## 2.16 Treatment of privatization and nationalization

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### Summary and authorship
- Task Team: Debt and Other Monetary and Financial Issues Task Team (TT2).
- Authors: Foyzunnesa Khatun, Eduard Moskalenko (supported by a sub-group: Wilfried Gustave Bassole, Lizanias Liranzo Quezada, Ingelia Puspita, Fernando Cardoso Ferraz and Ethan Weisman).
- The discussion note examines statistical treatment under GFSM 2014 of:
  - distinguishing privatization from asset sales in direct transactions;
  - recording proceeds from indirect privatizations and asset sales through public corporations or intermediaries;
  - treatment of nationalization, including control without legal ownership as highlighted by the 2025 SNA.
- Draft consolidated recommendations:
  - Introduce an indicator‑based approach to support consistent identification of privatization in direct transactions (Option A3 recommended).
  - Provide explicit guidance on recording proceeds from indirect privatizations and asset sales (Option B2 recommended).
  - Align nationalization guidance with the 2025 SNA while explicitly covering control without ownership (Option C3 recommended).
- At the May 2026 GFS Advisory Committee (GFSAC) meeting there was support for the Task Team’s recommendations of Option A3, Option B2, and Option C3.

### Issue A — Distinguishing asset sales from privatization (direct transactions)
- Background principles:
  - Two privatization conditions: (1) assets sold must qualify as an institutional unit; (2) demonstrable transfer of control from public to private sector (GFSM 2014 paragraph 9.54).
  - GFSM 2014 treats sale of a complete institutional unit as disposal of equity, with the government reclassifying the unit as a quasi-corporation immediately before disposal via an other economic flow.
- Options examined:
  - Option A1: Maintain current GFSM 2014 guidance.
  - Option A2: Explicitly reference general guidance on institutional unit classification in privatization text; require assets to satisfy all criteria necessary to qualify as a quasi-corporation (GFSM 2014 paragraphs 2.33, 2.125-2.217); assessment based on unit structure prior to the first disposal.
  - Option A3 (recommended): Introduce an indicator-based approach anchored in institutional unit principles and quasi-corporation guidance; use a decision tree and set of indicators where no single indicator is conclusive.
- Decision tree indicators (preserve wording and content):
  - Type of assets sold: identify nonfinancial assets (buildings, machinery, equipment) and/or financial assets (equity holdings, loans, other financial instruments); assess whether combination of nonfinancial assets could produce a type of output different from outputs producible if assets sold in isolation; consider whether equity is being sold or another financial instrument; assess applicability of specific GFSM 2014 guidance (e.g., sale or securitization of loans).
  - Organizational structure and engagement in economic activity: look for signs of a genuine organizational structure (dedicated staff/contractors, established customer base); inclusion of employees, ongoing customer or supplier contracts, or operational expertise indicates a functioning entity transfer; absence of staff or customers suggests sale of assets, not institutional unit.
  - Operational and financial independence: assess whether the organizational structure demonstrates operational independence and separability of operating and financing activities sufficient to prepare a meaningful set of accounts.
  - Additional indicator: transfer of liabilities and other operations prior to sale (existence and transfer of liabilities and government actions preparing an institutional unit may indicate privatization but are not determinative).
- Practical implications:
  - Assessment should be based on the unit structure prior to the first disposal; if the entity qualifies before the sale, related transactions recorded as privatization regardless of single or multiple steps.
  - Indicator-based approach provides structured support but still requires compiler judgment and may lead to interpretation differences in complex cases.

