## Proposed Recommendations: 1.17 Debt concessionality

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**Canonical URL:** [Proposed Recommendations: 1.17 Debt concessionality](https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-117-debt-concessionality.pdf)

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### Summary of proposed recommendation
- Clarify in the GFSM 2014 update that a transfer element for concessional loans should generally not be recorded in the central framework, except for employer loans to employees (recorded as a continuous stream of remuneration of employees).
- For concessional loans provided in non-market contexts (governments, central banks, international organizations), supplementary information on the concessional nature should be disclosed.
- Where a transfer element is recognized as supplementary information, it should be recorded as a capital transfer at inception of the loan.

### Background and issues
- Concessional loans: loans provided at interest rates lower than typical market rates and often include extended repayment periods and grace periods; the difference between market and concessional rates represents a "transfer element."
- Current GFSM 2014 guidance (para. 7.246):
  - Concessional loans and their implicit transfer elements should be recorded as memorandum items in the financial statements.
  - Memorandum items disclose the nominal value of concessionary loans included in the balance sheet and an estimate of the implicit transfer benefits to the borrower.
- Employer-employee loans: GFSM 2014 (para. 6.17) recognizes interest forgone by employers and guides recording this as part of wages and salaries in kind.
- Central bank concessional lending: Box 6.2 of GFSM 2014 discusses implicit subsidies from concessional central bank lending and highlights recognizing this implicit subsidy separately.
- International statistical discussion:
  - Guidance Note F.15 Debt Concessionality explored three options: (i) maintain existing practice; (ii) record loans at face value and recognize the transfer element over time; (iii) separate loan into loan element and transfer element from inception.
  - Recommended approach for updated SNA and BPM:
    - To never record a transfer element for concessional lending in the central framework of national accounts and external sector statistics, with one exception.
    - Exception: concessional loans provided by employers to employees (to accurately account for compensation of employees).
    - Remove the exception for loans/deposits by central banks (currently in 2008 SNA and GFSM 2014, Box 6.2).
    - The transfer element for employer-employee concessional loans will be recorded as a continuous stream of current transfers in the central framework, over the relevant period of the concessional loan.
    - Supplementary items for transfer elements associated with concessional loans provided in a non-market context (governments, central banks and international organizations) will be recorded as capital transfers at inception.
- Note on concessionality threshold: External Debt Statistics Guide 2013 references IMF concessional lending as concessional if it includes a grant element of at least 35 percent.

### Proposed recommendations for GFSM update
- Face/Nominal Value Recording:
  - Concessional loans should be recorded at the face/nominal amount agreed at issuance (report the actual amount to be repaid by the borrower).
- No Transfer Element in core accounts:
  - Do not recognize a transfer element associated with concessional loans in the core system, except for employer-employee loans.
- Supplementary Information:
  - Provide supplementary information showing imputed capital transfers at inception of the loan; may include details about benefits or implications for government finances and economic effects.
- Exception for employer-employee loans:
  - Allow recognition of the implicit transfer element as wages and salaries in kind when loans are provided at a lower interest rate than the market rate (facilitates correct calculation of cost of labor; already referenced in GFSM 2014, para. 6.17).
- Eliminate central bank exception:
  - Remove the existing exception related to central banks described in GFSM 2014, Box 6.2.

### Rationale
- Harmonize GFSM with draft 2025 SNA and BPM7 to ensure consistent treatment across macroeconomic statistics.
- Recording loans at face/nominal value without recognizing a transfer element in the core accounts is intended to better reflect the economic realities of recipients and support transparency in fiscal statistics.

### Proposed text changes
- Adjust GFSM 2014 text in paras. 3.123, 6.17, 7.246, 9.12, A3.39-A3.40 and Box 6.2 to align with draft 2025 SNA (paras. 4.161, 14.112-14.113, 30.123-30.124).
- Reflect similar changes in draft BPM7 (paras. 14.41 and A2.67-A2.70).
- Practical approach: implicit transfer from creditor to debtor to be informed as a memorandum item in most cases except employer-employee concessionality, where the transfer element is recognized in the central framework as remuneration of employees.

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_Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-117-debt-concessionality.pdf_