## Annex I. Illustrative Description of the Recording in Government Accounts

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### I. Introduction: context and principles
- General allocation:
  - A general allocation of Special Drawing Rights (SDRs) equivalent to US $650 billion (about SDR 456 billion) became effective on August 23, 2021.
  - Newly created SDRs credited to IMF members participating in the SDR Department (currently all 190 member countries) in proportion to their existing paid quotas in the Fund.
- Economic character:
  - The allocation increases assets (SDR holdings) and creates matching long-term liabilities (SDR allocations); it is not a transfer of wealth.
  - SDR Department obligations and rights are obligations and rights of the relevant member, not of fiscal agents or other domestic entities managing SDR positions.
- Accounting frameworks and GFSM 2014 conventions:
  - Members are not obliged by the IMF Articles of Agreement to hold SDRs under specific domestic institutional arrangements or to follow a specific accounting framework; statistical recording should follow the member’s legal and institutional frameworks and relevant best practices (for example, GFSM 2014).
  - Under GFSM 2014:
    - SDR allocations are recorded as a liability (long-term debt liability) and part of public sector gross debt, with a corresponding entry for SDR holdings as a financial asset.
    - Interest receivable on SDR holdings and interest payable on SDR allocations are accrued on a gross basis to the outstanding asset and liability and both accrue at the same SDR interest rate.
  - For GFS and public sector debt statistics (PSDS), classification depends on whether allocations are recorded in the government or the central bank:
    - If recorded on the government’s balance sheet → part of general government debt.
    - If recorded on the central bank’s balance sheet → not part of general government debt but still part of public sector debt.

### II. Recording when the allocation is first recorded in the government’s accounts — overview
- Scope and applicability:
  - Applies where domestic legal and institutional arrangements prescribe that SDRs are held and controlled by the State; allocations and holdings are recorded in central government (for example, Ministry of Finance/Treasury) accounts.
  - Recording affects both transactions (statement of operations) and stock positions (balance sheet) at allocation and at subsequent uses.
- Main scenarios covered:
  1. Allocation first recorded in the government’s accounts.
  2. Allocation first recorded in the central bank’s accounts.
- Illustrations follow GFSM 2014 conventions; specific impacts on gross debt, net debt, and DSA debt are discussed.

### II.a At the time of the allocation of SDRs — immediate recording
- Statement of operations:
  - Increase in (external) liabilities in the form of SDR allocations, matched by an increase in (external) financial assets in the form of SDR holdings (all below-the-line transactions).
- Balance sheet:
  - Stock position of (external) liabilities in the form of SDR allocations increases, matched by an increase in the stock position of (external) financial assets in the form of SDR holdings.
  - Since SDR allocations and SDR holdings are at the same level at this point, the net debt stock of SDRs is zero and no net debt would be recorded for the DSA purpose.

### II.b At the time the central government exchanges its SDR holdings — exchange mechanics and effects
- Exchange types:
  1. Central government exchanges SDR holdings with the central bank (or equivalent domestic entity) for local currency or foreign exchange.
  2. Central government exchanges SDR holdings through the IMF’s SDR Department Voluntary Trading Arrangements (VTA), or directly with another participant or prescribed holder, for freely usable currency.
- Recording (same for both exchange types; exchanges with the central bank create opposite net SDR positions across institutions and may require settlement mechanisms):
  - Statement of operations:
    - Decrease in (external) financial assets in the form of SDR holdings, matched by an increase in financial assets (external if exchanged for foreign exchange and domestic if exchanged for local currency) in the form of currency and deposits.
  - Balance sheet:
    - Stock position of (external) financial assets in the form of SDR holdings decreases, matched by an increase in the stock position of financial assets in the form of currency and deposits (external if FX, domestic if local currency).
  - DSA implication:
    - Net SDR position of the central government becomes negative (cumulative SDR allocations exceed SDR holdings) as a result of the exchange (assuming no prior excess holdings); the net negative SDR position is considered debt for the DSA purpose.

