## _102505

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### Purpose and scope
- GFSM 2001 described as "an internationally recognized statistical reporting framework" that "provides a sound basis for fiscal analysis and can play a key role in strengthening the analytical basis of surveillance and Fund­supported programs."
- Paper objectives:
  - Respond to the Board’s call for greater consistency in fiscal reporting in line with GFSM 2001.
  - Summarize the GFSM 2001 framework.
  - Review implementation by member countries and Fund staff.
  - Propose voluntary pilot studies.
  - Seek Board support for gradual adoption of GFSM 2001 as the basis for fiscal analysis in Fund staff reports.

### GFSM 2001 analytical presentation and core indicators
- Three summary fiscal tables (analogous to business financial statements):
  - an operating statement,
  - a balance sheet,
  - a cash statement.
- Four core fiscal indicators:
  - the net operating balance,
  - net lending/borrowing,
  - net worth,
  - the cash surplus/deficit.
- Focus and scope:
  - Framework focuses on the general government but "encourages countries to report fiscal statistics that cover the public corporations sector and the public sector as a whole."
  - Recognizes usefulness of a wider range of supplementary fiscal indicators in particular circumstances.

### Analytical strengths and advantages for policy analysis
- Integrates stocks and flows to strengthen fiscal sustainability analysis by enabling evaluation of changes in net worth presented in balance sheets that reconcile stocks and flows.
- Harmonizes measures of government saving, investment, and consumption with the national accounts (1993 SNA), making fiscal measures suitable for quantitative macroeconomic frameworks.
- Clarifies treatment of public investment: net operating balance and net lending/borrowing correspond to current and overall balances respectively; investment creates assets and debt used to finance investment need not reduce net worth.
- Standardizes staff adjustments, eliminates asymmetries such as inconsistent "lending minus repayments" treatments, and coherently captures noncash transactions.
- Provides a "common language" to handle complex operations (examples: bank recapitalization, securitization, public‑private partnerships).

### Limitations of GFSM 1986 and rationale for change
- GFSM 1986 is cash‑based; main indicator is the overall balance useful for financing/liquidity management.
- Operational shortcomings of GFSM 1986:
  - lack of explicit linkage between flows and stocks,
  - classification ambiguities (e.g., "lending minus repayments", privatization proceeds),
  - reliance on cash statistics that omit noncash transactions and arrears.
- GFSM 1986 provides only outstanding debt at face value; flows and stocks cannot be reconciled, complicating debt sustainability analysis.
- Mixing financial operations with expenditure under GFSM 1986 introduces asymmetries and nonuniform treatment of similar transactions.

### Implementation approach, costs, risks, and time horizons
- Identified costs/risks:
  - learning curve for Fund economists,
  - time and resources required for full implementation,
  - potential for creative accounting with accrual reporting.
- Three sets of actions (can be initiated simultaneously) with distinct horizons:
  - presentation (near‑term),
  - reporting (medium‑term),
  - full implementation of accrual reporting and underlying systems (long‑term).
- Full accrual implementation expected to take most countries many years; reclassifying data for GFSM 2001 presentation is "fairly easy" and quicker than reporting accrual‑based information.

### Near‑term presentation and transition guidance (bridging and continuity)
- First step: reclassify existing data into GFSM 2001 presentation without compromising report quality.
- Provide bridge tables to explain differences between GFSM 2001 "net lending/borrowing" and the traditional overall balance familiar to policymakers.
- Document how current and GFSM 2001 presentations are bridged and source data used.
- Acknowledge potential breaks in fiscal time series; present overlapping data and full documentation where historical data are unavailable.
- Voluntary pilot studies proposed to explore modalities for presenting/analyzing GFSM 2001 statistics in Fund staff reports.

### Reporting, capacity building, and migration strategy
- Reporting status and capacity building:
  - STA provided training/technical assistance; by 2002 assisted 22 countries (mainly in Europe) to report data in GFSM 2001 via bridging.
  - Of 99 member countries reporting data for the GFSY 2003-04 yearbooks, about 79 percent (78 countries) submitted data using GFSM 2001 (flows and stocks); about 70 percent of those reporters were in developing and emerging market countries.
  - STA developing a higher frequency fiscal database (monthly and quarterly) using GFSM 2001; collaboration with Eurostat underway.
- Migration strategy elements (verbatim):
  1. reorganizing and presenting existing statistical information using the GFSM 2001 framework;
  2. developing a legal environment that provides for compiling cash­ and accrual­ based fiscal statistics and that assigns institutional responsibility for compiling statistics on the public sector and its subsectors; and
  3. introducing improvements in the underlying accounting and classification systems, including introducing a chart of accounts, a general ledger, accrual­based accounting standards, and an automated financial management information system.
- Full implementation responsibility rests with national authorities; Fund staff to provide technical support and training (STA, FAD, INS involvement).

### Pilot studies: design, resources, and governance
- Purpose: broaden experience with GFSM 2001 across the accounting/statistical spectrum; pilot in countries migrated to accrual reporting and in cash‑based countries that map to GFSM 2001.
- Analytical focus candidates: bank restructuring, debt restructuring, public corporations relations (equity injections/recapitalizations, privatization), portfolio management of public sector assets/liabilities.
- Presentation modalities:
  - Present GFSM 2001 three tables in parallel with traditional fiscal tables when possible (appendix, selected issues paper, or main staff report).
  - For program countries, GFSM 2001 tables would not be presented in program documentation to avoid confusion; pilot inclusion in Article IV consultation reports to be explored.
- Resource implications and timeline:
  - Estimated "three-and­a­half staff years" to complete pilot studies over two years plus training and support.
  - Resources to be absorbed within STA and FAD existing resource envelope.
- Governance:
  - Joint STA/FAD Advisory Group on GFSM 2001 to act as a one‑stop resource for area departments.
  - Area departments to be conduits for technical dialogue and increasingly use GFSM 2001 in operational work.

### Use of GFSM 2001 in Fund reports and programs (operational cautions)
- Interim options:
  - Quick mapping of existing data into GFSM 2001 format; easiest first step is reclassifying capital revenue/expenditure and lending minus repayments appropriately.
  - Compilers must indicate table coverage and accounting basis (pure cash, full accrual, or intermediate) and significant departures.
- For program contexts:
  - Timeliness is usually the binding constraint; program targets are mainly specified in cash‑based or commitment/adjusted cash‑based indicators.
  - Short‑term shift toward GFSM 2001 indicators likely limited; build confidence and awareness of operational risks (e.g., accrual adjustments subject to discretion).
- Benefits for programs (when timely data available):
  - Improves fiscal transparency and analysis, reduces country‑specific adjustments, enhances cross‑country comparability, promotes intersectoral consistency, and allows earlier identification of data quality problems or circumvention of fiscal performance criteria.

### Core definitions, valuation, and supplementary indicators
- Accrual recording guidance:
  - Record expense when resources used (obligation to pay incurred); revenue when liability to government is exchanged (normally at assessment, based on amounts realistically expected to be collected).
  - Maintain cash‑based statement as part of framework to monitor liquidity.
- Valuation:
  - Flows and stocks valued at market prices (flows at prices current on transaction accrual dates; stocks at prices current on balance sheet date).
  - Exception: nonmarketable loans valued at nominal prices.
  - Nominal value of debt reported as a memorandum item.
- Supplementary indicators:
  - GFSM 2001 recognizes usefulness of indicators such as primary balance or deriving an overall balance from net lending/borrowing as transitional arrangements.
  - Holding gains/losses and other economic flows recorded to capture revaluations and one‑off events.

### Illustrative bridge example (selected figures and definitional equalities)
- Selected figures (Typical Staff Report / GFSM):
  - Total revenue and grants: 62,600 / 62,300
  - Capital revenue a/: 300
  - Total expenditure and lending minus repayments: 78,500 / 72,700
  - Current expenditure: 68,800
  - Gross operating balance e/: ­10,400
  - Capital expenditure: 9,000
  - Capital transfers: 3,900
  - Net acquisition of nonfinancial assets f/: 4,800
  - Purchases of fixed assets b/: 5,100
  - Lending minus repayments: 700
  - Overall: ­15,900 / ­15,200
  - Financing: 15,900 / ­7,200
  - Net acquisition of financial assets h/: 32: Domestic (net) 6,800 / ­7,200
  - Changes in cash and deposits: 4,400 / 0
  - Domestic borrowing (net): 2,400 / 8,000
  - External borrowing (net): 5,600 / 2,400
  - Sale of equity (privatization): 3,500 / 5,600
- Key definitional equalities (verbatim):
  - GFSM 2001Revenue = Total revenue and grant minus Capital revenue. [62,300=62,600­300]
  - GFSM 2001Expense = Total expenditure and net lending minus Purchases of fixed assets minus Net lending. [72,700=78,500­5,100­700]; or GFSM 2001Expense = Current expenditure plus capital transfers. [72,700=68,800+3,900]
  - Gross operating balance = Revenue minus Expense (excluding Consumption of fixed capital). [­10,400=62,300­72,700]
  - GFSM 2001Net acquisition of nonfinancial assets = Purchases of fixed capital assets, strategic stocks, land, and intangibles minus Capital revenue (Sales of fixed capital assets, strategic stocks, land, and intangibles). [4,800=5,100­300]
  - Net lending (+) / borrowing (­) = Gross (Net) operating balance minus Net acquisition of nonfinancial assets. [­15,200=­10,400­4,800]
  - GFSM 2001Net acquisition of financial assets comprises domestic and foreign Net lending, Sales of equity, and Changes in cash and deposits. In the example, domestic Net lending [700] and Sales of equity [3,500] and Changes in cash and deposits [4,400] are classified to equal Net acquisition of financial assets (domestic): [700­4,400­3,500=­7,200]
  - GFSM 2001Net incurrence of liabilities = Net domestic borrowing and Net foreign borrowing. [8,000=2,400+5,600]