### Issue B — Recording proceeds from indirect privatizations and asset sales
- Background observations:
  - Privatization can occur indirectly through holding companies or other public corporations controlled by government; proceeds may be transferred from intermediary public corporations to government.
  - GFSM 2014: when a public or quasi-corporation sells assets and transfers the proceeds to government, this transfer should be considered a disposal of equity by the government unit (GFSM 2014, paragraph 9.53).
  - GFSM 2014 (paragraph 2.131) notes transactions on behalf of government by restructuring agencies should be recognized within general government accounts (directly or through rerouting).
  - Gaps: lack of clear guidance when intermediary remits only part of proceeds and retains some; ambiguity in classifying amounts as dividends versus withdrawals of equity versus capital injections.
- Options examined (three scenarios):
  - Scenario 1: public corporation sells assets (financial or nonfinancial) and passes proceeds back to government.
  - Scenario 2: public corporation sells equity assets in another corporation and passes funds to another public corporation.
  - Scenario 3: public corporation sells equity assets in another corporation and retains some or all of the proceeds.
- Option B1: Maintain current guidance in GFSM 2014.
- Option B2 (recommended): Establish explicit guidance detailing how to record proceeds related to indirect asset sales and privatizations:
  - When a public corporation passes proceeds of asset sales back to government, record as a withdrawal of equity by government rather than a dividend (expand upon GFSM 2014 paragraph 9.53).
  - Align with super-dividend guidance in GFSM 2014 (paragraph 5.115): a withdrawal of equity represents the government's reduction of its ownership interest and the return of invested capital; a dividend represents a distribution of profits from operations.
  - Apply GFSM 2014 guidance on privatization through restructuring or holding companies (paragraph 2.131) more broadly to public corporations; where a government-controlled holding company sells shares and transfers proceeds to another public corporation, the public corporation could be acting as an agent of government and rerouting through the government sector may better reflect economic reality.
  - Where a public corporation sells shares at the direction of government and retains most or all proceeds, interpret the transaction as a capital injection from the controlling government unit to the public corporation (aligns with ESA 2010 paragraph 20.212) when the corporation has limited discretion.
  - When a unit sells assets other than equity and retains proceeds, record as disposal of assets by the corporation on its own balance sheet; consult additional GFSM guidance.
  - Where the public corporation is not acting on behalf of government and operates on its own account, record the sale as a sale of assets by the corporation with no imputed rerouting.
  - When proceeds are passed to another unit at the direction of government, reroute transactions through the government unit: record the transfer of proceeds to government as a withdrawal of equity and the onward flow to the receiving unit according to the capital injection test.
  - A decision tree could provide a practical tool to help compilers determine recording; implementing Option B2 may require additional data not always readily available.
- Draft recommendation:
  - Establish explicit guidance detailing how to record proceeds from asset sales transferred to government by public corporations as well as cases where a public corporation either retains privatization proceeds for its own use or allocates them to another unit.
  - Expected outcome: ensure such transactions are accurately and consistently reflected in government finance statistics, promoting greater transparency and comparability.

### Issue B — Numerical examples illustrating Option B2 outcomes (selected excerpts)
- Example A (Prior to sale of asset):
  - Company A holds 200 worth of shares in Company B. Company A is fully owned by Government and Company B is fully owned by Company A.
  - Balance sheet snapshot: Equity in Company A 1,000; Equity in Company B 200; Other (including cash) for Company A 1,000; Other (including cash) for Company B 400; Net Worth Government 1,000; Company A 200; Company B 200.
- Example B (Public corporation passes sale proceeds to Government):
  - Company A sells shares in Company B to a private third party for 100 and remits sale proceeds to Government. Under Option B2 the remittance is recorded as a withdrawal of equity (not a dividend).
  - Net impact: Government cash +100 and equity in Company A −100 (net worth unchanged). Company A equity assets −100 and cash returns to original level after remittance (net worth unchanged).
  - Balance sheet excerpts after transactions: Equity in Company A 900; Equity in Company B 100; Other (including cash) Government 100; Company A 1,000; Company B 400; Net Worth Government 1,000; Company A 200; Company B 200.
- Example C1 (Public corporation retains sale proceeds — capital injection test determines equity):
  - Company A sells shares in Company B for 100 and retains sale proceeds. Treated as if proceeds remitted to Government and Government provided capital injection back to Company A as equity.
  - Net impact: For Government, equity and cash transactions net to zero. For Company A, equity assets −100 and cash +100. Net worth for both Government and Company A unchanged.
  - Balance sheet excerpts: Equity in Company A 1,000; Equity in Company B 100; Other (including cash) Company A 1,100; Net Worth Government 1,000; Company A 200; Company B 200.
- Example C2 (Public corporation retains sale proceeds — capital injection test determines capital transfer):
  - Same initial sale for 100; imputed capital injection from Government to Company A is a capital transfer (not equity).
  - Net impact: Government cash transactions net to zero, Government records withdrawal of equity of 100 and a capital transfer expense of 100 (net worth decreases accordingly). Company A equity assets −100 and cash +100; its net worth increases by 100 via the capital transfer.
  - Balance sheet excerpts: Government Net Worth 900; Company A Net Worth 300; Company B Net Worth 200.
- Example D1 (Public corporation passes proceeds to another unit — capital injection test determines equity):
  - Company A sells shares for 100 and remits proceeds to Company C via Government direction. Treated as Company A remits to Government and Government provides equity injection to Company C of 100.
  - Net impact: Government cash transactions net to zero; Government equity in Company A decreases by 100 and equity in Company C increases by 100 (net worth unchanged). Company A net worth unchanged. Company C cash +100 and equity liabilities to Government +100 (net worth unchanged).
  - Balance sheet excerpts: Government Net Worth 1,000; Company A Net Worth 200; Company C Net Worth 0.
- Example D2 (Public corporation passes proceeds to another unit — capital injection test determines capital transfer):
  - Company A sells shares for 100 and remits proceeds to Company C; imputed transfer from Government to Company C is a capital transfer.
  - Net impact: Government records withdrawal of equity in Company A of 100 and a capital transfer expense of 100 (net worth decreases accordingly). Company A net worth unchanged. Company C cash +100 and net worth increases by 100 via capital transfer.
  - Balance sheet excerpts: Government Net Worth 900; Company A Net Worth 200; Company C Net Worth 100.

