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Heartiest Welcome to the Participants of the Third Group

Training Course at UNSIAP, Chiba, Japan

2SESSION 1-2 GFSUNSIAP TARUN DAS

Course Outline andAnalytical Framework of GFS

Prof. Tarun Das, IILM, New Delhi, India

Presently with MOF, Govt of MongoliaContents

1. Profile of Resource Person2. Learning Outcome and Course

Modules 3. GFS – Analytical Framework4. GFS- Basic Concepts

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1.1 Resource Person- Prof. Tarun Das

• Professor (Public Policy and Research Methodology), Institute of Integrated Learning in Management (IILM), 3 Lodhi Institutional Area, New Delhi-110003, India.

• Presently working as ADB Adviser on Fiscal Management & Strategic Planning, Ministry of Finance , Government of Mongolia, Ulaanbaatar, Mongolia.

Worked as Country Co-coordinator for the IMF GFS and SDDS, World Bank GDF, and the Commonwealth Secretariat DRMS for India.

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1.2 Resource Person- Prof. Tarun Das

• Work Experience: 35 yrs as Development Economist in the government of India: Last assignments: Economic Advisor, Planning Commission (1986-1988) and Economic Adviser, Min of finance (1986-2006)

• Worked as Consultant to the World Bank, ADB, UNDP, UNESCAP, ILO, UNCTAD, UNITAR, GDN, UN Commission for Africa, UNSIAP.

• Worked on Fiscal Management for the Govts of Cambodia, Indonesia, Lao PDR, Mongolia, Nepal, Philippines and Samoa.

• Govt. Delegate to World Bank, ADB, IMF, UNCSD, WTO.

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1.3 Resource Person- Prof. Tarun Das• Research/Teaching Interest:

Econometrics, Research Methodology, Public Policy, Economic Reforms, Poverty, Inequality, Public Debt and External Debt

Possesses diversity in skills in teaching, training, research, policy planning and modeling. Published books and papers on structural reforms, fiscal policies, public and external debt, transport modeling, poverty and inequality, FDI, privatisation, technology transfer.

• Qualifications: MA in Econ. (Gold Medalist), Calcutta University, 1969.– Ph. D. in Econ, as Commonwealth

Scholar, East Anglia Univ., England, 1977.

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2.1 Learning Outcome1. Develop a comprehensive understanding of

the basic concepts, analytical framework, database, methodology, uses, applications and limitations of economic statistics.

2. Develop skills and capabilities for analytical presentation, networking and teamwork through workout sessions in groups.

3. More emphasis will be laid on understanding basic concepts, methodology, techniques, uses and limitations for official statistics, rather than formal proofs and derivation of formula.

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2.2 Pedagogy

1 Teaching techniques will consist of formal lectures, case studies and workout sessions.

2 If time permits, selected case studies may be given so as to facilitate participants to relate to theoretical concepts with real life situations in economic analysis, policy formulation and planning.

3 The participants would present and discuss these case studies in the class.

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2.3 Pedagogy 3. Participants will be provided with

complete course material well in advance. To make classroom presentations by the resource person more meaningful and effective, participants are required to come prepared and collect related information and data from journals and websites, and participate actively in classroom sessions.

4 To develop comprehensive understanding, teamwork and networking with each other, participants are encouraged to participate actively in group discussions and workout sessions.

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2.4 Course Modules

Modules Number of Sessions

1. Government Finance Statistics (GFS)

Six

2. Balance of Payments (BOP) Statistics

Six

3. Monetary and Fiscal Statistics (MFS)

Four

4. Productivity Measures and Analysis (PM)

Four

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2.5 Selected References• Government Finance Statistics 1986• Government Finance Statistics Manual

(GFSM) 2001• Government Finance Statistics (GFS)

Yearbook 2006• Monetary and Financial Statistics

Manual (MFSM): 2007• Monetary and Financial Statistics

(MFS): Compilation Guide 2007• International Financial Statistics (IFS) • Balance of Payments Manual 2005• Balance of Payments Statistics

Yearbook 2006• Website: www.imf.org

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3.1 Classification of Sectors

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3.2 Classification of Sectors

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3.3 Common Govt Accounting System

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3.5 Types of Transactions

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3.6 Distinctions in the nature of government’s money flow

transactions

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3.7 Organisation of government flows by nature of flows

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3.8 Analytical Framework for Classification of govt operations

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4.1 GFS Basic Concepts• All of the data recorded in the GFS

system are either flows or stocks.

Flows and Stocks• Flows refer to economic actions and

effects of events within an accounting period.

