

or rights to future  ows transferred by the originator as collateral .................A3.59

Sinking fund

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

Social assistance provides social protection bene 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

Social assistance bene ts are transfers payable in cash or in kind to households to

meet the same needs as social insurance bene ts but are not made under a social

insurance scheme ....................................................................................... 6.101, A2.25

Social beneﬁ ts

Social bene ts are current transfers receivable by households intended to provide

for the needs that arise from social risks ...............................................................A2.4

Social contributions

Social contributions are actual, or imputed, revenue receivable by social insurance

schemes to make provision for social insurance bene 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 bene ciary to be entitled to receive the social

bene ts covered by the scheme ............................................................................A2.31

Social insurance schemes

Social insurance schemes provide social protection and require formal participa-

tion by the bene ciaries, evidenced by the payment of contributions (actual or

imputed) ...................................................................................................... 2.101, A2.30

Social protection

Social protection is the systematic intervention intended to relieve households

and individuals of the burden of a de ned set of social risks. ............................A2.1

Social risks

Social risks are events or circumstances that may adversely a 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 bene ts are social bene 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 bene 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

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

Sovereign wealth funds

Created and owned by the general government for macroeconomic purposes, sov-

ereign wealth funds hold, manage, or administer assets to achieve  nancial objec-

tives, and employ a set of investment strategies that include investing in foreign

 nancial assets .........................................................................................................2.152

Special Drawing Rights

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

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

Stock position

A stock position is the total holdings of assets and/or liabilities at a point in

time ..............................................................................................................................3.36

Stripped securities

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

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

A swap contract involves the counterparties exchanging, in accordance with

prearranged terms, cash  ows based on the reference prices of the underlying

items .............................................................................................................. 7.162, 7.215

Synthetic securitization

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

Tax credit

A tax credit is an amount subtracted directly from the tax liability due by the ben-

e ciary household or corporation a er the liability has been computed ..........5.29

Tax expenditures

Tax expenditures are concessions or exemptions from a “normal” tax structure

that reduce government revenue collection ...........................................................5.28

Tax refunds

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

417 Glossary

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  nancial and capital transactions are taxes levied on the change in own-

ership of property, except those classi ed as gi 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, pro 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

Taxes on individual or household income consist of personal income

taxes, including those deducted by employers (pay-as-you-earn taxes), and

surtaxes .......................................................................................................................5.41

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 payroll or workforce are taxes payable by enterprises assessed either as

a proportion of the wages and salaries paid or as a  xed amount per person em-

ployed ..........................................................................................................................5.45

Taxes on property

Taxes on property are taxes payable on the use, ownership, or transfer of

wealth ..........................................................................................................................5.46

Taxes on speciﬁ c services

Taxes on speci c services are levied on payments for speci c services .............5.69

Taxes on the income of

corporations

Taxes on the income of corporations consist of corporate income taxes, corporate

pro 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

Taxes on winnings from lotteries or gambling are taxes payable on the amounts

receivable by winners ................................................................................................5.41

Total gross debt

Total gross debt—o en referred to as “total debt” or “total debt liabilities”—

consists of all liabilities that are debt instruments. A debt instrument is de ned

as a  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

Transaction

A transaction is an economic  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, o en because

the unit is operating in two di erent capacities ......................................................3.5

Transfer

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 classi ed payable include a number of gi s and transfers

to individuals, private nonpro t institutions, nongovernmental foundations, cor-

porations, or government units that are not included in other categories of trans-

fers, and serving quite di erent purposes ............................................................6.122

Transfers not elsewhere clas-

siﬁ ed (receivable)

Transfers not elsewhere classi ed receivable include subsidies, as well as gi s and

transfers from individuals, private nonpro 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

 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

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

Valuation of stock positions

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

Value of goodwill and mar-

keting assets

 e value of goodwill and marketing assets is the di 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 identi ed and

valued ........................................................................................................................7.116

Value-added taxes

Value-added taxes (VAT) are taxes on goods or services collected in stages by en-

terprises but ultimately charged in full to the  nal purchasers ...........................5.58

Wages and salaries

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  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

