1. Reproductions of this material, or any parts of it, should refer to the IMF Statistics Department as the source. Real Sector Division IMF Statistics Department Advisory Expert Group Meeting Inter Secretariat Working Group on National Accounts Washington, DC, September 8-10, 2014 International Financial Institutions Kim Zieschang

2. Real Sector Division IMF Statistics Department Accounting for International Financial Institutions (IFIs) in the national accounts  IFIs do produce service output  Their output is sold/provided to their member countries and thus in principle enters members’ service imports, and IFI transactions also have implications for countries’ primary income and disposable income from abroad  But coverage of these services is not uniform in the national accounts and BOP of countries, particularly as regards the indirectly measured services (FISIM), if any, that they provide De minimus argument may have force for many member countries of IFIs, but perhaps not for some members that have made unusually heavy use of IFI financial resources As this is an application of FISIM and thus capital accounting, has definition of income implications: a need for research

3. Real Sector Division IMF Statistics Department IMF exemplifying IFIs [1]  The IMF holds an array of financial assets, including monetary gold (2008 SNA AF1), deposits (AF2), debt securities (AF3), and loans (AF4).  The IMF is an Other financial intermediary (S125), whose “Reserve position in the IMF” liability is classified as Other deposits (AF29) [2008 SNA, paragraph 11.59; BPM6, paragraph 5.43].  IMF financial statements comply with the International Financial Reporting Standards (IFRS), but its balance sheet contains some financial positions the 2008 SNA considers contingent and thus not within the SNA asset boundary; in addition, valuations do not necessarily comply with 2008 SNA standards (historical valuation of gold and fixed [nonfinancial] assets).

4. Real Sector Division IMF Statistics Department IMF exemplifying IFIs [2]  The IMF is a cooperative financial institution, whose owners vote on the basis their share (quota) of paid in (Reserve tranche) and pledged (Subscription payments) financial capital that is determined jointly by its member countries in periodic (quota) review exercises; like some other cooperative financial institutions, IMF members have both a deposit (AF29 – Other deposits, 2008 SNA, paragraph 11.59) and equity (AF519 – Other equity, 2008 SNA, paragraph 11.88) interest in the institution (see IMF paper on Other equity, this meeting).  The IMF undertakes a substantial amount of loan monitoring and financial surveillance activity.

5. Real Sector Division IMF Statistics Department IMF exemplifying IFIs [3]  The information with which IMF current price output and the uses of that output by its member countries might be calculated is, for the most part, already published on its website (http://www.imf.org/external/fin.htm).http://www.imf.org/external/fin.htm

6. Real Sector Division IMF Statistics Department Output and uses of output of IFIs [1]  Market output Directly measured—service charges, used as paid Indirectly measured—financial intermediation services indirectly measured (FISIM)  2008 SNA de minimus language on interbank flows of FISIM predicated on reference rate being interbank rate  Other options for reference rate of financial institutions will generally be higher (e.g., inst. cost of capital/cost of funding)  On FISIM output, one reference rate per institution (cost of capital/funds)  On use of FISIM, valuation based on reference rate of supplying institution; makes more precise 2008 SNA language concerning specific reference rates for different currencies of denomination when the supplier is nonresident—but only for uses of FISIM, not output)  Regional central banks are SNA central banks (S121), but in IMF’s view, IMF is not a bank, but an Other financial intermediary (S125)  IFI Other deposit funding (AF29) not considered to be in broad money

7. Real Sector Division IMF Statistics Department Output and uses of output of IFIs [2]  Non-market output (e.g., technical assistance) Test for non-market status  Most IFIs like IMF more than cover the cost of providing technical assistance financed from their administrative budgets  Part of loan monitoring and financial surveillance?  But, technical assistance enabled by “Structured Fund Account” financing, provided directly by some member countries in support of other members, with IMF executing, might be associated with a non-market transaction with an explicit IMF administrative service charge to the donor (thus in the donor’s service imports).  IMF does not report SFA funding within its own accounts (General Department), but independently (e.g., April 2014 Financial Report, p. 77) Output at sum of costs  Reconsider fully including capital charges, not just consumption of fixed capital in “Operating expense”

8. Real Sector Division IMF Statistics Department Output and uses of output of IFIs [3]  Non-market output (e.g., technical assistance) (cont’d) Uses  A service import (supply) used as intermediate or final consumption; with a corresponding Current international cooperation (D74, an Other current transfer—D7) flow in calculating Disposable income.  Human capital formation?  Generally, recipient is the Central government of the member country [S1311 or S1321], or the member’s Central bank [S121])  A human capital investment, but human capital currently outside the asset boundary.

9. Real Sector Division IMF Statistics Department FISIM algebra for IFIs [1] Table 1. Notation ConceptFlowAssetLiability Output (total, in current prices) P1P1 Directly priced output prices (m vector) p Directly priced output quantities (m vector) y Intermediate consumption Compensation of employees D1D1 Other taxes on production D29 Consumption of fixed capital ─P51c Nonfinancial assets AN Financial instruments AFAAFL Monetary gold and SDRs AF1AAF1L Monetary gold AF11A SDRs AF12AAF12L Non-equity debt instruments Deposits AF2DAAF2DL Debt securities AF3AAF3L Loans AF4AAF4L Equity capital AF51AAF5CL

10. Real Sector Division IMF Statistics Department FISIM algebra for IFIs [2] Cash flow identity Balance sheet identity

11. Real Sector Division IMF Statistics Department FISIM algebra for IFIs [3] SNA output: direct charges and FISIM + cost side implications (note the last term on the RHS) Reference rate (cost of funding, including equity) Scope of instruments question: This is essentially 1993 SNA scope of FISIM; 2008 SNA subtracts positive and negative FISIM margins from both sides of the above output = cost equation for all instruments other than deposit liabilities and loan assets.

12. Real Sector Division IMF Statistics Department FISIM algebra for IFIs [4] Uses of output by IFI member countries ( ith country)

13. Real Sector Division IMF Statistics Department Recommendations for AEG [1] (1) Based on the example of the IMF, research on the determining the FISIM output of IFIs and the uses of that output by their member countries is potentially feasible. However, measuring the output of other IFIs has not been attempted and is likely to raise additional issues. Among these would be measurement of the nonmarket services of the IMF, if any. Thus further research could examine these additional issues – including reconsideration of the nature of technical assistance as a service rather than a current transfer - and test the de minimus argument. The research could also shed light on the performance of, e.g., alternative internal reference rate calculations for these institutions, among which would be a cost of funds calculation.

14. Real Sector Division IMF Statistics Department Recommendations for AEG [2] (2) The conceptual implications of measuring IFI output for member countries’ national accounts, balance of payments and perhaps government finance statistics would need to be carefully considered and whether they are de minimus. (3) This work may have Research Agenda implications for the scope of the financial instruments associated with the production of FISIM.

15. Real Sector Division IMF Statistics Department Questions for AEG (1) What experience do AEG members have with measuring the explicit and implicit services of IFIs? (2) What are the AEG’s views on initiating research to determine the output of IFIs, including FISIM and nonmarket services provided, and the conceptual implications for member countries national accounts, balance of payments and perhaps government finance statistics? (3) If the AEG agrees research should be undertaken, does it agree with the proposed scope of that research? (4) Should any research be undertaken with the purpose of updating the SNA before or at the next update of the SNA?