## 1. Priority Recommendations ## Source details **Canonical URL:** [1. Priority Recommendations](https://www.imf.org/-/media/files/publications/cr/2020/english/1mdaea2020004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1mdaea2020004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1mdaea2020004.pdf.json) --- ### Summary of mission outcomes and objectives - A Data for Decisions (D4D) Trust Fund Project technical assistance mission was conducted by John Joisce and Dario Florey, IMF Experts, during September 23–October 4, 2019, to assist the Republic of Moldova in developing sectoral financial accounts and financial balance sheet statistics (FABS). - The mission followed up on a December 2018 mission and evaluated progress against the action plan. - Principal counterpart: National Bank of Moldova (NBM). Other involved agencies: Ministry of Finance (MOF), Central Securities Depository (CSD), National Commission for Financial Markets (NCFM), National Bureau of Statistics (NBS). - NBM to play lead role in production, aggregation, reconciliation, and publication of FABS. - NBM will organize seminars to inform agencies and users of FABS importance and methodology. ### Role and importance of FABS (findings) - FABS consist of: - transactions in financial instruments, - other changes in assets accounts (revaluations and other volume changes), - financial balance sheets of each institutional sector. - FABS identify transactions and positions of financial assets and liabilities of each institutional sector and intersectoral and ROW interactions. - The system of national accounts is closed and consistent — every financial asset has an equal and opposite liability. - Uses of FABS: - detect systemic financial risks, - show interrelationships between the real economy and the financial sector, - illustrate the role of financial intermediaries in circulating financial instruments. ### Institutional coordination and governance (recommendations and actions) - Establishments to be set up by NBM: - A formal interagency technical working group (comprising technical experts from NBM, CSD, MOF, NBS, NCFM) to: - coordinate work between agencies, - establish calendar for exchange of data, - evaluate hierarchy of source data, - ensure data quality, - organize technical sub-groups on methodologies as needed. - Meet regularly, at least four times a year in early years until quarterly data are compiled. - A higher-level monitoring steering committee to: - ensure technical group's work proceeds satisfactorily and on time, - resolve conceptual or practical issues technical group cannot agree on, - meet at least twice a year (more often early in project). - NBM and NBS to emphasize to MOF the negative impact of the removal of supplementary annexes from nonfinancial corporations’ financial statements on FABS and ESS (the new format corresponds to EU directive 2013/34/EU but led to loss of key data). - NBM to explore indicators to estimate quarterly data where no quarterly source data exist. ### Planned outputs and timeline commitments (key target dates and responsibilities) - NBM intends to compile and publish both annual and quarterly FABS for Moldova by March 2022. - By March 2020, NBM to generate sector annual financial balance sheet data for 2015–2018 using existing data. - By December 2020, NBM to produce estimates for 2015–2018 of sector financial transactions and other changes in assets accounts. - Trial matrix of sector financial balance sheet data for 2015 prepared and reviewed. Priority Recommendations (from Table 1) - December 2019 — The NBM to set up a formal technical working group with representatives from all agencies involved (NBM in coordination with CSD/MOF/NBS/NCFM). - December 2019 — The NBM to set up a monitoring steering committee to oversee the technical working group (NBM in coordination with MOF, NBS, Ministry of Economy and NCFM). - March 2020 — The NBM to organize a seminar for compilers (NBM). - March 2020 — Compile sector annual financial balance sheets for 2015–2018 using data sources discussed in the mission (NBM). - December 2020 — The NBM begin exploring which indicators series could be used in the construction of quarterly data where no such data are currently available (NBM). ### Detailed Technical Assessment and Recommendations (selected priority actions and target completion dates) - Outcome objective: Data compiled and disseminated using appropriate statistical techniques, including assessment and validation of intermediate data and statistical outputs. - High priority actions (H): - Set up formal technical working group — Target Completion Date: December 2019 — Responsible: NBM, in coordination with CSD, MOF, NBS, and NCFM. - Create high-level monitoring group — Target Completion Date: December 2019 — Responsible: NBM, in coordination with MOF, NBS, and NCFM. - NBM and NBS to emphasize to MOF the seriousness of loss of financial information from nonfinancial corporations’ financial statements — Target Completion Date: November 2019 — Responsible: NBM and NBS. - Compile sector annual financial balance sheets for 2015–2018 using discussed sources — Target Completion Date: March 2020 — Responsible: NBM. - Implement surveys to collect data for NFC sector to replace Annex 9 if new reporting regulations implemented — Target Completion Date: June 2020 — Responsible: NBM and NBS. - Disaggregated financial reporting data to be provided to NBM for processing and use in FABS — Target Completion Date: July 2020 — Responsible: NBS. - NBM to produce estimates for 2015 to 2018 of sector financial transactions — Target Completion Date: December 2020 — Responsible: NBM. - Complete development of SBS for equity and compile equity statistics from CSD — Target Completion Date: May 2019–December 2021 — Responsible: NBM and CSD. - Medium priority actions (M): - Organize seminars for compilers and users (compilers: March 2020; users: June 2020) — Responsible: NBM. - Customize software to host source data and map source data to FWTW matrices — Target Completion Date: June 2020 — Responsible: NBM. - Coordinate with MOF on estimates for GG sector (valuation and unconsolidated data) — Ongoing — Responsible: NBM and MOF. - Coordinate with NBS on estimates for NFC, Households, NPIHs — Ongoing — Responsible: NBM and NBS. - Compile and publish annual financial positions for 2015–2020 using recommended data sources and methodologies — Target Completion Date: March 2022 — Responsible: NBM, in coordination with the technical group. - Compile and publish quarterly financial positions for Q1 2018 to Q4 2021 — Target Completion Date: March 2022 — Responsible: NBM, in coordination with the technical group. - Compile and publish quarterly financial transactions for Q1 2018 to Q4 2021 — Target Completion Date: March 2022 — Responsible: NBM, in