## gfsm-discussion-note-232-balance-sheet-analysis

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### Summary and draft recommendations
- Purpose: improve Government Finance Statistics (GFS) guidance on balance sheet analysis by applying the Balance Sheet Approach (BSA) to the public sector and fiscal policymaking and by considering guidance options within and beyond the GFSM 2014.
- BSA role: assess macroeconomic and fiscal vulnerabilities via analysis of sectoral balance sheets and their links.
- Three elements for fiscal analysis highlighted:
  - (i) the government/public sector balance sheet;
  - (ii) intertemporal balance sheet analysis; and
  - (iii) whom-to-whom analysis of financial linkages.
- Draft recommendation: incorporate principle-based BSA guidance in the updated GFSM and develop a separate, practical implementation guide (Option 2) to promote more consistent use of balance-sheet information in fiscal analysis and decision-making.
- Proposed practical implementation guide coverage:
  - integration of fiscal indicators based on stocks and flows within the GFS framework;
  - key fiscal indicators derived from the balance sheet;
  - intertemporal balance sheets and their analytical applications;
  - whom-to-whom analysis for understanding financial linkages and sectoral interdependencies.

### Introduction: scope and definition
- GFS framework foundation: developed on BSA’s flow and stock model, though most country practice remains focused on flows and the liabilities side.
- Scope: the public sector and its subsectors, including central governments, state governments, local governments, social security agencies and public corporations.
- Definition adopted: “balance sheet approach (BSA) refers to the analytical use of the GFS balance sheet and flow data to assess fiscal vulnerabilities and policy trade-offs through (i) constructing a full government/public sector balance sheet, (ii) use of balance sheets for intertemporal analysis or projections, and (iii) whom-to-whom analysis of financial linkages between the public sector and the rest of the economy.”
- Focus: operationalizing public-sector balance sheet analysis within the GFS framework while noting the IMF’s broader economy-wide BSA matrix combining multiple sectors.

### Background and key issues
- IMF tool: a user-friendly BSA tool combines balance sheets of the financial sector, government, and the external sector into a single matrix to generate a from-whom-to-whom distribution of claims and liabilities.
- BSA examines composition and dynamics of assets and liabilities across sectors and over time, identifying exposures and vulnerabilities such as:
  - excessive reliance on external funding;
  - leverage buildup in the corporate sector;
  - excessive household debt;
  - overreliance on the banking sector for sovereign debt placement.
- Current application in GFS: relatively limited and uneven across countries.
- Common practical constraints: incomplete balance-sheet information, significant compilation lags, and use mainly for analysis rather than direct fiscal policymaking.

### The Balance Sheet Approach for the government/public sector
- GFS Framework: provides an integrated stocks-and-flows foundation appropriate for implementing the BSA.
- Implementing BSA involves three related tasks:
  - i) constructing comprehensive government/public sector balance sheets;
  - ii) extending these into intertemporal balance sheets; and
  - iii) compiling whom-to-whom information to assess linkages between the government/public sector and other sectors.
- Data and institutional requirements differ across tasks; GFS supports each but practical implementation challenges exist.

### A. Constructing a full government/public sector balance sheet
- Purpose: provide a comprehensive snapshot of government assets, liabilities, and net worth at a point in time and serve as the basis for intertemporal and whom-to-whom analysis.
- Core accounting identity within GFS:
  - Closing Stock = Opening Stock + Transactions + Other Economic Flows.
- Integration benefits:
  - stocks assess financial positions at a point in time (wealth and solvency);
  - flows monitor operations and short-term viability;
  - combined stocks-and-flows enable detailed balance sheets and long-term sustainability assessments.
- GFS prerequisites for BSA: granular data including sectoral balance sheets, detailed instrument classifications for financial assets and liabilities, counterparty sectoral breakdowns, maturity, and residency for cross-border exposure analysis.
- Balance-sheet-based fiscal indicators (examples noted in Annex I): net worth, net financial worth, and net debt — useful for assessing capacity to absorb shocks, manage fiscal risks, and meet obligations; these indicators can inform fiscal rules, medium-term frameworks, and asset-liability management strategies.
- Implementation challenges:
  - Conceptual gaps: need clearer articulation of BSA scope within GFS and how BSA complements flow-based analysis and relates to other frameworks.
  - Implementation gaps: incomplete balance sheet data, limited granularity, timeliness and valuation issues, institutional coordination difficulties, and challenges integrating balance-sheet-based indicators into policy processes.
- Three broad areas of challenge:
  - Technical and Institutional Challenges: Data Availability, Timeliness, and Valuation Issues:
    - Data Gaps: Many countries lack complete balance sheet data across government entities.
    - Granularity Issues: persistent challenges obtaining counterparty and residency information, non-financial assets, contingent liabilities, and PPP data.
    - Timeliness: delays in data production reduce relevance for real-time policy decisions.
    - Valuation Difficulties: market-based valuation is complex; many countries rely on face or nominal value.
  - Limited Adoption and Complexity for Policy Use:
    - Traditional Metrics: fiscal discussions often rely on legacy indicators rather than GFS-defined indicators; shifting to GFS-compliant systems may disrupt time series and requires coordination.
    - Analytical Complexity: interrelationships among sectors are complex, making BSA challenging to perform and communicate to policymakers.
    - Political Resistance: BSA can reveal inconsistencies and increase transparency, potentially prompting difficult fiscal decisions that face political resistance.
  - Limited Integration with Other Frameworks:
    - Differences between GFS and accounting standards (IPSAS, IFRS) can create inconsistencies; full alignment is unlikely, though selected accounting standards and guidelines can provide foundations (example: OBR methodology builds on IPSASB RPG 1 conceptual model).
- Recommendation implication: develop a comprehensive implementation guideline for GFS to better support BSA requirements, including guidance on counterparty data, sectoral linkages, and enhanced metadata standards.