• Stocks refer to the value of assets or liabilities at a point in time.

• Flows reflect the creation, transformation, exchange, transfer or extinction of economic value; they involve changes in the volume, composition or value of an institutional unit’s assets and liabilities.

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4.2 Flows and Stocks• Flows and Stocks are related by the

following fundamental relation:

S¹ = Sº+ F or F = S¹ - Sº where Sº = values of a specific stock at

the beginning of an accounting period S¹= values of a specific stock at the end

of an accounting period F = Net value of all flows during the

period that affected that particular stock.

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• Flows are classified into (i) transactions and (ii) other flows.

Transactions• A transaction is an economic flow that is an

interaction between two institutional units by mutual agreement or an action within an institutional unit, which is analytically useful to treat like a transaction.

• Illegal transactions (forbidden by govt laws and regulations) are treated the same way as legal transactions.

4.3 Types of Flows

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• A transaction could be an exchange or a transfer.

• An exchange (sometimes called a transaction of “something for something” or a transaction with a quid pro quo) involves a provision of something of economic value in return for a counterpart item of economic value.

• Purchases of goods and services, acquisition of assets, compensation of employees, dividends, etc. are all exchanges.

4.4 Exchange and Transfer

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• A transfer (also called a transaction of “something for nothing” or a transaction without a quid pro quo) involves a provision (or receipt) of an economic value by one party without receiving (or providing) a counterpart item of economic value.

• Govt grants, subsidies, social security benefits are examples of transfers.

• All taxes and duties and Non-life

insurance premiums and claims are also treated as transfers.

4.5 Transfer

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• Every transaction is either a monetary or non-monetary transaction. A monetary transaction is one in which one institutional unit makes a payment (receives a payment) or incurs a liability (acquires an asset) stated in units of currency.

• Since all flows are to be expressed in monetary terms in GFS Accounts , the monetary values of non monetary transactions need to be estimated.

4.6 GFS Accounting Principals

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• Some transactions are not recorded in the form in which they appear to take place. Instead they are modified to bring out their underlying economic relationships.

• Rerouting records a transaction as taking place in channels different from that observed. Social contributions paid by employers directly to the retirement scheme provide an example.

• Partitioning unbundles two or more different transactions that appear as a single transaction. For example, bank interests payable to financial intermediaries are partitioned into two components- interests and service charges.

4.7 Rerouting and Partitioning

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4.8 Reassignment and Imputation

Reassignment – Central govt collects taxes and transfers fixed proportions to the subnational governments.

Imputation of transactions refers to constructing entries in the accounts when no actual transactions occur.

• Retained earnings of direct investment enterprises are treated as reinvestments made by them.

• Property income earned on technical reserves held by insurance corporations and pension funds are deemed to be payable to policy holders who are then deemed to pay back to them.

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4.9 Reassignment and Imputation

• When government has a nonresident entity to undertake fiscal functions related to government borrowing and/or incurring government outlays abroad, transactions are imputed in the accounts of both the government and the nonresident entity to reflect the fiscal activities of the govt.

• Retained earnings of investment funds are treated as if they were distributed to shareholders who are then deemed to reinvest in the investment fund.

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4.10 Other economic flows• Other economic flows are changes in

the volume or value of an asset or liability that does not result from a transaction or revaluation.

• Volume changes are described as other changes in the volume of assets or simply other volume changes.

• Value changes are described as holding gains and losses.

• Examples are unilateral write offs of claims by creditors, reclassification of assets, monetization/demonetization of gold, and other events.

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4.11 Other changes in volume of assets

(a)Events that involve the addition to or deletion from the balance sheet of an existing asset or liability with no changes in its quantity or quality. Example- A river bridge destroyed by cyclone is abandoned before its complete construction.

(b) Events that change the quantity or quality of assets. Example- Creation of land by reclaiming sea.

(c)Events that lead to changes in the classification of assets. Examples- privatization, corporatization or outright sale of Govt's telecom department.

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4.12 Holding gains and losses

Holding gains and losses on assets and liabilities, together with the corresponding changes in net worth, arise as a result of changes in the prices of those assets and liabilities, including changes resulting from exchange rate movements.

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4.13 Credits and Debits• A debit is an increase in an asset, a

decrease in a liability, or a decrease in net worth.

• Conversely, a credit is a decrease in an asset, an increase in a liability, or an increase in net worth.

• Revenue entries, which represent an increase in net worth, are recorded as credits.

• Conversely, an expense refers to a decrease in net worth and is recorded as a debit.