coordination with the technical group. - Reconcile data sources used to compile current and capital accounts and the financial account transactions — Ongoing — Responsible: NBM, in coordination with the technical group. ### General methodological considerations and presentation - FABS should be unconsolidated as a rule in the 2008 SNA, though consolidation may be relevant for general government. - Balance sheet data should be presented at market value; acknowledging limited market price information, market valuation should be used whenever possible. - National accounts are a closed system: net lending/net borrowing from financial account equals net lending/net borrowing from capital accounts — useful for data confrontation. - From-Whom-To-Whom (FWTW) matrices: - Provide counterparty breakdowns of asset holders by debtor sectors. - Useful to assess counterparty information and systemic risk (example: households’ investments in bank deposits and bank debt securities affecting bank refinancing positions). - Example excerpt for stock of credit (Table data preserved verbatim below): - AF.4 (liability) columns: Nonfinancial corporations (S.11), Financial corporations (S.12), General Government (S.13), Households + NPI SHs (S.14+S.15), Rest of the world (S.2), Total held - AF.4 (asset) rows: - Non-financial corporations (S.11): 1000 0 0 0 980 1980 - Financial corporations (S.12): 1500 1000 800 500 1000 4800 - General Government (S.13): 30 0 500 5 0 535 - Households + NPI SHs (S.14+S.15): 0 0 0 0 0 0 - Rest of the world (S.2): 1270 2000 50 0 3320 - Total issued: 3800 3000 1350 505 1980 10635 ### User outreach and dissemination - The mission recommended NBM organize two seminars: - First seminar with agencies involved in the project to explain goals, methodology, and challenges (target: March 2020). - Second seminar with potential users to present usefulness, objectives, publication plan, and available detailed data (target: June 2020). - NBM should ensure methodology aligns with 2008 SNA and that users understand the new product. --- ### Banking sector data collection and FABS inputs - The regulated banking sector consists of 11 active banks and 5 banks under liquidation process. - The NBM collects data from the active banks and from the central bank to meet requirements for completing the 1SR and 2SR report forms, as well as for balance of payments purposes. - The 1SR and 2SR provide the NBM with required details and instrument breakdowns to produce FABS of the Central bank (S.121) and deposit-taking corporations (S.122) sector. - The NBM also collects data from deposit-taking corporations undergoing liquidation; for FABS purposes, banks in liquidation should be included until finally wound up. - Loan-by-loan statistics from the NBM’s Supervision Department provide important information for FABS compilation. - Data available for FABS purposes are anonymized. - Complex loan instruments (like foreign currency linked loans) need adjustments in FABS to account for exchange rate changes. - Provisions are deducted from loans for prudential reasons but must not be considered in FABS (see Appendix 2 explanation). Recommendation: - NBM estimate loans without taking into account provisions for loan losses. (March 2020). ### Nonbank credit sector, NCFM role, and coverage - The NCFM regulates and supervises the nonbank credit sector represented by nonbank credit organizations (NBCOs). - NCFM authorizes activity to NBCOs and issues licenses to savings and credit associations (SCAs); supervises microfinance and leasing companies that also provide credit; supervises insurance corporations and private pension funds (no such funds presently exist). - In FABS, “Licenses B” SCAs will be included in the deposit-taking corporations’ sub-sector, while the others will be included in other financial corporations’ sub-sector. - Balance sheet data are reported monthly with counterpart information, providing required details for construction of FABS for other financial corporations, including insurance corporations and pension funds. - Coverage as of June 30, 2019 is complete: 14 insurance companies, 63 insurance brokers, 242 savings associations, and 164 nonbank credit organizations. - New legislation gives the NCFM authority to collect information on loans by country and type of institution, which would improve revaluation for foreign currency loans and counterpart information. - Currently, the NBM does not include license B entities in the 2SR data because SCAs B license report quarterly to NCFM. The NBM plans to include SCAs under S122 in FABS. Recommendation: - NCFM introduce two more data items on the report to NBCOs: information on exchange rates and information on write-offs (March 2020). ### Central Securities Depository (CSD) and securities statistics - The CSD maintains data for debt securities issued by the NBM and the Government of Moldova. - For corporate securities, at present only 11 banks and 14 insurance companies are covered. - By the end of 2019 the CSD will include listed entities (public corporations); remaining ‘close’ corporations will remain under the responsibility of the NCFM. - The CSD will provide data on a quarterly basis to the FABS team at the NBM. - Transaction values have been available since September 2019; because the market is very illiquid, most recent transactions may not indicate current market value. - For unlisted companies the market value should be estimated as own funds at book value. Recommendation: - NBM to estimate unlisted share liabilities by using own funds at book value (June 2020). ### Nonfinancial corporations, households, and NPISHs — data sources, issues, and procedures - The NBS has legal authority to collect data from nonfinancial corporations, and from households and NPISHs. - Under agreement between NBM and NBS, Annex 9 of the financial statement collected by NBS for nonfinancial corporations is provided to the NBM for use in ESS. This annex contains financial data for intra-sectoral loans, payables and receivables accounts, and information on own funds. - Collection of these annex data may be discontinued as a result of MOF decision to exclude these supplementary annexes from financial statements starting in 2020; this would result in loss of key data for compiling FABS for nonfinancial corporations and undermine sector quality. - Financial statements do not provide comprehensive information necessary to compile FABS; for most financial instruments, counterpart information can be derived from general government sector and deposit-taking corporations—mission recommended cross-checking with these sources. - Public enterprises are classified in the nonfinancial corporations sector. External loans guaranteed by owning municipalities are classified as private nonfinancial corporations; if guaranteed by