### B. Use of balance sheets for intertemporal analysis or projections
- Definition: an intertemporal balance sheet captures how decisions and obligations evolve over time, providing a forward-looking complement to point-in-time balance sheets.
- Key decision-making features:
  - Long-Term Perspective: emphasizes trade-offs between present and future financial positions and helps understand sustainability of fiscal decisions (e.g., borrowing today reduces future financial flexibility).
  - Incorporates Future Expectations: factors anticipated future income, expenditures, and obligations to assess manageability of current debt given future income or growth expectations.
- Analytical applications and policy relevance:
  - Debt Sustainability: BSA accounts for government assets (e.g., revenue-generating public property) as well as liabilities for a more nuanced view.
  - Fiscal Sustainability Assessment: intertemporal balance sheets and projections provide indicators of fiscal sustainability; trends such as declining net worth and net financial worth or rising net debt may signal unsustainable policies or growing vulnerabilities. Net worth trends indicate intergenerational fairness; persistent deficits and asset depletion may imply a burden on future taxpayers.
  - Asset Quality and Policy Design: informs decisions on leveraging assets like land and infrastructure, asset sales, nationalization, or PPPs by aligning public and private balance sheets to reduce risks and enhance returns.
  - Liquidity Management: supports ensuring sufficient liquid assets to meet short-term obligations without compromising stability; transparent reporting sustains public and investor trust.
- Clarification: the intertemporal balance sheet definition used here does not consider discounted value analysis or the methodology for projections.

### C. Whom-to-whom analysis
- Purpose: maps financial interconnections between the government/public sector and other institutional sectors (including the rest of the world) to analyze inter-sectoral linkages.
- Whom-to-whom matrices populated with GFS data can:
  - reveal counterparty exposures and dependencies;
  - help assess cross-sectoral transmission of shocks;
  - support analysis of cross-border exposures via residency breakdowns.
- GFS facilitation: framework supports populating whom-to-whom matrices and linking balance sheets over time, but improved counterparty data and sectoral breakdowns are required to be fully effective.
- Definition and scope:
  - Examines relationships between holders and issuers of financial assets to show flow of funds and financial positions within or across economies.
  - Aims to compile a Global Flow of Funds Matrix—an integrated view of financial positions by counterpart country and sector.
  - Provides an explicit inter-sectoral perspective linking government balance sheets to households, corporations, financial institutions, and the rest of the world.
- Policy uses:
  - Identifies vulnerabilities and systemic risks such as sectoral over-reliance or excessive cross-border exposures, guiding crisis mitigation strategies.
  - Central bank use: understand flow of funds and credit to inform interest rate and monetary policy settings.
  - Government use: assess sectoral impact of fiscal measures to ensure equitable and effective policy outcomes.
  - Supports understanding of cross-border financial flows and fosters global policy coordination.
- Crisis policy guidance examples:
  - Liquidity support and debt relief for firms.
  - Direct support and debt-easing for vulnerable households.
  - Investment incentives to strengthen private sector balance sheets.
  - Direct interventions for highly leveraged private sectors (subsidies, tax relief, restructuring).
- Analytical focus: assesses vulnerabilities such as maturity mismatches, currency mismatches, and capital structure mismatches.
- Implementation challenges:
  - Lack of granular counterparty data (residency, sectorization, instrument detail).
  - Timely reconciliation with monetary and financial statistics is difficult.
  - Institutional coordination across data-producing agencies is often required.
  - Consequently, whom‑to‑whom information is less developed than aggregate balance sheet data in many statistical systems.

### Overall findings and consolidated recommendation
- Findings:
  - The GFS framework provides a robust conceptual foundation for BSA but practical application in GFS is limited and uneven.
  - Major implementation obstacles: data gaps, granularity and valuation issues, timeliness, institutional coordination, analytical complexity, and political economy constraints.
  - Intertemporal and whom-to-whom analyses extend the usefulness of balance sheets for sustainability, liquidity management, and risk assessment.
- Recommendation:
  - Incorporate principle-based BSA guidance into the updated GFSM and develop a separate, practical implementation guide (Option 2) covering stocks-and-flows integration, key balance-sheet indicators, intertemporal analysis methods, and whom-to-whom analysis to promote consistent use of balance-sheet information in fiscal policy and analysis.

