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Part I - Practical application of sector classification principles

Australian System of Government Finance Statistics: Concepts, Sources and Methods
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Paragraphs 2.125 to 2.162 of the IMF GFSM 2014 contain descriptions and practical application for the sector classification of types of units typically encountered during the compilation of GFS. Some of this guidance has been reproduced in the remaining paragraphs in this chapter below.

Identifying quasi-corporations


Quasi-corporations (as defined in paragraphs 2.35 and 2.36 of this manual), satisfy the criteria to be separate institutional units and function as if they were corporations. In macroeconomic statistics they are treated as if they were corporations; that is, as institutional units separate from the units to which they legally belong. Quasi-corporations that are owned or controlled by government units are grouped with public corporations in the public non-financial or public financial corporations sectors.


The existence of (or possibility to meaningfully construct) a complete set of accounts for the entity (including balance sheets) is a necessary condition for it to be treated as a separate institutional unit. Also, the government must grant management of the entity discretion to operate as if it were a separate corporation. In practice this should apply both with respect to the management of the production process and also the use of funds, including maintaining their own working balances and business credit, and being able to finance some or all of their capital formation out of their own saving, financial assets, or borrowing. The ability to distinguish flows of income and finance between quasi-corporations and general government units implies that, in practice, their operating and financing activities must be separable from government revenue or financing statistics, despite the fact that they are not separate legal entities.


Entities such as national railways, port authorities, post offices, government publishing offices, public theatres, museums, swimming pools, hospitals, education centres, and other entities that provide goods and services on market basis, should be treated as public corporations if these units satisfy the criteria to be quasi-corporations. Similar market producers that do not satisfy the requirements to be recognised as a quasi-corporation are treated as a market establishment integrated with the general government unit that controls them. In cases where government producers of similar goods and services sell their products at non-market prices, they remain a part of the non-market activities of general government.

Distinguishing head offices and holding companies


Large groups of corporations may be created whereby a parent corporation (or government in the case of public corporations) controls several subsidiaries, some of which may control subsidiaries of their own. Each individual corporation that satisfies the criteria to be an institutional unit should be classified as a separate institutional unit, whether or not it forms part of a group. The parent corporation in such circumstances is often referred to as a holding company. There are two different types of such units:


The first type is the head office of such groups of corporations that is actively engaged in production. This class of corporations includes overseeing and managing other units of the company or enterprise; undertaking the strategic or organisational planning and decision making role of the company or enterprise; exercising operational control; and managing the day-to-day operations of their related units. Such units are allocated to the non-financial corporations subsector unless all or most of their subsidiaries are financial corporations, in which case they are treated by convention as financial auxiliaries (see paragraph 2.66 of this manual for definition) in the financial corporations sector.


The second type of corporation is a unit that holds the assets of subsidiary corporations but does not undertake any management activities. This class of corporations includes the activities of holding companies, that is, units that hold the assets (owning controlling-levels of equity) of a group of subsidiary corporations and whose principal activity is to own the group. The holding companies in this case do not provide any other service to the enterprises in which the equity is held, that is, they do not administer or manage other units. These holding companies are classified according to the predominant activity of the corporations whose assets they hold.

Identifying restructuring agencies


Restructuring agencies are entities set up to sell corporations and other assets, and for the reorganisation of companies. They may also serve for defeasance of impaired assets or repayment of liabilities of insolvent entities, often in the context of a banking crisis. These entities are known by various names such as restructuring corporations, privatisation vehicles, asset management companies, liquidation corporations, bridge banks, or bad banks.


Some institutional units specialise in the restructuring of corporations, either non-financial or financial. These corporations may or may not be controlled by government. Restructuring agencies may be longstanding or created for this special purpose. Governments may fund the restructuring operations in various ways, either directly, through capital injections (capital transfer, loan or acquisition of equity) or indirectly, through granting guarantees. If the restructuring agency is controlled by government or another public corporation, it is classified in the public sector. Whether a restructuring unit forms part of the general government sector or is a public corporation is determined by whether it is a market or non-market producer. Given that the economically significant price criterion may be insufficient for this purpose because restructuring units have, by nature, little output, the following general criteria should be considered:

