Download other economic flows

GOVERNMENT FINANCE STATISTICS
OTHER ECONOMIC FLOWS
Part 1
This lecture describes flows other than
transactions that are recorded as holding
gains and losses
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
THIS LECTURE
The last lecture, on Transactions in Financial Assets and Liabilities,
concluded the discussion on transactions, which are the principal flows of
the GFS system that the government controls in pursuit of fiscal policy.
Flows other than transactions, known as other economic flows, which
change the values of assets, liabilities, and net worth, are usually not
controlled by fiscal policy.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
NATURE OF OTHER ECONOMIC FLOWS
• The 2001 GFS Manual specifies an integrated system that includes all
flows necessary to explain the changes between the beginning and the end
of the accounting period.
• Flows other than transactions comprise two major categories of other
economic flows that change the values of assets, liabilities, and net worth:
holding gains and losses and other changes in the volume of assets.
• A holding gain or loss is a change in the monetary value of an asset or
liability resulting from changes in the level and structure of prices, assuming
that the asset or liability has not changed qualitatively or quantitatively.
• An other change in the volume of assets is any change in the value of an
asset or liability that does not result from a transaction or a holding gain.
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Copyright 2010, The World Bank Group. All Rights Reserved.
Statement of
Government
Operations
GFSM 2001 Analytic Framework
Revenue
Opening
Balance Sheet
Expense
=
Net worth
=
Nonfinancial
assets
Change in
net worth
=
Nonfinancial
assets
Statement of
Other
Economic
Flows
Change in
net worth
=
Nonfinancial
assets
Closing
Balance Sheet
Net worth
=
Nonfinancial
assets
+
+
+
+
Financial
assets
Financial
assets
Financial
assets
Financial
assets
-
-
-
-
Liabilities
Liabilities
Liabilities
Liabilities
Stocks
Flows
Flows
Stocks
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
CODING OF TRANSACTIONS, OTHER ECONOMIC
FLOWS, AND STOCKS
• Other economic flows are classified by the type of asset or liability affected.
To facilitate reconciliation and integration of all flows and stocks the same
classification categories are used.
• Transactions, holding gains, and other changes in volume are distinguished
by the use of different classification code prefixes:
- Transactions use prefix
3
- Holding gains use prefix
4
- Other change in volume use prefix
5
• For consistency of classification among transactions, other economic
flows, and stocks of assets and liabilities, the stocks classification categories
use prefix 6.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
HOLDING GAINS IN GENERAL
• Holding gains and losses can apply to all assets and liabilities.
• In the case of assets and liabilities expressed in a foreign currency, holding
gains and losses can result from changes in exchange rates.
• Holding gains do not include a change in the value of an asset resulting
from a change in the quantity or quality of the asset.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
TYPES OF HOLDING GAINS
• For some analytic purposes, it may be desirable to divide the total value
of holding gains accruing on a category of assets into neutral and real
holding gains.
• Not all assets have market prices in the ordinary sense of the term “price”
and holding gains on these assets are always zero.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
REALIZED AND UNREALIZED HOLDING GAINS
• Holding gains result from price changes and can accrue on all economic
assets held for any length of time during an accounting period.
• Holding gains may be realized or unrealized.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
ESTIMATION OF HOLDING GAINS
•The precise calculation of holding gains, the direct method, requires
records to be maintained of all individual transactions and other changes.
• In practice, it is unlikely that all of the requisite data will be available,
and alternative estimation techniques using less information, the indirect
method, must be employed.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
FINANCIAL ASSETS WITH FIXED MONETARY
VALUES
• When bonds and bills are issued at a discount the price will gradually rise
over the life of the bond until it reaches the maturity value. This increase in
price is not a holding gain.
• The value of bonds and bills changes when the market rates of interest
change. Changes attributable to market rates of interest are holding gains.
• Changes in the value of shares and other equity are treated as holding
gains.
Reinvested earnings on direct foreign investment that result in increased
foreign equity is treated in1993 SNA as a transaction in additional equity. In
the GFS system the increase is treated as a holding gain.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
SHARES AND OTHER EQUITY
• Change in the monetary value of government equity in corporations
resulting from price changes is a holding gain.
• Reinvested earnings on direct foreign investment is treated as holding
gains in GFS.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
INSURANCE TECHNICAL RESERVES
• In the GFS system, the increase in the value of liabilities for insurance
technical reserves is treated as a property expense.
• A holding gain is recorded with respect to the liability for a definedcontribution retirement scheme
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
FINANCIAL ASSETS DENOMINATED IN FOREIGN
CURRENCIES
• Holding gains may occur because both the price of the asset in the
foreign currency changes and because the exchange rate changes.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
FIXED ASSETS
• The value of a fixed asset changes as a result of consumption of fixed
capital as well as price changes.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
INVENTORIES
• Many transactions in inventories are internal transactions.
• It will be necessary to estimate holding gains using assumptions about
the timing of additions to and withdrawals from inventories and the prices
prevailing at those times.
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Copyright 2010, The World Bank Group. All Rights Reserved.
GOVERNMENT FINANCE STATISTICS
NONFINANCIAL ASSETS DISPOSALS
• The difference between the balance sheet value of an asset and the
disposal value is the exchange value less any costs of ownership transfer.
• The costs of ownership transfer are a holding loss.
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