### Options for incorporating BSA into the GFSM update
- Option 1: Integrate conceptual and practical guidance into the update of the GFSM.
  - Forms:
    - An annex to Chapter 7 providing expanded conceptual and practical guidance on BSA; or
    - An update to Chapter 7 introducing the conceptual framework for BSA, complemented by an appendix consolidating practical guidance without introducing new conceptual elements.
  - Advantages:
    - Maintains consistency with GFSM framework and reinforces GFSM’s authority as primary reference.
  - Drawbacks:
    - Limited practical detail because GFSM is primarily conceptual.
    - Risk of making the manual dense and harder to navigate.
    - Less adaptable due to infrequent and complex updates to GFSM.
- Option 2: Incorporate a principle-based guideline in the GFSM update and develop a separate, comprehensive practical implementation guide on the BSA applied to GFS.
  - Features:
    - Embed conceptual principles in GFSM; produce standalone practical guide with detailed examples, case studies, and numerical examples (including matrix construction for government/public sector and public corporations).
    - Standalone guide can be updated as practices evolve and can incorporate advanced analytical tools.
  - Advantages:
    - Balances conceptual authority in GFSM with operational detail for practitioners.
  - Drawbacks:
    - Higher resource requirement.
    - Risk of fragmentation or duplication if coordination is weak.
- Option 3: Maintain current guidance described in the Annex to Chapter 4 of the GFSM 2014.
  - Advantages:
    - Requires no additional cost or effort; ensures continuity.
  - Drawbacks:
    - Leaves framework outdated; fails to address intertemporal analysis and sectoral linkages.
    - Reduces GFSM’s relevance and misses opportunity to strengthen role in modern fiscal policy frameworks.
- Task Team recommendation: Option 2.
  - Rationale:
    - Ensures alignment with GFSM Update Discussion Note 2.31 on GFS in Fiscal Analysis and Policymaking.
    - Addresses high-level policy considerations and operational needs by combining GFSM conceptual guidance with a separate practical implementation guide.
    - Encourages improved utilization of the balance sheet in fiscal policy design and decision making.
  - Institutional endorsement: At the May 2026 GFS Advisory Committee (GFSAC) meeting there was support for the Task Team’s recommendation of Option 2.
  - Additional rationales:
    - Harmonize the updated GFSM with the 2025 SNA6 and BPM77.
    - Strengthen Government Balance Sheet Analysis and promote broader integration of the Balance Sheet Approach into fiscal policy frameworks.
    - Support the primary objective of the updated GFSM 2014 structure—to serve as a principle-based conceptual manual rather than a compilation guide.
  - Preliminary GFSAC views: an earlier version was discussed at the GFSAC meeting of May 2026; the current version addressed suggestions and the task team recommendations are consistent with preliminary views of most GFSAC members.

### Options for practical guidance content (recommended for the standalone guide)
- Further elaboration on:
  - Integration of fiscal indicators for both flows and stocks within the GFS framework.
  - Key fiscal indicators derived from the Balance Sheet.
  - The intertemporal balance sheet and its analytical applications.
  - Whom-to-whom analysis for understanding financial linkages and sectoral interdependencies.
- Guide content recommendation: include pragmatic examples and study cases illustrating matrix construction and numerical examples for government/public sector and public corporations.

### Questions posed for the global consultation
- Indicate preferred choice: Option 1, Option 2, or Option 3, with reasons and additional comments (including alternative options).
- Do you agree that guidance development should initially focus on the general government sector before gradual expansion to the broader public sector, as resources allow?
- Do you agree with the proposed definition of the BSA framework, comprising:
  - key fiscal indicators derived from the balance sheet,
  - possible use of balance sheets for intertemporal analysis or projections, and
  - whom-to-whom analysis?
- Do you agree with proposed practical guidance to elaborate further on:
  - Integration of fiscal indicators for both flows and stocks within the GFS framework?
  - Key fiscal indicators derived from the Balance Sheet?
  - Use of balance sheet for intertemporal analysis and its analytical applications?
  - Whom-to-whom analysis for understanding financial linkages and sectoral interdependencies?
- Suggestions for advancing Government Finance Statistics Balance Sheet Analysis and the BSA are solicited.

### Annex I — Key fiscal indicators derived from the balance sheet: main uses
- GFSM identifies several balance sheet fiscal indicators (examples in Table 4A.1 of Chapter 4 Annex under “Wealth and Debt Indicators”).
- BSA supports expansion and integration of fiscal indicators derived from the government’s balance sheet to ensure consistency across indicators and enable strategic role in budget decisions and fiscal policymaking.
- Use cases:
  - Budget Planning and Forecasting:
    - Net debt and net worth might better guide fiscal rules and targets than traditional debt indicators.
    - Including balance sheet forecasts in budget documents helps anticipate policy impacts on assets and liabilities.
  - Policy Impact and Trade-offs Evaluation:
    - Indicators like net financial worth and net worth assess long-term costs and benefits of fiscal policies and reflect impacts such as tax cuts or stimulus spending on government financial position.
  - Asset and Liability Management:
    - Asset management strategies (optimize returns, divest underperforming assets) and liability management (debt restructuring, refinancing, hedging) informed by balance sheet indicators.
  - Transparency and Accountability:
    - Publishing balance sheet indicators alongside budget aggregates enhances transparency and accountability by showing full fiscal impact beyond cash flows.
  - Risk Management:
    - Asset-liability composition reveals exposure to interest rate, currency, and credit risks; when liabilities exceed assets, higher borrowing costs and financial instability may result.
  - International Comparability:
    - The GFS framework harmonized with SNA enables cross-country comparisons of fiscal performance.