### Country experiences and desk studies (selected findings and numbers)
- Implementation examples and status:
  - Australia: accrual fiscal statistics compiled/disseminated starting 1998–99; quarterly fiscal data from 2004.
  - Iceland, New Zealand, United Kingdom: reported accrual‑based data to Fund for 2004 GFSY.
  - EU reporting generally compatible with GFSM 2001; Japan reported adjusted GFSM 2001 data for 2005 GFSY.
  - Latin America: many countries using GFSM 2001; "Eighty­five percent" of submitting countries in the region use GFSM 2001 framework for GFSY.
  - Several other countries (Thailand, South Africa) initiated accrual moves and reported GFSM 2001 format data for 2004 GFSY.
- Desk studies: Uruguay, Malaysia, Mauritius conclusions:
  - Converting existing data to GFSM 2001 is feasible and can strengthen policy conclusions even with gaps.
  - Uruguay (banking crisis 2002):
    - Staff report showed a deficit of 4.6 percent of GDP in 2002; GFSM 2001 operating statement showed net borrowing of 7.6 percent of GDP.
    - Public sector capital transfers (other expense) ~3 percent of GDP affected gross operating balance and net lending/borrowing.
  - Malaysia (privatization treatment):
    - Reclassifying privatization proceeds out of revenue increased net borrowing position by ½ percent of GDP during 1997-2003.
  - Mauritius (fiscal sustainability):
    - GFSM 2001 presentation in 2002 staff work showed steady incurrence of debt liabilities 1995/96-1999/2000 and projected unsustainable baseline fiscal path through 2006/07; net financial worth deterioration to about negative 24 percent of GDP during 1994/95-1999/2000.

### Empirical tables and selected numeric time series (Uruguay, Malaysia, Mauritius)
- Uruguay (selected GFSM 2001 figures, in millions of Pesos and percent of GDP):
  - Revenue: 78,558 (1999), 78,103 (2000), 83,091 (2001), 83,591 (2002)
  - Expense: 77,946 (1999), 79,333 (2000), 84,023 (2001), 96,565 (2002)
  - Gross operating balance 2/: 612 (1999), ­1,230 (2000), ­931 (2001), ­12,974 (2002)
  - Net acquisition of nonfinancial assets 3/: 10,536 (1999), 8,748 (2000), 9,433 (2001), 6,890 (2002)
  - Net lending/borrowing 4/: ­9,924 (1999), ­9,979 (2000), ­10,364 (2001), ­19,864 (2002)
  - Net acquisition of financial assets: ­1,367 (1999), ­3,639 (2000), 5,444 (2001), 29,384 (2002)
  - Net incurrence of liabilities: 3,781 (1999), 8,844 (2000), 14,466 (2001), 49,413 (2002)
  - Key ratios (percent of GDP): Revenue 33.1 (1999) … Net lending/borrowing ­4.2 (1999), ­4.1 (2000), ­4.2 (2001), ­7.6 (2002)
- Malaysia (selected GFSM 2001 figures, in millions of ringgit and percent of GDP):
  - Revenue: 69,356 (1996) … 104,887 (2003)
  - Expense: 50,419 (1996) … 90,724 (2003)
  - Gross operating balance 2/: 18,937 (1996) … 14,163 (2003)
  - Net acquisition of nonfinancial assets 3/: 16,620 (1996) … 33,356 (2003)
  - Net lending/borrowing 4/: 2,317 (1996), 9,928 (1997), ­3,912 (1998), ­19,193 (2003)
  - Key ratios (percent of GDP): Net lending/borrowing 0.9 (1996), 3.5 (1997), ­1.4 (1998), ­4.9 (2003)
- Mauritius (selected GFSM 2001 figures, in millions of rupees and percent of GDP):
  - Revenue: 12,832 (1995/96), 22,707 (2000/01)
  - Expense: 15,425 (1995/96), 28,523 (2000/01)
  - Gross operating balance 1/: ­2,593 (1995/96), ­5,816 (2000/01)
  - Net acquisition of nonfinancial assets 2/: 1,783 (1995/96), 2,898 (2000/01)
  - Net lending/borrowing 3/: ­4,376 (1995/96), ­8,714 (2000/01)
  - Key ratios (percent of GDP): Net lending/borrowing ­5.9 (1995/96), ­7.0 (2000/01)
- Balance sheet indicators (examples, Uruguay memoranda):
  - Net worth: ­16.7 (2000), ­17.9 (2001), ­24.4 (2002)
  - Net financial worth: ­36.7 (2000), ­41.1 (2001), ­51.0 (2002)
  - Liabilities: 51.1 (2000), 57.1 (2001), 71.2 (2002)
  - Liabilities/Assets ratio: 1.49 (2000), 1.46 (2001), 1.52 (2002)

### Policy and operational questions posed for Directors
- Do Directors agree GFSM 2001 provides a comprehensive and nuanced analytical framework that would augment current fiscal policy analysis for Fund surveillance and program work and enhance cross‑country comparability?
- Do Directors agree, in principle, that Fund staff should move in a phased way to presenting fiscal data using the GFSM 2001 statistical framework in staff reports?
- Do Directors support a pilot approach to exploring GFSM 2001‑based fiscal analysis in Fund operational work and related training by STA, FAD, and area departments (including exploring inclusion of the GFSM 2001 operating statement, integrated balance sheets, and cash statement in Article IV consultation reports on a pilot basis)?
- Do Directors agree that migration to fully implement GFSM 2001 methodology should be pursued over several years?
- Do Directors support ongoing technical assistance to country compilers to report operational data to the Fund using GFSM 2001 and to strengthen underlying accounting and classification systems?

*Source: Executive Summary and selected excerpts from the GFSM 2001 implementation paper (content unit _102505).*

### Executive Summary.......................................................................................................

### EXECUTIVE SUMMARY

### Purpose and scope
- The Government Finance Statistics Manual 2001 (GFSM 2001) is described as "an internationally recognized statistical reporting framework" that "provides a sound basis for fiscal analysis and can play a key role in strengthening the analytical basis of surveillance and Fund­supported programs."
- The paper responds to the Board’s call for greater consistency in fiscal reporting in line with GFSM 2001, summarizes the framework, reviews implementation by member countries and Fund staff, proposes pilot studies, and seeks Board support for gradual adoption of the framework as the basis for fiscal analysis in Fund staff reports.

### GFSM 2001 analytical presentation and core indicators
- GFSM 2001 summary presentation can be captured in three fiscal tables containing core indicators, analogous to business financial statements:
  - an operating statement,
  - a balance sheet,
  - a cash statement.
- The tables contain four core fiscal indicators: the net operating balance, net lending/borrowing, net worth, and the cash surplus/deficit.
- The framework focuses on the general government but "encourages countries to report fiscal statistics that cover the public corporations sector and the public sector as a whole."
- GFSM 2001 recognizes that a wider range of supplementary fiscal indicators may continue to be useful in particular circumstances.

### Strengths for fiscal analysis and policy recommendations
- GFSM 2001 strengthens fiscal sustainability analysis by allowing analysts "to evaluate changes in net worth presented in balance sheets that integrate stocks and flows."
- It supports a balance sheet approach by bringing together stocks and flows in a transparent and consistent framework.
- GFSM 2001 yields measures of government saving, investment, and consumption harmonized with the national accounts framework, making it better suited for inclusion in quantitative macroeconomic frameworks.
- The framework provides a basis for analyzing public investment: the net operating balance and net lending/borrowing in GFSM 2001 are close counterparts to the current and overall balance, respectively, helping analysts recognize that "while investment creates assets, the debt accumulated to finance public investment need not reduce net worth."
- GFSM 2001 standardizes many adjustments made in staff reports, eliminates asymmetries associated with "lending minus repayments," and captures noncash transactions coherently and consistently.
- It provides a "common language" for fiscal analysts to handle new and complex government operations that challenge fiscal reporting and analysis.

### Limitations of the predecessor (GFSM 1986) and rationale for change
- GFSM 1986 is cash‑based and generates fiscal statistics summarizing the impact of cash flows; its key indicator is the overall balance, which measures financing requirements and is useful for liquidity management.
- Operational shortcomings of GFSM 1986 include:
  - lack of explicit linkage between flows and stocks,
  - classification ambiguities (for example, "lending minus repayments" and privatization proceeds),
  - reliance on cash statistics that fail to capture important transactions affecting fiscal policy and aggregate demand (including noncash transactions and arrears).
- GFSM 1986 provides only outstanding debt at face value as stock information; flows and stocks cannot be reconciled, complicating analyses such as debt sustainability.
- The mixing of financial operations with expenditure under GFSM 1986 introduces asymmetries and nonuniform treatment of similar transactions depending on judgment.