the government, debt is considered government debt. - Value of shares of public enterprises are recorded at book value; no means to revalue shares to market prices except at privatization. - Data for households and NPISHs are derived from counterpart information of other sectors and as residuals where no counterpart data are available; counterpart sources are generally of good quality. - Potential classification inconsistencies may arise when household production activity is indistinguishable and banks may classify such activity to nonfinancial corporations — mission recommended NBM clarify instructions to banks to improve classification. - NPISHs are required to register with MOJ; many on MOJ’s register appear active in construction and transport, and some had share capital. NBS should verify the list. For FABS, households and NPISHs can be aggregated at first stage; NPISHs are not significant in Moldova. Recommendations: - The NBM and the NBS jointly emphasize to the MOF the seriousness of the loss of the financial information from the financial statements for the nonfinancial corporations would have on the success of FABS and ESS (October 2019). - NBM to estimate other accounts payable/receivable using the financial statement. - NBM to clarify its instructions to the deposit-taking corporations to ensure correct classification of the households and nonfinancial corporations’ sectors. - NBM to estimate FABS for the household and NPISHs sector together, using counterpart information and residuals (March 2020). - The NBS and the NBM to verify the list of NPISHs drawn up by MOJ (June 2020). ### General government sector: data, consolidation, and accruals proxy - The MOF is the main agency for collection of data on central government, local government, and the social security fund. - MOF compiles data by instrument with sector counterpart information but reports to the IMF on a consolidated basis in line with GFSM2014, not in line with the 2008 SNA which requires unconsolidated presentation (reference for FABS). Transactions between sub-sector entities should not be consolidated; NBM should include intra-sectoral transactions which the MOF will need to provide. - For liabilities of general government sector, mission recommended transforming some current data sources for debt securities to market value using data from the CSD. - For general government holdings of equity in public (listed) corporations, security-by-security data will be received from the CSD only after full migration is complete around 2021. In the meantime, mission recommended using enterprise financial statements (own funds at book value). - Central government debt in foreign currency is valued at the exchange rate at end of the year for stocks; transactions data are valued with the exchange rate of the day when the transaction occurs. - Estimates for short-term debt for local government can be calculated with counterpart information from monetary banking statistics as these data are missing from GFS. - FABS is based on accrual accounting; MOF collects and publishes budgetary data on a cash basis. Mission recommended using a proxy (time-adjusted cash method, explained in appendix 2) until accrual estimates are developed. Recommendations: - NBM together with MOF estimate GG data on an unconsolidated basis (March 2020). - NBM estimate short-term debt from monetary banking data (March 2020). - NBM and MOF develop a time-adjusted cash methodology to estimate a proxy of accruals (March 2020). ### Rest of the World (ROW) data and BOP/IIP sources - The NBM compiles quarterly balance of payments (BOP) and international investment position (IIP) according to BPM6 Guidelines; these are primary data sources for ROW. - NBS provides NBM with annual information of the annex of the Financial Statement for large enterprises, main source for stock of direct investment equity. - Quarterly report (census) on foreign investments (direct and portfolio) allocated by enterprises with foreign capital provides information on stocks and flows; quarterly data are checked and reconciled with balance sheet data at year end. - Portfolio investment data available for banks and other sectors from banks’ reports to NBM and from NCFM reports (primary and secondary market transactions with equity). - Short-term credit and claims compiled for direct investment position; NBM uses original maturity to define short- and long-term debt in line with BPM6 and 2008 SNA. - Former annex 9 to FS table ‘Short-term liabilities/claims’ includes detailed stock composition to adjust book data; although its definition does not correspond to 2008 SNA, NBM processes are in line with BPM6 and 2008 SNA concerning maturity. Recommendation: - NBM compile FABS for ROW using the balance of payments (for the financial account) and the IIP (for financial balance sheets) as the primary sources (June 2020). ### Comments on 2015 Financial Balance Sheet (FABS) draft and quality issues - NBM presented a draft financial balance sheet matrix by sector compiled from existing sources, for sectors and sub-sectors and for all financial instruments; data were compiled on a sector consolidated basis. - Subcategories of financial instruments were not always consistent across sectors. - NPISHs reported equities within liabilities; mission explained NPISHs cannot have equities within liabilities. - Liabilities for the total of each instrument should equal assets; this was not the case. Mission recommended NBM investigate sources of discrepancies and suggested adding an unallocated vector for unexplained discrepancies. - Difference between financial assets and liabilities is positive for deposit-taking corporations. Mission recommended NBM examine these data closely since corporations’ financial balance sheets exclude nonfinancial assets, and corporations will record more liabilities (including shareholders’ funds) than financial assets. Recommendations: - NBM to not publish FABS for the subcategories financial instruments (June 2020). - NBM publish together the household sector with NPISHs (S14 + S15) (June 2020). - NBM present FABS to users (June 2020). --- ### Appendix I. Action Plan 2019: Progress to Date - Complete development of SBS for equity and compiling equity statistics from the CSD. The database will be completed in stages over 3 years while the data are being migrated to CSD. - Target Date: May 2019–December 2021 - Responsible Institutions: NBM and CSD - Complete development of SBS database for debt securities and use to-whom-from-whom data for the holdings/liability of debt security. - Status: Completed - Responsible Institutions: NBM and CSD - Agree on plan to compile annual and quarterly financial accounts and transactions. - Status: Completed - Responsible Institution: NBM - Request aggregated loan-by-loan statistics