### II.c At the time the central government uses its deposits from the exchange of its SDR holdings — common uses and effects
- Two illustrative uses:
  1. Use deposits to finance government non-interest spending or to acquire financial assets (for example, capital expenditure, goods and services, compensation, transfers, equity investments, loans).
  2. Use deposits to repay outstanding debt liabilities falling due.
- Key implications:
  - Use of deposits to finance non-interest spending does not further impact debt pertaining to SDR allocations; repayment of outstanding debt liabilities does impact public DSA debt by reducing outstanding debt stock.
- (1) If deposits are used to finance government non-interest spending:
  - Statement of operations:
    - Decrease in financial assets below-the-line in the form of currency and deposits, matched by an increase in expenditure above-the-line or an increase in financial assets below-the-line if acquiring financial assets.
  - Balance sheet:
    - Decrease in currency and deposits matched by an increase in nonfinancial assets if acquiring nonfinancial assets, and/or an increase in financial assets if acquiring financial assets.
    - Spending to acquire assets does not affect net worth; other spending (expense: purchase of goods and services, social benefits, etc.) reduces net worth because the decline in currency and deposit is not matched by an increase in other assets.
- (2) If deposits are used to repay outstanding debt liabilities falling due:
  - Statement of operations:
    - Decrease in financial assets below-the-line in the form of currency and deposits, matched by a decrease in liabilities (below-the-line for principal payment on outstanding debt liabilities that fall due and/or repayment of accumulated accounts payable including arrears) and/or an increase in interest payment (above-the-line for interest payment due).
  - Balance sheet:
    - Decrease in currency and deposits matched by a decrease in the stock position of liabilities.

### II.d At the time interest on SDR holdings is received, and interest on SDR allocations is paid — interest recording and DSA treatment
- Recording options depend on central government net SDR position (nil, negative, or positive) and on accrual vs cash recording basis.
- When net SDR position is nil (SDR holdings equal cumulative SDR allocations):
  - Cash basis: no net interest receipts/payments occur; no transactions recorded in the statement of operations.
  - Accrual basis: interest income on SDR holdings (revenue) and equal interest expense on SDR allocations are accrued on a gross basis to the outstanding asset and liability.
- When net SDR position is negative (due to exchange of SDR holdings):
  - Interest payable on SDR allocations will be larger than interest receivable on SDR holdings.
  - Both interest receivable and interest payable are recorded in the statement of operations on a gross basis.
  - If SDR holdings were exchanged with the central bank and both institutions have non-zero SDR positions, settlement of SDR interest payments between institutions may be needed.
  - For DSA inclusion: when net SDR position is zero or negative, only the net SDR interest payments (SDR interest expenditure minus SDR interest revenue) are included in the DSA as interest on debt. When net SDR position is positive, no SDR interest is included in the DSA as interest on debt.
- Statement of operations:
  - Interest is recorded on a gross basis: interest received on SDR holdings recorded under revenue (above-the-line) and interest paid on SDR allocations recorded under interest expense (above-the-line).
- Balance sheet:
  - No change at the time interest is recorded, although under strict accrual recording interest accrues daily over a quarter, increasing the asset/liability in the form of SDR holdings/allocations until paid (or settled) at the beginning of the following quarter in accordance with the IMF's rules.

### BOX 1. Interest Payments when SDRs Allocations and Holdings Are Split between Domestic Entities — recording principles and settlement
- Recording principles:
  - Gross SDR positions and related interest payments are always recorded as external and at the SDR interest rate, even when government and central bank net SDR positions have opposite signs requiring settlement between domestic institutions.
  - Both the government and the central bank record:
    - SDR allocations as gross external debt,
    - SDR holdings as external assets,
    - gross external interest revenues on SDR holdings,
    - gross external interest expenses on SDR allocations.
  - Actual flows of interest payments between the SDR Department and a member are based on the member’s consolidated net SDR position.
  - Domestic transactions between institutions within the member country must be recorded to settle interest accrued on their net SDR positions.
  - Depending on the country’s legal and institutional framework, a memorandum of understanding between institutions may be needed to govern domestic settlement.
- Treatment when domestic settlement terms differ from IMF SDR Department terms:
  - Macroeconomic statistics still record gross external interest revenue and expense on the SDR interest terms.
  - Separate domestic settlement transactions (actual or imputed or a combination) between the member’s institutions should be recorded in line with domestic legal and institutional arrangements.
- Example scenario (preserving exact elements):
  - Member has zero net SDR position (member SDR holdings equals SDR allocations).
  - SDR allocations initially recorded in the central government’s balance sheet.
  - Central government sells its SDR holdings to the central bank.
  - Result: central government has a negative net SDR position; central bank has a positive net SDR position.
  - Under accrual recording, this generates accrued SDR external interest expense for the central government and SDR external interest revenue for the central bank.
  - No actual interest payments flow between the SDR Department and the member (because the member’s net SDR position is zero).
  - Therefore, SDR interest accrued and owed by the central government and SDR interest accrued and due to the central bank need to be settled between the two institutions through one or more domestic transactions to avoid unpaid interest accruing and increasing SDR liability/asset stocks.
  - If statistics are compiled on a cash basis, in this example no transactions would be recorded in GFS because there is no actual cashflow between the SDR Department and the member nor between the member’s central government and the central bank, unless the domestic institutional agreement specifies otherwise.