### Costs, risks, and implementation horizons
- Identified costs and risks:
  - learning curve for Fund economists to become comfortable with the framework and fiscal indicators,
  - time and resources needed to fully implement GFSM 2001,
  - possible opportunities for creative accounting associated with the shift to accrual reporting.
- Implementation involves three sets of actions with different time horizons that "can be initiated simultaneously":
  - presentation (near‑term),
  - reporting (medium‑term),
  - full implementation of accrual reporting and underlying systems (long‑term).
- Full GFSM 2001 implementation on an accrual basis will take most countries many years; aspects of the framework are relevant regardless of a country's implementation capacity.
- Reclassifying data to conform to GFSM 2001 presentation is "fairly easy"; reporting accrual‑based information will take more time.

### Near‑term presentation and transition guidance
- The first step on presentation is to reclassify existing data; the transition "should not compromise the quality of fiscal policy analysis in Fund staff reports."
- Because policymakers are familiar with the overall balance, staff should provide a bridge table in reports to explain differences between GFSM 2001 "net lending/borrowing" and the traditional overall balance used in a particular country.
- Reports should document how current and GFSM 2001 presentations are bridged and how they each use source data.
- The changeover could produce a break in fiscal time series, but as countries implement GFSM 2001 the break "will fade to the past, as better data become available."
- Voluntary pilot studies are proposed to explore modalities for presenting and analyzing GFSM 2001 statistics in Fund staff reports.

### Reporting, capacity building, and long‑term migration strategy
- Collaboration between the Fund and member countries is required for reporting. Member countries are developing capacity to report fiscal statistics to STA using GFSM 2001; reporting to area departments in GFSM 2001 format has begun in a limited number of countries.
- Full implementation of accrual reporting and related systems remains the responsibility of national authorities and will be a major task requiring careful planning to avoid disrupting fiscal statistics flows.
- The proposed approach is a migration strategy tailored to institutional capacity; lessons should be drawn from countries that have shifted to accrual reporting.
- Staff will provide technical support and training to authorities; Fund internal training on GFSM 2001 is underway and will be increased.

### Pilot studies and institutional support
- Staff proposes voluntary pilot studies over the course of two years to map the process of shifting to GFSM 2001. Desk studies already conducted illustrate potential gains from using the three GFSM 2001 tables, but the framework has not been fully tested across the membership.
- The estimated cost of the proposed pilot studies would be absorbed within the existing resource envelope.
- Staff intends to continue GFSM 2001‑related training and support.
- A joint STA/FAD Advisory Group on GFSM 2001 would act as a one‑stop resource for area departments; area departments will continue to serve as the conduit for technical dialogue with national authorities and will increasingly use GFSM 2001 for fiscal analysis in operational work.
- Staff would report to the Board on pilot study outcomes and propose next steps on using GFSM 2001 to strengthen fiscal analysis in the Fund.

*Source: Executive Summary (GFSM 2001 implementation paper).*

### 20.   To better represent the impact of fiscal policy, fiscal tables in Fund reports

### 20. To better represent the impact of fiscal policy, fiscal tables in Fund reports

### Adjustments routinely applied in Fund fiscal tables
- Treating privatization proceeds from the sale of equity as financing rather than revenue (or negative lending minus repayments).  
  - Rationale: higher spending financed by equity or asset sales has similar fiscal implications to spending financed by bond sales because taxes will have to rise in the future either to replace the income forgone or to pay for liabilities.  
  - Problem: treating privatization proceeds as revenue or negative lending minus repayments (especially since these tend to be large and one­off) gives a misleading impression of the way privatization affects the overall balance and fiscal sustainability.  
  - Practice: country teams have often reclassified privatization receipts as a financing item, but the application of reclassification criteria has not been consistent across countries or over time.
- Reporting spending on a payments­due basis and treating expenditure arrears as financing.  
  - Rationale: accumulation of arrears is, in effect, involuntary financing from suppliers and creditors who are not paid in full and from government employees and pensioners whose wages and pensions are withheld.  
  - Practice: interest payments are usually reported on a payments­due basis, and the same treatment is often extended to other spending when there is quantifiable evidence of significant arrears.  
  - Objective: this move toward accrual reporting attempts to better reflect the impact of fiscal policy on the government’s use of resources and on aggregate demand.

### Use of alternative fiscal indicators in Fund reports
- It is usual to supplement the overall balance with alternative fiscal indicators and sometimes substitute these for the overall balance as the prime focus of fiscal analysis.  
- Common alternative indicators include:
  - the primary balance (the overall balance excluding net interest payments), widely used with public debt to analyze debt sustainability;
  - the current balance (the overall balance excluding investment spending), which indicates the government saving (and net capital transfers) available to increase public investment without adding to the overall deficit (or reducing an overall surplus).  
- Limitations: assessing the scope to increase public investment (either by increasing government saving or borrowing more) would benefit from a framework that links borrowing, debt, and asset accumulation.

### GFSM2001: main features and analytical framework
- GFSM2001 provides a harmonized systematic basis for reporting and analyzing government finances, integrating flows and stocks through balance sheets and removing classification asymmetries compared with GFSM1986.  
- Key shifts in GFSM2001:
  - Emphasis on accrual accounting, recording, and reporting (while maintaining information on a cash basis).  
  - Emphasis on economically meaningful fiscal indicators.  
- GFSM2001 harmonizes fiscal statistics with other macroeconomic statistical systems (notably the 1993 SNA and the 1995 ESA), formalizing and standardizing many adjustments previously made by Fund staff.  
- Distinction between transactions and other economic flows:  
  - Transactions cover exchanges or transfers (including consumption of fixed capital).  
  - Other economic flows arise from events that affect values of assets and liabilities but are not exchanges (e.g., price changes, exchange rate movements, one­off events such as mineral discoveries or natural disasters).  
- Integrated balance sheets reconcile opening and closing balance sheets with flows from government operations and other economic flows.

### Accrual recording and cash monitoring
- Transactions and other economic flows should ideally be recorded on an accrual basis: record an expense when the government uses resources (usually when an obligation to pay is incurred), and record revenue when a liability to government is exchanged (normally at assessment, based on amounts realistically expected to be collected).  
- GFSM2001 increases comprehensiveness through accrual reporting, allows data inconsistencies to be detected, and strengthens fiscal transparency.  
- GFSM2001 continues to recognize the importance of monitoring cash flows; a separate statement on the sources and uses of cash is an integral part of the framework, showing pure cash flows and linking fiscal impacts with relevant monetary variables.

### GFSM2001 fiscal tables (summary of the three main tables)
- Statement of Government Operations:
  - Distinguishes between revenue and expense (operating) transactions and among transactions in nonfinancial assets, financial assets, and liabilities.  
  - Revenue covers transactions that increase net worth; expense covers transactions that decrease net worth (including the consumption of fixed capital).  
  - Under GFSM2001, transactions in nonfinancial assets (and financial assets for public policy purposes) are not treated as expense because they are exchanges that do not affect net worth—removing asymmetries in GFSM1986.
- Balance Sheet:
  - Shows government net worth at the end of a fiscal year (equal to stock of nonfinancial assets plus net financial worth).  
  - Change in net worth during a year equals changes due to revenue and expense transactions plus other economic flows.  
  - An integrated balance sheet shows opening stocks, transactions, and other economic flows explaining closing balances.
- Statement of Sources and Uses of Cash:
  - Shows purely cash flows associated with revenue and expense transactions and transactions in nonfinancial assets, yielding the cash surplus/deficit.  
  - Adding cash flow transactions in financial assets (other than cash) and liabilities to the cash surplus/deficit gives the net change in the stock of cash.

### Valuation under GFSM2001
- Flows and stocks should be valued at market prices: the amount for which goods, services, assets, labor, or provision of capital are actually exchanged (including cash value of in­kind transactions).  
  - Flows: valued at prices current on transaction accrual dates.  
  - Stocks: valued at prices current on the balance sheet date.  
- Exception: nonmarketable loans should be valued at nominal prices.  
- GFSM2001 provides for reporting the nominal value of debt as a memorandum item—the original (contractual) value of the debt reflecting subsequent economic flows (transactions, revaluations, other economic flows).  
  - The nominal value measures what debtors owe to creditors and is relevant for assessing fiscal policy implications of debt.

### Core fiscal indicators in GFSM2001
- Core indicators: the net operating balance, net lending/borrowing, net worth, and the cash surplus/deficit. GFSM2001 does not use “above­the­line” or “below­the­line” terminology.
- Definitions and roles:
  - Net operating balance: impact of fiscal policy from operating transactions that affect net worth (including consumption of fixed capital). When consumption of fixed capital data are unavailable, the gross operating balance is used.  
  - Net lending/borrowing: reflects the government’s financing operations; summarizes how operating transactions and nonfinancial asset transactions affect the rest of the economy and aggregate demand; the closest comparable measure to the overall balance used in GFSM1986.  
  - Net worth and changes in net worth: relevant to fiscal sustainability because they take into account both government assets and liabilities; analysts often focus on net financial worth (financial assets minus liabilities) because some nonfinancial assets may not be readily marketable.  
  - Cash surplus/deficit: measures change in government liquidity owing to revenue and expense transactions and transactions in nonfinancial assets on a cash basis; it is the cash equivalent of net lending/borrowing and indicates cash­flow implications of government operations.

### Supplementary indicators and transitional arrangements
- GFSM2001 recognizes a wider range of supplementary fiscal indicators may remain useful (e.g., deriving a primary balance from net lending/borrowing or an overall balance by grouping certain transactions).  
- Deriving an overall balance from net lending/borrowing can signal fiscal impact in a familiar way and may be used as a transitional arrangement until sufficient experience is gained using GFSM2001 indicators.  
- GFSM2001’s use of market prices and recognition of holding gains or losses as other economic flows provides mechanisms to record events (e.g., investments in assets of dubious value, nonperforming loans) consistently and transparently.