  • A unit that serves only government, or primarily government, is more likely to be included as a nonmarket producer within the general government sector than one that serves other units as well.
  • A unit that sells or buys financial assets at a value other than market values is more likely to be in the general government sector than not.
  • A unit that takes on low risks because it acts with strong public financial support and, by law or effectively, on behalf of the government, is likely to be included within the general government sector.
  • A restructuring agency may undertake the reorganisation of public or private sector entities or the indirect management of privatisation. Two cases may be considered:
  1. The restructuring unit is a genuine holding company controlling and managing a group of subsidiaries and only a minor part of its activity is dedicated to channelling funds from one subsidiary to another on behalf of the government and for public policy purposes. This unit is more likely to be a market producer and classified according to the predominant sector of the subsidiaries, and the transactions made on behalf of the government rerouted through the general government unit using the service provided.
  2. The restructuring unit (whatever its legal status) acts as a direct agent of the government and is not a market producer. Its main function is to redistribute national income and wealth, channelling funds from one unit to the other. The restructuring unit should be classified in the general government sector.


Another example of a restructuring agency is one mainly concerned with impaired assets, mainly in the context of a banking or other financial crisis. Such a restructuring agency must be analysed according to the degree of risk it assumes, considering the degree of financing provided by the government. Again, two cases may be considered:

  • The restructuring agency borrows on the market at its own risk to acquire financial or non-financial assets that it actively manages. In this case the unit is more likely to be a market producer and classified as either a financial or non-financial corporation based on the nature of the assets held.
  • The restructuring agency deliberately purchases assets at above market prices with direct or indirect financial support from the government. It is primarily engaged in the redistribution of national income (and wealth), does not act independently of government or place itself at risk, and therefore is not a market producer and should be classified in the general government sector.

Identifying financial protection schemes


The financial infrastructure of an economy may include financial protection schemes to protect the assets of financial institutions’ clients. These schemes are often referred to as deposit guarantee schemes or deposit insurance schemes. The main types of schemes provide protection of deposits or protect policyholders against failing life and non-life insurance schemes. These entities are known by various names, but to determine their sector classification the nature of their activities should be considered on a case by case basis.


A financial protection scheme is classified as part of the general government, as a public financial corporation, or a private financial corporation outside the public sector according to the same sectorisation principles that apply to any other entity, as described earlier in this chapter.


A resident financial protection scheme may satisfy the criteria to be an institutional unit or not. If it is not an institutional unit, it is treated as an integral part of the institutional unit that controls it.


If the fees are set by government, or when the government or a public corporation has control over the financial protection scheme through other means, the scheme is to be included in the public sector. The following criteria should be considered in determining whether the scheme is part of the general government sector:

  • If fees payable to government for such a protection scheme are compulsory, that is, if beneficiaries cannot opt out of the scheme, the scheme is to be included in general government sector;
  • If fees payable to government are clearly out of proportion to the service provided (fees are not determined based on the associated risks covered), the scheme is to be included in general government sector;
  • If fees payable to government are not set aside in a fund, or can be used for other purposes the scheme is to be included in general government sector; and
  • If the fees are proportional to the cost of the service provided, and the scheme is an institutional unit, it is classified as an insurance corporation operating a fund that functions on insurance rules may indicate proportionality and the existence of a standardised guarantee scheme.

Identifying special purpose entities


While there is no internationally agreed upon definition of a special purpose entity (SPE), some typical features are that it has little physical presence, is related to another corporation or government, and is often resident in a territory other than the territory of residence of its parent unit.


Governments may set up SPEs for financial convenience. For example, the SPE may be involved in fiscal or quasi-fiscal activities (including securitisation of assets, borrowing, etc.). Resident SPEs that function only in a passive manner relative to general government and that carry out fiscal and quasi-fiscal activities do not satisfy the criteria to be institutional units and are therefore not treated as separate institutional units in macroeconomic statistics - they are treated as part of general government regardless of their legal status. Resident SPEs acting independently, acquiring assets and incurring liabilities on their own behalf, and accepting the associated risk, are treated as separate institutional units and are classified to a sector according to their principal activity.