419 Glossary

Weapons systems

Weapons systems include vehicles and other equipment such as warships, subma-

rines, military aircra , tanks, missile carriers and launchers, etc. ......................7.74

Withdrawals of income from

quasi-corporations

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

Work in progress consists of goods and services that are not yet su 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  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

Above-the-line transactions, 4.53,

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  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 speci c type

Property income

de nition of, 5.107

forms of, 5.107, Table 5.8

from dividends, 5.111–5.117

from interest, 5.108–5.110

from investment income disburse-

ments, 5.120–5.121

from reinvested earnings on foreign

direct investment, 5.134–5.135

from rent, 5.122–5.133

from withdrawn from income of

quasi-corporations, 5.118–5.119

See also speci c type

Property sales as exchange type of

transaction, 3.9

Property taxes, 3.84, 5.46–5.54, 5.77

Provident funds, 2.148–2.151

Public corporations

as instruments of public or  scal

policy, 2.104

changes in net worth of, 4.40

characteristics of, 2.35, 2.48,

2.104–2.105

classi cation of equity transactions

in, 9.47–9.51, Box 6.3

classi cation of revenue from sales

of goods and services by, 5.137

classi cation of equity of, 7.15,

7.165–7.173, 7.232

consolidated statistical presentation,

3.153, 5.42

control of, 2.35, 2.107–2.112, Box 2.2

coverage of government  nance

statistics framework, 1.2, 1.4, 2.1,

2.4, 4.7

decision tree for classi cation

of subsector entities, 2.124,

Figure 2.4

detailed classi cation of counter-

party information, Table 3.1

dividends of, 5.111–5117, 6.109–6.110

economic sector classi cation of,

2.59, 2.64, 2.104

economic signi cance of, 2.104–2.105

evaluating economically signi cant

prices of, 2.66–2.75

identi cation of, 2.64–2.75

in  nancial corporations sector, 2.57

in non nancial corporations sector,

2.52

monopoly powers of, 6.63

net worth of, 7.229, 7.232–7.233, 10.33

nonpro t institutions as, 2.37, 5.67

privatization of, 9.53

purposes of, 2.105

quasi- scal operations of, 2.4, 2.104

reclassi cation of, 10.77, 10.84

residence of, 2.14

restructuring of share distribution,

9.51

revenue source of, 5.1

subscriptions of, 6.42

subsector components, 2.104

subsidies, 5.146, 6.87

taxes collected by, 5.38

taxes payable by, 5.42

transfer, 3.10, 5.148, 6.124

types of, 2.113–2.121

Publicly guaranteed debt, 7.254–7.260,

Figure 7.2, Table 4.6, Table 7.10

Public monuments, 7.42–7.43,

7.47–7.48, 8.30, 10.50

Public policy-related assets and liabili-

ties, 4.29–4.30, 4.57, Box 4.1

Public-private partnerships

alternative names for, A4.58

contractual relationships in, 2.140,

A4.60

de

nition of, A4.58

eco

nomic ownership in, 3.40,

7.39, A4.61–A4.63, Box A4.4,

Box A4.5

ownership of  xed assets built

under, 7.39

reasons for, A4.58–A4.59

statistical treatment of, A4.64–A4.65

Public sector

accounting standards, 1.35, A6.1–

A6.56

consolidated statistical presentation,

3.153–3.156, 3.164

coverage of government  nance sta-

tistics framework, 1.2, 1.4, 1.26,

2.1, 2.4, 4.7

decision tree for classi cation of

entities in, 2.124, Figure 2.4

de nition of, 1.2, 2.63

 nancial corporations subsector,

2.115–2.121

groupings of institutional units,

2.122–2.123, Figure 2.2

institutional units of, 2.63

main components of, 2.63, Figure 2.3

non nancial corporations subsec-

tor, 2.114

relation to other institutional sec-

tors, 2.62, Figure 2.2

scope of government  nance sta-

tistics framework for reporting

on, 1.26

subsector of, 2.63, Figure 2.3

uses of government  nance statis-