### Annex II — Case studies and illustrative applications
- Australia: integration of balance sheet forecasts into fiscal policy
  - Uses balance sheet projections to evaluate impact of fiscal policies on public wealth and debt sustainability, supporting asset and liability management and fiscal resilience.
  - Key elements:
    - AASB develops domestic accounting standards including a specific standard to guide Whole of Government and General Government/public sector Financial Reporting.
    - A Uniform Presentation Framework (UPF) ensures Commonwealth, State and Territory governments provide a common ‘core’ of financial information in budget papers and lists reconciliation differences between Australian Accounting Standards and the GFS framework.
    - Department of Finance ensures central government budget estimates are accurate, reliable, and delivered on time; key reports include the Mid-Year Economic and Fiscal Outlook and the Final Budget Outcome.
    - Balance sheet data provide a snapshot on an accrual basis.
    - Budget projections for balance sheet aggregates are typically reported for the budget reference year as well as the following three financial years to support medium-term asset and liability management.
    - Intergenerational Report released every 5 years includes 40 years of future modelled balance sheet estimates for the Central Government.
    - Australia leverages high-quality historical balance sheet data and projects forward incorporating expected economic, demographic, and policy trends.
    - Australia’s most recent Intergenerational Report was released in 2023.
- Indonesia: Balance Sheet Approach (BSA) and FABSI
  - BSA captures the full range of public sector assets and liabilities beyond conventional debt and deficit indicators.
  - Key findings:
    - BSA identifies fiscal risks arising from public corporations, including liquidity and solvency concerns and contingent liabilities.
    - Public sector assets about 166 percent of GDP in 2016 versus liabilities of 73 percent of GDP, resulting in positive net worth.
    - Public wealth has been declining due mainly to depletion of mineral resources and rising liabilities.
    - Public corporations account for a large share of public sector liabilities and pose notable fiscal risks; several non‑financial state‑owned enterprises exhibited higher risks related to profitability, liquidity, and leverage.
    - Intertemporal analysis indicates public sector net worth is projected to turn negative under current policies when extending to an intertemporal balance sheet that incorporates future revenues and expenditures.
    - Policy scenario: a tax‑financed increase in public investment—supported by a medium‑term revenue strategy—can raise real GDP permanently and improve public sector net worth by around 6½ percent of GDP.
    - Gains are larger when public investment efficiency improves and exceed those from debt‑financed investment.
    - Use of BSA improved fiscal transparency and provided a comprehensive picture of public wealth beyond just debt and deficits.
  - FABSI:
    - Applies BSA to support macroeconomic and financial stability policy.
    - Developed following the 2008 global financial crisis and aligned with SNA 2008, BOP, GFS and G20 commitments.
    - Integrates financial flows and balance‑sheet positions across all institutional sectors and combines transaction data with stock positions on a quarterly basis to reveal financial interlinkages and vulnerabilities beyond traditional flow‑based indicators.
- United Kingdom: OBR and long-term fiscal risk assessment
  - OBR: a non-departmental public body funded by HM Treasury established under the Budget Responsibility and National Audit Act 2011; serves as the UK’s official independent forecaster of the economy and public finances.
  - OBR’s Fiscal Risks and Sustainability Report (FRSR):
    - Forward-looking macro‑fiscal risk assessment tool to evaluate long-term sustainability and risks over long horizons (often 50 years or more).
    - Uses the consolidated accrual-based balance sheet to project future cash flows while considering timing and profile over the long term to assess impacts of demographic trends, healthcare costs, and other structural pressures.
    - The OBR’s most recent Fiscal Risks and Sustainability Report was published in July 2025.
- European Central Bank (ECB)
  - Uses whom-to-whom data to analyze financial linkages within the Eurozone to understand interactions among households, corporations, and governments and assess risks and vulnerabilities.
- International Monetary Fund (IMF)
  - IMF Surveillance employs balance sheet and whom-to-whom analyses to monitor global financial stability and identify vulnerabilities in interconnected economies; examines cross-border financial flows and positions to identify potential risks.

*Discussion Note 2.32, GFSM 2014 Update Consultation: May 2026.*

### 2.32 Balance Sheet Analysis

### 2.32 Balance Sheet Analysis

### Summary and Draft Recommendations
- This discussion note proposes improvements to Government Finance Statistics (GFS) guidance on balance sheet analysis, focusing on applying the Balance Sheet Approach (BSA) to the public sector and fiscal policymaking and considering guidance options within and beyond the GFSM 2014.
- The BSA helps assess macroeconomic and fiscal vulnerabilities by analyzing sectoral balance sheets and their links.
- Three elements for fiscal analysis highlighted by the discussion note:
  - (i) the government/public sector balance sheet;
  - (ii) intertemporal balance sheet analysis; and
  - (iii) whom-to-whom analysis of financial linkages.
- Draft recommendation: incorporate principle-based BSA guidance in the updated GFSM and develop a separate, practical implementation guide (Option 2) to promote more consistent use of balance-sheet information in fiscal analysis and decision-making.
- The proposed practical implementation guide would cover:
  - integration of fiscal indicators based on stocks and flows within the GFS framework;
  - key fiscal indicators derived from the balance sheet;
  - intertemporal balance sheets and their analytical applications; and
  - whom-to-whom analysis for understanding financial linkages and sectoral interdependencies.

### Introduction: scope and definition
- The discussion note emphasizes that while the GFS framework is developed on BSA’s flow and stock model, most country practice remains focused on flows and the liabilities side of the balance sheet.
- Scope: the public sector and its subsectors, including central governments, state governments, local governments, social security agencies and public corporations.
- Definition used in the note: “balance sheet approach (BSA) refers to the analytical use of the GFS balance sheet and flow data to assess fiscal vulnerabilities and policy trade-offs through (i) constructing a full government/public sector balance sheet, (ii) use of balance sheets for intertemporal analysis or projections, and (iii) whom-to-whom analysis of financial linkages between the public sector and the rest of the economy.”
- The note adopts a narrow focus on operationalizing public-sector balance sheet analysis within the GFS framework, while noting the IMF’s broader economy-wide BSA matrix that combines multiple sectors.

