Part C - Liabilities
Liabilities are defined in paragraph 7.15 of the IMF GFSM 2014 as established when one unit (the debtor) is obliged, under specific circumstances, to provide funds or other resources to another unit (the creditor). Liabilities are the counterparts of financial assets held by the claimant economic units (other than monetary gold in the form of gold bullion held as reserve assets). In the GFS framework, all liabilities are considered to be financial in nature, and no distinction is made between financial and non-financial as it is for assets.
Types of liabilities included on the GFS balance sheet
Only actual (outstanding) liabilities and their corresponding assets are included in the GFS balance sheet. 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. The key difference between contingent liabilities and actual liabilities is that, for a contingent liability, one or more conditions must be fulfilled before a financial transaction is recorded. In GFS, contingent liabilities are not recognised as liabilities prior to their associated condition(s) being fulfilled. However, explicit contingent liabilities provide valuable information regarding potential obligations to provide economic value to another unit, and so these are recorded as memorandum items to the GFS balance sheet. Memorandum items in GFS differ to those of commercial accounting in that they are compulsory in the GFS framework rather than optional as in commercial accounting. Contingent liabilities are further discussed in Chapter 13 Part C and paragraphs A1B.17 to A1B.28 of this manual
Paragraph 7.15 of the IMF GFSM 2014 states that whenever a liability exists, the creditor in the transaction has a corresponding financial claim on the debtor. A financial claim is an asset that typically entitles the owner of the asset (the creditor) to receive funds or other resources from another unit (the debtor), under the terms of a liability. Like liabilities, financial claims are not dependant on any other associated condition(s) being fulfilled. Financial claims consist of debt instruments (including financial derivatives and monetary gold in the form of allocated and unallocated gold accounts), and equity and investment fund shares.
- Debt instruments are financial instruments that are created when one unit provides funds or other resources (for example, goods in the case of trade credit, or funds in the case of a loan) to a second unit and the second unit agrees to provide a return in the future.
- Equity and investment fund shares issued by corporations and similar legal forms of organisation are treated as liabilities of the issuing units even though the holders of the claims do not have a fixed or predetermined monetary claim on the corporation. Equity and investment fund shares entitle their owners to benefits in the form of dividends and other ownership distributions, and they often are held with the expectation of receiving holding gains. In the event that the issuing unit is liquidated, shares and other equities become claims on the residual value of the unit after the claims of all creditors have been met. If a public corporation has formally issued shares or another form of equity, then the shares are a liability of that corporation and an asset of the government or other unit that owns them. If a public corporation has not issued any type of shares, then the existence of other equity is imputed.
- Monetary gold in the form of allocated and unallocated gold accounts is a financial claim and a liability of another unit in the form of currency and deposits. Monetary gold in the form of bullion is not a financial claim, because it is not the liability of any other unit. Monetary gold provides economic benefits by serving as a store of value and a means of international payment to settle financial claims and finance other types of transactions. As a result, monetary gold in the form of bullion is treated as a financial asset only.
Liabilities are further discussed in paragraphs 0 to 8.200 of this manual.