tics framework in analysis of,

1.10–1.12

See also speci c type

on goods and services, general,

5.57–5.61, Table 5.3

on imports, 5.84

on income, pro t, and capital gains,

5.41–5.44, Table 5.2

on income of corporations, 5.41

on income of individuals or house-

holds, 5.41

on inheritance, 5.51

on international trade and transac-

tions, 5.83–5.92, Table 5.5

on motor vehicles, 5.79, 5.80

on net wealth, 5.50

on ownership of assets or net worth,

levied irregularly, 5.52

on ownership of immovable prop-

erty, 5.49

on ownership of property other

than immovable property, levied

regularly, 5.53

on payroll and workforce, 5.45

on permission to perform activities,

5.72, 5.79, Table 5.4

on permission to use goods or per-

form activities, 5.72, 5.79, Table 5.4

on pollution, 5.81

on production, 2.74, A7.41,

Table A7.3

on pro ts of export or import

monopolies, 5.86–5.87

on pro ts of  scal monopolies,

5.63–5.68

on property, 3.84, 5.46–5.54, 5.77

on recreational activities

on religious organizations,

5.39–5.40

on speci c services, 5.69–5.71

on use of goods and permission to

use goods or perform activities,

5.72, 5.79, Table 5.4

on winnings from lotteries or gam-

bling, 5.41

other taxes category, 5.93

other taxes on goods and services,

5.82

her taxes on international trade

and transactions, 5.92

other taxes on use of goods and

on permission to use goods or

perform activities, 5.81

payment in kind of, 3.24

payments classi ed as transactions,

3.5, 3.10, 3.12–3.13

payroll and workforce, 5.45

penalties/ nes on overdue, 5.24, 5.143

permits as A4.42

445 Index

refunds, 3.145, 5.7, 5.27

regional organizations and, 2.18

relief measures, 5.28–5.31

rent and, 5.128, 5.133

sales, 5.59

severance, 5.133

social contributions versus, 5.96

state governments’ right to impose,

2.91

time of recording and measurement

of, 3.57–3.60, 3.62, 3.76–3.86,

5.10–5.20

value-added, 5.58

withheld from employees, 3.161,

6.12

Territorial enclaves, 2.9–2.10, 2.13,

2.16, 8.50, A3.56, A7.84

Territorial waters, 2.9, 3.40, 7.19

Timber resources, 5.82, 5.127, 7.61,

7.82, 8.34, 10.52, A4.28–A4.29

Time of recording economic  ows

accounting bases, choices, 1.27,

3.57–3.60, 3.68

advantages of accrual accounting,

3.68–3.74

appearance or disappearance of

existing assets, 10.52

challenges in, 3.58–3.59, 3.75, 5.14

consumption of  xed capital, 3.90,

8.16

dividends, 3.87, 5.112, 6.109

expense transactions, 6.6–6.7

 nes and penalties, 3.85, 5.144

grants, 3.86, 5.105

holding gains and losses,

3.99–3.100, 10.7

in accrual basis accounting,

3.62–3.64, 3.76–3.102

in cash basis accounting, 3.67, 3.69,

3.70, 3.71, 3.72, 3.103–3.106

in commitments basis accounting,

3.65, 3.69, 3.71

in due-for-payment basis account-

ing, 3.66, 3.69, 3.70, 3.71, 3.73

in government  nance statistics

framework, integration of 3.57

in regional arrangements, A5.43

income taxes, 3.83, 5.15

inventories, 3.91, 8.47

operating leases, 3.90

other changes in the volume of

assets, 3.98, 3.101–3.102

other economic  ows, 3.98–3.102

production of  xed assets, 7.37

reclassi cations, 3.102, 10.83

revenue transactions, 5.10–5.20

sales of goods and services, 5.141

taxes and compulsory transfers/social

contributions, 3.77–3.86, 5.12

taxes on ownership of property, 3.84

transactions in services, 3.89

transactions in  nancial assets

and liabilities, 3.93–3.97, 9.2,

9.13–9.16

transactions in goods, services, and

non nancial assets, 3.88–3.92

transactions in non nancial assets,

8.2, 8.13–8.17

transactions with non nancial com-

ponent, 9.15

use of goods and services, 3.92, 6.7,

6.28

withdrawals of income from quasi-

corporations, 3.87

Tools, 6.15, 6.35, 6.43, 7.40, 7.52, 8.33

Total change in net worth, Table 4A.1.