Task Force on
Harmonization of Public
Sector Accounting
Guarantee
SNA Advisory Expert Group
Bangkok, July 2005
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Context
Guarantees have a significant impact on the
economic behavior of transactors:
Influence decisions on production, income,
investment and saving
Modify the lending and borrowing in financial
markets
Particularly significant for government and other
public sector
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Current macroeconomic
treatments
SNA 1993 view guarantees as contingency.
1995 ESA recognize that counterpart of insurance
technical reserves and pension funds are
contingent assets in most cases.
GFSM 2001 record as memo items possible
revenues/expenses (gross amount of guarantees)
and also expected revenues/expenses, recognizing
that they can be quantifiable.
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Rationale for changes
– Memorandum item is not reported
– Need to distinguish among guarantees to reflect the
differences among economic events that give rise to
guarantees
– Convergence with accounting standards that distinguish
guarantees from contingencies
Maintaining status quo is criticized since it is at the
time guarantees are given that the economic
behavior is influenced, creating potential
costs/benefits for the units involved
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Proposed solutions
Based on:
Typology of guarantees
Diversity of recording
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Proposed solutions
Types
Standardized
guarantees
One-off
guarantees
Tradability
Tradable (or
offsettable
guarantees)
Financial
derivatives (e.g.
credit default
swaps
Non tradable
guarantees
Insurance
technical
reserves/
provisions
Memo or
supplementary
accounts
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Rec. 1: Guarantees viewed according
to types.
Tradable or offsettable guarantees :
recorded as financial derivatives
Standardized guarantees (e.g., export
credits or student loans): recorded as part
of insurance technical reserves)
One-off guarantees: recorded as memo
items or supplementary accounts
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Rec. 2: Tradable or offettable treated as
financial derivatives.
Tradable guarantees are similar to derivatives as the issuer takes the
risk of the deterioration in the credit worthiness of an entity.
Conditions:
When there is a market for similar instruments
When there are observable market prices.
Not a change in SNA but only a clarification
For the time being, only credit derivatives would meet the conditions for
this treatment. recorded as financial derivatives
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Rec. 3: Standardized guarantees treated
as “insurance technical reserves”.
Standardized guarantees are similar to insurance technical reserves as they
involve pooling of risks.
Conditions:
Given their large number, very likely that some of them will be called
Accordingly, it is possible to make a good estimate of the average loss by
considering statistics on claims, or other means.
Treatment: liab. of guarantor equal to npv of expected payments, equivalent to
the asset of the sector receiving the guarantees,
Rec. 4: Create a sub-category under
“insurance thechinical reserve called
“standardized guarantees”.
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Rec. 5: Sector of the counterpart asset is
the sector receiving the guarantees (e.g.,
the lender for a guarantee on borrowing)
Rec. 6: If the guarantor sells the
guarantee for a premium that does not
cover the expected loss and
administration costs, a subsidy/capital
transfer to the lender should be
imputed.
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Rec. 7: One-off guarantees recorded
outside core accounts (either c or d).
Usually not standardized and not tradable. Four modalities
have been considered:
a. Liability in the core accounts (for the expected loss)
b. Re-routing
c. Memorandum items
d. Supplementary system of accounts
Rec. 8: A sufficiently prominent status to
be given to ensure that it is recorded in
practice (as for non-performing loans)
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