*Source: _102505 - 20. To better represent the impact of fiscal policy, fiscal tables in Fund reports*

### 35. The GFSM 2001 framework can enhance the quality of fiscal analysis:

### 35. The GFSM 2001 framework can enhance the quality of fiscal analysis:

### Major benefits of GFSM 2001 for fiscal analysis
- Provides a basis for strengthening fiscal sustainability analysis through evaluation of the changes in net worth.
- Requires integration of stocks and flows for debt sustainability templates to be fully comparable to the GFSM 2001 framework.
- Yields measures of government saving, investment, and consumption better suited for inclusion in a quantitative macroeconomic framework because GFSM 2001 has been harmonized with the national accounts framework in the 1993 SNA.
- Supports drawing more attention to public investment because:
  - The net operating balance and net lending/borrowing in GFSM 2001 are counterparts to the current balance and the overall balance respectively.
  - Public investment is recognized as creating assets and debt accumulated to finance public investment need not reduce net worth.
  - More generally, GFSM 2001 supports a shift to a balance sheet approach to analyzing economic policy.
- Standardizes many adjustments already made in staff reports, eliminating asymmetries in previous fiscal data and coherently capturing noncash transactions.
- Provides a “common language” for handling new and complex government operations that create challenges in fiscal reporting and analysis (examples given: bank recapitalization, securitization, and public‑private partnerships).

### Implementation approach and time horizons
- Implementation involves three sets of actions that can be initiated simultaneously but have different time horizons:
  - presentation (near­term),
  - reporting (medium­term),
  - full implementation of accrual reporting and associated underlying systems (long­term).
- Adoption of the GFSM 2001 presentation essentially reclassifies existing fiscal data so transactions in nonfinancial assets and in financial assets are placed into separate groups; this requires few resources and can be accomplished relatively quickly.
- GFSM 2001 reporting to the Fund necessitates close collaboration between the authorities and the Fund.
- Full GFSM 2001 implementation is longer­term and relates to developing key institutional features of a modern public expenditure management (PEM) framework.
- Aspects of GFSM 2001 have relevance regardless of a country’s implementation capacity; full accrual reporting and associated systems will take most countries many years to complete.

### Fiscal tables in Fund reports (presentation)
- Ultimate objective: fiscal tables in Fund reports presented in GFSM 2001 format and in accordance with GFSM 2001 concepts.
- Interim options:
  - Countries can quickly make a simple mapping of existing data into GFSM 2001 format; staff propose piloting gradual adoption beginning with volunteer countries.
  - Easiest first step: reclassify existing data by moving capital revenue/expenditure items to net acquisition of nonfinancial assets and lending minus repayments to net acquisition of financial assets.
- Compilers must indicate table coverage, the accounting basis reported (pure cash, full accrual, or something in between), and significant departures from coverage and basis indicated.
- To preserve continuity of analysis:
  - Analysts should provide a bridge table explaining differences between GFSM 2001 “net lending/borrowing” and the traditional overall balance used in a country.
  - Document the bridge table and source data usage; needed until GFSM 2001 information requirements are routinely met.
- Time‑series breaks:
  - Transition could produce a break in fiscal data time series if past details are insufficient.
  - If required historical data are unavailable, present overlapping fiscal data for affected periods and fully document differences.

### Illustrative bridge (Table 2) — Selected figures and relationships
- Typical Staff Report / GFSM
  - Total revenue and grants: 62,600 / 62,300
  - of which: Capital revenue a/ 300
  - Total expenditure and lending minus repayments: 78,500 / 72,700
  - Current expenditure: 68,800
  - Gross operating balance e/: ­10,400
  - Capital expenditure: 9,000
  - Capital transfers: 3,900
  - Net acquisition of nonfinancial assets f/ 4,800
  - Purchases of fixed assets b/ 5,100
  - Lending minus repayments: 700
  - Overall: ­15,900 / ­15,200
  - Financing: 15,900 / ­7,200
  - Net acquisition of financial assets h/ 32: Domestic (net) 6,800 / ­7,200
  - Changes in cash and deposits: 4,400 / 0
  - Domestic borrowing (net): 2,400 / 8,000
  - External borrowing (net): 5,600 / 2,400
  - Sale of equity (privatization): 3,500 / 5,600
- Key definitional relationships from the table notes (verbatim numeric equalities):
  - GFSM 2001Revenue = Total revenue and grant minus Capital revenue. [62,300=62,600­300]
  - GFSM 2001Expense = Total expenditure and net lending minus Purchases of fixed assets minus Net lending. [72,700=78,500­5,100­700]; or GFSM 2001Expense = Current expenditure plus capital transfers. [72,700=68,800+3,900]
  - Gross operating balance = Revenue minus Expense (excluding Consumption of fixed capital). [­10,400=62,300­72,700]
  - GFSM 2001Net acquisition of nonfinancial assets = Purchases of fixed capital assets, strategic stocks, land, and intangibles minus Capital revenue (Sales of fixed capital assets, strategic stocks, land, and intangibles). [4,800=5,100­300]
  - Net lending (+) / borrowing (­) = Gross (Net) operating balance minus Net acquisition of nonfinancial assets. [­15,200=­10,400­4,800]
  - GFSM 2001Net acquisition of financial assets comprises domestic and foreign Net lending, Sales of equity, and Changes in cash and deposits. In the example, domestic Net lending [700] and Sales of equity [3,500] and Changes in cash and deposits [4,400] are classified to equal Net acquisition of financial assets (domestic): [700­4,400­3,500=­7,200]
  - GFSM 2001Net incurrence of liabilities = Net domestic borrowing and Net foreign borrowing. [8,000=2,400+5,600]

### Reporting fiscal data to the Fund (status and capacity building)
- STA dissemination activities:
  - Training courses and technical assistance to data compilers.
  - Annual interaction during preparation of data submissions for the Government Finance Statistics Yearbook (GFSY).
- Progress indicators:
  - In 2002, STA assisted 22 countries (mainly in Europe) to report data in the GFSM 2001 framework by bridging available fiscal data to GFSM 2001.
  - Of the 99 member countries that reported data for the GFSY for the 2003-04 yearbooks, about 79 percent (78 countries) submitted data using the GFSM 2001 framework (reporting both flows and stocks).
  - Among those reporters, about 70 percent were in developing and emerging market countries.
- STA initiatives:
  - Developing a higher frequency fiscal database (monthly and quarterly) using GFSM 2001, initially collaborating with Eurostat and developing an integrated data transmission framework for monitoring fiscal performance.
  - Work intended to affect fiscal data in the International Financial Statistics; no modifications yet to World Economic Outlook database presentation.

### Reporting to area departments and program contexts
- Reporting in GFSM 2001 format to area departments has just begun.
- Main task: determine how to do this without compromising short‑term surveillance and program activities while improving effectiveness over the long term.
- Country compilers may:
  - reclassify currently available fiscal data into GFSM 2001 format, or
  - rely mainly on accrual‑based national accounts data supplemented with additional information gathered by ministries of finance and others.
- Caution in program contexts:
  - Introducing GFSM 2001 in ongoing Fund programs could pose risks if two sets of fiscal data are presented simultaneously.
  - Using GFSM 2001 statistical framework in new programs should start only after country teams gain more experience; changes to tables/indicators for program purposes should be considered only for new programs.

### Fiscal targets under Fund‑supported programs
- Benefits of using GFSM 2001 fiscal tables and indicators for programs (provided timeliness):
  - Brings advantages for fiscal transparency and analysis.
  - Reduces country‑specific adjustments in staff reports.
  - Enhances cross‑country comparability by eliminating asymmetries.
  - Promotes intersectoral consistencies.
  - Integrating stocks and flows allows earlier identification and preparation of measures to address fiscal data quality problems and possible circumvention of fiscal performance criteria and misreporting.
  - Usefulness of GFSM 2001 indicators—compared to the overall balance—in conveying information about the impact of fiscal policy increases with more accrual information.
- Data quality constraint:
  - Timeliness is usually the binding constraint; program targets are mainly specified in cash‑based or commitment/adjusted cash‑based indicators.
  - Short‑term shift toward GFSM 2001 fiscal indicators likely limited; need to build confidence in working with GFSM 2001 fiscal tables and awareness of operational risks (e.g., accrual adjustments subject to discretion such as calculating consumption of fixed capital).
- Dual‑entry accrual accounting and integrated stocks and flows should make discrepancies easier to identify and reconcile.

### Coverage recommendations
- Core focus of GFSM 2001 is the general government.
- Minimum reasonable objective: achieve comprehensive coverage of central government on a cash basis for fiscal reporting.
- When subnational governments are of fiscal policy relevance, expand coverage to include significant subnational parts; many countries already do so.
- Countries should routinely expand coverage from central to general government; capacity limitations in subnational governments will determine pace of implementation.
- Encourage reporting of public corporations sector and the public sector as a whole because public enterprises are potential sources of fiscal risk; report and monitor operations of all public enterprises.
- Prioritize coverage initially on enterprises (and subsectors of general government) that pose the largest fiscal risk and expand coverage as priorities change.
- Fiscal indicators and targets used for Fund surveillance and program purposes should cover all public enterprises that pose significant fiscal risk.

