300 Government Finance Statistics Manual 2014
reduction in its fi nancial assets in the form of
currency and deposits).
For the recipient (debtor), gross debt and net
debt decrease (due to the reduction in the debt
liability).- If the paying unit does not obtain an eff ective fi -
nancial claim on the original debtor, the paying
unit records an expense in the form of a capital
transfer—classifi ed according to the nature of
the recipient—and a decrease in fi nancial assets
in the form of currency and deposits. Th e receiv-
ing unit (debtor) records a revenue in the form
of a capital transfer—classifi ed according to the
nature of the paying unit—and a decrease in the
original debt liability.
Other Debt-Related Issues.
Debt Write-Off s and Write-Downs
A3.32 Debt write-off s or write-downs refer to
unilateral reductions by a creditor of the amount owed
to it. Th is usually occurs when a creditor concludes
that a debt obligation has no value or a reduced value
because part or all of the debt is not going to be repaid
(frequently because the debtor is insolvent). For ex-
ample, a public corporation that borrowed from the
general government unit may be insolvent. As a re-
sult, the general government unit’s claim loses some,
or all, of its value and is written down or written off on
the balance sheet of the government unit (creditor).^10
In contrast, a unilateral write-off by a debtor, or debt
repudiation, is not recognized in the macroeconomic
statistical systems.
A3.33 Unlike debt forgiveness (see paragraphs
A3.7–A3.9), which is a mutual agreement and, there-
fore, a transaction, a debt write-off or write-down is
a unilateral action and, therefore, recorded as other
changes in the volume of assets. Th e fi nancial asset is
removed from the balance sheet of the creditor and
the corresponding liability should be removed from
the balance sheet of the debtor, also through other
changes in the volume of assets, to maintain consis-
tency in the macroeconomic statistics.^11(^10) If a bankruptcy still allows some of the debt to be settled, it is
possible that the creditor writes off only a part of the claim.
(^11) Provisions by the creditor for bad debts or expected losses
(sometimes referred to as “write-down”) are not recorded in
macroeconomic statistics.
A3.34 Although no transactions are recorded for a
debt write-off or write-down under the cash basis of
recording, the stock positions relating to these opera-
tions would be reduced, refl ecting the debt write-off
or write-down.
New Money Facilities
A3.35 In some arrangements that assist the debtor
to overcome temporary fi nancing diffi culties, new
money facilities are agreed with the creditor to repay
maturing debt obligations. Th e two debt instruments
involved—the maturing debt obligation and the new
money facility—are treated separately.
A3.36 Th e creditor records a reduction in the
original claim on the debtor and an increase in a new
claim on the debtor. Similarly, the debtor records a re-
duction in the original liability to the creditor and an
increase in a new liability to the creditor. If the terms
of the new borrowings are concessional, the creditor
could be seen as providing a transfer to the debtor.
(Debt concessionality is discussed in paragraphs
A3.39–A3.41.)Debt Defeasance
A3.37 With defeasance, a debtor unit removes li-
abilities from its balance sheet by pairing them with
fi nancial assets, the income and value of which are
suffi cient to ensure that all debt-service payments are
met. Defeasance may be carried out by placing the
assets and liabilities in a separate account within the
institutional unit concerned or by transferring them
to another unit. In either case, the macroeconomic
statistical systems do not recognize defeasance as af-
fecting the outstanding debt of the debtor. Th us, no
transactions with respect to defeasance are recorded
in the GFS framework, as long as there has been no
change in the legal obligations of the debtor. When
the assets and liabilities are transferred to a separate
account within the unit, both assets and liabilities
should be reported on a gross basis. If a separate entity
resident in the same economy is created to hold the
assets and liabilities, that new unit should be treated
as an ancillary entity and consolidated with the de-
feasing unit.
A3.38 Th e sectorization of restructuring agencies
(also referred to as “defeasance structures”) is dis-
cussed in paragraphs 2.129–2.131.