Session Learning Objective

1. GFS-2001 Session Learning Objective • At the end of the session, the participants will be familiarized with key points of about GFS Manual -2001 (Government Finance Statistics introduction) ,Uses & the purpose of this manual, the uses of government finance statistics, and analytical framework of GFS etc. Session III,Day2

2. GFS-2001 GFS Manual-2001(Government Finance Statistic Manual-2001) Introduction:- The Government Finance Statistics Manual is the latest in a series of international guidelines on statistical methodology that have been issued by the International Monetary Fund. The Manual, which updates the first edi­tion published in 1986, is a major advance in the standards for compilation and presentation of fiscal statistics and part of a worldwide trend toward greater accountability and transparency in government finances, operations, and oversight. Session III

3. GFS-2001 The Manual was produced by the IMF's Statistics Department in fulfillment of its mission to provide strong leadership for the development and application of sound statistical practices. This Manual represents a major step forward in the standards for compilation and presentation of fiscal sta­tistics and thus takes its place as part of the worldwide effort to improve government accounting and trans­parency in operations. Government finance statistics are a key to fiscal analysis, and they play a vital role both in developing and monitoring sound financial programs and in conducting surveillance of economic politics. Session III

4. GFS-2001 Manual introduces accrual accounting, balance sheets, and complete coverage of gov­ernment economic and financial activities. Although only a few countries are currently capable of meeting the standards promulgated in this Manual, the number is increasing steadily. The Manual is designed for compilers of government finance statistics, fiscal analysts, and other users of fis­cal data. It may also be useful to compilers and users of other macroeconomic statistics in understanding the rela­tions between the various sets of statistics, in particular to compilers of the national accounts who may depend on government finance statistics as an input to their work. Session III

5. GFS-2001 This second edition of the Government Finance Statistics Manual (GFS Manual or revised GFS Manual) describes a specialized macroeconomic statistical system (the GFS system) designed to sup­port fiscal analysis. The manual provides the eco­nomic and accounting principles to be used in compiling the statistics and guidelines for the presen­tation of fiscal statistics within an analytic framework that includes appropriate balancing items. The basic concepts, classifications, and defini­tions employed in this manual depend on economic reasoning and principles that should be valid univer­sally regardless of the circumstances in which they are applied. Session III

6. GFS-2001 Therefore, the GFS system is applicable to all types of economies regardless of the institu­tional or legal structure of a country's government, the sophistication of its statistical development, the system of government financial accounting, or the extent of public ownership of for-profit entities. This second edition of theGovernment Finance Statistics Manual (GFS Manual or revised GFS Manual) describes a specialized macroeconomic statistical system (the GFS system) designed to sup­port fiscal analysis. The manual provides the economic and accounting principles to be used in compiling the statistics and guidelines for the presen­tation of fiscal statistics within an analytic framework that includes appropriate balancing items. The man­ual does not treat systematically the practical aspects of compiling the statistics. Session III

7. GFS-2001 Purpose of the Manual:- The primary purpose of theGFS Manual is to provide a comprehensive conceptual and accounting framework suitable for analyzing and evaluating fis­cal policy, especially the performance of the general government sector and the broader public sector of any country. The general government sector consists of entities that implement public policy through the provision of primarily non-market services and the redistribution of income and wealth, with both activities supported mainly by compulsory levies on other sectors. Session III

8. GFS-2001 The basic concepts, classifications, and defini­tions employed in this manual depend on economic reasoning and principles that should be valid univer­sally regardless of the circumstances in which they are applied. Therefore, the GFS system is applicable to all types of economies regardless of the institutional or legal structure of a country's government, the sophistication of its statistical development, the system of government financial accounting, or the extent of public ownership of for-profit entities. This edition of theGFS Manual updates the internationally recognized standards for the compila­tion of statistics required for fiscal analysis that were established by the 1986 GFS Manual. [ Ref. 1.1 to 1.6 of GFS Manual-2001] Session III

9. GFS-2001 Uses of the GFS system:- The GFS system is designed to provide statistics that enable policymakers and analysts to study developments in the financial operations, financial position, and liquidity situation of the general gov­ernment sector or the public sector in a consistent and systematic manner. The GFS analytic frame­work can be used to analyze the operations of a spe­cific level of government and transactions between levels of government as well as the entire general government or public sector . One method used in the GFS system to produce summary information on the overall performance and financial position of the general government or public sector is through the use of a set of balancing items, such as the net operating balance, net lending/borrowing, and the change in net worth. Session III