### GFS recording when the allocation is first recorded in the central bank's accounts
- When SDRs are recorded on the central bank’s balance sheet at the time of an allocation:
  - SDR allocations and holdings are included in the public sector balance sheet but are not recorded as financial assets and liabilities of the central government.
  - External debt liabilities in the form of SDR allocations recorded in the central bank’s balance sheet do not count as external public debt for the DSA if the central bank is excluded from the DSA perimeter.
- Arrangements for using SDRs to finance the budget when SDRs are recorded in the central bank depend on domestic legal and institutional permissibility. Four arrangements discussed:
  a. On-lending of SDRs
  - Central bank can on-lend SDRs (or the foreign exchange obtained from exchanging SDRs) to the central government under a loan agreement where legally permitted.
  - Forms:
    1. Lending the SDRs to government.
    2. Central bank exchanges SDR holdings for freely usable currency through the VTA or bilaterally and lends the foreign exchange proceeds to government.
  - Recording consequences:
    - Statement of operations: increase in financial assets below-the-line in the form of SDR holdings (for on-lending of SDRs) or currency and deposits (for lending of proceeds), matched by an increase in domestic liabilities in the form of loans from the central bank. Subsequent interest payments on the loan recorded as interest expense above-the-line matched by a decrease in financial assets below-the-line (currency and deposits) if cash is used.
    - Balance sheet: increase in financial assets (SDR holdings or currency and deposits) matched by increase in domestic liabilities (loans from the central bank). Although SDR allocations position is not recorded in government accounts, the increase in debt liabilities from borrowing from the central bank increases domestic debt for DSA purposes and should be reflected in government accounts and public DSA.
  - Mechanisms must be put in place for settlement of SDR interest payments between institutions (see Box 1).
  b. Sale of proceeds of debt issuance and/or sale of local currency for foreign exchange
  - Government issues domestic debt and uses proceeds and/or readily available local currency to purchase from the central bank the foreign exchange that the central bank acquired from exchanging SDR holdings.
  - Variant: government purchasing central bank foreign exchange using government bonds, subject to conformity with central bank law.
  - Recording consequences:
    - Statement of operations: (a) sale of proceeds of debt issuance or sale of bonds to purchase foreign exchange: increase in external financial assets (currency and deposits) matched by increase in domestic liabilities (debt securities or loans). (b) sale of local currency for foreign exchange: increase in external financial assets (currency and deposits) matched by decrease in domestic financial assets (currency and deposits). Subsequent interest payments recorded as interest expense above-the-line matched by a decrease in financial assets if cash used.
    - Balance sheet: corresponding increases/decreases in external financial assets and domestic liabilities or assets. Increase in debt liabilities from borrowing in the domestic market to purchase foreign exchange increases debt for DSA purposes.
  c. “Retrocession” of SDRs
  - Central bank transfers ownership of part or all SDR allocations and holdings to the central government, if explicit legal basis and appropriate legal instrument exist.
  - Legally and accounting-wise complex: leads to derecognition of assets (SDR holdings) and liabilities (SDR allocations) on the central bank balance sheet.
  - Statistical treatment in government statement of operations and balance sheet for transferred SDRs would be the same as if the allocation had first been recorded in government accounts.
  d. Direct lending of equivalent in local currency of part or all SDRs
  - Central bank lending of the local currency equivalent is treated as borrowing from the central bank and recorded accordingly in GFS where allowed and subject to a memorandum of understanding.
  - Recording mirrors other borrowing from the central bank: increase in financial assets (currency and deposits) matched by increase in domestic liabilities (loans from central bank); subsequent interest payments recorded as interest expense above-the-line matched by a decrease in financial assets if cash used. Increase in domestic debt for DSA purposes should be reflected in government accounts and public DSA.

