Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. IMF Statistics Department NBS-OECD Workshop, Guangzhou, December 2014 Robert Dippelsman, IMF Statistics Department Distinction and Links between BALANCE SHEETS OF THE GOVERNMENT SECTOR (i) in the SNA and (ii) Government Accounts

IMF Statistics Department Overview  A. Background on the Data Gaps Initiative and SDDS Plus  B. What’s special about government? How do we define general government? How do government accounts differ from macroeconomic statistics?  C. What does the government balance sheet look like?  D. How is the government balance sheet used?  E. Conclusions 2

IMF Statistics Department A. BACKGROUND ON DGI AND SDDS PLUS What data problems were identified in the global financial crisis? SDDS Plus 3 G-20 Data Gaps Initiative

IMF Statistics Department IAG  Started in  Twenty recommendations proposed under the DGI to close the information gaps revealed by the global financial crisis  Progress reports submitted to the G-20 Finance Ministers and Central Bank Governors  Sectoral accounts and balance sheets in: Recommendation 15 (sectoral accounts), Recommendation 17 (government finance statistics) Recommendation 18 (public sector debt) 4 G-20 Data Gaps Initiative

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SDDS Plus : 9 Additional Categories 6

IMF Statistics Department B. What’s special about government?  Largest actor in economy  Impacts on everybody with spending and taxes  Can be a source of economic imbalances  Can be used for policy purposes (fiscal policy)  Has a complex structure of agencies/funds/corporations plus different levels of government  Has its own accounting systems with its own data formats and processes 7

IMF Statistics Department What’s in general government? 8 General government sector Nonfinancial corporations Financial corporations House- holds NPISHs General government sector SNA Definition: Defined by economic function, not by administrative arrangements All government units and nonmarket nonprofit institutions (NPIs) that are controlled by government units Government units have legislative, judicial, or executive authority over other institutional units within a given area Assume responsibility for the provision of goods and services to the community or to individual households on a nonmarket basis Make transfer payments to redistribute income and wealth; and Finance their activities mainly by means of taxes and other income from units in other sectors of the economy

IMF Statistics Department 9 Government finance statistics provide structural detail about the components of general government General government Local government Central government State government Social Security Fund(s) Budgetary Central Government Extrabudgetary Central Government Social Security Fund(s) Alternative

IMF Statistics Department How does general government differ from the public sector? 10 General government sector Nonfinancial corporations Financial corporations House- holds NPISHs Public Private

IMF Statistics Department What’s special about government accounting? 11 While business accounts tend to be somewhat standardized because of tax laws and International Financial Reporting Standards (IFRS), governments usually have their own accounting framework. The International Public Sector Accounting Standards (IPSAS) Board has developed accounting standards for government -Not as widely adopted as IFRS in the private sector. -The same as, or reconciled with, the international standards for macroeconomic statistics (see Appendix 6 of the Government Finance Statistics Manual).

IMF Statistics Department Features of government accounting (1) Government accounts 1. Based on national laws / regulations / traditional budget practices --- Not internationally comparable --- Not consistent with other sectors of the economy 2. Oriented towards administering government --- Control of cash flows/commitments --- Managing debt separated from managing assets 12

IMF Statistics Department Features of government accounting (2) Government accounts 3. Coverage of entities based on administrative arrangements --- Off-budget agencies 4. Often flows only. If stock data are available, they may be: Incomplete (e.g., debt only); Compiled by another unit to the one that does the flows Measured with different valuation concepts 13

IMF Statistics Department  The international statistical standards overcome these limitations of government accounts for economic analysis 14

IMF Statistics Department Features of government accounting compared with economic statistics (1) Government accountsEconomic statistics 1. Based on national laws / specific budget practices --- Not internationally comparable --- Not consistent with other sectors Based on international standards. Harmonized with other macroeconomic statistics 2. Oriented towards administering government --- Control of cash flows/commitments --- Managing debt separated from managing assets Oriented toward economic concepts --- Follows actual resource flows 15

IMF Statistics Department Features of government accounting compared with economic statistics (2) Government accountsEconomic statistics 3. Coverage of entities based on administrative arrangements --- Off-budget agencies Coverage based on economic function --- General government concept 4. Often flows only. If stock data are available, they may be: Incomplete (e.g., debt only); Compiled by another unit to the one that does the flows Measured with different valuation concepts Comprehensive and coherent stocks and flows 16

IMF Statistics Department Features of government accounting compared with economic statistics (3)  Government budget formats and definitions are well- established and serve important administrative functions  Also need to follow international statistical standards for government  Government budget systems are the source for macroeconomic statistics So we need adjustments and additional information to meet the requirements of economic statistics 17

IMF Statistics Department C. WHAT DOES THE GOVERNMENT BALANCE SHEET LOOK LIKE? (used in System of National Accounts and Government Finance Statistics Manual) AssetsLiabilities and net worth Nonfinancial assets Fixed assets Inventories Valuables Natural resources Contracts, leases, licenses, goodwill, marketing assets Financial assets Monetary gold and SDRs Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pensions, standardized guarantee schemes Financial derivatives Other accounts receivable Liabilities SDRs Currency and deposits Debt securities Loans Equity and investment fund shares Insurance, pensions, standardized guarantee schemes Financial derivatives Other accounts payable Net worth Total assetsTotal liabilities and net worth Memorandum items: Debt Nonperforming loan assets Contingent liabilities Nominal values … 18

IMF Statistics Department (a) Coverage of types of assets and liabilities  Analysis needs comprehensive data  Hidden liabilities In macroeconomic statistical standards but often missing in practice  Other accounts payable (especially arrears)  Pension liabilities to government employees Off-balance sheet liabilities  Contingent liabilities (loan and deposit guarantees) 19

IMF Statistics Department (b) Coverage of government units  Analysis needs comprehensive data  Common gaps: Extra-budgetary agencies Social security funds State and local governments Public corporations 20

IMF Statistics Department The Significance of Extrabudgetary Units in Central Government 21 The Number of Extrabudgetary Units for Selected Countries Note: these are not included in Budgetary Fiscal data

IMF Statistics Department What is government debt as a % of GDP? 22

IMF Statistics Department (c) Valuation  Economic statistics use current market values  Accounting data often use historic cost Long-life assets use prices of many years before Inflation makes historic cost out of date Accounting deprecation may differ from “consumption of fixed capital”  Accounting data often use nominal or face value of debt Accrual of interest 23

IMF Statistics Department D. HOW IS THE BALANCE SHEET USED?  Compare liability levels Debt sustainability analysis  Liquidity management for debt Remaining maturity Currency of denomination  Assets Compare asset holding patterns with other countries Gross debt with corresponding assets is misleading Contagion if assets are vulnerable 24

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IMF Statistics Department Composition of government balance sheets 27 General Government Assets and Liabilities (Percent of GDP)

IMF Statistics Department  Same issues also arise for flows: “Deficit” can have different meanings, causing confusion to users 28

IMF Statistics Department E. CONCLUSIONS  Both use the same data sources, but … Some justifiable differences between accounting and statistics  Accountants and statisticians need to work together Understand different objectives Have good communication and coordination  Need to be clear to users about differences and their causes Metadata Bridge tables Avoid confusion and reputational risk 29

IMF Statistics Department Thank you  Any questions? 30