10. GFS-2001 In contrast to summary measures, the detailed data of the GFS system can be used to examine spe­cific 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 borrow­ing from the banking system. The harmonization of the GFS system with other macroeconomic statistical systems means that data from the GFS system can be combined with data from other systems to assess general government or public sector developments in relation to the rest of the economy [ Ref. 1.7 to 1.10 of GFS Manual-2001] Session III

11. GFS-2001 Structure and features of the GFS system:- The GFS system pertains to the general govern­ment and public sectors as defined in the 1993 SNA and this manual. These sectors are defined in terms of institutional units, which are eco­nomic entities that are capable of owning assets, incurring liabilities, and engaging in economic activ­ities and transactions with other entities in their own right. Two types of flows are recorded in the GFS system: transactions and other economic flows. For the most part, transactions are interactions between two institutional units that take place by mutual agreement. The Statement of Government Operations records the results of all transactions during an accounting period. Session III

12. GFS-2001 Other economic flows include price changes and a variety of other economic events that affect the holdings of assets and liabilities, such as debt write-offs and catastrophic losses. The Balance Sheet for the gen­eral government or public sector is a statement of the stocks of financial and non-financial assets owned, the stock of claims of other units against the owners of those assets in the form of liabilities, and the sector's net worth, equal to the total value of all assets less the total value of all liabilities . The comprehensive treatment of transactions and other economic flows in the GFS system enables the opening and closing balance sheets to be reconciled fully. Session III

13. GFS-2001 That is, the stock of a given type of asset or liability at the beginning of an accounting period plus the changes in that stock indicated by transac­tions and other economic flows equals the stock at the end of the period. Such an integrated statistical sys­tem permits the effects of policies and specific eco­nomic events to be described and analyzed fully. In many cases, the compilation of government finance statistics will be the first step in the compila­tion of statistics for the general government sector of the national accounts. For this reason, some data that normally would not appear in a standard GFS pre­sentation should be maintained in subsidiary records because they are needed for the national accounts. Session III

14. GFS-2001 Definitions of concepts in the GFS system are the same as in the 1993 SNA, but the coverage of a particular category of transactions may be slightly different . Contingencies, such as loan guarantees and implicit guarantees to provide social benefits when various needs arise, can have important economic influences on the general economy but do not result in transactions or other economic flows recorded in the GFS system until the event or condition referred to actually occurs. As a result, provision is made for recording contingencies as memorandum items. [ Ref. 1.11 to 1.20 of GFS Manual-2001] Session III

15. GFS-2001 Methodological changes from the 1986 GFS system:- The methodology for compiling government finance statistics described in this manual differs substantially from the methodology of the 1986 GFS Manual. The following paragraphs summarize the major differences. Coverage: - The focus of the coverage of the revised GFS system is the general government sector as defined in the 1993 SNA, which is defined on the basis of insti­tutional units. The coverage of the 1986 GFS Manual is defined on a functional basis and includes the relevant transactions of any unit carrying out a function of government. Frequently, units of the broader pub­lic sector carry out some functions of government. [Ref. 1.21 to 1.22 of GFS Manual-2001] Session III

16. GFS-2001 1. Basis of recording economic events:- In the revised GFS system, flows are recorded on an accrual basis, which means that flows are recorded at the time economic value is created, trans­formed, exchanged, transferred, or extinguished. In the 1986 GFS Manual, transactions are recorded when cash is received or paid. Using the accrual basis also means that non- monetary transactions are fully integrated in the revised GFS system. In the 1986 GFS Manual only selected non-monetary transactions were recorded as memorandum items Session III

17. GFS-2001 2. Valuation:- Flows as well as assets, liabilities, and net worth are valued at current market prices in the revised GFS Manual, but with a provision for record­ing the nominal value of debt securities as a memo­randum item. In the 1986 GFS Manual, debt securities are valued at the amount the government is obligated to pay when the debt matures, which may differ from both the nominal value and the current market value. [Ref. 1.25 of GFS Manual-2001] 3. Balance sheets:-Complete balance sheets, which include all stocks of financial assets, non-financial assets, liabili­ties, and net worth, are included in the revised GFS system. The 1986 GFS Manual includes only stocks of certain debt liabilities.[ Ref. 1.26 of GFS Manual-2001] Session III