### Considerations for currency unions
- Types of currency unions do not give rise to specific GFS issues for recording and use of SDR allocations.
- BPM6 identifies centralized and decentralized currency unions. Depending on domestic legal and institutional frameworks, SDR recording follows:
  - If recorded on the central government’s balance sheet: guidance in Section I applies.
  - If recorded in the central bank’s balance sheet (branch/agency of the union’s central bank for centralized unions, or national central banks for decentralized unions): guidance in Section II applies.

### Illustrative numeric examples from GFS tables (preserve exact figures)
- Table 1 (Assume allocation of SDRs of 100 and opening balance sheet positions and debt stock of zero):
  - Financial assets: SDR holdings 0 → +10 → 100
  - Liabilities: SDR allocations 0 → +10 → 100
  - Gross debt 0 → 100
- Table 2 (Central government exchanges all SDR holdings from closing position in Table 1):
  - Financial assets: SDR holdings 100 → –100 → 0; Currency and deposits +10 → 0 → 100
  - Liabilities: SDR allocations 100 → 0 → 100
  - Gross debt 100 → 100
  - DSA debt 0 → 100
- Table 3 (From Table 2, government spends 20 on goods and services, 50 for nonfinancial assets, 30 acquiring financial assets):
  - Transactions: Goods and services 20
  - Net worth/Net operating balance 0 → –20 → –20
  - Nonfinancial assets 0 → 50 → 50
  - Net financial worth/Net lending (+)/net borrowing (–) 0 → –70 → –70
  - Financial assets 100 → –70 → 30 (SDR holdings 0; Currency and deposits 100 → –100 → 0; Other financial assets (equity) 0 → +30 → 30)
  - DSA debt 100 → 100
- Table 4 (From Table 2, outstanding debt liabilities other than SDRs of 95; government spends 95 for principal and 5 for external interest):
  - Transactions: Interest 5
  - Net worth/Net operating balance –95 –5 → –100
  - Net financial worth/Net lending (+)/net borrowing (–) –95 –5 → –100
  - Financial assets 100 → –100 → 0
  - Liabilities 195 → –95 → 100 (Other liabilities 95 → –95 → 0)
  - Gross debt 195 → 100
  - External debt 195 → 100
  - Net debt 95 → 100
  - DSA debt 195 → 100
- Table 5 (From closing position in Table 1, government receives 5 interest on SDR holdings and pays 5 interest on SDR allocations):
  - Revenue 5 (Other revenue 5; Interest from nonresidents 5)
  - Expense 5 (Interest 5; Interest to nonresidents 5)
  - Net worth/Net operating balance 0 → 0
  - Financial assets 100 → 100 (SDR holdings 100 → 100)
  - Liabilities 100 → 100 (SDR allocations 100 → 100)
  - Gross debt 100 → 100; External debt 100 → 100; DSA debt 0 → 0
- Table 6 (Assume opening positions zero and borrowing from central bank of 100 freely usable currency acquired from exchanging SDR holdings):
  - Financial assets: Currency and deposits +10 → 0 → 100
  - Liabilities: Other liabilities +10 → 0 → 100
  - Gross debt 0 → 100
  - Domestic debt 0 → 100
  - DSA debt 0 → 100

*Source: TNM/2022/003 — How to Record the Allocations of Special Drawing Rights in Government Finance Statistics*