SPEs that are resident in a different country than their controlling government are always classified as separate institutional units in the economy where they are established. When such entities exist, care must be taken to reflect the fiscal activities of government accurately. All flows and stock positions between the general government unit and the non-resident SPE should be recorded in the accounts for general government and the rest of the world when they occur.


A government may create a non-resident SPE to undertake government borrowing or incur government outlays abroad for fiscal purposes. Even if there are no actual economic flows recorded between the government and the SPE related to these fiscal activities, flows and stock positions should be imputed in the accounts of both the government and the rest of the world to reflect the fiscal activities of the government undertaken by the SPE.

Identifying joint ventures


Many public sector units enter into arrangements with private entities (e.g. a public-private partnership) or other public sector units to undertake a variety of activities jointly. The joint venture could be a market or non-market producer. Joint operations can be structured broadly as one of three types: jointly controlled units, referred to here as joint ventures; jointly controlled operations; and jointly controlled assets.


A joint venture involves the establishment of a corporation, partnership, or other institutional unit in which, legally, each party has joint control over the activities of the joint venture unit. The joint venture unit operates in the same way as other units except that a legal arrangement between the parties establishes joint control over the unit. As an institutional unit, the joint venture may enter into contracts in its own name and raise finance for its own purposes. Such a joint venture maintains its own accounting records.


The participants to a joint venture may be public sector and/or private sector units. To properly decide the sector classification of the joint venture in macroeconomic statistics, it must be determined which unit has economic control of the joint venture. Given the nature of a joint venture (created legally with joint control), the principal question to be considered here is whether the effective economic control of the joint venture establishes a public or a private unit:

  • If a joint venture operates as a non-market producer, then the government is in effective control and it is classified as part of the general government sector.
  • If the joint venture is a market producer, it is treated as a public or private corporation according to whether it is or is not controlled by a government unit. Normally, the percentage of ownership will be sufficient to determine control. If the public and private units own an equal percentage of the joint venture, the other indicators of control must be considered.
  • Joint operating arrangements can be in the form of jointly controlled operations or jointly controlled assets. When public sector units enter into joint operating arrangements without establishing separate institutional units, there are no units requiring classification; however, the recording should reflect the proper economic ownership of assets. Also, any sharing arrangements of revenue and expense should be recorded in accordance with the provisions of the governing contract. For example, two units may agree to be responsible for different stages of a joint production process or one unit may own an asset or a complex of related assets but both units agree to share revenue and expense.

Identifying sinking funds


A sinking fund is a separate account, which may be an institutional unit or not, that is made up of segregated contributions provided by the unit(s) that makes use of the fund (the “parent” unit) for the gradual redemption of the parent unit’s debt. A sinking fund may also be established to provide for major repairs or replacements. Aside from eventually extinguishing all government debt in a prudent and orderly manner, sinking funds may be meant to inspire confidence, supporting the market for government securities.


Public sector sinking funds are classified to sectors according to whether they are separate institutional units and, if so, whether they provide their services at economically significant prices (see paragraph 2.34 of this manual for the definition).

  • Sinking funds that are separate institutional units and provide services as market producers are classified as public financial corporations.
  • Sinking funds that are separate institutional units and provide services as non-market producers are classified as general government units.
  • Sinking funds that are not separate institutional units are classified with the unit that controls them (i.e. the parent unit).


A variety of practices exist among sinking funds as to both their operation and the degree of control exercised by the parent unit (such as government):

  • Some sinking funds retire or purchase only the parent unit’s securities for which they are established. Such sinking funds are normally not separate institutional units and are classified with the unit that controls them.
  • Some sinking funds may have been assigned other responsibilities, such as the conduct of government lending programs or even the collection of earmarked taxes. Such sinking funds are normally not separate institutional units and are classified with the unit that controls them.
  • Other sinking funds may purchase and sell securities of other governments or institutions (domestic or external) usually seeking securities that have similar maturity dates. Such sinking funds may well be institutional units providing services on a market basis and are classified as public financial corporations.

Identifying market regulatory agencies


Market regulatory agencies act on behalf of a government (or a regional organisation with governments as its members), and influence the market for specific goods or services directly and/or indirectly. These agencies influence the market directly by acting as buyers and sellers of the goods or services and influence the market indirectly through regulations, rulings, compliance laws or standards, to impact the production, price, and marketing of specific products. The regulations may cover the terms and conditions of supplying the goods and services and in particular the price allowed to be charged and / or to whom the goods and services are distributed. It is most common for a regulatory agency to control agricultural products, monopolistic markets, or, in some cases, natural resources.


