tarun das lecture gfs-1
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UNSIAP TARUN DAS SESSION 1-2 GFS 1
Heartiest Welcome to the Participants of theTraining Course at UNSIAP, Chiba, Japan
Tarun Das, Economic Adviser, Min of Finance, India
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Course Outline and
Analytical Framework of GFSProf. Tarun Das, IILM, New Delhi, IndiaPresently with MOF, Govt of Mongolia
Contents
1. Profile of Resource Person
2. Learning Outcome and Course Modules
3. GFS Analytical Framework
4. GFS- Basic Concepts
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1.2 Resource Person- Prof. Tarun Das
Work Experience:35 yrs as DevelopmentEconomist in the government of India: Lastassignments: Economic Advisor, PlanningCommission (1986-1988) and EconomicAdviser, Min of finance (1986-2006)
Worked as Consultant to the World Bank,ADB, UNDP, UNESCAP, ILO, UNCTAD, UNITAR,GDN, UN Commission for Africa, UNSIAP.
Worked on Fiscal Management for the
Govts of Cambodia, Indonesia, Lao PDR,Mongolia, Nepal, Philippines and Samoa.
Govt. Delegate to World Bank, ADB, IMF,UNCSD, WTO.
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1.3 Resource Person- Prof. Tarun Das
Research/Teaching Interest:
Econometrics, Research Methodology, PublicPolicy, Economic Reforms, Poverty, Inequality,Public Debt and External Debt
y Possesses diversity in skills in teaching,
training, research, policy planning andmodeling. Published books and papers onstructural reforms, fiscal policies, public andexternal debt, transport modeling, povertyand inequality, FDI, privatisation, technology
transfer. Qualifications: MA in Econ. (Gold Medalist),Calcutta University, 1969.
Ph. D. in Econ, as Commonwealth Scholar,EastAnglia Univ., England, 1977.
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2.1 Learning Outcome1. Develop a comprehensive understanding of
the basic concepts, analytical framework,database, methodology, uses, applicationsand limitations of economic statistics.
2. Develop skills and capabilities for analytical
presentation, networking and teamworkthrough workout sessions in groups.
3. More emphasis will be laid on understandingbasic concepts, methodology, techniques,
uses and limitations for official statistics,rather than formal proofs and derivation offormula.
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2.2 Pedagogy
1 Teaching techniques will consist of formallectures, case studies and workout sessions.
2 If time permits, selected case studies may begiven so as to facilitate participants to relateto theoretical concepts with real life situationsin economic analysis, policy formulation andplanning.
3 The participants would present and discussthese case studies in the class.
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2.3 Pedagogy
3. Participants will be provided with complete
course material well in advance. To makeclassroom presentations by the resourceperson more meaningful and effective,participants are required to come prepared
and collect related information and data fromjournals and websites, and participate activelyin classroom sessions.
4 To develop comprehensive understanding,
teamwork and networking with each other,participants are encouraged to participateactively in group discussions and workoutsessions.
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2.4 Course Modules
Modules Number ofSessions
1. Government FinanceStatistics (GFS)
Six
2. Balance of Payments(BOP) Statistics
Six
3. Monetary and Fiscal
Statistics (MFS)
Four
4. Productivity Measuresand Analysis (PM)
Four
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2.5 Selected References
Government Finance Statistics 1986 Government Finance Statistics Manual
(GFSM) 2001 Government Finance Statistics (GFS)
Yearbook 2006
Monetary and Financial Statistics Manual(MFSM): 2007
Monetary and Financial Statistics (MFS):Compilation Guide 2007
International Financial Statistics (IFS)
Balance of Payments Manual 2005 Balance of Payments Statistics Yearbook
2006 Website: www.imf.org
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3.1 Classification of Sectors
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3.2 Classification of Sectors
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3.3 Common Govt Accounting System
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3.5 Types of Transactions
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3.6 Distinctions in the nature ofgovernments money flow transactions
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3.7 Organisation of governmentflows by nature of flows
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3.8 Analytical Framework forClassification of govt operations
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4.1 GFS Basic Concepts
All of the data recorded in the GFS system
are either flows or stocks.
Flows and Stocks Flows refer to economic actions and effects
of events within an accounting period.
Stocks refer to the value of assets orliabilities at a point in time.
Flows reflect the creation, transformation,exchange, transfer or extinction of
economic value; they involve changes in thevolume, composition or value of aninstitutional units assets and liabilities.
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4.2 Flows and Stocks Flows and Stocks are related by the
following fundamental relation:
S = S+ F or F = S - S
where S = values of a specific stock at thebeginning of an accounting period
S= values of a specific stock at the end ofan accounting period
F = Net value of all flows during the periodthat affected that particular stock.