### Annex I. Illustrative Description of the Recording in Government Accounts    10

### Annex I. Illustrative Description of the Recording in Government Accounts

### I. Introduction: context and principles
- A general allocation of Special Drawing Rights (SDRs) equivalent to US $650 billion (about SDR 456 billion) became effective on August 23, 2021.
- The newly created SDRs were credited to IMF members participating in the SDR Department (currently all 190 member countries) in proportion to their existing paid quotas in the Fund.
- The allocation increases assets (SDR holdings) and creates matching long-term liabilities (SDR allocations); it is not a transfer of wealth.
- SDR Department obligations and rights are obligations and rights of the relevant member, not of fiscal agents or other domestic entities managing SDR positions.
- Members are not obliged by the IMF Articles of Agreement to hold SDRs under specific domestic institutional arrangements or to follow a specific accounting framework; statistical recording should follow the member’s legal and institutional frameworks and relevant best practices (for example, GFSM 2014).
- Under GFSM 2014:
  - SDR allocations are recorded as a liability (long-term debt liability) and part of public sector gross debt, with a corresponding entry for SDR holdings as a financial asset.
  - Interest receivable on SDR holdings and interest payable on SDR allocations are accrued on a gross basis to the outstanding asset and liability and both accrue at the same SDR interest rate.
- For GFS and public sector debt statistics (PSDS), whether allocations are recorded in the government or the central bank affects classification:
  - If recorded on the government’s balance sheet → part of general government debt.
  - If recorded on the central bank’s balance sheet → not part of general government debt but still part of public sector debt.

### II. Recording when the allocation is first recorded in the government’s accounts — overview
- Applies where domestic legal and institutional arrangements prescribe that SDRs are held and controlled by the State; allocations and holdings are recorded in central government (for example, Ministry of Finance/Treasury) accounts.
- Recording affects both transactions (statement of operations) and stock positions (balance sheet) at allocation and at subsequent uses.
- Two main allocation-recording scenarios in scope of this Annex:
  1. Allocation first recorded in the government’s accounts.
  2. Allocation first recorded in the central bank’s accounts.
- Illustrations follow GFSM 2014 conventions; specific impacts on gross debt, net debt, and DSA debt are discussed.

### II.a At the time of the allocation of SDRs (Table 1) — immediate recording
- Statement of operations (all below-the-line transactions):
  - Increase in (external) liabilities in the form of SDR allocations, matched by an increase in (external) financial assets in the form of SDR holdings.
- Balance sheet:
  - Stock position of (external) liabilities in the form of SDR allocations increases, matched by an increase in the stock position of (external) financial assets in the form of SDR holdings.
  - Since SDR allocations and SDR holdings are at the same level at this point, the net debt stock of SDRs is zero and no net debt would be recorded for the DSA purpose.

### II.b At the time the central government exchanges its SDR holdings (Table 2) — exchange mechanics and effects
- Two exchange types:
  1. Central government exchanges SDR holdings with the central bank (or equivalent domestic entity) for local currency or foreign exchange.
  2. Central government exchanges SDR holdings through the IMF’s SDR Department Voluntary Trading Arrangements (VTA), or directly with another participant or prescribed holder, for freely usable currency.
- Recording in central government accounts is the same for both exchange types, though exchanges with the central bank create opposite net SDR positions across institutions and may require mechanisms for settlement of SDR interest payments.
- Statement of operations (all below-the-line transactions):
  - Decrease in (external) financial assets in the form of SDR holdings, matched by an increase in financial assets (external if exchanged for foreign exchange and domestic if exchanged for local currency) in the form of currency and deposits.
- Balance sheet:
  - Stock position of (external) financial assets in the form of SDR holdings decreases, matched by an increase in the stock position of financial assets in the form of currency and deposits (external if FX, domestic if local currency).
- Net SDR position of the central government becomes negative (cumulative SDR allocations exceed SDR holdings) as a result of the exchange (assuming no prior excess holdings); the net negative SDR position is considered debt for the DSA purpose.