### Issue C — Nationalization
- Background observations:
  - Nationalization defined as "a process whereby government takes control of specific assets or an entire corporation." (GFSM 2014 paragraph 9.55; 2025 SNA paragraphs 28.14, 30.142).
  - 2025 SNA provides more detailed statistical recording of different nationalization modalities than GFSM 2014 but does not clearly address imposition of government control without legal ownership.
  - Control without legal ownership appears in bailouts, emergency legislation, or conditions attached to financial assistance; increased incidence suggests updated GFSM should more explicitly cover these modalities.
  - GFSM 2014 (paragraphs A3.42-A3.46) provides guidance on bailouts aligned with 2025 SNA (paragraphs 30.143-30.147) but does not elaborate on recording privately owned corporations subjected to public sector control through conditions attached to financial assistance.
- Options identified:
  - Option C1: Maintain current guidance in GFSM 2014.
  - Option C2: Align GFSM guidance on nationalization with the 2025 SNA without further elaboration.
  - Option C3 (recommended): Align GFSM guidance with the 2025 SNA and extend to describe treatment of control without legal ownership.
- Option C3 highlights and draft updated guidance:
  - Define nationalization as a process whereby government takes control of specific assets or an entire corporation, by acquiring the majority or the whole stake in the corporation or establishing other means of determining the general corporate policy.
  - Emphasize that when control passes to government the corporation’s assets remain on its balance sheet unless the government decides to nationalize the corporation and disband it at the same time.
  - Record reclassification of the corporation to the public corporation subsector in the other changes in the volume of assets and liabilities account.
  - Note government may make a payment to previous owners that may not correspond to a fair price.
  - Distinguish recording by modality:
    - a. Appropriation or confiscation: difference between market value and any compensation recorded as an uncompensated seizure in the other changes in the volume of assets and liabilities account.
    - b. Purchase of shares: recorded as a financial transaction in the financial account when shares are bought at observed market price or very close to it.
    - c. Imposition of control through other means: when equity is not transformed and remains an asset of the legal owner, no transaction or other economic flow in equity assets is recorded; reclassification recorded in other changes in the volume of assets and liabilities account.
- Rationale and implications:
  - Option C3 would increase consistency between standards and fill gaps by explicitly addressing control without legal ownership.
  - Aligning GFSM with 2025 SNA and extending coverage improves usefulness of guidance while minimizing differences between the two standards.
  - Treatment of nationalization closely links with recording of bailouts; nationalization without acquisition of equity often happens as a result of bailouts where government may restrict operational independence, triggering reclassification to the public sector.

### Consolidated draft recommendations and expected outcomes
- Recommendation summary (draft):
  - Adopt Option A3: introduce an indicator‑based approach to support consistent identification of privatization in direct transactions.
  - Adopt Option B2: provide explicit guidance on recording proceeds from indirect privatizations and asset sales, clarifying distinctions among withdrawals of equity, dividends, and capital injections; use a capital injection test to determine whether retained or redirected proceeds imply imputed equity injections or capital transfers.
  - Adopt Option C3: align nationalization guidance with the 2025 SNA and explicitly cover control without legal ownership, distinguishing recording by modality (appropriation/confiscation; purchase of shares; imposition of control through other means).
- Expected statistical benefits:
  - Greater consistency and comparability of government finance statistics across jurisdictions.
  - Clearer treatment of indirect privatizations and of cases where control is imposed without legal transfer of equity.
  - Numerical examples illustrate how Option B2 leads to different net worth outcomes depending on classification as equity injection versus capital transfer.

*GFSM 2014 Update Consultation: May 2026 — Discussion Note 2.16 (Treatment of privatization and nationalization).*

### 2.16 Treatment of privatization and nationalization

### 2.16 Treatment of privatization and nationalization

### Summary
- Task Team: Debt and Other Monetary and Financial Issues Task Team (TT2).
- Authors: Foyzunnesa Khatun, Eduard Moskalenko (supported by a sub-group: Wilfried Gustave Bassole, Lizanias Liranzo Quezada, Ingelia Puspita, Fernando Cardoso Ferraz and Ethan Weisman).
- The discussion note examines statistical treatment under GFSM 2014 of:
  - distinguishing privatization from asset sales in direct transactions;
  - recording proceeds from indirect privatizations and asset sales through public corporations or intermediaries;
  - treatment of nationalization, including control without legal ownership as highlighted by the 2025 SNA.
- Draft recommendations (stated in the note):
  - Introduce an indicator‑based approach to support consistent identification of privatization in direct transactions;
  - Provide explicit guidance on recording proceeds from indirect privatizations and asset sales;
  - Align nationalization guidance with the 2025 SNA while explicitly covering control without ownership.