### Background and key issues
- The IMF developed a user-friendly BSA tool that combines balance sheets of the financial sector, government, and the external sector into a single matrix to generate a from-whom-to-whom distribution of claims and liabilities; this is useful for macro-financial analysis.
- The BSA examines composition and dynamics of assets and liabilities across sectors and over time, identifying exposures and vulnerabilities such as:
  - excessive reliance on external funding;
  - leverage buildup in the corporate sector;
  - excessive household debt; and
  - overreliance on the banking sector for sovereign debt placement.
- Despite time-tested application in monetary, financial, and external statistics, BSA application in GFS is relatively limited and uneven across countries. Common practical constraints include incomplete balance-sheet information, significant compilation lags, and use mainly for analysis rather than direct fiscal policymaking.

### The Balance Sheet Approach for the government/public sector
- The GFS Framework provides an integrated stocks-and-flows foundation appropriate for implementing the BSA.
- Implementing the BSA for the government/public sector involves three related compilation and analytical tasks:
  - i) constructing comprehensive government/public sector balance sheets;
  - ii) extending these into intertemporal balance sheets; and
  - iii) compiling whom-to-whom information to assess linkages between the government/public sector and other sectors.
- Data and institutional requirements differ across these tasks; the GFS framework supports each task but practical implementation challenges exist.

### A. Constructing a full government/public sector balance sheet
- Purpose: provide a comprehensive snapshot of government assets, liabilities, and net worth at a point in time and serve as the basis for intertemporal and whom-to-whom analysis.
- Within GFS, integrate stock positions with flows using the core accounting identity:
  - Closing Stock = Opening Stock + Transactions + Other Economic Flows.
- Integration benefits:
  - stocks assess financial positions at a point in time (wealth and solvency);
  - flows monitor operations and short-term viability;
  - combined stocks-and-flows enable detailed balance sheets and long-term sustainability assessments.
- GFS prerequisites for BSA: granular data including sectoral balance sheets, detailed instrument classifications for financial assets and liabilities, counterparty sectoral breakdowns, maturity, and residency for cross-border exposure analysis.
- Balance-sheet-based fiscal indicators (examples noted in Annex I): net worth, net financial worth, and net debt — useful for assessing capacity to absorb shocks, manage fiscal risks, and meet obligations; these indicators can inform fiscal rules, medium-term frameworks, and asset-liability management strategies.
- Implementation challenges fall into two categories:
  - Conceptual gaps: need clearer articulation of BSA scope within GFS and how BSA complements flow-based analysis and relates to other frameworks.
  - Implementation gaps: incomplete balance sheet data, limited granularity, timeliness and valuation issues, institutional coordination difficulties, and challenges integrating balance-sheet-based indicators into policy processes.
- Three broad areas of challenge:
  - Technical and Institutional Challenges: Data Availability, Timeliness, and Valuation Issues (implementation gap). Specific problems:
    - Data Gaps: Many countries lack complete balance sheet data across government entities.
    - Granularity Issues: persistent challenges obtaining counterparty and residency information, non-financial assets, contingent liabilities, and PPP data.
    - Timeliness: delays in data production reduce relevance for real-time policy decisions.
    - Valuation Difficulties: market-based valuation is complex; many countries rely on face or nominal value.
  - Limited Adoption and complexity for Policy Use (implementation gap). Specific issues:
    - Traditional Metrics: fiscal discussions often rely on legacy indicators rather than GFS-defined indicators; shifting to GFS-compliant systems may disrupt time series and requires coordination.
    - Analytical Complexity: interrelationships among sectors are complex, making BSA challenging to perform and communicate to policymakers.
    - Political Resistance: BSA can reveal inconsistencies and increase transparency, potentially prompting difficult fiscal decisions (reducing spending, increasing taxes, restructuring debt) that face political resistance.
  - Limited Integration with Other Frameworks (conceptual gap). Specific issues:
    - Differences between GFS and accounting standards (IPSAS, IFRS) can create inconsistencies; full alignment is unlikely, though selected accounting standards and guidelines can provide foundations (example: OBR methodology builds on IPSASB RPG 1 conceptual model).
- Recommendation implication: need for a comprehensive implementation guideline for GFS to better support BSA requirements, including guidance on counterparty data, sectoral linkages, and enhanced metadata standards.

### B. Use of balance sheets for intertemporal analysis or projections
- An intertemporal balance sheet captures how decisions and obligations evolve over time, providing a forward-looking complement to point-in-time balance sheets.
- Key features as a decision-making tool:
  - Long-Term Perspective: emphasizes trade-offs between present and future financial positions and helps understand sustainability of fiscal decisions (e.g., borrowing today reduces future financial flexibility).
  - Incorporates Future Expectations: factors anticipated future income, expenditures, and obligations to assess manageability of current debt given future income or growth expectations.
- Analytical applications and policy relevance:
  - Debt Sustainability: BSA offers a more nuanced view by accounting for government assets (e.g., revenue-generating public property) as well as liabilities.
  - Fiscal Sustainability Assessment: intertemporal balance sheets and projections provide indicators of fiscal sustainability; trends such as declining net worth and net financial worth or rising net debt may signal unsustainable policies or growing vulnerabilities. Net worth trends indicate intergenerational fairness; persistent deficits and asset depletion may imply a burden on future taxpayers.
  - Asset Quality and Policy Design: BSA informs decisions on leveraging assets like land and infrastructure, asset sales, nationalization, or PPPs by aligning public and private balance sheets to reduce risks and enhance returns.
  - Liquidity Management: BSA supports ensuring sufficient liquid assets to meet short-term obligations without compromising stability; transparent reporting sustains public and investor trust.
- Note: the discussion note clarifies that the definition of intertemporal balance sheet used here does not consider discounted value analysis or the methodology for projections.