### II.c At the time the central government uses its deposits from the exchange of its SDR holdings — common uses and effects
- Two illustrative uses considered:
  1. Use deposits to finance government non-interest spending or to acquire financial assets (for example, capital expenditure, goods and services, compensation, transfers, equity investments, loans).
  2. Use deposits to repay outstanding debt liabilities falling due.
- Key implications:
  - Use of deposits to finance non-interest spending does not further impact debt pertaining to SDR allocations; repayment of outstanding debt liabilities does impact public DSA debt by reducing outstanding debt stock.
- (1) If deposits are used to finance government non-interest spending (Table 3):
  - Statement of operations:
    - Decrease in financial assets below-the-line in the form of currency and deposits, matched by an increase in expenditure above-the-line or an increase in financial assets below-the-line if acquiring financial assets.
  - Balance sheet:
    - Decrease in currency and deposits matched by an increase in nonfinancial assets if acquiring nonfinancial assets, and/or an increase in financial assets if acquiring financial assets.
    - Spending to acquire assets does not affect net worth; other spending (expense: purchase of goods and services, social benefits, etc.) reduces net worth because the decline in currency and deposit is not matched by an increase in other assets.
- (2) If deposits are used to repay outstanding debt liabilities falling due (Table 4):
  - Statement of operations:
    - Decrease in financial assets below-the-line in the form of currency and deposits, matched by a decrease in liabilities (below-the-line for principal payment on outstanding debt liabilities that fall due and/or repayment of accumulated accounts payable including arrears) and/or an increase in interest payment (above-the-line for interest payment due).
  - Balance sheet:
    - Decrease in currency and deposits matched by a decrease in the stock position of liabilities.

### II.d At the time interest on SDR holdings is received, and interest on SDR allocations is paid (Table 5) — interest recording and DSA treatment
- Two recording options considered depending on the central government’s net SDR position (nil, negative, or positive) and on accrual vs cash recording basis.
- When net SDR position is nil (SDR holdings equal cumulative SDR allocations):
  - Cash basis: no net interest receipts/payments occur; no transactions recorded in the statement of operations.
  - Accrual basis: interest income on SDR holdings (revenue) and equal interest expense on SDR allocations are accrued on a gross basis to the outstanding asset and liability.
- When net SDR position is negative (due to exchange of SDR holdings):
  - Interest payable on SDR allocations will be larger than interest receivable on SDR holdings.
  - Both interest receivable and interest payable are recorded in the statement of operations on a gross basis.
  - If SDR holdings were exchanged with the central bank and both institutions have non-zero SDR positions, settlement of SDR interest payments between institutions may be needed.
  - For DSA inclusion: when net SDR position is zero or negative, only the net SDR interest payments (SDR interest expenditure minus SDR interest revenue) are included in the DSA as interest on debt. When net SDR position is positive, no SDR interest is included in the DSA as interest on debt.
- Statement of operations:
  - Interest is recorded on a gross basis: interest received on SDR holdings recorded under revenue (above-the-line) and interest paid on SDR allocations recorded under interest expense (above-the-line).
- Balance sheet:
  - No change at the time interest is recorded, although under strict accrual recording interest accrues daily over a quarter, increasing the asset/liability in the form of SDR holdings/allocations until paid (or settled) at the beginning of the following quarter in accordance with the IMF's rules.

*Source: tnmea2022003 - Annex I. Illustrative Description of the Recording in Government Accounts*

### BOX 1. Interest Payments when SDRs Allocations and Holdings Are Split

### BOX 1. Interest Payments when SDRs Allocations and Holdings Are Split between Domestic Entities

### Recording principles and settlement of SDR interest
- Gross SDR positions and related interest payments are always recorded as external and at the SDR interest rate, even when government and central bank net SDR positions have opposite signs requiring settlement between domestic institutions.
- Both the government and the central bank record:
  - SDR allocations as gross external debt,
  - SDR holdings as external assets,
  - gross external interest revenues on SDR holdings,
  - gross external interest expenses on SDR allocations.
- Actual flows of interest payments between the SDR Department and a member are based on the member’s consolidated net SDR position.
- Domestic transactions between institutions within the member country must be recorded to settle interest accrued on their net SDR positions.
- Depending on the country’s legal and institutional framework, a memorandum of understanding between institutions may be needed to govern domestic settlement.