### Introduction and key issues
- GFSM 2014 definition: privatization is the disposal of controlling equity in a public corporation or quasi-corporation from a government unit to private owners (paragraph 9.54 referenced).
- Two principal ambiguities identified:
  - When assets sold constitute a complete institutional unit qualifying as privatization versus a simple asset sale.
  - How to record proceeds from indirect transactions where sales are carried out through holding companies or other public corporations, including classification as dividends, withdrawals of equity, or capital injections.
- Nationalization: 2025 SNA provides improved guidance (paragraphs 28.14, 30.142 referenced) but does not clearly address imposition of government control without legal ownership; such cases arise in bailouts, legislation, or conditions attached to financial assistance.

### Issue A — Distinguishing asset sales from privatization (direct transactions)
Background:
- Two key privatization conditions: (1) assets sold must qualify as an institutional unit; (2) demonstrable transfer of control from public to private sector.
- Public corporations and quasi-corporations are institutional units; sale of controlling equity typically meets privatization criteria.
- GFSM 2014 (paragraph 9.54) treats sale of a complete institutional unit as disposal of equity, with the government reclassifying the unit as a quasi-corporation immediately before disposal via an other economic flow. GFSM 2014 does not specify criteria for when a set of assets qualifies as an institutional unit or how to treat sales occurring over an extended period.

Options to address Issue A:
- Option A1: Maintain current GFSM 2014 guidance.
  - Retains existing treatment; acknowledges practical assessment challenges due to lack of privatization‑specific unit‑classification guidance.
- Option A2: Explicitly reference general guidance on institutional unit classification in privatization text.
  - Require assets to satisfy all criteria necessary to qualify as a quasi-corporation (GFSM 2014 paragraphs 2.33, 2.125-2.217).
  - Assessment should be based on the structure of the unit prior to the first disposal; if the entity met institutional unit criteria prior to the sale, the entire sequence of sales is privatization (recorded as disposal of equity). If not, subsequent disposals cannot be retroactively considered privatizations unless government explicitly established a quasi-corporation or public corporation before any sale.
  - Practical challenges remain: compilers may face judgment calls and difficulty determining timing and evidence of unit status.
- Option A3: Introduce an indicator-based approach anchored in institutional unit principles and quasi-corporation guidance.
  - Introduce a decision tree and a set of indicators; no single indicator is conclusive—assessment requires collective consideration of factors.
  - Decision tree indicators (preserve wording and content):
    - Type of assets sold: identify nonfinancial assets (buildings, machinery, equipment) and/or financial assets (equity holdings, loans, other financial instruments); assess whether combination of nonfinancial assets could produce a type of output different from outputs producible if assets sold in isolation; consider whether equity is being sold or another financial instrument; assess applicability of specific GFSM 2014 guidance (e.g., sale or securitization of loans).
    - Organizational structure and engagement in economic activity: look for signs of a genuine organizational structure (dedicated staff/contractors, established customer base); inclusion of employees, ongoing customer or supplier contracts, or operational expertise indicates a functioning entity transfer; absence of staff or customers suggests sale of assets, not institutional unit.
    - Operational and financial independence: assess whether the organizational structure demonstrates operational independence and separability of operating and financing activities sufficient to prepare a meaningful set of accounts.
  - Additional indicators:
    - Transfer of liabilities and other operations prior to sale: existence and transfer of liabilities (loans, bonds, employment-related pension obligations) and government actions (assuming accrued pension liabilities, restructuring or assuming existing debt, other reorganization measures) may indicate an institutional unit being prepared for sale (but condition alone not determinative).
  - As with Option A2, assessment should be based on unit structure prior to the first disposal; if entity qualifies before the sale, related transactions recorded as privatization regardless of single or multiple steps; if not, disposals are not privatizations unless government establishes quasi-corporation/public corporation beforehand.
  - Indicator-based approach provides structured support but still requires compiler judgment and may lead to interpretation differences in complex cases.

### Issue B — Recording proceeds from indirect privatizations and asset sales
- Background observations:
  - Privatization can occur indirectly through holding companies or other public corporations controlled by government; proceeds may be transferred from intermediary public corporations to government.
  - GFSM 2014 provides limited guidance: where a public corporation sells assets and transfers part or all of the proceeds to its parent government unit, this transfer should be considered a disposal of equity by the government unit (GFSM 2014, paragraph 9.53).
  - GFSM 2014 (paragraph 2.131) notes transactions on behalf of government by restructuring agencies should be recognized within general government accounts (directly or through rerouting).
  - Gaps: lack of clear guidance when intermediary remits only part of proceeds and retains some; ambiguity in classifying amounts as dividends versus withdrawals of equity versus capital injections.
- Recommendation direction (from summary): provide explicit guidance on recording proceeds from indirect privatizations and asset sales, including distinctions among withdrawals of equity, dividends, and capital injections.

