1. Copyright 2010, The World Bank Group. All Rights Reserved. 1 GOVERNMENT FINANCE STATISTICS INTRODUCTION TO GOVERNMENT FINANCE STATISTICS Part 1 This lecture summarizes the purpose and the main features of government finance statistics and the methods of implementing the system. It provides references to a Glossary of GFS Terms, GFS Questionnaires that are used in the collection and presentation of government finance statistics, and a reference to the IMF Paper that discuss the data sources, preparation, and derivation of GFSM 2001 statistics.

2. Copyright 2010, The World Bank Group. All Rights Reserved. GOVERNMENT FINANCE STATISTICS NATURE OF GFS INFORMATION 1 Government finance statistics (GFS) measure the financial activities of the government in an economy. 2 The GFS presentation is similar to that of business accounting where the profit and loss accounts and the balance sheet are presented together and linked. 3 Data presentation emphasizes the economic substance over the legal form of administrative events. Hence GFS may differ noticeably from the budget or public accounting reports that appear in national presentation of government operations.

3. Copyright 2010, The World Bank Group. All Rights Reserved. 3 GOVERNMENT FINANCE STATISTICS INTERNATIONAL STATISTICAL STANDARDS The establishment of an international government finance statistics standard for fiscal data allows cross-country analysis of government operations. The concepts, classifications, and definitions employed in the GFS Manual can be applied to all types of economies. The 2001 GFS Manual has been harmonized with the statistical standards in the other internationally recognized macroeconomic statistical systems, namely: –the overarching System of National Accounts (1993 SNA), –balance of payments, –monetary and financial statistics.

4. Copyright 2010, The World Bank Group. All Rights Reserved. 4 The coverage of government finance statistics is defined in terms of two major sectors, the general government sector and the public sector, which are in turn subdivided into several subsectors. The general government sector consists of entities that implement public policy through the provision of primarily nonmarket services and the redistribution of income and wealth, with both activities supported mainly by compulsory levies (such as taxes) on other sectors. The public sector consists of the general government sector plus government-controlled entities, known as public corporations, whose primary activity is to engage in commercial activities. GOVERNMENT FINANCE STATISTICS GOVERNMENT SECTORS

5. Copyright 2010, The World Bank Group. All Rights Reserved. 5 GOVERNMENT FINANCE STATISTICS The general government and public sectors of the 1993 SNA and the GFS Manual are defined in terms of institutional units that comprise each sector. Institutional units 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. GFS system covers all entities that materially affect fiscal policies. INSTITUTIONAL UNITS

6. Copyright 2010, The World Bank Group. All Rights Reserved. 6 GOVERNMENT FINANCE STATISTICS DATA FLOWS Two types of data flows are recorded in the GFS system: - transactions, and - other economic flows. Transactions are interactions between two institutional units that take place by mutual agreement. Other economic flows include price changes and other economic events that affect the holdings of assets and liabilities, such as debt write offs and catastrophic losses.

7. Copyright 2010, The World Bank Group. All Rights Reserved. 7 GOVERNMENT FINANCE STATISTICS The results of all transactions during an accounting period are recorded in the Statement of Government Operations. The Statement of Sources and Uses of Cash includes the cash surplus/deficit to indicate the balance of cash flows from government operations and the net acquisition of nonfinancial assets. The results of all other economic flows are recorded in the Statement of Other Economic Flows. The stock of all financial and nonfinancial assets and liabilities at the end of the accounting period is recorded in the Balance Sheet. The comprehensive treatment of all transactions and other economic flows in the GFS system means that the opening and the closing balance sheets can be reconciled. GFS REPORTS

8. Copyright 2010, The World Bank Group. All Rights Reserved. 8 GOVERNMENT FINANCE STATISTICS The various flows and stocks are classified in the GFS system according to their economic nature and policy purpose. The GFS system is designed to provide information that enable policymakers and analysts to study developments in the financial operations, financial position, and liquidity and sustainability situation of the general government sector or the public sector operations. 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. Information on government outlays classified using the Classification of the Functions of Government (COFOG) has a variety of analytical uses. USES OF GFS

9. Copyright 2010, The World Bank Group. All Rights Reserved. 9 GOVERNMENT FINANCE STATISTICS GFS is a statistical time series information system. Most analyses using GFS involve comparisons of data compiled on a consistent basis over many periods. GFS aggregates are usually compared over time by reference to measures of the country’s gross domestic product. USES OF GFS

10. Copyright 2010, The World Bank Group. All Rights Reserved. 10 GOVERNMENT FINANCE STATISTICS IMPLEMENTATION OF GFS Some countries may be able, at least initially, to compile only a small part of the GFS system. Implementation of the fully integrated GFS system will take some time and will need to progress at a pace determined by the differing needs and circumstances of the country involved. A possible first step on the migration path could be that countries adopt the classification structure of the GFS system. The next priority might be to adjust their existing cash-based statistics to allow for known deficiencies, such as by incorporating information on revenue or expense arrears. A further step might be the assembly of balance sheet information on financial assets and liabilities.

11. Copyright 2010, The World Bank Group. All Rights Reserved. 11 GOVERNMENT FINANCE STATISTICS A staged implementation using selected sectors and institutional units as a pilot is recommended. The pilot project for the introduction of GFS methodology should run in parallel with the existing fiscal system for several reporting periods. Migration strategy should recognize a three stage approach: - presentation, - reporting, and - implementation

12. Copyright 2010, The World Bank Group. All Rights Reserved. 12 GOVERNMENT FINANCE STATISTICS Glossary of GFS Terms can be found at: http://www.imf.org/external/pubs/ft/gfs/manual/pdf/gloss.pdf Paper on Data Sources, Preparation, and Derivation of GFSM 2001 Statistics can be found at: http://www.imf.org/external/pubs/ft/gfs/manual/gfsm01Select.pdf The GFS Yearbook Questionnaire used in collection and presentation of government finance statistics data can be found at: http://www.imf.org/external/pubs/ft/gfs/manual/2010/gfsyq.pdf Guidelines and instructions for responding to the GFS Yearbook Questionnaire can be found at: http://www.imf.org/external/pubs/ft/gfs/manual/qins.pdf Guidelines and instructions for responding to the GFS High-Frequency Questionnaire can be found at: http://www.imf.org/external/pubs/ft/gfs/manual/2010/gfshf.pdf REFERENCES