### Treatment when domestic settlement terms differ from IMF SDR Department terms
- Macroeconomic statistics still record gross external interest revenue and expense on the SDR interest terms.
- Separate domestic settlement transactions (actual or imputed or a combination) between the member’s institutions should be recorded in line with domestic legal and institutional arrangements.
- Example scenario (preserving exact elements):
  - Member has zero net SDR position (member SDR holdings equals SDR allocations).
  - SDR allocations initially recorded in the central government’s balance sheet.
  - Central government sells its SDR holdings to the central bank.
  - Result: central government has a negative net SDR position; central bank has a positive net SDR position.
  - Under accrual recording, this generates accrued SDR external interest expense for the central government and SDR external interest revenue for the central bank.
  - No actual interest payments flow between the SDR Department and the member (because the member’s net SDR position is zero).
  - Therefore, SDR interest accrued and owed by the central government and SDR interest accrued and due to the central bank need to be settled between the two institutions through one or more domestic transactions to avoid unpaid interest accruing and increasing SDR liability/asset stocks.
- If statistics are compiled on a cash basis, in this example no transactions would be recorded in GFS because there is no actual cashflow between the SDR Department and the member nor between the member’s central government and the central bank, unless the domestic institutional agreement specifies otherwise.

### GFS recording when the allocation is first recorded in the central bank's accounts
- When SDRs are recorded on the central bank’s balance sheet at the time of an allocation, SDR allocations and holdings are included in the public sector balance sheet but are not recorded as financial assets and liabilities of the central government.
- External debt liabilities in the form of SDR allocations recorded in the central bank’s balance sheet do not count as external public debt for the DSA if the central bank is excluded from the DSA perimeter.
- Arrangements for using SDRs to finance the budget when SDRs are recorded in the central bank depend on domestic legal and institutional permissibility. Four arrangements are discussed:

  a. On-lending of SDRs
  - Where domestic legal frameworks permit, the central bank can on-lend SDRs (or the foreign exchange obtained from exchanging SDRs) to the central government under a loan agreement.
  - Two forms:
    1. Lending the SDRs to government.
    2. Central bank exchanges SDR holdings for freely usable currency through the VTA or bilaterally and lends the foreign exchange proceeds to government.
  - Consequences and recording (statement of operations and balance sheet):
    - Statement of operations: increase in financial assets below-the-line in the form of SDR holdings (for on-lending of SDRs) or currency and deposits (for lending of proceeds), matched by an increase in domestic liabilities in the form of loans from the central bank. Subsequent interest payments on the loan recorded as interest expense above-the-line matched by a decrease in financial assets below-the-line (currency and deposits) if cash is used.
    - Balance sheet: increase in financial assets (SDR holdings or currency and deposits) matched by increase in domestic liabilities (loans from the central bank). Although SDR allocations position is not recorded in government accounts, the increase in debt liabilities from borrowing from the central bank increases domestic debt for DSA purposes and should be reflected in government accounts and public DSA.
  - Mechanisms must be put in place for settlement of SDR interest payments between institutions (see Box 1).

  b. Sale of proceeds of debt issuance and/or sale of local currency for foreign exchange
  - Government issues domestic debt and uses proceeds and/or readily available local currency to purchase from the central bank the foreign exchange that the central bank acquired from exchanging SDR holdings.
  - Variant: government purchasing central bank foreign exchange using government bonds, subject to conformity with central bank law.
  - Consequences and recording:
    - Statement of operations: (a) sale of proceeds of debt issuance or sale of bonds to purchase foreign exchange: increase in external financial assets (currency and deposits) matched by increase in domestic liabilities (debt securities or loans). (b) sale of local currency for foreign exchange: increase in external financial assets (currency and deposits) matched by decrease in domestic financial assets (currency and deposits). Subsequent interest payments recorded as interest expense above-the-line matched by a decrease in financial assets if cash used.
    - Balance sheet: corresponding increases/decreases in external financial assets and domestic liabilities or assets. Increase in debt liabilities from borrowing in the domestic market to purchase foreign exchange increases debt for DSA purposes.

  c. “Retrocession” of SDRs
  - Central bank transfers ownership of part or all SDR allocations and holdings to the central government, if explicit legal basis and appropriate legal instrument exist.
  - Legally and accounting-wise complex: leads to derecognition of assets (SDR holdings) and liabilities (SDR allocations) on the central bank balance sheet.
  - Statistical treatment in government statement of operations and balance sheet for transferred SDRs would be the same as if the allocation had first been recorded in government accounts.