### Issue C — Nationalization
- Background observations:
  - Nationalization: government takes control of specific assets or an entire corporation (GFSM 2014, paragraph 9.55 referenced).
  - 2025 SNA (paragraphs 28.14, 30.142 referenced) offers more detailed statistical recording of different nationalization modalities than GFSM 2014 but omits guidance on recording imposition of government control without legal ownership.
  - Practical relevance: control without legal ownership appears in bailouts, emergency legislation, or conditional financial assistance; increased incidence suggests the updated GFSM should more explicitly cover these modalities.
- Recommendation direction (from summary): align nationalization guidance with the 2025 SNA and explicitly cover cases of control without legal ownership.

### Draft recommendations (consolidated)
- Introduce an indicator‑based approach to support consistent identification of privatization in direct transactions (Option A3 proposed).
- Provide explicit guidance on recording proceeds from indirect privatizations and asset sales, clarifying distinctions among withdrawals of equity, dividends, and capital injections.
- Align nationalization guidance with the 2025 SNA while explicitly covering control without legal ownership.

*GFSM 2014 Update Consultation: May 2026 — Discussion Note 2.16 (Treatment of privatization and nationalization).*

### 19.      The drafting team recommends Option A3. By establishing an indicator-based framework

### gfsm-discussion-note-216-treatment-of-privatization-and-nationalization - 19.      The drafting team recommends Option A3. By establishing an indicator-based framework

### Recommendation on privatization classification (Option A3)
- The drafting team recommends Option A3.
- Option A3 establishes an indicator-based framework rooted in institutional unit principles and quasi-corporation guidance from GFSM 2014.
- The approach gives compilers "clear, structured criteria for compilers to distinguish between asset sales and privatization."
- "The decision tree supports practical implementation."
- At the May 2026 GFS Advisory Committee (GFSAC) meeting there was support for the Task Team’s recommendation of Option A3.

### Issue B — Recording of proceeds from indirect privatizations and asset sales: background
- Governments may conduct indirect privatization or sales of financial and nonfinancial assets through other public sector units (for example, public corporations, holding companies, or restructuring agencies).
- A public corporation or holding company controlled by the government can sell equity in another corporation and subsequently transfer some, or all, of the proceeds to the government; this can be considered an indirect sale of financial assets because the government realizes the sale through its subsidiary rather than directly.
- Indirect sales can also occur when a public corporation sells its own nonfinancial assets and passes the proceeds back to the government.
- GFSM 2014: when a public or quasi-corporation sells assets and transfers the proceeds to government, the transaction is classified as a withdrawal of equity (GFSM 2014, paragraph 9.53).
- GFSM 2014 (paragraphs 5.115, 5.118 and 9.49) are "clear that the transfer of funds from asset sales should be recorded as financial transactions," but GFSM 2014 lacks specificity about the type of asset sold in these scenarios, which has led some compilers to interpret such transfers as dividend payments, causing inconsistent classifications.
- Situations exist where the public sector unit involved in the sale does not remit all, or part, of the proceeds to the government; proceeds may be retained by the public corporation or used by holding companies or restructuring agencies (for capital injections, subsidies, etc.).
- GFSM 2014 (paragraph 2.131) states attribution of transactions depends on the role and main activity of the unit: if a restructuring agency acts directly on behalf of the government to channel funds, it is typically classified within the general government sector; if a holding company’s primary activity is not government-directed restructuring, it may be classified as a public corporation, and transactions conducted on behalf of government are rerouted through the government sector.
- GFSM 2014 guidance specifically addresses restructuring agencies; GFSM could provide clearer instructions on how this guidance applies to situations involving public corporations beyond restructuring agencies or holding companies.

