Using GFSM 2001 for Fiscal
Analysis
Anne Y. Kester
Fiscal Affairs Department
International Monetary Fund
Presented at the World Bank DDG Workshop
November 23, 2004
Topics
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Limitations of the traditional framework.
Advantages of using the GFSM2001 for fiscal
analysis.
Prerequisites for producing timely and reliable
GFSM 2001 data to facilitate fiscal analysis.
Countries’ experiences in implementing the
accrual accounting system called for in the
GFSM 2001.
The traditional framework
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Focuses on cash receipts (revenues) and cash
payments (expenditures) and how they evolve over
time.
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“Overall fiscal balance” and “gross public debt” are
the two main indicators.
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Other indicators used include:
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[
adjusted overall balance
non-oil balance
operational balance
primary balance
cyclically adjusted or structural balances
Limitations of the traditional
approach
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Fails to reflect when the transactions actually take place,
providing inadequate information on the timing of policy actions
and their impact on the economy (e.g., arrears).
Can present a distorted picture of the operating costs of
government activities (e.g., purchases of fixed long-term or
capital assets are charged as expenditure in the current period).
Does not distinguish sufficiently types of government receipts
and payments, at times providing misleading information on the
impact of government operations on the economy (e.g.,
privatization).
Limitations of the traditional
approach (cont’d)
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Relies predominantly on “income-based”
concepts to determine fiscal deficits/surpluses
and government debt; does not take account
explicitly of asset-based “net worth”
sustainability.
Takes a partial approach to fiscal reporting
and lacks a fully specified analytical
framework.
Requires ad hoc adjustments.
Advantages of using the GFSM
2001 framework
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The accrual-based data lend themselves
more readily for economic analysis and
require fewer ad hoc adjustments as
would be needed when one uses cashbased data.
Advantages (cont’d)
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The integrated framework is useful in disclosing complex
government operations (including privatization, bank
restructuring, and public investment).
It discloses proceeds/financing of such activities in the
operational statement and related acquisitions/disposals of
assets/liabilities in the balance sheet.
This approach, along with its fiscal indicators (net operating
balance, net lending/borrowing, and net worth), allows a
comprehensive review of the impact of such government
operations on aggregate demand and on a country’s
indebtedness. It facilitates the formulation of appropriate fiscal
adjustments to restore a country’s debt sustainability.
Advantages (cont’d)
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Classifications of government activities by
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type of transaction (financial and nonfinancial),
function (for example, health, defense, and
education),
economic characteristics (including taxes, grants,
wages and salaries, interest, and subsidies).
Such classifications are useful in assessing
the effectiveness of government programs
and policies.
Advantages (cont’d)
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Facilitates the compilation of information on
the public sector, since both government
operations and activities of public enterprises
would be shown under compatible accounting
concepts, on the accrual basis.
Public-sector data shed light on quasi-fiscal
activities (QFAs) undertaken by public
enterprises. They also reveal public-sector
borrowing that can be a source of contingent
liabilities of the government.
Some practical considerations
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The usefulness of the GFSM 2001 framework for fiscal analysis
depends on the availability of such data on a timely, accurate,
and comprehensive basis to allow the derivation of meaningful
indicators to assess the impact of fiscal policies on the financial
conditions of the economy.
To date, the availability of GFSM 2001 data varies among
countries. The production of useful accrual-based GFSM 2001
data requires reliable government financial reporting. This, in
turn, calls for effective institutional frameworks, including sound
government accounting policies and practices, professional
expertise, and governance.
Prerequisites for countries’
implementation of GFSM 2001
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Make political commitment (must be convinced that GFSM2001 better
supports policymaking and that accrual data provide a superior method
for accounting of government operations and flows of resources).
Weigh benefits and costs of implementation.
Get consensus among relevant government agencies.
Change laws and regulations on accounting and statistical reporting.
Develop action plan for implementation, which is likely to take a few
years.
Form committees and working groups to follow up on various tasks.
Note
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A number of countries are still reviewing the usefulness of the
framework and the costs and benefits of implementation. (A major
factor behind the progress to date.)
Developments in Accrual
Accounting
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Accrual accounting does not mean that recording cashflows is not
important. In fact, accounting for cashflows is part of the accrual
accounting framework.
As with cash-based accounting, measures need to be put in place to
safeguard the proper application of the accrual concepts to prevent
abuses and misuses (witness the Enron and Worldcom cases).
How far countries should and can move toward accrual accounting
depends on the costs and benefits of adopting such accounting system,
which may vary from country to country.
Australia, Canada, New Zealand, and the UK have made the most
progress in moving toward accrual accounting for government financial
reporting. Among other economies, the government of South Africa is
making steadfast efforts in implementing such an accounting system.
Approach to maintaining
continuity on data
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To maintain the quality of fiscal policy analysis in Fund reports,
there should be a smooth transition from the current cashbased presentation to the GFSM 2001 presentation of fiscal
statistics, with both presentations retained in tandem in the
near term.
Program fiscal targets and performance criteria should continue
to be specified on a cash or commitment/adjusted cash basis,
as countries progressively implement the GFSM 2001.
Changes in the fiscal tables and indicators used for program
purposes should only be considered for new programs.