1. Copyright 2010, The World Bank Group. All Rights Reserved. Introduction to the SNA, advanced Lesson 6 The 2008 SNA compared with government finance statistics (GFS) 1

2. Copyright 2010, The World Bank Group. All Rights Reserved. Background The statistical framework for compiling government finance statistics is the IMF’s Government Finance Statistics Manual (i.e. the “GFS Manual”) The 2008 SNA differs from the GFS system in that its central focus is on economic concepts such as production, whereas the GFS system concentrates mainly on fiscal concepts such as revenues and expenses The GFS system is designed to provide data that can be used in compiling the national accounts – these two data systems have many concepts in common – some national accounts aggregates (e.g. government final consumption expenditure) are not shown in GFS but all the data required to estimate them are collected 2

3. Copyright 2010, The World Bank Group. All Rights Reserved. The GFS Manual The GFS Manual is the international guideline for compiling statistics relating to the public sector – while the GFS Manual provides guidelines on compiling statistics for the whole public sector, it concentrates on a specialized set of macroeconomic statistics to support fiscal analysis of units in the government sector An important distinction in the GFS is that between the government sector and the public sector – the definitions of both are identical to those contained in the 2008 SNA 3

4. Copyright 2010, The World Bank Group. All Rights Reserved. The SNA institutional sectors The SNA’s domestic sectors 4 Financial corporations Non-financial corporations Households General government NPISHs

5. Copyright 2010, The World Bank Group. All Rights Reserved. The public sector PUBLIC SECTOR (GFS) 5 Private financial corporations Public non-financial corporations Households General government NPISHs Private non-financial corporations Public financial corporations

6. Copyright 2010, The World Bank Group. All Rights Reserved. The GFS presentation of data The core of the GFS analytic framework is a set of four financial statements Three of the statements can be combined to show the flows contributing to the changes in stocks of assets and liabilities (1) the Statement of government operations (2) the Statement of other economic flows (3) the Balance sheet In addition, the framework includes a Statement of sources and uses of cash to provide key information on liquidity – there is no equivalent to this statement in the SNA 6

7. Copyright 2010, The World Bank Group. All Rights Reserved. GFS data items The GFS considers transactions that increase net worth as contributing to an aggregate called “revenue” and transactions that decrease net worth leading to an aggregate called “expense” In addition there are two main balancing items, “net operating balance” and “net lending/borrowing”. The GFS defines “revenue” as an increase in net worth resulting from a transaction For government units, the main sources of revenue are (1)taxes and other compulsory transfers imposed by government units (2)property income derived from the ownership of assets (3)sales of goods and services (4)voluntary transfers received from other units 7

8. Copyright 2010, The World Bank Group. All Rights Reserved. GFS Data items (continued) The GFS defines “expense” as a decrease in net worth resulting from a transaction Governments have two broad economic responsibilities – to assume responsibility for the provision of selected goods and services to the community on a non-market basis – to redistribute income and wealth by means of transfer payments These responsibilities are largely fulfilled through expense transactions, which are classified in two ways in the GFS system – either through an economic classification or via a functional classification 8

9. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of government operations The Statement of Government Operations is a summary of the transactions of the general government sector in a given accounting period In essence, transactions represent changes to stocks of assets and liabilities that arise from mutually agreed interactions between institutional units, such as the sale of a good or service by one unit and its purchase by another 9

10. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of government operations 10 TRANSACTIONS AFFECTING NET WORTH REVENUEEXPENSE TaxesCompensation of employees Social contributionsUse of goods and services GrantsConsumption of fixed capital Other revenueInterest TOTAL REVENUESubsidies Grants Social benefits Other expense TOTAL EXPENSE NET OPERATING BALANCE = TOTAL REVENUE – TOTAL EXPENSE

11. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of government operations (continued) 11 TRANSACTIONS IN NON-FINANCIAL ASSETS NET ACQUISITION OF NON-FINANCIAL ASSETS Fixed assets Change in inventories Valuables Non-produced assets TOTAL NET ACQUISITION OF NON-FINANCIAL ASSETS (= NET ACQUISITION – CONSUMPTION OF FIXED CAPITAL ) NET LENDING(+)/BORROWING(–) (= NET OPERATING BALANCE – TOTAL NET ACQUISITION OF NON- FINANCIAL ASSETS)

12. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of other economic flows The GFS Statement of other economic flows shows the effects on the government’s net worth that are not the result of government transactions – this statement is equivalent to a combination of the SNA’s Other changes in volume account and the Revaluation account – the balancing item in this statement is the change in net worth resulting from other economic flows 12

13. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of sources and uses of cash The general accounting principle described in the SNA is that accrual accounting should be used throughout – in practice accrual accounting means that transactions between units have to be recorded when claims and obligations arise, are transformed or are cancelled The GFS’s Statement of sources and uses of cash shows the total amount of cash generated or absorbed by (1)current operations (2)transactions in non-financial assets (3)transactions involving financial assets and liabilities other than cash itself The net change in the government’s cash position is the sum of the net cash received from these three sources 13

14. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of sources and uses of cash (continued) 14 CASH FLOWS FROM OPERATING ACTIVITIES CASH RECEIPTS FROM OPERATING ACTIVITIES CASH PAYMENTS FOR OPERATING ACTIVITIES TaxesCompensation of employees Social contributionsPurchases of goods and services GrantsInterest Other receiptsSubsidies TOTAL CASH RECEIPTSGrants Social benefits Other payments TOTAL CASH PAYMENTS NET CASH INFLOW FROM OPERATING ACTIVITIES = TOTAL CASH RECEIPTS – TOTAL CASH PAYMENTS

15. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of sources and uses of cash (continued) 15 CASH FLOWS FROM INVESTMENTS IN NON-FINANCIAL ASSETS PURCHASES OF NON-FINANCIAL ASSETS SALES OF NON-FINANCIAL ASSETS Fixed assets Strategic stocks Valuables Non-produced assets TOTAL PURCHASESTOTAL SALES NET CASH OUTFLOW FROM INVESTMENTS IN NON-FINANCIAL ASSETS = PURCHASES LESS SALES OF NON-FINANCIAL ASSETS CASH SURPLUS/DEFICIT = NET CASH INFLOW FROM OPERATING ACTIVITIES MINUS THE NET CASH OUTFLOW FROM INVESTMENTS IN NON-FINANCIAL ASSETS

16. Copyright 2010, The World Bank Group. All Rights Reserved. Statement of sources and uses of cash (continued) The final part of the GFS Statement of sources and uses of cash covers the cash flows from financing activities – the receipts in this statement relate to the net acquisition of financial assets other than cash – the payments in the statement relate to the net incurrence of liabilities – in both cases, domestic and foreign flows are identified separately The bottom line in this part of the statement is the “Net cash inflow from financing activities” – it can be combined with the cash surplus/deficit to obtain a total for the “Net change in the stock of cash” 16

17. Copyright 2010, The World Bank Group. All Rights Reserved. Consolidation The GFS defines “consolidation” as a method of presenting statistics for a set of units as if they constituted a single unit The SNA and GFS have different philosophies regarding consolidation The SNA recommends that statistics of institutional units should not be consolidated – it considers that consolidation is generally undesirable because it may hide some useful information and distort the balancing items that are so important in the SNA’s sequence of accounts The GFS recommends that statistics for the general government sector and each of its subsectors should be presented on a consolidated basis 17

18. Copyright 2010, The World Bank Group. All Rights Reserved. Consolidation (continued) The one area in which the SNA concedes that consolidation may be useful is within the government sector The difference between the SNA and the GFS reflects the different uses of the statistics – the GFS system is designed to produce statistics suitable for use in analysing the impact of government operations, either the entire general government sector or a specific subsector – in particular, the GFS considers that assessing the overall impact of government operations on the total economy is more effective when the measure of government operations is a set of consolidated statistics 18

19. Copyright 2010, The World Bank Group. All Rights Reserved. Using GFS data in the national accounts The national accounts compiler’s main interest in the GFS is the extent to which the GFS data can be used in compiling the national accounts The GFS Manual recommends that government transactions should be recorded on an accruals basis – this is consistent with the SNA In practice, it is likely that a country’s GFS-based accounts are cash based, either entirely or at least to a large extent – some complicated adjustments are required to use cash- based data in the national accounts 19

20. Copyright 2010, The World Bank Group. All Rights Reserved. References System of National Accounts, 2008 (SNA) Government Finance Statistics Manual (GFS) 20