### Institutional requirements and migration strategy
- Responsibility for full implementation rests with national authorities; Fund staff will encourage development of migration strategies aimed at producing GFSM 2001‑consistent fiscal tables and detailed data.
- Full implementation will be a major task requiring careful planning and management to avoid disrupting fiscal statistics flows.
- Capacity to train, recruit, and retain skilled staff across national statistical agencies, ministries of finance, other government agencies, and the wider public sector is important at every stage.
- Proposed migration strategy elements (verbatim):
  1. reorganizing and presenting existing statistical information using the GFSM 2001 framework; 
  2. developing a legal environment that provides for compiling cash­ and accrual­ based fiscal statistics and that assigns institutional responsibility for compiling statistics on the public sector and its subsectors; and 
  3. introducing improvements in the underlying accounting and classification systems, including introducing a chart of accounts, a general ledger, accrual­based accounting standards, and an automated financial management information system.

*Source: IMF staff chapter on implementation and benefits of the GFSM 2001 framework (excerpts provided).*

### 51.   In developing a migration strategy, lessons are to be learned from the

### _102505 - 51.   In developing a migration strategy, lessons are to be learned from the

### Country experiences with accrual reporting (Box 1)
- Australia
  - During the 1990s, central, state, and local governments progressively introduced national accounting standards requiring an accrual basis.
  - Starting in 1998–99, the Australian Bureau of Statistics (ABS) compiled and disseminated annual fiscal statistics on an accrual basis.
  - The accrual framework follows principles contained in GFSM 2001; data published in the Fund’s 2004 GFS Yearbook (2004 GFSY).
  - The ABS began to publish quarterly fiscal data in 2004.
- Iceland
  - Central and local government annual data presented on an accrual basis for several decades; monthly and quarterly budgetary central government and general government data compiled only on a cash basis.
  - Introducing the GFSM 2001 framework and reported data to the Fund for publication in 2004 GFSY.
  - Working to incorporate GFSM 2001 data in budget documents.
- New Zealand
  - Began producing financial statements on an accrual basis in 1989; first accrual financial statements for central government for six-month period ending in December 1991; process completed in 1994.
  - Legal amendments moved budgeting to an accrual basis.
  - Authorities initiated a project to compile fiscal statistics on an accrual basis and released these data in the 2004 GFSY.
- United Kingdom
  - Introduced resource accounting and fully implemented accrual accounting in government in 2002.
  - Reported accrual-based data to the Fund for publication in 2004 GFSY.
- Other European Union countries
  - Many are studying migration to accrual accounting; currently follow a wide variety of accounting conventions.
  - National statistical offices adjust cash-based underlying information to reflect accrual principles for the European System of Accounts 1995 (considered accrual basis).
  - Reporting of accrual fiscal statistics to Eurostat under Deficit and Debt Manual is generally compatible with GFSM 2001; EU countries have reported GFSM 2001 data to the Fund for GFSY 2004.
- Other OECD countries
  - Countries such as Japan have embarked on introducing accrual accounting in government, in part or in full.
  - Japanese authorities reported data with some adjustments and gaps in GFSM 2001 format for publishing in the 2005 GFSY.
- Latin American countries
  - Many considering compiling fiscal data on an accrual basis; several have compiled parts of fiscal data using accrual information (especially interest and expense).
  - Work relatively advanced in Argentina, Colombia, the Dominican Republic, El Salvador, and Panama.
  - Work on fiscal balance sheets progressed in Brazil, El Salvador, and Uruguay.
  - Chile has progressed in implementing the GFSM 2001 analytical framework.
  - Eighty­five percent of countries from this region that submit data for publication in the GFSY use the GFSM 2001 framework and some accrual­based information.
- Other countries
  - Several countries (such as Thailand and South Africa) have initiated programs to move accounting and reporting to accruals.
  - Preparing fiscal data in GFSM 2001 format using existing data sources helped identify data compilation gaps.
  - Several reported data in GFSM 2001 format for publication in the 2004 GFSY.

### Key findings from staff desk studies (Uruguay, Malaysia, Mauritius)
- General conclusions from desk studies (paragraph 52)
  - Presenting fiscal data using the three GFSM 2001 tables (operating statement, integrated balance sheet, cash statement) enables strengthened policy conclusions despite gaps.
  - Converting existing data rapidly to the GFSM 2001 analytical framework is feasible.
  - Developing reliable and more complete information is best done from source data, in collaboration with compiling authorities.
- Uruguay (banking crisis, 2002)
  - GFSM 2001 captures the impact of the 2002 banking crisis more comprehensively than the staff’s “augmented deficit” memorandum adjustments.
  - Public sector capital transfers (other expense) equivalent to about 3 percent of GDP affected the gross operating balance and net lending/borrowing.
  - Staff report showed a deficit of 4.6 percent of GDP in 2002; GFSM 2001 operating statement showed net borrowing of 7.6 percent of GDP.
  - GFSM 2001 highlights reduction in net worth (balance sheet), increase in cash deficit (cash statement), and shows government liquidity support as financial transactions altering balance sheet composition but not core balances.
  - Write-offs recorded as other economic flows negatively affect net worth and net financial worth; these losses were difficult to capture in traditional analysis.
- Malaysia (privatization treatment)
  - GFSM 2001 presentation does not alter major trends but changes magnitudes of key balances.
  - Authorities and staff registered privatization proceeds as non­tax capital revenue; GFSM 2001 treats sales of equity shares as disposal of shares and other equity (not core revenue).
  - Reclassifying privatization proceeds out of revenue and to disposal of shares/equity increased net borrowing position by ½ percent of GDP during 1997-2003.
  - Privatization is neutral to net worth (exchange of one asset for another); sale of domestic equity increases cash stock (reflected in cash statement).
- Mauritius (fiscal sustainability and debt dynamics)
  - GFSM 2001 provides a more comprehensive framework for fiscal sustainability analysis, including public debt dynamics.
  - A 2002 selected issues paper contained GFSM 2001 presentation showing evolution of budgetary central government operations, effects on balance sheets including debt liabilities during 1994/95-2000/01 and staff projections through 2006/07.
  - Data reveal steady incurrence of debt liabilities during 1995/96-1999/2000, primarily via accumulation of domestic debt in loans and government paper.
  - Projections reinforced staff report’s argument that baseline fiscal path would not yield sustainable debt; GFSM 2001 framework may have presented the case more forcefully.

### Rationale and design for pilot studies
- Purpose and scope
  - Broaden experience with GFSM 2001 as the standard for Fund operational work via pilot studies in countries across the accounting/statistical spectrum.
  - Pilot countries could include those migrated to accrual reporting (Australia, United Kingdom, Iceland, New Zealand) and countries that draw heavily on national accounts (EU countries, United States).
  - Also pilot in cash-based statistics countries that compile data applying GFSM 2001 (for instance, South Africa, Thailand) or map data into GFSM 2001 after compilation.
- Selection and focus
  - Specific pilot countries selected voluntarily, considering existence of significant fiscal policy issues where GFSM 2001 could be applied.
  - Analytical focus: fiscal implications of bank restructuring, debt restructuring, relations with public corporations (equity injections/recapitalizations, privatization), portfolio management of public sector assets and liabilities to maximize growth and financial soundness and sustainability.
  - Initial selection to include surveillance and program countries (program countries restricted to countries entering new programs) and cover spectrum of income levels.
- Presentation modalities
  - Important that GFSM 2001 three tables appear in parallel with traditional fiscal tables when possible to allow comparisons.
  - GFSM 2001 data could initially appear as an appendix to staff reports, in selected issues papers, or in main staff report.
  - Parallel presentation feasible for surveillance countries but would cause confusion in program countries; GFSM 2001 tables would not be presented in program staff reports or other program documentation.
- Resource implications and timeline
  - Envisaged that three-and­a­half staff years could be required to complete pilot studies over the course of two years and undertake related training and support activities.
  - These resources would be absorbed by STA and FAD within the existing resource envelope.
  - Collaboration with area department staff and authorities integral to pilot studies.
  - Staff to report to the Board on outcomes and propose next steps for using GFSM 2001 to strengthen fiscal analysis.

### Training, support, and governance
- Training and technical assistance
  - Responsibility for compiling and reporting fiscal statistics remains with national authorities; IMF training and support required to implement GFSM 2001.
  - STA to continue providing technical support through statistical products and methodological papers as companion materials to GFSM 2001 posted on the Fund’s website.
  - FAD to assist countries seeking to strengthen accounting and classification systems.
  - STA and FAD to work with authorities to promote sound fiscal data when reclassifying into GFSM 2001.
  - FAD and STA to advise country compilers and area departments on proper recording of economic events; collaborate with INS to train on these matters.
  - INS to review internal and external training courses (such as financial programming) that might need modifying to reflect changeover to GFSM 2001; increase efforts in this area.
- Advisory governance
  - A joint STA/FAD Advisory Group on GFSM 2001 to act as a one-stop resource for area departments.
  - Area departments to serve as conduit for technical dialogue between the Fund (STA, FAD) and national authorities and increasingly use GFSM 2001 for fiscal analysis in Fund operational work.
  - Advisory Group to ensure related work from each department’s responsibilities is taken into account in implementing GFSM 2001:
    - STA: harmonization of statistical standards
    - Area departments: Fund surveillance and program design
    - PDR and FAD: program design and fiscal transparency standards implementation

### Issues for discussion posed to Directors
- Do Directors agree that GFSM 2001 provides a comprehensive and nuanced analytical framework that would augment current fiscal policy analysis for Fund surveillance and program work and enhance cross­country comparability?
- Do Directors agree, in principle, that Fund staff should move in a phased way to presenting fiscal data using the GFSM 2001 statistical framework in staff reports?
- Do Directors support a pilot approach to exploring GFSM 2001­based fiscal analysis in Fund operational work and encouraging staff (STA, FAD, and area departments) to conduct pilot studies and external and internal training?
  - Specifically, do Directors support exploring inclusion of the GFSM 2001 operating statement, integrated balance sheets, and cash statement in Article IV consultation reports on a pilot basis?
- Do Directors agree that the migration path proposals to fully implement the methodology of GFSM 2001 should be pursued over several years?
- Do Directors support ongoing TA work to provide guidance to country compilers in reporting operational data to the Fund using the GFSM 2001 framework and to help strengthen underlying accounting and classification systems?