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Flows are classified into (i) transactions and(ii) other flows.
Transactions A transaction is an economic flow that is an
interaction between two institutional units bymutual agreement or an action within aninstitutional unit, which is analytically useful totreat like a transaction.
Illegal transactions (forbidden by govt laws andregulations) are treated the same way as legaltransactions.
4.3 Types of Flows
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A transaction could be an exchange or atransfer.
An exchange (sometimes called a transactionof something for something or a transaction
with a quid pro quo) involves a provision of something of economic value in return for acounterpart item of economic value.
Purchases of goods and services, acquisition of
assets, compensation of employees, dividends,etc. are all exchanges.
4.4 Exchange and Transfer
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A transfer (also called a transaction of something for nothing or a transactionwithout a quid pro quo) involves a provision(or receipt) of an economic value by one partywithout receiving (or providing) a counterpart
item of economic value.
Govt grants, subsidies, social security benefitsare examples of transfers.
All taxes and duties and Non-lifeinsurance premiums and claims are alsotreated as transfers.
4.5 Transfer
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Every transaction is either a monetary ornon-monetary transaction. A monetarytransaction is one in which one institutionalunit makes a payment (receives apayment) or incurs a liability (acquires anasset) stated in units of currency.
Since all flows are to be expressed inmonetary terms in GFS Accounts , the
monetary values of non monetarytransactions need to be estimated.
4.6 GFS Accounting Principals
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Some transactions are not recorded in the
form in which they appear to take place.Instead they are modified to bring out theirunderlying economic relationships.
Rerouting records a transaction as takingplace in channels different from that
observed. Social contributions paid byemployers directly to the retirement schemeprovide an example.
Partitioning unbundles two or more differenttransactions that appear as a single
transaction. For example, bank interestspayable to financial intermediaries arepartitioned into two components- interestsand service charges.
4.7 Rerouting and Partitioning
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4.8 Reassignment and Imputation
Reassignment Central govt collectstaxes and transfers fixed proportions tothe subnational governments.Imputation of transactions refers toconstructing entries in the accounts when
no actual transactions occur. Retained earnings of direct investmententerprises are treated as reinvestmentsmade by them.
Property income earned on technical
reserves held by insurance corporationsand pension funds are deemed to bepayable to policy holders who are thendeemed to pay back to them.
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4.9 Reassignment and Imputation
When government has a nonresidententity to undertake fiscal functions relatedto government borrowing and/or incurringgovernment outlays abroad, transactions
are imputed in the accounts of both thegovernment and the nonresident entity toreflect the fiscal activities of the govt.
Retained earnings of investment funds are
treated as if they were distributed toshareholders who are then deemed toreinvest in the investment fund.
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4.10 Other economic flows
Other economic flows are changes in the
volume or value of an asset or liabilitythat does not result from a transaction orrevaluation.
Volume changes are described as otherchanges in the volume of assets or simply
other volume changes. Value changes are described as holdinggains and losses.
Examples are unilateral write offs ofclaims by creditors, reclassification of
assets, monetization/demonetization ofgold, and other events.
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4.11 Other changes in volume of assets
(a)Events that involve the addition to or
deletion from the balance sheet of anexisting asset or liability with no changesin its quantity or quality. Example- A riverbridge destroyed by cyclone is abandoned
before its complete construction.(b) Events that change the quantity orquality of assets. Example- Creation ofland by reclaiming sea.
(c)Events that lead to changes in the
classification of assets. Examples-privatization, corporatization or outrightsale of Govt's telecom department.
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4.12 Holding gains and losses
Holding gains and losses onassets and liabilities, togetherwith the correspondingchanges in net worth, arise asa result of changes in t heprices of those assets andliabilities, in cluding changesresulting from exchange ratemovements.
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4.13 Credits and Debits
A debit is an increase in an asset, adecrease in a liability, or a decrease innet worth.
Conversely, a credit is a decrease in an
asset, an increase in a liability, or anincrease in net worth.
Revenue entries, which represent anincrease in net worth, are recorded as
credits. Conversely, an expense refers to adecrease in net worth and is recorded as adebit.
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4.14 Net changes in assets
In the case of the flows in financialassets and liabilities, the terms netchanges in assets and net changesin liabilities are used to reflect thenature of the financial flows, whichare recorded on a net basis separatelyfor each financial asset and liability.
For both assets and liabilities, apositive change indicates an increasein stocks and a negative changeindicates a decrease in stocks.
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4.15 Time of Recording of Flows
Once a flow is identified, the time at whichit occurred must be determined so thatthe results of all flows within a givenaccounting period can be compiled.