### C. Whom-to-whom analysis
- Whom-to-whom analysis maps financial interconnections between the government/public sector and other institutional sectors (including the rest of the world) to analyze inter-sectoral linkages.
- Whom-to-whom matrices populated with GFS data can:
  - reveal counterparty exposures and dependencies;
  - help assess cross-sectoral transmission of shocks;
  - support analysis of cross-border exposures via residency breakdowns.
- The GFS framework facilitates populating whom-to-whom matrices and linking balance sheets over time, but requires improved counterparty data and sectoral breakdowns to be fully effective.

### Overall findings and recommendations (condensed)
- Findings:
  - The GFS framework provides a robust conceptual foundation for BSA but practical application in GFS is limited and uneven.
  - Major implementation obstacles are data gaps, granularity and valuation issues, timeliness, institutional coordination, analytical complexity, and political economy constraints.
  - Intertemporal and whom-to-whom analyses extend the usefulness of balance sheets for sustainability, liquidity management, and risk assessment.
- Recommendation:
  - Incorporate principle-based BSA guidance into the updated GFSM and develop a separate, practical implementation guide (Option 2) covering stocks-and-flows integration, key balance-sheet indicators, intertemporal analysis methods, and whom-to-whom analysis to promote consistent use of balance-sheet information in fiscal policy and analysis.

*Discussion Note 2.32, GFSM 2014 Update Consultation: May 2026.*

### 24.      Whom-to-whom analysis constitutes  the  third  core  component  of  the  BSA  and  focuses  on

### gfsm-discussion-note-232-balance-sheet-analysis

### Whom-to-whom analysis: definition and purpose
- Whom-to-whom analysis constitutes the third core component of the BSA and focuses on examining financial linkages between the government/public sector and other institutional sectors of the economy, complementing traditional financial analysis.
- It tracks relationships between holders and issuers of financial assets, offering insights into the flow of funds and financial positions within or across economies.
- Whom-to-whom analysis in GFS aims to compile a Global Flow of Funds Matrix—an integrated view of financial positions by counterpart country and sector.
- Unlike micro-level financial analysis, which focuses on individual entities and performance metrics, whom-to-whom analysis provides an explicit inter-sectoral perspective linking government balance sheets to households, corporations, financial institutions, and the rest of the world.

### Policy relevance and applications of the Balance Sheet Approach (BSA)
- Reveals systemic risks and financial interdependencies to support macroeconomic surveillance and global financial stability assessments.
- Specific policy uses:
  - Policymakers use it to identify vulnerabilities and systemic risks such as sectoral over-reliance or excessive cross-border exposures, guiding crisis mitigation strategies.
  - Central banks use it to understand the flow of funds and credit within the economy to inform interest rate and other monetary policy settings.
  - Governments apply it to assess the sectoral impact of fiscal measures to ensure equitable and effective policy outcomes.
  - It aids understanding of cross-border financial flows and fosters global policy coordination in a globalized economy.
- The BSA complements flow-based analysis by focusing on shocks to asset and liability stocks (liquidity, leverage, solvency, sustainability) rather than only gradual fiscal imbalances.
- During downturns, BSA guides targeted fiscal responses:
  - Liquidity support and debt relief for firms.
  - Direct support and debt-easing for vulnerable households.
  - Investment incentives to strengthen private sector balance sheets.
  - Direct interventions for highly leveraged private sectors (subsidies, tax relief, restructuring) to ease financial stress and stimulate recovery.
- Historical precedents:
  - The 2008 global financial crisis and the COVID-19 pandemic highlighted BSA’s role in navigating crises, including use of credit guarantees, debt restructuring, income support, recapitalization of financial institutions, and use of government assets to support recovery.

### Analytical focus: risks and mismatches
- BSA is particularly useful for assessing vulnerabilities such as:
  - Maturity Mismatches: occur when short-term liabilities exceed short-term assets, leading to refinancing risks.
  - Currency Mismatches: arise when liabilities are denominated in foreign currency while assets are in domestic currency, increasing exposure to exchange rate fluctuations.
  - Capital Structure Mismatches: happen when an entity relies heavily on debt rather than equity, increasing vulnerability during downturns.

### Implementation and data challenges
- Whom-to-whom analysis maps financial assets and liabilities by instrument, sector, and residency on a from‑whom‑to‑whom basis to support integration with flow-of-funds and financial accounts frameworks.
- Practical challenges:
  - Many countries lack sufficient granular counterparty data (residency, sectorization, instrument detail).
  - Timely reconciliation with monetary and financial statistics can be difficult.
  - Institutional coordination across data‑producing agencies is often required.
  - Consequently, whom‑to‑whom information is less developed than aggregate balance sheet data in many statistical systems.

### Options for incorporating BSA into the GFSM update
- Option 1: Integrate conceptual and practical guidance into the update of the GFSM.
  - Forms:
    - An annex to Chapter 7 providing expanded conceptual and practical guidance on BSA; or
    - An update to Chapter 7 introducing the conceptual framework for BSA, complemented by an appendix consolidating practical guidance without introducing new conceptual elements.
  - Advantages:
    - Maintains consistency with GFSM framework and reinforces GFSM’s authority as primary reference.
  - Drawbacks:
    - Limited practical detail because GFSM is primarily conceptual.
    - Risk of making the manual dense and harder to navigate.
    - Less adaptable due to infrequent and complex updates to GFSM.
- Option 2: Incorporate a principle-based guideline in the GFSM update and develop a separate, comprehensive practical implementation guide on the BSA applied to GFS.
  - Features:
    - Embed conceptual principles in GFSM; produce standalone practical guide with detailed examples, case studies, and numerical examples (including matrix construction for government/public sector and public corporations).
    - Standalone guide can be updated as practices evolve and can incorporate advanced analytical tools.
  - Advantages:
    - Balances conceptual authority in GFSM with operational detail for practitioners.
  - Drawbacks:
    - Higher resource requirement.
    - Risk of fragmentation or duplication if coordination is weak.
- Option 3: Maintain current guidance described in the Annex to Chapter 4 of the GFSM 2014.
  - Advantages:
    - Requires no additional cost or effort; ensures continuity.
  - Drawbacks:
    - Leaves framework outdated; fails to address intertemporal analysis and sectoral linkages.
    - Reduces GFSM’s relevance and misses opportunity to strengthen role in modern fiscal policy frameworks.