The nature of these market regulatory agencies may differ. The nature of each agency should be investigated to decide the sector classification according to sectorisation principles. At the one end of the spectrum, some agencies are merely distributing subsidies, while others may have an administrative, advisory, standard or price setting, or collective advertising function. At the other end of the spectrum, the agency may have total control over all aspects of the production and distribution process, including being the only legal buyer/seller of the products.


Following the residence principle, those market regulatory agencies that meet the definition of an international or regional organisation are not included in the statistics of the individual member countries, but their activities might be reflected in regional data. By convention, financial regulatory (supervisory) bodies are considered as financial corporations when they are separate institutional units. For those resident market regulatory agencies involved with non-financial goods and services, the following guidance applies:

  • Those agencies that do not satisfy the criteria to be an institutional unit remain an integral part of the general government unit that controls them. This would usually be the case for those agencies exclusively or principally involved in the distribution of subsidies on behalf of government.
  • Those agencies that satisfy the criteria to be institutional units, and that are mainly non-market producers, such as performing some administrative functions, setting standards, or overseeing and regulating the production process, should be classified in the general government sector. Although the agency may have active participation of members from the market it serves, government control is established by the enabling instruments and non-market nature of these entities.
  • Those agencies that satisfy the criteria to be an institutional unit, and that are mainly a market producer should be classified in the non-financial corporations subsector. These market regulatory agencies, whose sole or principal activity is to buy, hold, and sell the goods or services at economically significant prices, are market producers.


Where market regulatory agencies are involved in a mixture of activities such as distributing subsidies and buying, holding, and selling goods and services, the sector classification may require careful consideration. If it is possible to separately identify a quasi-corporation that is undertaking market activities it should be classified in the non-financial corporations subsector. The non-market activities should be classified in the general government sector. If it is not possible to distinguish two institutional units, the majority of the activities of the entity should determine the sector classification.

Identifying development funds and / or infrastructure companies or entities


Internationally, some governments create special entities / funds to finance and develop the economy in general, develop specific sectors of the economy, or upgrade specific facilities such as infrastructure. These types of agencies / funds may be involved in various aspects of development, ranging from only providing the finances for development activities, to being involved in all aspects of the actual development and construction of the infrastructure or facilities. Various terms, such as 'development banks', 'investment funds', 'fiscal stabilisation funds', or 'infrastructure companies' are used to describe these agencies. Whatever they are called, the sector classification should not be based on their description, but rather on the economic nature of the entities.


Using the criteria set out earlier in this chapter, compilers should determine whether the entity is a separate institutional unit in the public sector, or whether it is not an institutional unit and should be classified as an integral part of the unit that controls it.


These entities may be established in the legal form of a corporation, but it is necessary to decide whether or not to classify them as institutional units. The financing arrangements of these entities usually involve the issuance of debt instruments, but could also include some other sources of financing. The customers that they serve, the financing arrangements, and the economic ownership of the assets created by these entities could often be indicative of the risks assumed by these entities, and could help to determine their status as an institutional unit. The following guidance applies:

  • If the entity cannot act independently from its parent and is a passive holder of assets and liabilities, it is classified as an artificial subsidiary. If it is a resident unit, it is classified as a component of the level of government that controls them (i.e. as part of the parent unit). These entities are not treated as separate institutional units, unless they are resident in an economy different from that of its parent unit.
  • If the entity borrows on the market and then lends only to general government units, it is not involved in financial intermediation and should be regarded as a resident artificial subsidiary.
  • If government assumes economic ownership of the non-financial assets created, it is an indication that the development fund is just a device to borrow and acquire the assets, and the entity should be treated as a resident artificial subsidiary.
  • If these entities meet the definition of an institutional unit and are government controlled market producers of goods or services, they should be classified as a corporation. More specifically, they will be a public financial corporation only if they are involved in providing financial services. They will be public non-financial corporations only if they produce and sell the infrastructure assets at economically significant prices in market transactions.