### Issue B — Options examined (three scenarios and options)
- Three scenarios examined (paragraph 24):
  - When a public corporation sells assets (financial or nonfinancial) and passes these proceeds back to government.
  - When a public corporation sells equity assets in another corporation and passes these funds to another public corporation.
  - When a public corporation sells equity assets in another corporation and retains some or all of the proceeds for itself.
- Option B1: Maintain current guidance in GFSM 2014.
  - Would retain existing guidance but the guidance "lacks sufficient clarity," particularly when a public corporation retains proceeds from privatization; important classification questions would remain unresolved.
- Option B2: Establish explicit guidance detailing how to record proceeds related to indirect asset sales and privatizations.
  - When a public corporation passes proceeds of asset sales back to government, record as a withdrawal of equity by government rather than a dividend (expand upon GFSM 2014 paragraph 9.53).
  - This guidance would align with the super-dividend guidance in GFSM 2014 (paragraph 5.115).
  - Rationale: a withdrawal of equity represents the government's reduction of its ownership interest and the return of invested capital; a dividend represents a distribution of profits from operations.
  - GFSM 2014 guidance on privatization through restructuring or holding companies (paragraph 2.131) should apply more broadly to public corporations; where a government-controlled holding company sells shares and transfers proceeds to another public corporation, the public corporation could be acting as an agent of government and rerouting through the government sector may better reflect economic reality.
  - Where a public corporation sells equity assets at the direction of government and retains most or all proceeds, interpret the transaction as a capital injection from the controlling government unit to the public corporation (aligns with ESA 2010 paragraph 20.212) when the corporation has limited discretion and is implementing a government decision.
  - In such circumstances, retained proceeds are equivalent to additional financial support from government and should be imputed as an injection of equity or capital transfer from the government (subject to capital injection test). (Examples C1 and C2 in Annex I.)
  - When a unit sells assets other than equity and retains proceeds, the transaction should typically be recorded as the disposal of financial or nonfinancial assets from its own balance sheet; compilers should consult additional relevant GFSM guidance.
  - Where the public corporation is not acting on behalf of government and operates on its own account, record the sale as a sale of assets by the corporation with no imputed rerouting.
  - When proceeds are passed to another unit at the direction of government, reroute transactions through the government unit: the transfer of proceeds to government is recorded as a withdrawal of equity and the onward flow to the receiving unit is recorded according to the capital injection test (Examples D1 and D2 in Annex I).
  - A decision tree could provide a practical tool to help compilers determine recording (Figure 2).
  - Implementing Option B2 may require additional data not always readily available, particularly from public corporations' financial statements.
- Option B2 would expand GFSM coverage to include indirect privatization and provide clear guidance on recording transfers of proceeds back to government, retained proceeds, or transfers to another public sector unit, aligning with ESA 2010 where relevant.

### Issue B — Draft recommendation
- The drafting team recommends Option B2.
- "Establish explicit guidance detailing how to record proceeds from asset sales transferred to government by public corporations as well as cases where a public corporation either retains privatization proceeds for its own use or allocates them to another unit."
- Expected outcome: ensure such transactions are accurately and consistently reflected in government finance statistics, promoting greater transparency and comparability.
- At the May 2026 GFSAC meeting there was support for the Task Team’s recommendation of Option B2.

### Issue C — Nationalization: background
- The 2025 SNA provides more detailed guidance on nationalization than GFSM 2014.
- Nationalization: "a process whereby government takes control of specific assets or an entire corporation." (GFSM 2014 paragraph 9.55; 2025 SNA paragraphs 28.14, 30.142)
- GFSM 2014 defines nationalization and touches on confiscation and refers readers to further guidance on uncompensated seizures but "does not consistently elaborate on the statistical recording of different nationalization modalities."
- 2025 SNA attempts to eliminate ambiguity by providing a more detailed description of statistical recording, even if it does not introduce materially novel elements. Annex II provides a side-by-side comparison of the two versions of the guidance.
- 2025 SNA still contains gaps: presumes nationalization typically happens through assumption of share ownership over a corporation, despite GFSM 2014 and 2025 SNA employing "the notion of control" in sector classification (GFSM 2014 Box 2.2).
- Instances exist where effective nationalization occurs through legislative changes, controls attached to financial assistance, etc., where private owners retain ownership rights de jure but surrender effective control over corporate policy to government; 2025 SNA acknowledges such cases in the definition but provides no guidance on the recording.
- Treatment of nationalization is closely linked to recording of bailouts: nationalization without acquisition of equity often happens as a result of bailouts, where government may severely restrict operational independence, triggering reclassification to the public sector.
- GFSM 2014 (paragraphs A3.42-A3.46) provides comprehensive guidance on bailouts aligned with 2025 SNA (paragraphs 30.143-30.147), encouraging consideration of control over recipient corporations; however, guidance does not elaborate on recording privately owned corporations subjected to public sector control through conditions attached to financial assistance.

### Issue C — Options identified (C1–C3)
- Three drafting options identified (paragraph 38):
  - Option C1: Maintain current guidance in GFSM 2014.
  - Option C2: Align the GFSM guidance on nationalization with the 2025 SNA without further elaboration.
  - Option C3: Align the GFSM guidance on nationalization with the 2025 SNA, appending it to describe treatment of control without legal ownership.

### Option C1: Maintain current guidance
- Retaining GFSM 2014 text would not create conceptual divergence with the 2025 SNA.
- 2025 SNA guidance is more detailed but not contradicting; retaining GFSM 2014 would not necessarily hinder harmonization, though wording would differ and GFSM 2014 would be less detailed.