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4.14 Net changes in assets

• In the case of the flows in financial assets and liabilities, the terms “net changes in assets” and “net changes in liabilities” are used to reflect the nature of the financial flows, which are recorded on a net basis separately for each financial asset and liability.

• For both assets and liabilities, a positive change indicates an increase in stocks and a negative change indicates a decrease in stocks.

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4.15 Time of Recording of Flows

• Once a flow is identified, the time at which it occurred must be determined so that the results of all flows within a given accounting period can be compiled.

• Determination of timing is very important for maintaining consistency of financial accounts but is complicated due to existence of leads and lags in receipts and payments.

• Broadly, time of recording is determined on four bases: accrual basis, the due-for-payment basis, the commitment basis, and the cash basis.

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4.16 Time of Recording of Flows

• Accrual accounting records flows at the time when an economic value is created, transformed, exchanged, transferred, or extinguished.

• In other words, the effects of economic events are recorded in the period in which they occur, irrespective of whether cash was received or paid or was due to be received or paid.

• A due-for-payment basis records flows at the time when payments fall due. If a payment is made before it is due, then the flows are recorded when the cash payment is made.

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4.17 Time of Recording of Flows• A commitment basis records flows

when a unit has committed itself to a transaction. Normally, this basis applies only to acquisition of financial assets or incurrence of liabilities, and purchases of goods, services, and labor inputs.

• The time of recording generally is when a commitment is made or a purchase order is issued. Flows for which the commitment basis is not applicable must be recorded on one of the other three bases.

• A cash basisA cash basis records flows when cash is received or disbursed. In its strict form, only those flows that involve cash as the medium of exchange are included.

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4.18 Advantages of Accrual Accounting• International best practices use the

accrual basis for recording of flows, as it matches the time of recording with the timing of the events giving rise to the actual resource flows.

• With the cash basis, the time of

recording may diverge significantly from the time of events and transactions to which the cash flows relate.

• The due-for payment basis usually records transactions after the resource flows have taken place.

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4.19 Advantages of Accrual Accounting

• The timing of the commitment basis will precede the actual resource flows.

• The accrual basis provides the most comprehensive information because all resource flows are recorded, including non monetary transactions, imputed transactions, and other flows.

• Such a comprehensive recording ensures the integration of flows and changes in balance sheets.

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4.20 Valuation• Market prices are the basis for valuation

of both flows and stocks.• Market prices refer to current exchange

value, i.e., the values at which goods and other assets, services, labor are exchanged or else could be exchanged for cash.

• The basis of transaction valuations is generally actual market prices agreed upon by transactors. This practice is consistent with that of the SNA.

• Conceptually, all stocks of A&L are valued at market prices prevailing at the time to which the international investment position relates.

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4.21 Different Concepts of Values

• Fair value : Market-equivalent value, for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction.

• Nominal value : Amount the debtor

owes to the creditor, comprising outstanding principal & accrued interest.

• Amortized value : Initial amount at which the financial asset or liability was measured less principal repayments.

• Face value: Undiscounted principal amount to be repaid.

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4.22 Different Concepts of Values

• Book value : The value recorded in an enterprise’s records. It may have different meanings because the book value is influenced by timing of acquisition, company takeovers, frequency of revaluations, tax and other regulations.

• Historic cost reflects the cost at the time of acquisition, but sometimes it may also reflect occasional revaluations.

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4.23 Aggregation and Netting

• Aggregates are summations of elementary items in a class of flows or positions. For example, compensation of employees is the sum of all flows that are classified as compensation of employees.

• In the case of flows in financial assets and liabilities, the term “net” have dual meanings (summing all debits/ credits for a financial asset or a liability type and netting of an asset against a liability).

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4.24 Aggregation and Netting• “Net recording” refers to aggregations

where all debit entries of a particular asset or liability are netted against all credit entries in the same asset or liability type (e.g., acquisitions of foreign currency are netted against the sales of the foreign currency; bond issues are netted against redemption).

• When net is used together with a type of financial instrument such as “net financial derivative”, it means netting of a financial asset against the same type of liability.

• Title of some derived measures uses the term “net” such as “net lending/borrowing” and “net fiscal deficit”.

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4.25 Differences with SNA 1993

In general, the transactions of the 1993 SNA that are not recorded in the GFS system include the following:

• The output and simultaneous distribution of non-market goods and services;

• The output of fixed assets constructed on government own account and the costs of producing those assets;

• Certain transactions related to employer social insurance schemes providing retirement benefits and anaged by general government units; and

• Transactions reflecting the reinvestment of earnings on direct foreign investment.

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Thank youHave a Good Day