### Draft recommendation and institutional views
- The Task Team recommends Option 2.
  - Rationale:
    - Ensures alignment with GFSM Update Discussion Note 2.31 on GFS in Fiscal Analysis and Policymaking.
    - Addresses high-level policy considerations and operational needs of practitioners by combining GFSM conceptual guidance with a separate practical implementation guide.
    - Encourages improved utilization of the balance sheet in fiscal policy design and decision making.
- At the May 2026 GFS Advisory Committee (GFSAC) meeting there was support for the Task Team’s recommendation of Option 2.
- Rationale for proposed recommendations:
  - Harmonize the updated GFSM with the 2025 SNA6 and BPM77.
  - Strengthen Government Balance Sheet Analysis and promote broader integration of the Balance Sheet Approach into fiscal policy frameworks.
  - Support the primary objective of the updated GFSM 2014 structure—to serve as a principle-based conceptual manual rather than a compilation guide.
- Preliminary GFSAC views:
  - An earlier version was discussed at the GFSAC meeting of May 2026; the current version addressed suggestions and the task team recommendations are consistent with preliminary views of most GFSAC members.

### Options for practical guidance content (recommended for the standalone guide)
- Further elaboration on:
  - Integration of fiscal indicators for both flows and stocks within the GFS framework.
  - Key fiscal indicators derived from the Balance Sheet.
  - The intertemporal balance sheet and its analytical applications.
  - Whom-to-whom analysis for understanding financial linkages and sectoral interdependencies.
- The comprehensive practical guide should include pragmatic examples and study cases illustrating matrix construction and numerical examples for government/public sector and public corporations.

### Questions posed for the global consultation
- Indicate preferred choice: Option 1, Option 2, or Option 3, with reasons and additional comments (including alternative options).
- Do you agree that guidance development should initially focus on the general government sector before gradual expansion to the broader public sector, as resources allow?
- Do you agree with the proposed definition of the BSA framework, comprising:
  - key fiscal indicators derived from the balance sheet,
  - possible use of balance sheets for intertemporal analysis or projections, and
  - whom-to-whom analysis?
- Do you agree with proposed practical guidance to elaborate further on:
  - Integration of fiscal indicators for both flows and stocks within the GFS framework?
  - Key fiscal indicators derived from the Balance Sheet?
  - Use of balance sheet for intertemporal analysis and its analytical applications?
  - Whom-to-whom analysis for understanding financial linkages and sectoral interdependencies?
- Suggestions for advancing Government Finance Statistics Balance Sheet Analysis and the BSA are solicited.

### Annex I — Key fiscal indicators derived from the balance sheet: main uses
- GFSM identifies several balance sheet fiscal indicators (examples in Table 4A.1 of Chapter 4 Annex under “Wealth and Debt Indicators”).
- BSA supports expansion and integration of fiscal indicators derived from the government’s balance sheet to ensure consistency across indicators and enable strategic role in budget decisions and fiscal policymaking.
- Use cases:
  - Budget Planning and Forecasting:
    - Net debt and net worth might better guide fiscal rules and targets than traditional debt indicators.
    - Including balance sheet forecasts in budget documents helps anticipate policy impacts on assets and liabilities.
  - Policy Impact and Trade-offs Evaluation:
    - Indicators like net financial worth and net worth assess long-term costs and benefits of fiscal policies and reflect impacts such as tax cuts or stimulus spending on government financial position.
  - Asset and Liability Management:
    - Asset management strategies (optimize returns, divest underperforming assets) and liability management (debt restructuring, refinancing, hedging) informed by balance sheet indicators.
  - Transparency and Accountability:
    - Publishing balance sheet indicators alongside budget aggregates enhances transparency and accountability by showing full fiscal impact beyond cash flows.
  - Risk Management:
    - Asset-liability composition reveals exposure to interest rate, currency, and credit risks; when liabilities exceed assets, higher borrowing costs and financial instability may result.
  - International Comparability:
    - The GFS framework harmonized with SNA enables cross-country comparisons of fiscal performance.

### Annex II — Case studies and illustrative applications
- Notable examples of BSA application in fiscal policymaking include Australia, Indonesia, and United Kingdom, and international organizations like the European Central Bank (ECB) and the International Monetary Fund (IMF).
- Data and tool challenges persist in case studies; for example, Indonesia faces challenges linking BSA to fiscal policymaking within a cash-based budgeting framework, and issues related to data granularity and valuation.