  d. Direct lending of equivalent in local currency of part or all SDRs
  - Where allowed and subject to a memorandum of understanding, central bank lending of the local currency equivalent is treated as borrowing from the central bank and recorded accordingly in GFS.
  - Recording (statement of operations and balance sheet) mirrors other borrowing from the central bank: increase in financial assets (currency and deposits) matched by increase in domestic liabilities (loans from central bank); subsequent interest payments recorded as interest expense above-the-line matched by a decrease in financial assets if cash used. Increase in domestic debt for DSA purposes should be reflected in government accounts and public DSA.

### Considerations for currency unions
- Types of currency unions do not give rise to specific GFS issues for recording and use of SDR allocations.
- BPM6 identifies centralized and decentralized currency unions. Depending on domestic legal and institutional frameworks, SDR recording follows:
  - If recorded on the central government’s balance sheet: guidance in Section I applies.
  - If recorded in the central bank’s balance sheet (branch/agency of the union’s central bank for centralized unions, or national central banks for decentralized unions): guidance in Section II applies.

### Illustrative numeric examples from GFS tables (preserve exact figures)
- Table 1 (Assume allocation of SDRs of 100 and opening balance sheet positions and debt stock of zero):
  - Financial assets: SDR holdings 0 → +10 → 100
  - Liabilities: SDR allocations 0 → +10 → 100
  - Gross debt 0 → 100
- Table 2 (Central government exchanges all SDR holdings from closing position in Table 1):
  - Financial assets: SDR holdings 100 → –100 → 0; Currency and deposits +10 → 0 → 100
  - Liabilities: SDR allocations 100 → 0 → 100
  - Gross debt 100 → 100
  - DSA debt 0 → 100
- Table 3 (From Table 2, government spends 20 on goods and services, 50 for nonfinancial assets, 30 acquiring financial assets):
  - Transactions: Goods and services 20
  - Net worth/Net operating balance 0 → –20 → –20
  - Nonfinancial assets 0 → 50 → 50
  - Net financial worth/Net lending (+)/net borrowing (–) 0 → –70 → –70
  - Financial assets 100 → –70 → 30 (SDR holdings 0; Currency and deposits 100 → –100 → 0; Other financial assets (equity) 0 → +30 → 30)
  - DSA debt 100 → 100
- Table 4 (From Table 2, outstanding debt liabilities other than SDRs of 95; government spends 95 for principal and 5 for external interest):
  - Transactions: Interest 5
  - Net worth/Net operating balance –95 –5 → –100
  - Net financial worth/Net lending (+)/net borrowing (–) –95 –5 → –100
  - Financial assets 100 → –100 → 0
  - Liabilities 195 → –95 → 100 (Other liabilities 95 → –95 → 0)
  - Gross debt 195 → 100
  - External debt 195 → 100
  - Net debt 95 → 100
  - DSA debt 195 → 100
- Table 5 (From closing position in Table 1, government receives 5 interest on SDR holdings and pays 5 interest on SDR allocations):
  - Revenue 5 (Other revenue 5; Interest from nonresidents 5)
  - Expense 5 (Interest 5; Interest to nonresidents 5)
  - Net worth/Net operating balance 0 → 0
  - Financial assets 100 → 100 (SDR holdings 100 → 100)
  - Liabilities 100 → 100 (SDR allocations 100 → 100)
  - Gross debt 100 → 100; External debt 100 → 100; DSA debt 0 → 0
- Table 6 (Assume opening positions zero and borrowing from central bank of 100 freely usable currency acquired from exchanging SDR holdings):
  - Financial assets: Currency and deposits +10 → 0 → 100
  - Liabilities: Other liabilities +10 → 0 → 100
  - Gross debt 0 → 100
  - Domestic debt 0 → 100
  - DSA debt 0 → 100

*Source: TNM/2022/003 — How to Record the Allocations of Special Drawing Rights in Government Finance Statistics*

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_Source: https://www.imf.org/-/media/files/publications/tnm/2022/english/tnmea2022003.pdf_