Part C - Economic stock positions
An economic stock position is defined as the total holdings of assets and / or liabilities at a certain point in time. Paragraph 3.36 of the IMF GFSM 2014 indicates that stock positions are recorded in the GFS balance sheet at the beginning of an accounting period and again at the end of an accounting period, and are connected by the economic flows which occur during the accounting period. All changes in the position of stocks are explained by transactions and other economic flows which take place during an accounting period.
In order to measure stock positions, it is necessary to define the asset boundary for GFS purposes. In GFS, the boundary for assets is limited to economic assets from which economic benefits accrue to the owners. These economic assets are further split into financial assets and non-financial assets. In GFS, all liabilities are financial in nature and so this further distinction is not necessary.
Assets and liabilities
An asset is defined in paragraph 3.42 of the IMF GFSM 2014 as a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the resource over a period of time. It is a means of carrying forward value from one accounting period to another. Paragraph 3.43 of the IMF GFSM 2014 specifies that only economic assets are recorded in the GFS system and they appear in the balance sheet of the unit that is the economic owner of the asset. Personal attributes such as reputation or skill, which are sometimes described as an asset, are not recognised as such in GFS.
An economic asset is defined in paragraph 3.43 of the IMF GFSM 2014 as resources over which ownership rights are enforced and from which economic benefits may flow to the owners. The economic benefits derived from the ownership of an economic asset consist of primary income derived from the right to use, rent out, or otherwise generate income, and / or any holding gains that are realised by disposing of the asset. Paragraph 3.36 of the IMF GFSM 2014 lists the economic benefits that may be derived from an asset as including the:
- ability to use assets, such as buildings or machinery, in production;
- generation of services, for example, renting out produced assets to another entity;
- generation of property income (e.g., interest and dividends received by the owners of financial assets); and
- potential to sell and thus realise holding gains.
Ownership of assets
There are two types of ownership recognised in GFS, legal ownership and economic ownership.
The legal owner of resources such as goods and services, natural resources, assets, and liabilities is defined in paragraph 3.38 of the IMF GFSM 2014 as the institutional unit entitled by law and sustainable under the law to claim the benefits associated with the resource. Sometimes the government may claim legal ownership of a resource on behalf of the community at large. To be recognised in the GFS framework, a resource must have a legal owner, either on an individual or collective basis.
The economic owner of resources such as goods and services, natural resources, assets, and liabilities is defined in paragraph 3.39 of the IMF GFSM 2014 as the institutional unit entitled to claim the benefits associated with the use of these resources by virtue of accepting the associated risks. In most cases, the economic owner and the legal owner of a resource are the same. Where they are not, it is understood that the legal owner has passed responsibility for the risk involved in using the resource in an economic activity to the economic owner as well as associated benefits. In return, the legal owner accepts another package of risks and benefits from the economic owner. In GFS, when the expression 'ownership' or 'owner' is used and the legal and economic owners are different, the reference should generally be understood to be to the economic owner.
Paragraph 3.40 of the IMF GFSM 2014 states that the government may claim legal ownership of a resource on behalf of the community at large, such as territorial waters. If this is the case, the benefits also accrue to the government on behalf of the community at large. Therefore, the government is both the legal and economic owner of these resources. However, governments may share the benefits with other entities, but by virtue of accepting the majority of the risks, become the economic owner of a resource. For example, in the case of public-private partnerships (see Chapter 13 of this manual for definition); economic ownership can be vested with government when government accepts the majority of the risks.
In GFS, economic assets are recorded in the balance sheet and take the form of financial assets or nonfinancial assets.
Financial assets are defined in paragraph 3.48 of the IMF GFSM 2014 as economic assets which take the form of financial claims on other economic units and gold bullion held by monetary authorities as a reserve asset.
A financial claim is defined in paragraph 3.47 of the IMF GFSM 2014 as an asset that typically entitles the owner of the asset (known as the creditor) to receive funds or other resources from another unit (known as the debtor), under the terms of a liability. Financial claims are unconditional in nature (like liabilities), and provide benefits to the creditor by acting as a store of value, or by generating interest, other property income, or holding gains.
Financial assets differ from non-financial assets in that they generally have a counterpart liability, with the exception of monetary gold in the form of gold bullion held as reserve assets (see Chapter 8 and Chapter 10 of this manual for further discussion on monetary gold). Financial assets are the counterparts of the liabilities on which the claims are held. If one economic unit exchanges a particular set of benefits with another economic unit for future payment, a financial claim (and also a liability) is established in GFS.
Financial assets include currency and deposits, debt securities, loans and placements, insurance, superannuation and standardised guarantee schemes, and other financial assets. Further discussion on financial assets may be found in Chapter 8 and Chapter 10 of this manual.
All other economic assets are described as non-financial assets in GFS. Paragraph 3.50 of the IMF GFSM 2014 states that non-financial assets are further subdivided into non-financial assets that are 'produced' such as buildings, inventories, valuables (e.g. works of art), and non-financial assets that are 'non-produced' such as naturally occurring forests and fish stocks, and mineral reserves.
Further discussion on non-financial assets may be found in Chapter 8 and Chapter 9 of this manual.
A liability is defined in paragraph 3.45 of the IMF GFSM 2014 as being established when one unit (known as the debtor) is obliged, under specific circumstances, to provide funds or other resources to another unit (known as the creditor). In GFS, all liabilities are financial in nature and so they are not identified as financial and non-financial as is the case with assets. Liabilities are the counterparts to financial assets held by claimant economic units. This means that when a liability exists, the creditor has a corresponding financial claim on the debtor.
Paragraph 3.45 of the IMF GFSM 2014 further states that as is the case with commercial accounting, a liability in GFS is commonly created through a legally binding contract specifying the parties involved and the terms and conditions of the payment(s) to be made, and is extinguished when the debtor pays the sum agreed in the contract. In GFS, liabilities can also be imputed to reflect the underlying economic reality of a transaction, such as the creation of a notional loan when an asset is acquired under a financial lease. In GFS, liabilities can also be created by the force of law such as those arising through taxes, penalties, and judicial awards.
As is also the case with commercial accounting, contingent liabilities are recorded in GFS with the exception that these do not appear in the core GFS balance sheet (other than explicit contingent liabilities in the form of financial derivatives and provisions for calls under standardised guarantees), but rather as a memorandum item to the accounts. The reason for this is because the government is not obliged to recognise a liability unless an event occurs which forces them to step in and accept liability.
Contingent liabilities are defined in paragraph 7.251 of the IMF GFSM 2014 as obligations that do not arise unless a particular, discrete event(s) occurs in the future. Common types of contingent liabilities for general government units are guarantees of payment by a third party, such as when the general government unit guarantees the repayment of a loan by another borrower. In this case, the liability is contingent because the guarantor (the general government unit) is only required to repay the loan if the borrower defaults. Therefore for GFS purposes, a contingent liability will not appear in the core accounts of the general government unit unless, and until, the guarantee is called. However, the government needs to keep track of contingent liabilities to ensure it has an adequate reserve of funds prepared in case a guarantee is called. In order to do this, the details of significant contingent liabilities are recorded as a memorandum item to the GFS balance sheet.
Further discussion on contingent liabilities may be found in Chapter 13 of this manual.