The Balance Sheet 209
be payable if market-equivalent interest prevailed. If
such a transfer were recognized, it would usually be
recorded as current transfer/grant (depending on the
type of recipient), and the interest recorded would be
adjusted by the same amount. However, the means of
incorporating the impact of concessional rates within
macroeconomic statistics have not fully evolved, al-
though various alternatives have been advanced.^67
Accordingly, until the treatment is agreed, informa-
tion on concessional debt should be provided through
supplementary information in the form of two mem-
orandum items. Th e fi rst shows the stock of conces-
sional loans at nominal value (6M391). Th e second
shows an estimate of the value of the benefi t trans-
ferred to the borrower—that is, the value of implicit
transfers resulting from loans at concessional interest
rates (6M392), calculated as described in footnote 67.
Arrears (6M5)
7.247 Arrears are defi ned as amounts that are both
unpaid and past the due date for payment. In prin-
ciple, amounts payable for any expense, acquisition of
assets, or related to any liability may be in arrears.^68
For debt liabilities, arrears arise when principal or in-
terest payments are not made when due. For expense
and the acquisition of nonfi nancial assets, amounts
payable may be in arrears from inception. For
example, when amounts payable for compensation of
employees are not made when due, the other accounts
payable for compensation of employees are in arrears.
Also, when a contract stipulates payment on delivery
(^67) Th e one-off benefi t at the point of loan origination can be calcu-
lated as being equal to the diff erence between the nominal value
of the debt and its present value using a relevant market discount
rate. Th is option has the advantage of considering all the possible
sources of transfers in debt concessionality—maturity period,
grace period, and frequency of payments, as well as the interest
rate—and is consistent with nominal valuation of loans. Such an
approach should be used for offi cial lending involving an inten-
tion to convey a benefi t and occurrence in a noncommercial set-
ting (usually government-to-government). For example, in debt
reorganization through the Paris Club, debt reduction in present
value terms is calculated using a market-based discount rate, usu-
ally the OECD’s Commercial Interest Reference Rate (CIRR). Th e
diff erence between the nominal value of the applicable debt and
its present value is the amount of capital transfer derived from the
debt reorganization arrangements. For more details, see the PSDS
Guide, paragraphs 4.83–4.86. For the treatment of concessional
loans to employees, see paragraph 6.17.
(^68) In some cases, arrears arise for operational reasons (such as
minor administrative delays) rather than from a reluctance or
inability to pay. Nonetheless, in principle, such arrears should be
recorded as arrears when outstanding at the reference date.
for goods and services or nonfi nancial assets and such
amounts payable are not settled on delivery, other ac-
counts payable for these goods and services or nonfi -
nancial assets are in arrears from inception.
7.248 When arrears in an existing liability occur,
they should continue to be shown in the same instru-
ment until the liability is extinguished. However, if the
contract provides for a change in the characteristics
of a fi nancial instrument when it goes into arrears,
this change should be recorded as a reclassifi cation
through other changes in the volume of assets and li-
abilities (see paragraphs 3.97, 9.21, and 10.84).
7.249 If under a cash accounting system, arrears
are not recorded separately, compilers will need to
collect supplementary information to estimate ar-
rears. Information on arrears is useful for various
kinds of policy analyses and solvency assessments and
should be shown as a memorandum item in the bal-
ance sheet where signifi cant. Information on arrears
should continue to be collected from their creation—
that is, when payments are not made—until they are
extinguished, such as when debt arrears are repaid, re-
scheduled, or forgiven by the creditor, or when (say)
wages and salaries in arrears are paid.
7.250 Th e nominal value of arrears is equal to the
value of the payments—interest and principal in the
case of liabilities—missed, and any subsequent eco-
nomic fl ows, such as the accrual of additional interest
on a liability in arrears, or the settlement of arrears.
(See also paragraphs 9.22–9.23.)
Explicit Contingent Liabilities (6M6)
Overview
7.251 Contingent liabilities create fi scal risks^69 and
may arise from deliberate public policy or from un-
foreseen events, such as a fi nancial crisis. Contingent
liabilities are obligations that do not arise unless a
particular, discrete event(s) occurs in the future. A key
diff erence between contingent liabilities and liabilities^70
is that one or more conditions must be fulfi lled before(^69) At the most general level, fi scal risks may be defi ned as any
potential diff erences between actual and expected fi scal outcomes
(e.g., fi scal balances and public sector debt). Contingent liabilities
are a specifi c source of potential fi scal risk.
(^70) Liabilities refer to those obligations recognized on a macroeco-
nomic statistics balance sheet in the calculation of an institutional
unit’s net worth. Contingent liabilities are not included on the
balance sheet (i.e., contingent liabilities are not taken into account
in the calculation of a unit’s net worth).