from NBM Supervision Department and cross-check data provided by the MFS and ESS. - Status: Completed - Responsible Institution: NBM - Customize software to host source data and map source data statistics to to-whom-from-whom FABS matrices. - Target Date: June 2020 - Responsible Institution: NBM - Implement surveys to collect data for NFC sector which will replace the data collected from the financial reports and ‘Annex 9’. - Target Date: June 2020 - Responsible Institutions: NBM and NBS - Disaggregated financial reporting data are provided to the NBM for processing and use in FABS. - Target Date: June 2020 - Responsible Institution: NBS - NBM to collect stock data from MOF by sector and counterparty. - Status: Completed - Responsible Institutions: NBM and MOF - Coordinate with NBS and MOF on the estimates for NFC and GG sector. - Target Date: Ongoing - Responsible Institutions: NBM, NBS, and MOF - Compile and publish annual financial positions for 2015 to 2017 using the recommended data sources and methodologies. - Target Date: March 2022 - Responsible Institutions: NBM in coordination with technical working group - Compile and publish quarterly financial positions for Q1 2018 to Q4 2021 with the benefit of further TA. - Target Date: March 2022 - Responsible Institutions: NBM in coordination with technical working group - Compile and publish quarterly financial transactions for Q1 2018 to Q4 2021 with the benefit of further TA. - Target Date: March 2022 - Responsible Institutions: NBM in coordination with technical working group - Assess the feasibility of developing a business classification registry to be used in the compilation of macroeconomic statistics. - Status: completed - Responsible Institutions: NBM in coordination with CSD, MOF, NBS, and NCFM - Organize a technical working group with responsibility to guide the management of FABS and organize the primary roles for compiling FABS and the main responsibilities of each agency. - Target Date: June 2019 - Responsible Institutions: NBM in coordination with CSD, MOF, NBS, and NCFM - Reconcile data sources used to compile current and capital accounts and the financial account transactions. - Status: ongoing - Responsible Body: Technical working group on FABS ### Appendix II — Methodological issues (key guidance and examples) - General principle: - For many financial instruments, changes in balance sheet positions can be used to estimate transactions. Where there are foreign currency instruments, or instruments with price and/or volume changes (notably for securities or equities), these effects must be removed to ensure transactions are as accurate as possible. - Reconciling the balancing item of sectoral capital accounts compiled by NBS (when these data will be available) will also improve the quality of the data. - Foreign exchange revaluation example (deposit in euros held by household): - Assumptions: - Deposit: 200 euros - Exchange rate at beginning of year: 0.05 euro for 1 MDL - Exchange rate at end of year: 0.04 euro for 1 MDL - No transaction during the period (first scenario) - Reporting in MDL: - Opening balance sheet: 4000 MDL - Closing balance sheet: 5000 MDL - Difference: 1000 MDL — should be recorded in the revaluation account (change not due to transaction) - If there is a transaction of 50 euros during the period (second scenario): - Closing balance sheet in MDL would be 6250 - Difference between opening and closing balance sheet: 2250 MDL - To split between transaction and revaluation, convert the transaction to MDL using the exchange rate when the transaction occurs, if known, or alternatively the average exchange rate for the period. - Using the average exchange rate approach: - Transaction in MDL = 1111 MDL (50 euros / average (0.05;0.04)) - Revaluation = 2250 – 1111 = 1139 MDL - Time-adjusted cash method (estimating accrual values from cash-basis data): - Method: apply a simple time lag to receipts or payments based on compilers’ knowledge; record payments due as payables and receipts due as receivables. - Example: VAT is paid with a time lag of one month; using ‘time-adjusted cash’, receipts are recorded one month earlier for the whole series. - Difference of 100 between ‘time-adjusted cash’ (18300) and cash (18200) is recorded in ‘other accounts receivable’. - Appendix Table 1 (Value Added Tax 2018) monthly series reproduced in source: - January–August cash: 1'300 1'200 1'400 1'450 1'500 1'400 1'700 1'600 - January–August time-adjusted cash: 1'200 1'400 1'450 1'500 1'400 1'700 1'600 1'700 - September–March cash: 1'700 1'750 1'600 1'600 18'200 1'400 1'350 1'600 - September–March time-adjusted cash: 1'750 1'600 1'600 1'400 18'300 1'350 1'600 - Labels shown: Value Added Tax 2018; Total 2018 2019 - Loan-loss provisions and transactions: - Provisions for loan losses for a given period should be re-added to the closing financial position before computing the value of FABS. The transaction is the difference between the opening balance sheet and the closing balance sheet after adding back the provisions to the closing position and accounting for any foreign exchange valuation changes. - Example: - Financial statement reports stock of loans less provisions: - Beginning of period: 5220 MDL (provision 20) - End of period: 5405 MDL (provision 25) - Add provisions back to loans: - Transaction = (5405 + 25) – (5220 + 20) = 190 MDL - Treatment of write-offs versus debt cancellation: - Writing-off a loan (as opposed to forgiveness or debt cancellation) is not considered a transaction because it is not implemented by mutual agreement; it is recorded in other changes in the volume of assets accounts when the creditor removes the asset from its books. - Debt cancellation (forgiveness) involves bilateral agreement and implies a transaction in the capital account as a transfer of capital (D.99), affecting net lending/net borrowing of the entities involved. - Illustration: - Corporation with a credit of 200 to a bank goes bankrupt: position of the loans is deleted in the bank’s financial balance sheet and there are no flows recorded in financial accounts; no impact on net lending of the banking sector. - If the bank and corporation mutually agree to write off the loan: results in a financial transaction for both entities (decrease in financial assets of the bank and decrease in financial liabilities of the corporation) with a counterpart as a transfer of capital (D.99); affects net borrowing and net lending positions and alters net worth (bank negative, corporation positive). *Source: IMF technical assistance mission report excerpt — “1. Priority Recommendations”* ### 1. Priority Recommendations_____________________________________________________________________________ 6 ### 1. Priority Recommendations ### Summary of mission outcomes and objectives - A Data for