Determination of timing is very important
for maintaining consistency of financialaccounts but is complicated due toexistence ofleads and lags in receiptsand payments.
Broadly, time of recording is determined
on four bases: accrual basis, the due-for-payment basis, the commitmentbasis, and the cash basis.
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4.16 Time of Recording of Flows
Accrual accounting records flows at thetime when an economic value is created,transformed, exchanged, transferred, orextinguished.
In other words, the effects of economic
events are recorded in the period in whichthey occur, irrespective of whether cashwas received or paid or was due to bereceived or paid.
A due-for-payment basis records flows
at the time when payments fall due. If apayment is made before it is due, then theflows are recorded when the cashpayment is made.
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4.17 Time of Recording of Flows
A commitment basis records flowswhenaunithascommitteditselftoatransaction. Normally, thisbasisappliesonly toacquisitionoffinancialassetsorincurrence ofliabilities, andpurchasesof
goods
,se
rv
ice
s,
andla
bor
in
puts
. The time ofrecording generally iswhenacommitmentismade orapurchase orderisissued. Flowsforwhichthe commitmentbasisisnotapplicable mustbe recordedon
one ofthe otherthree bases. AcashbasisAcashbasis recordsflowswhencashisreceivedordisbursed. Initsstrictform,only those flowsthatinvolve cashasthemediumofexchange are included.
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4.18 Advantages of Accrual Accounting
International best practices use the accrual
basis for recording of flows, as it matches thetime of recording with the timing of theevents giving rise to the actual resource flows.
With the cash basis, the time of recording
may diverge significantly from the time ofevents and transactions to which the cashflows relate.
The due-for payment basis usually records
transactions after the resource flows havetaken place.
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4.19 Advantages of Accrual Accounting
The timing of the commitment basis willprecede the actual resource flows.
The accrual basis provides the most
comprehensive information because allresource flows are recorded, including nonmonetary transactions, imputed transactions,and other flows.
Such a comprehensive recording ensures theintegration of flows and changes in balancesheets.
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4.20 Valuation Market prices are the basis for valuation of
both flows and stocks. Market prices refer to current exchangevalue, i.e., the values at which goods andother assets, services, labor are exchanged orelse could be exchanged for cash.
The basis of transaction valuations isgenerally actual market prices agreed uponby transactors. This practice is consistent withthat of the SNA.
Conceptually, all stocks of A&L are valued atmarket prices prevailing at the time to whichthe international investment position relates.
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4.21 Different Concepts of Values
Fairvalue : Market-equivalent value, for
which an asset could be exchanged, or aliability settled, between knowledgeable,willing parties in an arms-length transaction.
Nominalvalue : Amount the debtor owes
to the creditor, comprising outstandingprincipal & accrued interest.
Amortized value : Initial amount at whichthe financial asset or liability was measured
less principal repayments. Face value: Undiscounted principal
amount to be repaid.
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4.22 Different Concepts of Values
Bookvalue : The value recorded in an
enterprises records. It may have differentmeanings because the book value isinfluenced by timing of acquisition, companytakeovers, frequency of revaluations, taxand other regulations.
Historiccost reflects the cost at the time ofacquisition, but sometimes it may alsoreflect occasional revaluations.
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4.23 Aggregation and Netting
Aggregates are summations of elementaryitems in a class of flows or positions. Forexample, compensation of employees i s t hesum of all flows t hat are classified as
compensation ofemployees. Inthe case offlowsinfinancialassetsand
liabilities, the termnet have dualmeanings(summingalldebits/ creditsforafinancial
assetoraliabilitytype and nettingofanassetagainstaliability).
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4.24 Aggregation and Netting Netrecordingrefers toaggregations where
all debitentries of a particularassetorliability are nettedagainstall creditentries inthe same assetor liability type (e.g.,acquisitions of foreigncurrency are nettedagainstthe sales ofthe foreigncurrency;bondissues are nettedagainstredemption).
Whennet is usedtogetherwith a type offinancial instrumentsuch as net financialderivative, itmeans nettingof a financial
assetagainstthe same type of liability. Title of some derivedmeasures uses theterm net such as net lending/borrowingandnet fiscal deficit.
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4.25 Differences with SNA 1993
In general, the transactions of the 1993 SNA
that are not recorded in the GFS systeminclude the following:
The output and simultaneous distribution ofnon-market goods and services;
The output of fixed assets constructed on
government own account and the costs ofproducing those assets;
Certain transactions related to employer socialinsurance schemes providing retirementbenefits and anaged by general governmentunits; and
Transactions reflecting the reinvestment ofearnings on direct foreign investment.
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Thank you
Have a Good Day
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