### Option C2: Align GFSM with 2025 SNA without further elaboration
- Aligning with 2025 SNA would reduce ambiguity and provide clearer criteria for when nationalization should be recorded as an equity acquisition.
- Consistency in wording would help countries where government finance statistics are integrated with national accounts avoid choosing between GFSM and SNA texts in cases of minor discrepancies.
- Some minor editorial changes may be needed to consolidate 2025 SNA guidance (spread across chapters 28 and 30) into a single GFSM chapter, but substantive parts could be transplanted (a draft version is included in Annex II).

### Option C3: Align GFSM with 2025 SNA and extend to control without legal ownership
- 2025 SNA discusses modalities limited to:
  - Purchase of shares at market price or close to it;
  - Appropriation or confiscation of assets (including uncompensated seizure).
- 2025 SNA definition is broader, describing nationalization as "a process whereby government takes control of specific assets or an entire corporation," and notes it "usually" takes place through acquiring majority or whole stake, but meaning of control in statistics is broader than ownership.
- Additional modalities to cover:
  - Government acquiring control over assets or entire corporations without purchasing, appropriating, or confiscating them de jure (for example, through on-balance sheet PPPs or emergency legislation, or conditions attached to financial assistance).
  - Such scenarios would typically not require recording a transaction or other economic flow in equity (equity remains privately owned) but could result in a statistical reclassification of assets under government control through other changes in volumes of assets and liabilities.
- The option does not seek to provide exhaustive, highly detailed rules but to include a general statement about imposition of control through means other than purchasing, appropriating, or confiscating equity (illustrated by draft text in Annex II).
- Rationale: nationalizations are legally complex and modalities may blur; very specific guidance capturing all eventualities would not fit GFSM format.

### Draft recommendations on nationalization
- The content sets out trade-offs among:
  - Maintaining GFSM 2014 text (Option C1),
  - Aligning with 2025 SNA (Option C2), and
  - Aligning with 2025 SNA and appending treatment for control without legal ownership (Option C3).
- The updated GFSM faces a choice between more concise or more comprehensive text; the issue is not to develop a conceptually new approach but to decide on the level of elaboration and coverage regarding control without legal ownership.

*GFSM 2014 Update Consultation: May 2026*

### 45.      Option C3 would both increase consistency between the standards and fill the gaps. The

### gfsm-discussion-note-216-treatment-of-privatization-and-nationalization

### Summary findings and committee views
- Option C3 would both increase consistency between the standards and fill the gaps.  
- The 2025 SNA drafting offers better clarity without introducing substantively new or contentious elements.  
- Extending the 2025 SNA drafting in the GFSM to include more comprehensive information on nationalization modalities would further improve the usefulness of the guidance, keeping the differences between the two standards to a minimum.  
- At the May 2026 GFSAC meeting there was support for the Task Team’s recommendation of Option C3.  
- An earlier version of the discussion note was discussed at the GFSAC meeting of May 2026. The version reflected suggestions made by GFSAC members and the task team recommendations are consistent with the preliminary views of most GFSAC members.

*Questions for Global Consultation (as posed in the discussion note)*
- Issue A: Distinguishing between asset sales and privatization for direct transactions  
  - Indicate your preferred choice: Option A1, Option A2 or Option A3. Please explain the reason for your choice and provide any other additional comments (including any alternative options you would like to propose).  
- Issue B: Recording of proceeds from indirect privatizations and asset sales  
  - Indicate your preferred choice: Option B1 or Option B2. Please explain the reason for your choice and provide any other additional comments (including any alternative options you would like to propose).  
  - Do you have any comments on the numerical examples?  
- Issue C: Nationalization  
  - Indicate your preferred choice: Option C1, Option C2 or Option C3. Please explain the reason for your choice and provide any other additional comments (including any alternative options you would like to propose).

### Key policy recommendation (nationalization guidance)
- Draft updated GFSM version under Option C3 (recommended):  
  - Defines nationalization as a process whereby government takes control of specific assets or an entire corporation, by acquiring the majority or the whole stake in the corporation or establishing other means of determining the general corporate policy.  
  - Emphasizes that when control passes to government the corporation’s assets remain on its balance sheet unless the government decides to nationalize the corporation and disband it at the same time.  
  - Records reclassification of the corporation to the public corporation subsector in the other changes in the volume of assets and liabilities account.  
  - Notes that government may make a payment to previous owners that may not correspond to a fair price.  
  - Distinguishes recording by modality:  
    - a. Appropriation or confiscation: difference between market value and any compensation recorded as an uncompensated seizure in the other changes in the volume of assets and liabilities account.  
    - b. Purchase of shares: recorded as a financial transaction in the financial account when shares are bought at observed market price or very close to it.  
    - c. Imposition of control through other means: when equity is not transformed and remains an asset of the legal owner, no transaction or other economic flow in equity assets is recorded; reclassification recorded in other changes in the volume of assets and liabilities account.