*From: _102505 - 51.   In developing a migration strategy, lessons are to be learned from the*

### 5.1 percent of GDP in 2002). This illustrates how the GFSM 1986 presentation could mask

### _102505 - 5.1 percent of GDP in 2002). This illustrates how the GFSM 1986 presentation could mask

### Privatization and fiscal presentation (Malaysia)
- GFSM 1986 presentation can mask underlying fiscal position by treating privatization proceeds as if they were government revenue, improving the cash position.
- Under GFSM 2001, revenue is only recognized when it arises from a transaction that increases the net worth of government; privatization is neutral to net worth because it is an exchange of one asset (equity) for another (cash).
- When privatization is the sale of equity (rather than fixed assets):
  - Operating balance and net lending/borrowing are unaffected (shown in the operating statement, Appendix Table 6).
  - Net worth and net financial worth are unaffected (shown in the integrated balance sheet, Appendix Table 7) because the sale swaps equities for cash.
- Change in composition of general government assets may affect future government operations depending on relative rates of return of the assets involved.
  - The return on the equity sold should be compared with the return on assets acquired following privatization (such as interest accrued on cash deposits or returns on other assets purchased).
- Sale of domestic equity contributed to an increase in the stock of cash (shown in the cash statement, Appendix Table 8).
  - Improved cash position affects overall liquidity in the economy through monetary effects (or foreign inflows, if sales are to nonresidents).
- Conclusion: All three GFSM 2001 statements need to be presented and analyzed in tandem.

### Data gaps and caution in net worth measures
- GFSM 2001 presentation highlights important data gaps; tentative measures of net worth and net financial worth should be taken with caution.
- Absence of available data means the integrated balance sheet does not fully capture:
  - The stock of large equity holdings by the general government in publicly listed government‑linked companies, including Petronas.
  - Transactions between government and these companies.
- These omissions affect both the level and trends in changes in net worth (and net financial worth).

### Debt analysis and fiscal sustainability (Mauritius)
- GFSM 2001 provides a more comprehensive framework for analysis of fiscal sustainability, including dynamics of public debt.
- Stock of debt is defined as all (explicit) liabilities excluding both financial derivatives and equity and other shares.
- In principle, all liabilities (debt and nondebt) should be recorded in the GFSM 2001 balance sheet.
- The public sector balance sheet should reflect net acquisition of assets (both nonfinancial and financial); the balance sheet framework supports analysis of solvency as measured by changes in net worth or net financial worth in addition to debt sustainability.
- Placing a series of integrated balance sheets back‑to‑back yields a time series of stocks and corresponding flows useful for debt dynamics and portfolio evolution analysis.

### Empirical application: Mauritius (1994/95-2006/07)
- The Mauritius 2002 Article IV Staff Report and Selected Issues Paper (IMF Country Report No. 02/144) presented fiscal data using GFSM 2001.
  - Data show evolution of budgetary central government operations (Appendix Table 9) and effects on balance sheets (Appendix Table 10), including debt liabilities during 1994/95-2000/01 and staff projections through 2006/07.
  - Operating statement shows steady incurrence of debt liabilities during 1995/96-1999/2000, primarily via accumulation of domestic debt in loans and government paper.
  - Integrated balance sheet reflects these operations.
  - Operations in 2000/01 did not lead to further debt accumulation, but projections for 2000/01-2006/07 reinforced the staff report’s main argument that the baseline fiscal path would not yield sustainable debt.
- Although authorities increased holdings of nonfinancial and financial assets while debt liabilities accumulated rapidly (1994/95-1999/2000), a substantial deterioration in net financial worth to about negative 24 percent of GDP revealed increased fiscal frailties.
  - Unless nonfinancial assets acquired with increased liabilities yield high returns in the future, the government was on an unsustainable path.

### Memorandum and analytical items
- Memorandum items to the balance sheet include contingent liabilities, debt at market value, debt at nominal value, and obligations for social security benefits.
- Note: If assets are not purchased or sold at market prices, or spending from cash proceeds (particularly public investment) yields low rates of return, net worth would be affected and assessments of fiscal sustainability would need revision. Conversely, focusing only on deficit and debt indicators does not allow full consideration of a potentially strong asset position of the public sector balance sheet; using GFSM 2001 would fill important data gaps and give a more complete picture of overall public sector net worth or net financial worth.

*Source: Excerpt from IMF PDF chapter/section provided in the content unit.*

### Appendix 2 inGFSM 2001also provides guidance on the treatment of complex transactions involving debt

### Appendix 2 in GFSM 2001 also provides guidance on the treatment of complex transactions involving debt

### Broad findings and fiscal/financial trends
- These trends were reinforced in 2000/01, and the baseline fiscal path painted an increasingly risky situation.
- The dynamically linked integrated balance sheets show the liabilities-to-total-assets ratio increasing steadily from about ½ to over 1 at the end of the projection period.

### Uruguay — Statement of Combined Public Operations (GFSM 2001), 1999–2002 (selected figures)
- Transactions affecting net worth (in millions of Uruguayan pesos):
  - Revenue: 78,558 (1999), 78,103 (2000), 83,091 (2001), 83,591 (2002)
  - Taxes: 47,263 (1999), 47,026 (2000), 50,377 (2001), 53,918 (2002)
  - Social contributions: 14,967 (1999), 15,085 (2000), 14,381 (2001), 12,836 (2002)
  - Other revenue: 16,328 (1999), 15,992 (2000), 18,333 (2001), 16,837 (2002)
  - Expense: 77,946 (1999), 79,333 (2000), 84,023 (2001), 96,565 (2002)
  - Interest expense: 4,867 (1999), 6,308 (2000), 7,276 (2001), 12,163 (2002)
  - Gross operating balance 2/: 612 (1999), ­1,230 (2000), ­931 (2001), ­12,974 (2002)
  - Net acquisition of nonfinancial assets 3/: 10,536 (1999), 8,748 (2000), 9,433 (2001), 6,890 (2002)
  - Net lending/borrowing 4/: ­9,924 (1999), ­9,979 (2000), ­10,364 (2001), ­19,864 (2002)
- Transactions in financial assets and liabilities (financing):
  - Net acquisition of financial assets: ­1,367 (1999), ­3,639 (2000), 5,444 (2001), 29,384 (2002)
    - Domestic: ­2,566 (1999), ­6,110 (2000), ­417 (2001), 24,255 (2002)
    - Foreign: 1,199 (1999), 2,471 (2000), 5,861 (2001), 5,129 (2002)
  - Net incurrence of liabilities: 3,781 (1999), 8,844 (2000), 14,466 (2001), 49,413 (2002)
    - Domestic: 7,221 (1999), ­1,157 (2000), 4,592 (2001), ­21,526 (2002)
    - Foreign: ­3,439 (1999), 10,001 (2000), 9,874 (2001), 70,939 (2002)
- Key ratios (in percent of GDP):
  - Revenue: 33.1 (1999), 32.1 (2000), 33.3 (2001), 31.9 (2002)
  - Expense: 32.9 (1999), 32.6 (2000), 33.7 (2001), 36.9 (2002)
  - Interest (of GDP): 2.1 (1999), 2.6 (2000), 2.9 (2001), 4.6 (2002)
  - Gross operating balance 2/: 0.3 (1999), ­0.5 (2000), ­0.4 (2001), ­5.0 (2002)
  - Net acquisition of nonfinancial assets 3/: 4.4 (1999), 3.6 (2000), 3.8 (2001), 2.6 (2002)
  - Net lending/borrowing 4/: ­4.2 (1999), ­4.1 (2000), ­4.2 (2001), ­7.6 (2002)
  - Primary Net lending/borrowing: ­2.1 (1999), ­1.5 (2000), ­1.2 (2001), ­2.9 (2002)
- Memorandum items:
  - GDP at market prices (millions of Pesos): 237,143 (1999), 243,027 (2000), 249,231 (2001), 261,987 (2002)
  - Gross operating balance/Net acquisition of nonfinancial assets (ratio): 0.1 (1999), ­0.1 (2000), ­0.1 (2001), ­1.9 (2002)
  - Staff Report Overall balance (in percent of GDP): ­4.2 (1999), ­4.1 (2000), ­4.1 (2001), ­4.6 (2002)
  - Staff Report Augmented Overall balance (in percent of GDP): ... ... ... ­21.4 (2002)