*GFSM 2014 Update Consultation: May 2026*

### 49.      Australia integrates balance sheet forecasts into its fiscal policy-making process. By projecting

### gfsm-discussion-note-232-balance-sheet-analysis - 49.      Australia integrates balance sheet forecasts into its fiscal policy-making process. By projecting

### Australia: integration of balance sheet forecasts into fiscal policy
- Australia projects balance sheet aggregates to evaluate the impact of fiscal policies on public wealth and debt sustainability, supporting asset and liability management and fiscal resilience.
- Key structural elements:
  - 1) Government Financial Reporting Standards
    - The Australian Accounting Standards Board (AASB) develops and maintains domestic accounting standards, including a specific standard to guide Whole of Government and General Government/public sector Financial Reporting.
    - The standard ensures that principles and rules on the presentation of a balance sheet in GFS are embedded in the presentation of government budget statements across all levels of government and jurisdictions within Australia.
    - A Uniform Presentation Framework (UPF) ensures the Commonwealth, State and Territory governments provide a common ‘core’ of financial information in their budget papers, includes rules on balance sheet presentation, and lists reconciliation differences between Australian Accounting Standards and the GFS framework.
  - 2) Budget and fiscal reporting
    - The Department of Finance ensures central government budget estimates are accurate, reliable, and delivered on time.
    - Government entities must keep financial estimates and actuals updated in internal systems and the Central Budget Management System, adjusting for new decisions, economic changes, or structural shifts.
    - Key reports include the Mid-Year Economic and Fiscal Outlook and the Final Budget Outcome, which provide updates and audited financial results that feed directly into GFS estimates.
    - Balance sheet data provide a snapshot of the estimated financial position on an accrual basis.
    - Budget projections for balance sheet aggregates are typically reported for the budget reference year as well as the following three financial years to support medium-term asset and liability management.
  - 3) Use Case on Intergenerational Report
    - The Australian Government’s Intergenerational Report is released every 5 years to provide analysis and projections for the economy to inform public policy settings for the next 40 years.
    - The report includes 40 years of future modelled balance sheet estimates for the Central Government.
    - Australia leverages high-quality historical balance sheet data and projects forward incorporating expected economic, demographic, and policy trends.
    - The Intergenerational Report has helped shape public discourse on Australia’s long-term fiscal sustainability and supports future fiscal policy making decisions that will underpin economic prosperity.
    - Australia’s most recent Intergenerational Report was released in 2023.

### Indonesia: Balance Sheet Approach (BSA) and FABSI
- BSA provides a comprehensive framework capturing the full range of public sector assets and liabilities beyond conventional debt and deficit indicators.
- Key findings from Indonesia’s application of BSA:
  - a) Risk Assessment, including Fiscal Risks Assessment
    - BSA identifies fiscal risks particularly arising from public corporations, including liquidity and solvency concerns and contingent liabilities.
    - Indonesia’s public sector held substantial assets—about 166 percent of GDP in 2016—largely in natural resources and public corporations, against liabilities of 73 percent of GDP, resulting in positive net worth.
    - Public wealth has been declining due mainly to depletion of mineral resources and rising liabilities.
    - Public corporations account for a large share of public sector liabilities and pose notable fiscal risks; several non‑financial state‑owned enterprises exhibited higher risks related to profitability, liquidity, and leverage.
  - b) Public Wealth Management, Investment Strategy and Infrastructure Investment
    - BSA analysis indicates that Indonesia’s public sector net worth is projected to turn negative under current policies when extending to an intertemporal balance sheet that incorporates future revenues and expenditures.
    - Policy scenario analysis shows that a tax‑financed increase in public investment—supported by a medium‑term revenue strategy—can raise real GDP permanently and improve public sector net worth by around 6½ percent of GDP.
    - Gains are larger when public investment efficiency improves and exceed those from debt‑financed investment.
  - c) Fiscal Transparency
    - Use of BSA improved fiscal transparency and provided a comprehensive picture of public wealth beyond just debt and deficits.
- Indonesia’s Financial Account and Balance Sheet (FABSI):
  - FABSI applies BSA to support macroeconomic and financial stability policy.
  - Developed following the 2008 global financial crisis and aligned with SNA 2008, BOP, GFS and G20 commitments.
  - FABSI integrates financial flows and balance‑sheet positions across all institutional sectors and combines transaction data with stock positions on a quarterly basis to reveal financial interlinkages and vulnerabilities beyond traditional flow‑based indicators.

### United Kingdom: OBR and long-term fiscal risk assessment
- The Office for Budget Responsibility (OBR) is a non-departmental public body funded by HM Treasury and established on a statutory basis under the Budget Responsibility and National Audit Act 2011; it serves as the UK’s official independent forecaster of the economy and public finances.
- The OBR’s Fiscal Risks and Sustainability Report (FRSR) is a forward‑looking macro‑fiscal risk assessment tool intended to evaluate long‑term sustainability of the UK public finances and risks surrounding current fiscal policy.
  - The FRSR is policy‑focused, produced independently to inform Parliament and the public about fiscal vulnerabilities over long horizons (often 50 years or more).
  - In long-term analyses including the FRSR, the OBR uses the consolidated accrual-based balance sheet to project future cash flows while considering timing and profile over the long term to assess impacts of demographic trends, healthcare costs, and other structural pressures.
  - The OBR’s most recent Fiscal Risks and Sustainability Report was published in July 2025.

### European Central Bank (ECB)
- The ECB uses whom-to-whom data to analyze financial linkages within the Eurozone.
- This analysis helps understand interactions among households, corporations, and governments and aids assessment of risks and vulnerabilities in the financial system.

### International Monetary Fund (IMF)
- IMF Surveillance employs balance sheet and whom-to-whom analyses to monitor global financial stability and identify vulnerabilities in interconnected economies.
- The IMF examines cross-border financial flows and positions to identify potential risks in interconnected economies.

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/may-2026/gfsm-discussion-note-232-balance-sheet-analysis.pdf_