Decisions (D4D) Trust Fund Project technical assistance mission was conducted by John Joisce and Dario Florey, IMF Experts, during September 23–October 4, 2019, to assist the Republic of Moldova in developing sectoral financial accounts and financial balance sheet statistics (FABS). - The mission followed up on a December 2018 mission and evaluated progress against the action plan. - Principal counterpart: National Bank of Moldova (NBM). Other involved agencies: Ministry of Finance (MOF), Central Securities Depository (CSD), National Commission for Financial Markets (NCFM), National Bureau of Statistics (NBS). - NBM to play lead role in production, aggregation, reconciliation, and publication of FABS. - NBM will organize seminars to inform agencies and users of FABS importance and methodology. ### Role and importance of FABS (findings) - FABS consist of: - transactions in financial instruments, - other changes in assets accounts (revaluations and other volume changes), - financial balance sheets of each institutional sector. - FABS identify transactions and positions of financial assets and liabilities of each institutional sector and intersectoral and ROW interactions. - The system of national accounts is closed and consistent — every financial asset has an equal and opposite liability. - Uses of FABS: - detect systemic financial risks, - show interrelationships between the real economy and the financial sector, - illustrate the role of financial intermediaries in circulating financial instruments. ### Institutional coordination and governance (recommendations and actions) - NBM recommended to set up: - A formal interagency technical working group (comprising technical experts from NBM, CSD, MOF, NBS, NCFM) to: - coordinate work between agencies, - establish calendar for exchange of data, - evaluate hierarchy of source data, - ensure data quality, - organize technical sub-groups on methodologies as needed. - Meet regularly, at least four times a year in early years until quarterly data are compiled. - A higher-level monitoring steering committee to: - ensure technical group's work proceeds satisfactorily and on time, - resolve conceptual or practical issues technical group cannot agree on, - meet at least twice a year (more often early in project). - NBM and NBS to emphasize to MOF the negative impact of the removal of supplementary annexes from nonfinancial corporations’ financial statements on FABS and ESS (the new format corresponds to EU directive 2013/34/EU but led to loss of key data). - NBM to explore indicators to estimate quarterly data where no quarterly source data exist. ### Planned outputs and timeline commitments (key target dates and responsibilities) - NBM intends to compile and publish both annual and quarterly FABS for Moldova by March 2022. - By March 2020, NBM to generate sector annual financial balance sheet data for 2015–2018 using existing data. - By December 2020, NBM to produce estimates for 2015–2018 of sector financial transactions and other changes in assets accounts. - Trial matrix of sector financial balance sheet data for 2015 prepared and reviewed. Priority Recommendations (from Table 1) - December 2019 — The NBM to set up a formal technical working group with representatives from all agencies involved (NBM in coordination with CSD/MOF/NBS/NCFM). - December 2019 — The NBM to set up a monitoring steering committee to oversee the technical working group (NBM in coordination with MOF, NBS, Ministry of Economy and NCFM). - March 2020 — The NBM to organize a seminar for compilers (NBM). - March 2020 — Compile sector annual financial balance sheets for 2015–2018 using data sources discussed in the mission (NBM). - December 2020 — The NBM begin exploring which indicators series could be used in the construction of quarterly data where no such data are currently available (NBM). Detailed Technical Assessment and Recommendations (selected priority actions and target completion dates) - Outcome objective: Data compiled and disseminated using appropriate statistical techniques, including assessment and validation of intermediate data and statistical outputs. - High priority actions (H): - Set up formal technical working group — Target Completion Date: December 2019 — Responsible: NBM, in coordination with CSD, MOF, NBS, and NCFM. - Create high-level monitoring group — Target Completion Date: December 2019 — Responsible: NBM, in coordination with MOF, NBS, and NCFM. - NBM and NBS to emphasize to MOF the seriousness of loss of financial information from nonfinancial corporations’ financial statements — Target Completion Date: November 2019 — Responsible: NBM and NBS. - Compile sector annual financial balance sheets for 2015–2018 using discussed sources — Target Completion Date: March 2020 — Responsible: NBM. - Implement surveys to collect data for NFC sector to replace Annex 9 if new reporting regulations implemented — Target Completion Date: June 2020 — Responsible: NBM and NBS. - Disaggregated financial reporting data to be provided to NBM for processing and use in FABS — Target Completion Date: July 2020 — Responsible: NBS. - NBM to produce estimates for 2015 to 2018 of sector financial transactions — Target Completion Date: December 2020 — Responsible: NBM. - Complete development of SBS for equity and compile equity statistics from CSD — Target Completion Date: May 2019–December 2021 — Responsible: NBM and CSD. - Medium priority actions (M): - Organize seminars for compilers and users (compilers: March 2020; users: June 2020) — Responsible: NBM. - Customize software to host source data and map source data to FWTW matrices — Target Completion Date: June 2020 — Responsible: NBM. - Coordinate with MOF on estimates for GG sector (valuation and unconsolidated data) — Ongoing — Responsible: NBM and MOF. - Coordinate with NBS on estimates for NFC, Households, NPIHs — Ongoing — Responsible: NBM and NBS. - Compile and publish annual financial positions for 2015–2020 using recommended data sources and methodologies — Target Completion Date: March 2022 — Responsible: NBM, in coordination with the technical group. - Compile and publish quarterly financial positions for Q1 2018 to Q4 2021 — Target Completion Date: March 2022 — Responsible: NBM, in coordination with the technical group. - Compile and publish quarterly financial transactions for Q1 2018 to Q4 2021 — Target Completion Date: March 2022 — Responsible: NBM, in coordination with the technical group. - Reconcile data sources used to compile current and capital accounts and the financial account transactions — Ongoing — Responsible: NBM, in coordination with the technical group. ### General methodological considerations and presentation - FABS should be unconsolidated as a rule in the 2008 SNA, though consolidation may be relevant for general