The updated manual represents a refinement of the existing guidelines rather than a major change. Some of the key modifications were already discussed in a previous post at the time of the release of the pre-publication draft of GFSM 2014. The present post focuses on the thinking behind the new framework and its implications.
The rationale for the changes introduced in GFSM 2014 can broadly be described as playing catch-up, restoring the balance, broadening the horizon, refining guidance and classification, and emphasizing linkages. These issues are discussed below.
Traditionally, government finances were relatively simple and often confined to an analysis of taxes, spending patterns (primarily the wage bill of government) and borrowing to cover cash shortfalls. Since then, and in the wake of the global financial crisis, the financing of governments has become more complex, and the demands for fiscal transparency greater. Governments have been involved to an increasing extent in interventions such as the support or bailout of failing financial institutions, guarantee schemes, and private public partnerships. The development of these complex financial transactions, together with the increased use of fiscal rules, provides an incentive for some governments to manipulate fiscal data and inject greater “creativity” in reporting their finances. The challenges of managing a country’s infrastructure assets, its natural resources, and assets stored in sovereign wealth funds, have also increased. It was necessary for GFSM 2014 to reflect these changing realities.
GFSM 2014 attempts to restore the balance between cash and accrual reporting. While the GFSM 1986 was a pure cash-based reporting system, it is now clear that the GFSM 2001 gave too much emphasis to accrual-based reporting. Even though the framework included a Statement of Sources and Uses of Cash, very little guidance was provided on the cash recording of items such as discount or premiums on the issue of government bonds and bills. Moreover, it has become apparent that cash and accrual data play an equally important role in the analysis of a government’s liquidity position and its fiscal sustainability. While accrual reporting presents a broader and fairer picture of government finances, challenges with its adoption often necessitate the continued use of cash reporting in many countries. Indeed, improvements in the quality of cash data are an essential step prior to the adoption of accrual reporting. While GFSM 2014 thus retains much of the earlier framework’s emphasis on accruals information, it also provides guidelines on improving the quality of cash reporting.
The GFS framework is applicable to both the general government sector and the wider public sector, but GFSM 2001 provided very little guidance on the complexities of governments’ transactions with public corporations, including capital injections and bailouts. Recognizing the importance of public corporations as a potential source of fiscal risks, the GFSM 2014 guidelines provide a more comprehensive coverage of these issues, and are better suited for application to the broader public sector.
- Refining guidance and classifications
The GFSM 2014 provides a more comprehensive and detailed discussion of the principles and guidelines of the GFS framework, as well as their practical application. While the classification structure of the main aggregates has not changed, some further refinements were introduced - for example, on counterparties to interest, subsidies, and dividends – that will be helpful in fiscal analysis. Similarly, the heightened interest in resource revenues led to the introduction of subcategories of such revenues, and counterparties in the balance sheet were introduced to allow for the data reporting needs of balance sheet analysis.
In an interconnected world, the interaction between the fiscal sector and other sectors of the domestic economy, and the interaction with the rest of the world or specific regions has required some further changes in the framework. In particular, the GFSM 2014 introduced more emphasis on the linkages and consistency of fiscal data with other datasets, and elaborated on the use of GFS in regional arrangements such as customs and economic unions. Furthermore, progress toward the harmonization of International Public Sector Accounting Standards (IPSAS) with GFS reporting necessitated a description of the relationship between these two sets of international standards.
How will the release of GFSM 2014 impact compilers and users of fiscal data?
Fund economists have been encouraged to use a pragmatic and flexible approach in introducing the GFS framework in their surveillance work. The integration of flows and stock positions supports comprehensive balance sheet analysis and is particularly useful in assessing spillovers. While it is recognized that full implementation of the GFS framework may take time, compilers and users of fiscal data are encouraged to be ambitious in applying the updated framework. The Statistics Department of the IMF will continue to provide advice, training, and technical assistance to assist with efforts to implement the GFSM 2014.
[1] Senior Economist, Statistics Department, IMF. The Government Finance Statistics Division of the Department may be contacted at STAGODATA@imf.org for further information on the GFSM 2014 framework.
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