18. GFS-2001 4. Integration of flows and stocks:-The comprehensive recording of transactions and other economic flows permits a full integration of flows and stocks and the reconciliation of differences between the opening and closing balance sheets. Such a reconciliation of the stocks of the debt liabilities included in the 1986 GFS Manual is not possible with­out the collection of additional information [ Ref. 1.27 of GFS Manual-2001] 5. The analytic framework:-In the revised GFS system several new bal­ancing items are introduced. Associated with this change is the view that analysis of the general government sector or the public sector must include a variety of considerations and that no single measure is sufficient for all purposes. In the 1986 GFS Manual, the emphasis of the analytic framework is focused on a single balancing item, the overall deficit/surplus. [ Ref. 1.28 of GFS Manual-2001] Session III

19. GFS-2001 Implementation of the revised GFS system:- I. Some countries may be able, at least initially, to compile only a small part of the revised GFS system. It is not appropriate to lay down general priorities for data collection when economic cir­cumstances may vary so much from one country to another. II. It is recognized that the implementation of the fully integrated GFS system presented in this man­ual will take some time and will need to progress at a pace determined by the differing needs and cir­cumstances of the country involved. In particular, many countries will need to revise their underlying accounting systems to reflect the accrual account­ing principles and revised classifications of the GFS system. Session III

20. GFS-2001 III. Nonetheless, it is likely that many countries will follow a similar path as they implement the system . Another step might be the assembly of balance sheet information on financial assets and liabilities that would enable estimates to be made of the other economic flows of the system as they relate to these financial items. A more difficult step is likely to be the collection of a complete set of information about the stocks of non-financial assets held at a given time and their valuation at current market prices. Finally, a fully developed accrual accounting system could be introduced that provides for complete balance sheets to be prepared. [ Ref. 1.31 to 1.33 of GFS Manual-2001] Session III

21. GFS-2001 Coverage of the GFS System:- 1. Introduction:- The government of a country consists of the pub­lic authorities and their agencies, which are entities established through political processes that exercise legislative, judicial, and executive authority within a territorial area. The principal economic functions of a government are (1) to assume responsibility for the provision of goods and services to the community on a non-market basis, either for collective or individual consumption, and 2. to redistribute income and wealth by means of transfer payments. An additional characteristic of government is that these activities must be financed primarily by taxation or other com­pulsory transfers. Session III

22. GFS-2001 3)The goods and services provided to the com­munity for collective consumption normally consist of services such as public administration, defense, and law enforcement. By definition, collective services are always provided free The goods and services provided to the community as a whole or to individuals may be produced by the government itself or the government may purchase them from a third party. 4) In principle, the GFS system covers all entities that materially affect fiscal policies. Normally, fis­cal policies are implemented by entities wholly devoted to the economic functions of government, such as a government ministry Session III

23. GFS-2001 5)Statistics can be based on information from entities for which complete sets of accounts can be com­piled, including balance sheets. Such accounts per­mit the integration of flows and stocks. That is, all changes in the balance sheet during an accounting period can be traced to a transaction or other identi­fied event recorded in the system. The data needed for the compilation of statistics are usually available in existing accounting records or can be made available. Statistics for government can be harmonized with statistics of the 1993 SNA because the entities for which statistics are compiled are defined identically[ Ref. 2.1 to 2.8 of GFS Manual-2001] Session III

24. GFS-2001 Sectors and institutional units:-. Definition of a sector:- The total economy of a country can be divided into sectors, with each sector consisting of a number of institutional units—defined in the following sec­tion—that are resident in the economy. This manual follows the 1993 SNA by initially dividing the total economy into five mutually exclusive sectors. The units in each sector have similar objectives and these objectives are, in turn, different from those of units in other sectors. The five sectors are as follows: The non-financial corporations sector, which con­sists of entities created for the purpose of produc­ing goods and non-financial services for the market; Session III

25. GFS-2001 The financial corporations sector, which consists of entities engaged in providing financial services for the market; The general government sector, which consists of entities that fulfill the functions of government as their primary activity; The nonprofit institutions serving households sector, which consists of all resident nonprofit institutions, except those controlled and mainly financed by government, that provide non-market goods or services to households; and The households sector, which consists of small groups of persons who share the same living accommodation, pool some or all of their income and wealth, and consume certain types of goods and services collectively Ref. 2.9 to 2.10 of GFS Manual-2001] Session III