government. - Balance sheet data should be presented at market value; acknowledging limited market price information, market valuation should be used whenever possible. - National accounts are a closed system: net lending/net borrowing from financial account equals net lending/net borrowing from capital accounts — useful for data confrontation. - From-Whom-To-Whom (FWTW) matrices: - Provide counterparty breakdowns of asset holders by debtor sectors. - Useful to assess counterparty information and systemic risk (example: households’ investments in bank deposits and bank debt securities affecting bank refinancing positions). - Example excerpt for stock of credit (Table data preserved verbatim below): - AF.4 (liability) columns: Nonfinancial corporations (S.11), Financial corporations (S.12), General Government (S.13), Households + NPI SHs (S.14+S.15), Rest of the world (S.2), Total held - AF.4 (asset) rows: - Non-financial corporations (S.11): 1000 0 0 0 980 1980 - Financial corporations (S.12): 1500 1000 800 500 1000 4800 - General Government (S.13): 30 0 500 5 0 535 - Households + NPI SHs (S.14+S.15): 0 0 0 0 0 0 - Rest of the world (S.2): 1270 2000 50 0 3320 - Total issued: 3800 3000 1350 505 1980 10635 ### User outreach and dissemination - The mission recommended NBM organize two seminars: - First seminar with agencies involved in the project to explain goals, methodology, and challenges (target: March 2020). - Second seminar with potential users to present usefulness, objectives, publication plan, and available detailed data (target: June 2020). - NBM should ensure methodology aligns with 2008 SNA and that users understand the new product. *Source: IMF technical assistance mission report excerpt — “1. Priority Recommendations”* ### 18. The NBM is responsible for the collection data for the central bank and the ### 18. The NBM is responsible for the collection data for the central bank and the ### Banking sector data collection and FABS inputs - The regulated banking sector consists of 11 active banks and 5 banks under liquidation process. - The NBM collects data from the active banks and from the central bank to meet requirements for completing the 1SR and 2SR report forms, as well as for balance of payments purposes. - The 1SR and 2SR provide the NBM with required details and instrument breakdowns to produce FABS of the Central bank (S.121) and deposit-taking corporations (S.122) sector. - The NBM also collects data from deposit-taking corporations undergoing liquidation; for FABS purposes, banks in liquidation should be included until finally wound up. - Loan-by-loan statistics from the NBM’s Supervision Department provide important information for FABS compilation. - Data available for FABS purposes are anonymized. - Complex loan instruments (like foreign currency linked loans) need adjustments in FABS to account for exchange rate changes. - Provisions are deducted from loans for prudential reasons but must not be considered in FABS (see Appendix 2 explanation). Recommendations (from text): - NBM estimate loans without taking into account provisions for loan losses. (March 2020). ### Nonbank credit sector, NCFM role, and coverage - The NCFM regulates and supervises the nonbank credit sector represented by nonbank credit organizations (NBCOs). - NCFM authorizes activity to NBCOs and issues licenses to savings and credit associations (SCAs); supervises microfinance and leasing companies that also provide credit; supervises insurance corporations and private pension funds (no such funds presently exist). - In FABS, “Licenses B” SCAs will be included in the deposit-taking corporations’ sub-sector, while the others will be included in other financial corporations’ sub-sector. - Balance sheet data are reported monthly with counterpart information, providing required details for construction of FABS for other financial corporations, including insurance corporations and pension funds. - Coverage as of June 30, 2019 is complete: 14 insurance companies, 63 insurance brokers, 242 savings associations, and 164 nonbank credit organizations. - New legislation gives the NCFM authority to collect information on loans by country and type of institution, which would improve revaluation for foreign currency loans and counterpart information. - Currently, the NBM does not include license B entities in the 2SR data because SCAs B license report quarterly to NCFM. The NBM plans to include SCAs under S122 in FABS. Recommendations (from text): - NCFM introduce two more data items on the report to NBCOs: information on exchange rates and information on write-offs (March 2020). ### Central Securities Depository (CSD) and securities statistics - The CSD maintains data for debt securities issued by the NBM and the Government of Moldova. - For corporate securities, at present only 11 banks and 14 insurance companies are covered. - By the end of 2019 the CSD will include listed entities (public corporations); remaining ‘close’ corporations will remain under the responsibility of the NCFM. - The CSD will provide data on a quarterly basis to the FABS team at the NBM. - Transaction values have been available since September 2019; because the market is very illiquid, most recent transactions may not indicate current market value. - For unlisted companies the market value should be estimated as own funds at book value. Recommendation (from text): - NBM to estimate unlisted share liabilities by using own funds at book value (June 2020). ### Nonfinancial corporations, households, and NPISHs — data sources, issues, and procedures - The NBS has legal authority to collect data from nonfinancial corporations, and from households and NPISHs. - Under agreement between NBM and NBS, Annex 9 of the financial statement collected by NBS for nonfinancial corporations is provided to the NBM for use in ESS. This annex contains financial data for intra-sectoral loans, payables and receivables accounts, and information on own funds. - Collection of these annex data may be discontinued as a result of MOF decision to exclude these supplementary annexes from financial statements starting in 2020; this would result in loss of key data for compiling FABS for nonfinancial corporations and undermine sector quality. - Financial statements do not provide comprehensive information necessary to compile FABS; for most financial instruments, counterpart information can be derived from general government sector and deposit-taking corporations—mission recommended cross-checking with these sources. - Public enterprises are classified in the nonfinancial corporations sector. External loans guaranteed by owning municipalities are classified as private nonfinancial corporations; if guaranteed by the government, debt is considered government debt. - Value of shares of public enterprises are recorded