### Uruguay — Balance Sheet for the Combined Public Sector (GFSM 2001), 2000–2002 (selected figures)
- Net worth and its changes (in millions of Uruguayan pesos):
  - Net worth and its changes row: ­39,602 (opening 2000), ­3,734 (other economic flows 2000), ­176 (holding gains/losses 2000), ­43,512 (closing 2000), 410 (opening 2001), ­17,228 (transactions 2001), ­60,330 (closing 2001), ­13,139 (other economic flows 2001), ­95,172 (closing 2002), ­13,398 (other economic flows 2002), 3,263 (holding gains/losses 2002), ­178,776 (residual)
- Nonfinancial assets: 47,534 (opening 2000), 8,748 (transactions 2000), 0 (holding gains/losses 2000), 56,283 (closing 2000); 9,433 (transactions 2001), 0 (holding gains/losses 2001), 65,715 (closing 2001); 6,890 (transactions 2002), 0 (holding gains/losses 2002), 72,605 (closing 2002)
- Net Financial Worth: ­87,136 (opening 2000), ­12,483 (transactions 2000), ­176 (holding gains/losses 2000), ­99,795 (closing 2000); ­9,022 (transactions 2001), ­17,228 (other changes 2001), ­126,045 (closing 2001); ­20,029 (transactions 2002), ­95,172 (other changes 2002), ­13,398 (holding gains/losses 2002), 3,263 (other flows 2002), ­251,381 (residual)
- Financial assets (4/):
  - Total financial assets: 34,067 (opening 2000), ­2,473 (transactions 2000), 7,278 (other economic flows 2000), 38,872 (closing 2000); 5,569 (transactions 2001), 6,923 (other flows 2001), 51,363 (closing 2001); 29,384 (transactions 2002), ­1,369 (other flows 2002), 13,895 (holding gains/losses 2002), ­3,866 (other), 89,407 (residual)
  - Currency and deposits line: 31,105 (opening 2000), ­243 (transactions 2000), 4,781 (other flows 2000), 35,643 (closing 2000); 4,670 (transactions 2001), 7,167 (other flows 2001), 47,479 (closing 2001); 9,185 (transactions 2002), ­1,369 (other flows 2002), 13,895 (holding gains/losses 2002), ­4,389 (other), 64,801 (residual)
- Liabilities (4/):
  - Total liabilities: 121,203 (opening 2000), 10,010 (transactions 2000), 7,454 (other flows 2000), 138,666 (closing 2000); 14,591 (transactions 2001), 24,151 (other flows 2001), 177,408 (closing 2001); 49,413 (transactions 2002), 93,803 (other flows 2002), 27,293 (holding gains/losses 2002), ­7,128 (other), 340,789 (residual)
- Memorandum items (percent of GDP):
  - Net worth: ­16.7 (2000), ­17.9 (2001), ­24.4 (2002), ­68.2 (2002 residual line)
  - Net financial worth: ­36.7 (2000), ­41.1 (2001), ­51.0 (2002), ­96.0 (residual)
  - Financial assets: 14.4 (2000), 16.0 (2001), 20.6 (2002), 34.1 (residual)
  - Liabilities: 51.1 (2000), 57.1 (2001), 71.2 (2002), 130.1 (residual)
  - Liabilities/Assets ratio: 1.49 (2000), 1.46 (2001), 1.52 (2002), 2.10 (residual)
  - Liabilities/Financial Assets ratio: 3.56 (2000), 3.57 (2001), 3.45 (2002), 3.81 (residual)

### Uruguay — Statement of Sources and Uses of Cash (GFSM 2001), 1999–2002 (selected figures)
- Cash flows from operating activities:
  - Cash receipts from operating activities (inflows +): 78,558 (1999), 78,103 (2000), 83,091 (2001), 83,591 (2002)
  - Cash payments for operating activities (outflows ­): 77,946 (1999), 79,333 (2000), 84,023 (2001), 96,565 (2002)
  - Net cash inflow (+) from operating activities: 612 (1999), ­1,230 (2000), ­931 (2001), ­12,974 (2002)
- Cash flows from investments in nonfinancial assets:
  - Purchases of nonfinancial assets (cash outflows ­): ­10,536 (1999), ­8,748 (2000), ­9,433 (2001), ­6,890 (2002)
  - Net cash outflow (­) from investments in nonfinancial assets: ­10,536 (1999), ­8,748 (2000), ­9,433 (2001), ­6,890 (2002)
- CASH SURPLUS (+)/DEFICIT (3/): ­9,924 (1999), ­9,979 (2000), ­10,364 (2001), ­19,864 (2002)
- Cash flows from financing activities:
  - Net acquisition of financial assets other than cash (cash outflows ­): ­677 (1999), 3,396 (2000), ­774 (2001), ­20,199 (2002)
  - Net incurrence of liabilities (cash inflows +): ­807 (1999), 7,873 (2000), 11,393 (2001), 35,999 (2002)
  - Net cash inflow (+) from financing activities: ­1,484 (1999), 11,268 (2000), 10,618 (2001), 15,800 (2002)
- NET CHANGE IN THE STOCK OF CASH 6/: ­11,407 (1999), 1,290 (2000), 254 (2001), ­4,064 (2002)
- Memorandum:
  - Stock of cash (end of the fiscal year): 2,944 (1999), 4,233 (2000), 4,487 (2001), 423 (2002)

### Malaysia — Statement of Consolidated General Government Operations (GFSM 2001), 1996–2003 (selected figures)
- Transactions affecting net worth (in millions of ringgit):
  - Revenue: 69,356 (1996), 77,420 (1997), 68,067 (1998), 69,335 (1999), 74,370 (2000), 90,021 (2001), 94,912 (2002), 104,887 (2003)
  - Taxes: 50,297 (1996), 57,158 (1997), 48,679 (1998), 48,855 (1999), 50,983 (2000), 65,591 (2001), 71,145 (2002), 69,179 (2003)
  - Expense: 50,419 (1996), 49,982 (1997), 54,340 (1998), 60,728 (1999), 69,807 (2000), 73,732 (2001), 79,018 (2002), 90,724 (2003)
  - Interest: 7,018 (1996), 6,618 (1997), 7,061 (1998), 8,093 (1999), 9,180 (2000), 10,821 (2001), 10,633 (2002), 11,607 (2003)
  - Gross operating balance 2/: 18,937 (1996), 27,438 (1997), 13,727 (1998), 8,607 (1999), 4,563 (2000), 16,289 (2001), 15,894 (2002), 14,163 (2003)
  - Net acquisition of nonfinancial assets 3/: 16,620 (1996), 17,510 (1997), 17,639 (1998), 18,583 (1999), 25,036 (2000), 34,465 (2001), 34,333 (2002), 33,356 (2003)
  - Net lending/borrowing 4/: 2,317 (1996), 9,928 (1997), ­3,912 (1998), ­9,976 (1999), ­20,473 (2000), ­18,176 (2001), ­18,439 (2002), ­19,193 (2003)
- Key ratios (in percent of GDP):
  - Revenue: 27.3 (1996), 27.5 (1997), 24.0 (1998), 23.1 (1999), 21.7 (2000), 26.9 (2001), 26.2 (2002), 26.6 (2003)
  - Expense: 19.9 (1996), 17.7 (1997), 19.2 (1998), 20.2 (1999), 20.3 (2000), 22.0 (2001), 21.9 (2002), 23.0 (2003)
  - Gross operating balance 2/: 7.5 (1996), 9.7 (1997), 4.8 (1998), 2.9 (1999), 1.3 (2000), 4.9 (2001), 4.4 (2002), 3.6 (2003)
  - Net acquisition of nonfinancial assets 3/: 6.6 (1996), 6.2 (1997), 6.2 (1998), 6.2 (1999), 7.3 (2000), 10.3 (2001), 9.5 (2002), 8.5 (2003)
  - Net lending/borrowing 4/: 0.9 (1996), 3.5 (1997), ­1.4 (1998), ­3.3 (1999), ­6.0 (2000), ­5.4 (2001), ­5.1 (2002), ­4.9 (2003)
- Memorandum:
  - GDP at market prices (millions of ringgit): 253,732 (1996), 281,795 (1997), 283,243 (1998), 300,764 (1999), 343,215 (2000), 334,404 (2001), 361,624 (2002), 394,200 (2003)
  - Staff Report Overall balance (in percent of GDP): 2.0 (1996), 4.0 (1997), ­0.8 (1998), ­2.9 (1999), ­5.6 (2000), ­5.0 (2001), ­4.6 (2002), ­4.4 (2003)

### Malaysia — Balance Sheet for the General Government (GFSM 2001), 2000–2003 (selected figures)
- Net worth and its changes (in millions of ringgit):
  - Opening net worth line: 82,808 (opening), 4,568 (transactions), 67 (other), 96,041 (closing)
  - Nonfinancial assets: 173,589 (opening 2000), 25,036 (transactions 2000), 0 (other), 198,625 (closing 2000); 34,465 (transactions 2001) leading to 233,091 (closing 2001); 34,333 (transactions 2002) leading to 267,424 (closing 2002); 33,356 (transactions 2003) leading to 300,779 (closing 2003)
  - Liabilities: 112,562 (opening 2000), 21,952 (transactions 2000), ­ (other), 125,844 (closing 2000); 18,309 (transactions 2001) leading to 145,791 (closing 2001); 20,359 (transactions 2002) leading to 164,994 (closing 2002); 21,098 (transactions 2003) leading to 188,767 (closing 2003)
- Memorandum items (percent of GDP):
  - Net worth: 27.5, 28.0, 33.1, 35.3, 35.3 (years across table)
  - Net financial worth: ­30.2, ­29.9, ­36.6, ­38.6, ­41.0
  - Liabilities/Assets: 0.58 (2000), 0.57 (2001), 0.57 (2002), 0.56 (2003), 0.58 (2003)
  - Liabilities/Financial Assets ratio: 5.17 (2000), 5.41 (2001), 6.23 (2002), 6.52 (2003), 6.94 (residual)