26. GFS-2001 Definition of an 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. Some impor­tant features of institutional units follow: The 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 accountable at law. An institutional unit is able to incur liabilities on its own behalf, to take on other obligations or future commitments, and to enter into contracts. Session III

27. GFS-2001 Quasi-corporations:- are entities that are not incorporated or otherwise legally established, but which function as if they were corporations, as defined in the previous two paragraphs. Quasi-corporations are also treated in the same way as corpora­tions in the GFS system, which means that they are institutional units separate from the units to which they legally belong. They are classified as members of either the non-financial corporations sector or the financial corporations sector depending on the nature of their primary activity. In order for a public quasi-corporation to exist, the government must allow the management of the enterprise considerable discretion with respect to the management of the production process and with the use of its funds. The quasi-corporation must be able to maintain its own working capital and be able to finance some or all of its capital formation, either from its own resources or by borrowing Session III

28. GFS-2001 Non-Profit 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, profit, or other financial gain for the institutional units that established, control, or finance them. An NPI may engage in market or non- market production. If it engages in market produc­tion, such as a hospital that charges market prices or a university that charges tuition, then the NPI must either retain any surplus earned from its productive activities to support its future operations or distrib­ute it to institutional units other than the units that established, control, or finance it. Session III

29. GFS-2001 Government units are institutional units that carry out the functions of government as their pri­mary activity. That is, they have legislative, judicial, or executive authority over other institutional units within a given area; they assume responsibility for the provision of goods and services to the community as a whole or to individual households on a non-market basis; they make transfer payments to redistribute income and wealth; and they finance their activities, directly or indirectly, mainly by means of taxes and other compulsory transfers from units in other sec­tors. All government units are members of the gen­eral government sector. Session III

30. GFS-2001 Social security fund :- is a particular kind of government unit that is devoted to the operation of one or more social security schemes, which are defined in the annex to this chapter. A social security fund must satisfy the general requirements of an institutional unit. That is, it must be separately orga­nized from the other activities of government units, hold its assets and liabilities separately, and engage in financial transactions on its own account. Public corporations, in contrast to government units, are potential sources of financial gain to the government units that own or control them. [ Ref. 2.11 to 2.27 of GFS Manual-2001] Session III

31. GFS-2001 The general government sector and its sub-sectors:- 1. The general government sector:- The general government sector consists of all government units and all non-market NPIs that are controlled and mainly financed by government units. Hereafter the term general government unit will be used to refer to units of the general govern­ment sector. A government unit controls a non-market NPI when it has the ability to determine the general policy or program of the NPI. A government unit can deter­mine the general policy or program by having the right to appoint the officers managing the NPI or through financial means [ Ref. 2.28 to 2.39 of GFS Manual-2001] Session III

32. GFS-2001 Sub-sectors of the general government sector:- It is often necessary or desirable for analytic reasons to disaggregate the statistics of the general government sector. Two primary methods of con­structing sub-sectors are presented. The difference between them is the result of alternative possible treatments of social security funds. In the GFS system, provision is made for three levels of government: central; state, provincial, or regional; and local. Other countries may have more than three levels. In that case, the various units should all be classified as one of the three levels suggested here. In addition to levels of government, the existence of social security funds and their role in fiscal policy may require that statistics for all social security funds be compiled as a separate sub-sector of the general government sector . Session III

33. GFS-2001 The requirements to classify general government units according to their level of government and whether they are a social security fund can be accom­modated in two alternative sets of sub-sectors. First, all social security funds could be classified according to the level of government that operates them and com­bined with other general government units at that level. Thus, the sub-sectors would be central, state, and local government, assuming that all three levels of govern­ment exist (Figure 2.1). Second, all social security funds could be combined into a separate sub-sector and all other general government units could be classified according to their level. In that case, the central, state, and local government sub-sectors would consist of all government units other than social security funds [ Ref. 2.40 to 2.47 of GFS Manual-2001] Session III