at book value; no means to revalue shares to market prices except at privatization. - Data for households and NPISHs are derived from counterpart information of other sectors and as residuals where no counterpart data are available; counterpart sources are generally of good quality. - Potential classification inconsistencies may arise when household production activity is indistinguishable and banks may classify such activity to nonfinancial corporations — mission recommended NBM clarify instructions to banks to improve classification. - NPISHs are required to register with MOJ; many on MOJ’s register appear active in construction and transport, and some had share capital. NBS should verify the list. For FABS, households and NPISHs can be aggregated at first stage; NPISHs are not significant in Moldova. Recommendations (from text): - The NBM and the NBS jointly emphasize to the MOF the seriousness of the loss of the financial information from the financial statements for the nonfinancial corporations would have on the success of FABS and ESS (October 2019). - NBM to estimate other accounts payable/receivable using the financial statement. - NBM to clarify its instructions to the deposit-taking corporations to ensure correct classification of the households and nonfinancial corporations’ sectors. - NBM to estimate FABS for the household and NPISHs sector together, using counterpart information and residuals (March 2020). - The NBS and the NBM to verify the list of NPISHs drawn up by MOJ (June 2020). ### General government sector: data, consolidation, and accruals proxy - The MOF is the main agency for collection of data on central government, local government, and the social security fund. - MOF compiles data by instrument with sector counterpart information but reports to the IMF on a consolidated basis in line with GFSM2014, not in line with the 2008 SNA which requires unconsolidated presentation (reference for FABS). Transactions between sub-sector entities should not be consolidated; NBM should include intra-sectoral transactions which the MOF will need to provide. - For liabilities of general government sector, mission recommended transforming some current data sources for debt securities to market value using data from the CSD. - For general government holdings of equity in public (listed) corporations, security-by-security data will be received from the CSD only after full migration is complete around 2021. In the meantime, mission recommended using enterprise financial statements (own funds at book value). - Central government debt in foreign currency is valued at the exchange rate at end of the year for stocks; transactions data are valued with the exchange rate of the day when the transaction occurs. - Estimates for short-term debt for local government can be calculated with counterpart information from monetary banking statistics as these data are missing from GFS. - FABS is based on accrual accounting; MOF collects and publishes budgetary data on a cash basis. Mission recommended using a proxy (time-adjusted cash method, explained in appendix 2) until accrual estimates are developed. Recommendations (from text): - NBM together with MOF estimate GG data on an unconsolidated basis (March 2020). - NBM estimate short-term debt from monetary banking data (March 2020). - NBM and MOF develop a time-adjusted cash methodology to estimate a proxy of accruals (March 2020). ### Rest of the World (ROW) data and BOP/IIP sources - The NBM compiles quarterly balance of payments (BOP) and international investment position (IIP) according to BPM6 Guidelines; these are primary data sources for ROW. - NBS provides NBM with annual information of the annex of the Financial Statement for large enterprises, main source for stock of direct investment equity. - Quarterly report (census) on foreign investments (direct and portfolio) allocated by enterprises with foreign capital provides information on stocks and flows; quarterly data are checked and reconciled with balance sheet data at year end. - Portfolio investment data available for banks and other sectors from banks’ reports to NBM and from NCFM reports (primary and secondary market transactions with equity). - Short-term credit and claims compiled for direct investment position; NBM uses original maturity to define short- and long-term debt in line with BPM6 and 2008 SNA. - Former annex 9 to FS table ‘Short-term liabilities/claims’ includes detailed stock composition to adjust book data; although its definition does not correspond to 2008 SNA, NBM processes are in line with BPM6 and 2008 SNA concerning maturity. Recommendation (from text): - NBM compile FABS for ROW using the balance of payments (for the financial account) and the IIP (for financial balance sheets) as the primary sources (June 2020). ### Comments on 2015 Financial Balance Sheet (FABS) draft and quality issues - NBM presented a draft financial balance sheet matrix by sector compiled from existing sources, for sectors and sub-sectors and for all financial instruments; data were compiled on a sector consolidated basis. - Subcategories of financial instruments were not always consistent across sectors. - NPISHs reported equities within liabilities; mission explained NPISHs cannot have equities within liabilities. - Liabilities for the total of each instrument should equal assets; this was not the case. Mission recommended NBM investigate sources of discrepancies and suggested adding an unallocated vector for unexplained discrepancies. - Difference between financial assets and liabilities is positive for deposit-taking corporations. Mission recommended NBM examine these data closely since corporations’ financial balance sheets exclude nonfinancial assets, and corporations will record more liabilities (including shareholders’ funds) than financial assets. Recommendations (from text): - NBM to not publish FABS for the subcategories financial instruments (June 2020). - NBM publish together the household sector with NPISHs (S14 + S15) (June 2020). - NBM present FABS to users (June 2020). *Source: Extract from the supplied IMF content unit.