### Malaysia — Consolidated General Government Statement of Sources and Uses of Cash (GFSM 2001), 1996–2003 (selected figures)
- Cash receipts from operating activities (inflows +): 69,356 (1996), 77,420 (1997), 68,067 (1998), 69,335 (1999), 74,370 (2000), 90,021 (2001), 94,912 (2002), 104,887 (2003)
- Net cash inflow (+) from operating activities: 18,937 (1996), 27,438 (1997), 13,727 (1998), 8,607 (1999), 4,563 (2000), 16,289 (2001), 15,894 (2002), 14,163 (2003)
- Purchases of nonfinancial assets (cash outflows ­): ­18,176 (1996), ­19,873 (1997), ­18,941 (1998), ­20,134 (1999), ­26,669 (2000), ­36,077 (2001), ­36,184 (2002), ­38,906 (2003)
- Sales of nonfinancial assets (cash inflows +): 1,556 (1996), 2,363 (1997), 1,302 (1998), 1,551 (1999), 1,633 (2000), 1,612 (2001), 1,851 (2002), 5,550 (2003)
- Net cash outflow (­) from investments in nonfinancial assets: ­16,620 (1996), ­17,510 (1997), ­17,639 (1998), ­18,583 (1999), ­25,036 (2000), ­34,465 (2001), ­34,333 (2002), ­33,356 (2003)
- Net cash inflow (+) from financing activities: 1,802 (1996), ­2,288 (1997), 14,217 (1998), 9,440 (1999), 14,380 (2000), 21,062 (2001), 16,030 (2002), 17,155 (2003)

### Mauritius — Statement of Central Government Operations (GFSM 2001), 1995/96–2000/01 (selected figures)
- Transactions affecting net worth (in millions of rupees):
  - Revenue: 12,832 (1995/96), 16,475 (1996/97), 18,501 (1997/98), 21,329 (1998/99), 23,500 (1999/00), 22,707 (2000/01)
  - Taxes: 11,488 (1995/96), 14,001 (1996/97), 15,686 (1997/98), 17,900 (1998/99), 20,373 (1999/00), 20,189 (2000/01)
  - Expense: 15,425 (1995/96), 18,259 (1996/97), 20,062 (1997/98), 22,940 (1998/99), 24,777 (1999/00), 28,523 (2000/01)
  - Interest: 2,332 (1995/96), 2,875 (1996/97), 3,503 (1997/98), 3,626 (1998/99), 3,856 (1999/00), 5,527 (2000/01)
  - Gross operating balance 1/: ­2,593 (1995/96), ­1,784 (1996/97), ­1,561 (1997/98), ­1,611 (1998/99), ­1,277 (1999/00), ­5,816 (2000/01)
  - Net acquisition of nonfinancial assets 2/: 1,783 (1995/96), 2,091 (1996/97), 1,810 (1997/98), 2,617 (1998/99), 2,866 (1999/00), 2,898 (2000/01)
  - Net lending/borrowing 3/: ­4,376 (1995/96), ­3,876 (1996/97), ­3,371 (1997/98), ­4,227 (1998/99), ­4,143 (1999/00), ­8,714 (2000/01)
- Key ratios (in percent of GDP):
  - Revenue: 17.3 (1995/96), 19.7 (1996/97), 19.6 (1997/98), 20.1 (1998/99), 20.9 (1999/00), 18.2 (2000/01)
  - Expense: 20.8 (1995/96), 21.8 (1996/97), 21.3 (1997/98), 21.6 (1998/99), 22.1 (1999/00), 22.9 (2000/01)
  - Gross operating balance 1/: ­3.5 (1995/96), ­2.1 (1996/97), ­1.7 (1997/98), ­1.5 (1998/99), ­1.1 (1999/00), ­4.7 (2000/01)
  - Net lending/borrowing 3/: ­5.9 (1995/96), ­4.6 (1996/97), ­3.6 (1997/98), ­4.0 (1998/99), ­3.7 (1999/00), ­7.0 (2000/01)
- Memorandum:
  - GDP at market prices (millions of Rupees): 74,305 (1995/96), 83,763 (1996/97), 94,167 (1997/98), 106,042 (1998/99), 112,290 (1999/00), 124,665 (2000/01)
  - Gross operating balance/Net acquisition of nonfinancial assets (ratio): ­1.45 (1995/96), ­0.85 (1996/97), ­0.86 (1997/98), ­0.62 (1998/99), ­0.45 (1999/00), ­2.01 (2000/01)

### Mauritius — Balance Sheet for Budgetary Central Government (GFSM 2001), 1994/95–2006/07 (selected figures)
- Net worth and its changes (in millions of rupees):
  - Opening net worth and transactions: 14,328 (opening), ­8,781 (transactions), ­187 (other economic flows), 5,360 (closing)
  - Nonfinancial assets: 18,475 (opening 1994/95), 13,669 (transactions), 0 (other), 32,144 (closing); 2,898 (transactions 1999/00), 0 (other), 35,041 (closing), 32,624 (transactions 2000/01), 0 (other), 67,665 (closing)
  - Net Financial Worth: ­4,146 (opening), ­22,450 (transactions), ­187 (other), ­26,783 (closing); ­8,714 (transactions 1999/00), 0 (other), ­35,496 (closing); ­42,297 (transactions 2000/01), 0 (other), ­77,793 (closing)
  - Liabilities: 16,661 (opening), 24,908 (transactions), 187 (other), 41,756 (closing); ­118 (transactions 1999/00), 0 (other), 41,638 (closing); 45,473 (transactions 2000/01), 0 (other), 87,111 (closing)
- Memorandum items:
  - Net worth (in percent of GDP): 21.5, 4.8, ­0.4, ­4.6 (across the periods shown)
  - Net financial worth (in percent of GDP): ­6.2, ­23.9, ­28.5, ­35.7
  - Liabilities/Assets ratio: 0.54 (1994/95), 0.89 (1999/00), 1.01 (2000/01), 1.13 (2006/07)
  - Liabilities/Financial Assets ratio: 1.33 (1994/95), 2.79 (1999/00), 6.78 (2000/01), 9.35 (2006/07)

### Mauritius — Budgetary Central Government (plus Privatization Fund) Statement of Sources and Uses of Cash (GFSM 2001), 1995/96–2000/01 (selected figures)
- Cash flows from operating activities:
  - Cash receipts from operating activities (inflows +): 12,833 (1995/96), 16,474 (1996/97), 18,501 (1997/98), 21,329 (1998/99), 23,500 (1999/00), 22,707 (2000/01)
  - Cash payments for operating activities (outflows ­): ­15,425 (1995/96), ­18,259 (1996/97), ­20,062 (1997/98), ­22,940 (1998/99), ­24,777 (1999/00), ­28,523 (2000/01)
  - Net cash inflow (+) from operating activities: ­2,593 (1995/96), ­1,785 (1996/97), ­1,561 (1997/98), ­1,611 (1998/99), ­1,277 (1999/00), ­5,816 (2000/01)
- Cash flows from investments in nonfinancial assets:
  - Purchases of nonfinancial assets (cash outflows ­): ­1,783 (1995/96), ­2,091 (1996/97), ­1,810 (1997/98), ­2,617 (1998/99), ­2,866 (1999/00), ­2,898 (2000/01)
  - Net cash outflow (­) from investments in nonfinancial assets: ­1,783 (1995/96), ­2,091 (1996/97), ­1,810 (1997/98), ­2,617 (1998/99), ­2,866 (1999/00), ­2,898 (2000/01)
- CASH SURPLUS (+)/DEFICIT (2/): ­4,376 (1995/96), ­3,876 (1996/97), ­3,371 (1997/98), ­4,227 (1998/99), ­4,143 (1999/00), ­8,714 (2000/01)
- Cash flows from financing activities:
  - Net acquisition of financial assets other than cash (cash outflows ­): ­960 (1995/96), ­1,536 (1996/97), ­252 (1997/98), 705 (1998/99), ­167 (1999/00), 8,674 (2000/01)
  - Net incurrence of liabilities (cash inflows +): 5,235 (1995/96), 5,539 (1996/97), 3,324 (1997/98), 3,555 (1998/99), 4,439 (1999/00), ­118 (2000/01)
  - Net cash inflow (+) from financing activities: 4,275 (1995/96), 4,003 (1996/97), 3,072 (1997/98), 4,260 (1998/99), 4,272 (1999/00), 8,556 (2000/01)
- NET CHANGE IN THE STOCK OF CASH 3/: ­101 (1995/96), 126 (1996/97), ­299 (1997/98), 33 (1998/99), 129 (1999/00), ­157 (2000/01)
- Memorandum:
  - The stock of cash (end of the fiscal year): 610 (1995/96), 737 (1996/97), 438 (1997/98), 470 (1998/99), 599 (1999/00), 442 (2000/01)

*Sources: IMF Country Report No. 04/172; IMF Country Report No. 03/247 August 2003, Table 15; IMF staff and STA staff estimates.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2005/_102505.pdf_