34. GFS-2001 Figure 2.1: The General Government Sector and Its Sub-sectors. Session III

35. GFS-2001 a. Central Government The political authority of a country's central government extends over the entire territory of the country. The central government can impose taxes on all resident institutional units and on nonresident units engaged in economic activities within the coun­try. The central government typically is responsible for providing collective services for the benefit of the community as a whole, such as national defense, rela­tions with other countries, public order and safety, and the efficient operation of the social and economic system of the country. In addition, it may incur expenses on the provision of services, such as educa­tion or health, primarily for the benefit of individual households, and it may make transfers to other insti­tutional units, including other levels of government. [ Ref. 2.48 to 2.50 of GFS Manual-2001] Session III

36. GFS-2001 b. State, provincial, or regional government A state, province, or region is the largest geo­graphical area into which the country as a whole may be divided for political or administrative purposes. These areas may be described by other terms, such as provinces, cantons, republics, prefectures, or admin­istrative regions. A state government usually has the fiscal authority to levy taxes on institutional units that are resident in or engage in economic activities in its area of competence. To be recognized as a government unit the entity must be able to own assets, raise funds, and incur liabilities on its own account, and it must also be entitled to spend or allocate at least some of the taxes or other income that it receives according to its own policies. [ Ref. 2.51 to 2.54 of GFS Manual-2001] Session III

37. GFS-2001 c. Local government The legislative, judicial, and executive authority of local government units is restricted to the smallest geographic areas distinguished for administrative and political purposes. Local governments typically provide a wide range of services to local residents, some of which may be financed out of grants from higher levels of govern­ment. Statistics for local government may cover a wide variety of governmental units, such as counties, munic­ipalities, cities, towns, townships, boroughs, school districts, and water or sanitation districts. 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 sub-sector. [ Ref. 2.55 to 2.58 of GFS Manual-2001] Session III

38. GFS-2001 D. The Public Sector Statistics should be compiled for the public sec­tor as well as for the general government sector. Most directly, a public corporation can engage in specific transactions to carry out a govern­ment operation, such as lending to particular parties at a lower-than-market interest rate or selling electric power to selected customers at reduced rates . The non-monetary public sector—non-financial public corporations, non-monetary financial public corporations, and the general government sector. Central government public sector—the central government sub-sector plus public corporations controlled by the central government. [ Ref. 2.59 to 2.62 of GFS Manual-2001] Session III

39. GFS-2001 E. Sectors other than the general government and public sectors:- Certain transactions in the GFS system are clas­sified by the sector of the other party to a financial instrument. This section summarizes the definition of the sectors used in those classifications. In some cases, the sec­tors are identical to those defined in the 1993 SNA. In other cases, different groupings of institutional units are appropriate for use in the GFS system. In partic­ular, the term "sector" is used in the 1993 SNA only in reference to resident institutional units. The aggre­gate of all nonresident institutional units is referred to as the rest of the world. In this manual, sector is used to refer to nonresident units in the same manner as it is used to refer to resident units.s Session III

40. GFS-2001 Figure 2.2: The Public Sector Session III

41. GFS-2001 I The financial corporations sector consists of all corporations, quasi-corporations, and market NPIs principally engaged in financial intermediation or in auxiliary financial activities closely related to financial intermediation II. The other depository corporation's sub-sector consists of all depository corporations, quasi-corporations, and market NPIs except the central bank. III. The financial corporations not elsewhere clas­sified sub-sector consists of all non-depository financial corporations, quasi-corporations, and market NPIs. It includes units that raise funds on financial markets other than by deposits and use them to acquire other kinds of financial assets, such as investment corpora­tions, corporations engaged in financial leasing, hire purchase corporations, other corporations engaged in the provision of personal finance or consumer credit, insurance corporations, and autonomous pension funds IV. The other nonresidents sector is an aggrega­tion of all nonresident non-financial corporations, households, and NPIs serving households with which the general government sector had transactions. [ Ref. 2.63 to 2.69 of GFS Manual-2001] Session III

42. GFS-2001 F. Residency:- The concept of residency is important for deter­mining the coverage of the GFS system and the clas­sification of transactions. The total economy of a country consists of the set of all resident institutional units, and the general government sector consists of all resident general government units. . Residency in the GFS system is not based on nationality or legal criteria, although it may be similar to the concepts of residency used for exchange control, taxes, or other purposes in many countries. Each national office acts as the central bank for that country and is treated as a resident institutional unit in that country. The headquarters, however, is an international organization. [ Ref. 2.70 to 2.77 of GFS Manual-2001] Session III

43. Thanks