### Comparison of GFSM 2014, 2025 SNA, and draft GFSM text (highlights)
- GFSM 2014: Nationalization generally defined as acquisition from private owners by government of controlling equity; treated as a transaction in equity; exceptions for confiscation/appropriation recorded as uncompensated seizure.  
- 2025 SNA version: Emphasizes acquisition of equity by government, assets remain on corporation balance sheet unless dissolved, reclassification recorded in other changes in volume of assets and liabilities; recording of flows differs by modality (appropriation/confiscation vs purchase of shares).  
- Draft GFSM under Option C2: Mirrors 2025 SNA language on ownership, reclassification, payments to previous owners, and distinctions of recording by modality (a. appropriation/confiscation; b. purchase of shares).  
- Draft GFSM under Option C3: Extends discussion to include establishing other means of determining general corporate policy, explicitly includes imposition of control through other means as a distinct modality (c), and clarifies reclassification to the public corporation subsector.

### Numerical examples illustrating Option B2 accounting treatments (selected outcomes)
- Example A (Prior to sale of asset):  
  - Company A holds 200 worth of shares in Company B. Company A is fully owned by Government and Company B is fully owned by Company A.  
  - Balance sheet snapshot: Equity in Company A 1,000; Equity in Company B 200; Other (including cash) for Company A 1,000; Other (including cash) for Company B 400; Net Worth Government 1,000; Company A 200; Company B 200.

- Example B (Public corporation passes sale proceeds to Government):  
  - Company A sells shares in Company B to a private third party for 100 and remits sale proceeds to Government. Under Option B2 the remittance is recorded as a withdrawal of equity (not a dividend).  
  - Net impact: Government cash +100 and equity in Company A −100 (net worth unchanged). Company A equity assets −100 and cash returns to original level after remittance (net worth unchanged).  
  - Balance sheet excerpts after transactions: Equity in Company A 900; Equity in Company B 100; Other (including cash) Government 100; Company A 1,000; Company B 400; Net Worth Government 1,000; Company A 200; Company B 200.

- Example C1 (Public corporation retains sale proceeds — capital injection test determines equity):  
  - Company A sells shares in Company B for 100 and retains sale proceeds. Treated as if proceeds remitted to Government and Government provided capital injection back to Company A as equity.  
  - Net impact: For Government, equity and cash transactions net to zero. For Company A, equity assets −100 and cash +100. Net worth for both Government and Company A unchanged.  
  - Balance sheet excerpts: Equity in Company A 1,000; Equity in Company B 100; Other (including cash) Company A 1,100; Net Worth Government 1,000; Company A 200; Company B 200.

- Example C2 (Public corporation retains sale proceeds — capital injection test determines capital transfer):  
  - Same initial sale for 100; imputed capital injection from Government to Company A is a capital transfer (not equity).  
  - Net impact: Government cash transactions net to zero, Government records withdrawal of equity of 100 and a capital transfer expense of 100 (net worth decreases accordingly). Company A equity assets −100 and cash +100; its net worth increases by 100 via the capital transfer.  
  - Balance sheet excerpts: Government Net Worth 900; Company A Net Worth 300; Company B Net Worth 200.

- Example D1 (Public corporation passes proceeds to another unit — capital injection test determines equity):  
  - Company A sells shares for 100 and remits proceeds to Company C via Government direction. Treated as Company A remits to Government and Government provides equity injection to Company C of 100.  
  - Net impact: Government cash transactions net to zero; Government equity in Company A decreases by 100 and equity in Company C increases by 100 (net worth unchanged). Company A net worth unchanged. Company C cash +100 and equity liabilities to Government +100 (net worth unchanged).  
  - Balance sheet excerpts: Government Net Worth 1,000; Company A Net Worth 200; Company C Net Worth 0.

- Example D2 (Public corporation passes proceeds to another unit — capital injection test determines capital transfer):  
  - Company A sells shares for 100 and remits proceeds to Company C; imputed transfer from Government to Company C is a capital transfer.  
  - Net impact: Government records withdrawal of equity in Company A of 100 and a capital transfer expense of 100 (net worth decreases accordingly). Company A net worth unchanged. Company C cash +100 and net worth increases by 100 via capital transfer.  
  - Balance sheet excerpts: Government Net Worth 900; Company A Net Worth 200; Company C Net Worth 100.

### Implications for statistical recording and consistency
- Option C3 aligns GFSM more closely with 2025 SNA, reduces gaps, and clarifies nationalization modalities including non‑equity methods of imposing control.  
- Option B2 approach for indirect privatizations and asset sales standardizes treatment by treating remittances from public corporations as imputed withdrawals of equity followed by imputed support (equity injection or capital transfer) when proceeds are retained or redirected, with outcomes determined by a capital injection test.  
- Numerical examples demonstrate how under Option B2 the same economic events can lead to different net worth impacts depending on whether support is classified as equity or as a capital transfer.

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/may-2026/gfsm-discussion-note-216-treatment-of-privatization-and-nationalization.pdf_