Understanding Fiscal Rules and Interpreting the Data

Some countries, such as Australia, have fiscal rules that apply to the central government, others such as the UK have fiscal rules that extend across the entire public sector. How do countries determine whether they achieve their fiscal targets? This depends on how targets are calculated and what they cover.

The IMF encourages countries to report fiscal data to the Fund using a standard statistical methodology set out in the IMF’s Government Finance Statistics Manual (GFSM).

GFSM 2014

The Government Finance Statistics Manual 2014 (GFSM 2014), the latest edition of the IMF’s GFSM, is available at http://www.imf.org/external/np/sta/gfsm

The GFSM 2014 is aligned with other macroeconomic manuals, including the System of National Accounts 2008 and the sixth edition of the Balance of Payments and International Investment Manual.

It includes statistical definitions for various fiscal aggregates, balances, and stock positions, and other useful indicators directly available from the GFSM framework, as well as guidance on how to calculate other useful analytical measures such as structural, cyclical, and primary balances.

E-Learning

E-learning videos explaining the key concepts in the GFSM framework are available at www.youtube.com/user/imf

IMF GFS Data

The IMF collects data in line with the GFSM format for over 150 countries and publish these data in the Government Finance Statistics Yearbook (GFSY) and the International Financial Statistics (IFS). GFSM definitions are also used in the World Economic Outlook and the Fiscal Monitor.

These comprehensive GFS data can be found with other datasets disseminated by the IMF at http://www.imf.org/external/data.htm

Statistics DepartmentINTERNATIONAL MONETARY FUND

2014INTERNATIONAL MONETARY FUND700 19TH STREET, N.W.WASHINGTON, D.C. 20431U.S.A.

CONTACT: stagodata@imf.org

USING THE GOVERNMENT FINANCE STATISTICS

MANUAL 2014 (GFSM 2014) IN FISCAL ANALYSIS

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Increasing Use of Fiscal Rules

Fiscal targets and quantitative indicators are on the rise. A large number of countries have adopted fiscal rules, requiring governments to keep their public or government finances within specific limits.

These rules, such as those on General Government Debt and Deficit under the Maastricht Treaty, vary in terms of institutional coverage (central government, general government or the public sector), and of key targets (debt, revenue, expenditure).

The comparability of fiscal statistics is important for global policy analysis, particularly the policy implications of spillover effects and for a focus on fiscal space. The recent financial crisis demonstrated the importance and relevance of reliable and cross-country comparable fiscal statistics

Fiscal Indicators in the Government Finance Statistics Manual

The GFSM 2014 is the internationally agreed methodological standard for compiling comprehensive government finance statistics for policy analysis. It describes concepts, definitions, accounting rules, classifications, and standard data presentation.

The GFSM 2014 provides detailed guidance on how to record comparable government revenue, expense, expenditure, transactions in financial assets and liabilities and balance sheets within an integrated framework and provides for a list of indicators for fiscal analysis across the different levels of general government and the public sector.

There is no one single number that tells the whole story about the strength or sustainability of government finances.

GFSM provides for a range of fiscal indicators that can be used for fiscal analysis and that can be used to reach different conclusions on the health of government finances.

Annex 4 of the GFSM 2014 discusses in detail the fiscal indicators that can be used for fiscal analysis.Examples of various fiscal indicators for three individual economies are provided below.

Fiscal Indicator Statistical Definition GFS Codes*Country A

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Gross Operating Balance Revenue minus expense, excluding consumption of fixed capital. 1-2+23 -0.8 -1.8 0.1

Primary Operating BalanceNet operating balance minus interest expense (can also be calculated using net interest expense). 1-2+24 -1.3 1.6 -0.4

Net Operating Balance Revenue minus expense. 1-2 -2.4 -3.9 -2.3

Net Lending/Net Borrowing Revenue minus expense minus net investment in nonfinancial assets; or Revenue minus expenditure. 1-2-31 or 1-2M -4.1 -3.8 -3.3

Cyclically Adjusted BalanceTrend balance through an economic cycle (usually involves the exclusion of unemployment benefits from government expense)

1-2 excluding cyclical items -3.7 -3.3 -2.8

Cash Balance (also referred to as cash deficit/surplus)

Cash surplus (+) / Cash deficit (-) (CSD) equal to the net cash inflow from operating activities minus the net cash outflow from investment in nonfinancial assets.

C1-C2-C31 -4.1 - -

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Transactions in financial assets minus transactions in financial liabilities. Conceptually equal to net lending / net borrowing.

32-33, or 82-83 -4.1 -3.8 -3.4

Foreign FinancingTransactions in financial assets minus transactions in financial liabilities - both with the rest of the world 322-332 or 822-832 - -2.9 -4.5

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Total debt instruments (including unfunded pension liabilities but excluding liabilities in equity and investment fund shares and financial derivatives and employee stock options).

63-6305-6307 62 131 52

Debt Net of Highly Liquid AssetsGross debt minus highly liquid financial assets (typically currency and deposits). (63-6305-6307)-6202 60 101 46

Net DebtGross debt minus financial assets corresponding to debt instruments.

(63-6305-6307)- (62-6205-6207) 41 80 39

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Tax Burden Tax revenue in per cent of GDP. 11 / GDP 25 33 16

Gross Fixed Capital Formation Acquisitions minus disposals of fixed assets 311.1 -311.2 3.1 2 3.5

Social SpendingExpenditure on housing, health, education and social protection. 706+707+709+710 22 28 24

In percent of GDP

*GFS Codes – A full list of GFS codes can be found in GFSM 2014 Appendix 8