* ### Appendix I. Action Plan 2019: Progress to Date ### Appendix I. Action Plan 2019: Progress to Date ### Implementation milestones and responsible institutions - Complete development of SBS for equity and compiling equity statistics from the CSD. The database will be completed in stages over 3 years while the data are being migrated to CSD. - Target Date: May 2019–December 2021 - Responsible Institutions: NBM and CSD - Complete development of SBS database for debt securities and use to-whom-from-whom data for the holdings/liability of debt security. - Status: Completed - Responsible Institutions: NBM and CSD - Agree on plan to compile annual and quarterly financial accounts and transactions. - Status: Completed - Responsible Institution: NBM - Request aggregated loan-by-loan statistics from NBM Supervision Department and cross-check data provided by the MFS and ESS. - Status: Completed - Responsible Institution: NBM - Customize software to host source data and map source data statistics to to-whom-from-whom FABS matrices. - Target Date: June 2020 - Responsible Institution: NBM - Implement surveys to collect data for NFC sector which will replace the data collected from the financial reports and ‘Annex 9’. - Target Date: June 2020 - Responsible Institutions: NBM and NBS - Disaggregated financial reporting data are provided to the NBM for processing and use in FABS. - Target Date: June 2020 - Responsible Institution: NBS - NBM to collect stock data from MOF by sector and counterparty. - Status: Completed - Responsible Institutions: NBM and MOF - Coordinate with NBS and MOF on the estimates for NFC and GG sector. - Target Date: Ongoing - Responsible Institutions: NBM, NBS, and MOF - Compile and publish annual financial positions for 2015 to 2017 using the recommended data sources and methodologies. - Target Date: March 2022 - Responsible Institutions: NBM in coordination with technical working group - Compile and publish quarterly financial positions for Q1 2018 to Q4 2021 with the benefit of further TA. - Target Date: March 2022 - Responsible Institutions: NBM in coordination with technical working group - Compile and publish quarterly financial transactions for Q1 2018 to Q4 2021 with the benefit of further TA. - Target Date: March 2022 - Responsible Institutions: NBM in coordination with technical working group ### Outcome: Internal consistency within macroeconomic/financial datasets - Assess the feasibility of developing a business classification registry to be used in the compilation of macroeconomic statistics. - Status: completed - Responsible Institutions: NBM in coordination with CSD, MOF, NBS, and NCFM - Organize a technical working group with responsibility to guide the management of FABS and organize the primary roles for compiling FABS and the main responsibilities of each agency. - Target Date: June 2019 - Responsible Institutions: NBM in coordination with CSD, MOF, NBS, and NCFM - Reconcile data sources used to compile current and capital accounts and the financial account transactions. - Status: ongoing - Responsible Body: Technical working group on FABS ### Appendix II — Methodological issues (key guidance and examples) - General principle - For many financial instruments, changes in balance sheet positions can be used to estimate transactions. Where there are foreign currency instruments, or instruments with price and/or volume changes (notably for securities or equities), these effects must be removed to ensure transactions are as accurate as possible. - Reconciling the balancing item of sectoral capital accounts compiled by NBS (when these data will be available) will also improve the quality of the data. - Foreign exchange revaluation example (deposit in euros held by household) - Assumptions: - Deposit: 200 euros - Exchange rate at beginning of year: 0.05 euro for 1 MDL - Exchange rate at end of year: 0.04 euro for 1 MDL - No transaction during the period (first scenario) - Reporting in MDL: - Opening balance sheet: 4000 MDL - Closing balance sheet: 5000 MDL - Difference: 1000 MDL — should be recorded in the revaluation account (change not due to transaction) - If there is a transaction of 50 euros during the period (second scenario): - Closing balance sheet in MDL would be 6250 - Difference between opening and closing balance sheet: 2250 MDL - To split between transaction and revaluation, convert the transaction to MDL using the exchange rate when the transaction occurs, if known, or alternatively the average exchange rate for the period. - Using the average exchange rate approach: - Transaction in MDL = 1111 MDL (50 euros / average (0.05;0.04)) - Revaluation = 2250 – 1111 = 1139 MDL - Time-adjusted cash method (estimating accrual values from cash-basis data) - Method: apply a simple time lag to receipts or payments based on compilers’ knowledge; record payments due as payables and receipts due as receivables. - Example: VAT is paid with a time lag of one month; using ‘time-adjusted cash’, receipts are recorded one month earlier for the whole series. - Difference of 100 between ‘time-adjusted cash’ (18300) and cash (18200) is recorded in ‘other accounts receivable’. - Appendix Table 1 (Value Added Tax 2018) monthly series reproduced in source: - January–August cash: 1'300 1'200 1'400 1'450 1'500 1'400 1'700 1'600 - January–August time-adjusted cash: 1'200 1'400 1'450 1'500 1'400 1'700 1'600 1'700 - September–March cash: 1'700 1'750 1'600 1'600 18'200 1'400 1'350 1'600 - September–March time-adjusted cash: 1'750 1'600 1'600 1'400 18'300 1'350 1'600 - Labels shown: Value Added Tax 2018; Total 2018 2019 - Loan-loss provisions and transactions - Provisions for loan losses for a given period should be re-added to the closing financial position before computing the value of FABS. The transaction is the difference between the opening balance sheet and the closing balance sheet after adding back the provisions to the closing position and accounting for any foreign exchange valuation changes. - Example: - Financial statement reports stock of loans less provisions: - Beginning of period: 5220 MDL (provision 20) - End of period: 5405 MDL (provision 25) - Add provisions back to loans: - Transaction = (5405 + 25) – (5220 + 20) = 190 MDL - Treatment of write-offs versus debt cancellation - Writing-off a loan (as opposed to forgiveness or debt cancellation) is not considered a transaction because it is not implemented by mutual agreement; it is recorded in other changes in the volume of assets accounts when the creditor removes the asset from its books. - Debt cancellation (forgiveness) involves bilateral agreement and implies a transaction in the capital account as a transfer of capital (D.99), affecting net lending/net borrowing of the entities involved. - Illustration: - Corporation with a credit of 200 to a bank goes bankrupt: position of the loans is deleted in the bank’s financial balance sheet and there are no flows recorded in financial accounts; no impact on net lending of the banking sector. - If the bank and corporation mutually agree to write off the loan: results in a financial transaction for both entities (decrease in financial assets of the bank and decrease in financial liabilities of the corporation) with a counterpart as a transfer of capital (D.99); affects net borrowing and net lending positions and alters net worth (bank negative, corporation positive). *Appendix I. Action Plan 2019: Progress to Date.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1mdaea2020004.pdf_