Government Finance Statistics Manual 2014

304 Government Finance Statistics Manual 2014

• When government buys a loan that has a fair
  value much less than its nominal value, no
  capital transfer for the diff erence in value is re-
  corded as loans are recorded at nominal value
  on the balance sheet. Any diff erence between
  the price paid and the nominal value is recorded
  as a valuation change (see BPM6 paragraph
  9.33). However, if there is reliable information
  that some loans are irrecoverable, their value is
  reduced to zero in the balance sheet (with an
  “other volume change”) and a capital transfer is
  recorded equal to the value paid by the govern-
  ment to the corporation. If some or all of these
  loans subsequently become recoverable, this is
  shown as a revaluation in the government’s bal-
  ance sheet.


• If government extends a guarantee as part of a
  bailout, the guarantees should be recorded ac-
  cording to whether this is a one-off guarantee
  or part of a standardized guarantee scheme (see
  paragraphs 7.254–7.260 for details on the statisti-
  cal treatment of guarantees).
  A3.53 Additional factors should be taken into ac-
  count for borderline cases, such as the following:


• If the capital injection is covering large operat-
  ing defi cits accumulated over two or more years
  or exceptional losses due to factors outside the
  control of the enterprise, the capital injection is,
  by defi nition, a capital transfer.


• If capital injection is made to a quasi-corporation
  that has negative equity (see Box 6.3), the capital
  injection is always a capital transfer.


• If the capital injection is undertaken for spe-
  cifi c purposes relating to public policy in order
  to compensate a bank in fi nancial distress for
  anticipated defaults/bad assets/losses within
  its balance sheet, the capital injection is a capi-
  tal transfer, unless a realistic return can be ex-
  pected, in which instance an equity investment is
  recorded.


• If there are private shareholders providing a
  signifi cant share (in proportion to their exist-
  ing shareholding) of equity during the injec-
  tion, then the capital injection is an equity
  investment since the assumption is that private
  investors would be seeking a return on their
  investment.

Debt of Special Purpose Entities.

A3.54 Special purpose entities (SPEs) are described

in paragraphs 2.136–2.139. For GFS, the appropriate

units and institutional sectorization of the SPE must

be determined. If the SPE is part of the public sector,

its debt should be part of the debt of the public sector

or relevant subsector.

A3.55 As noted in paragraphs 2.41–2.45, govern-

ments may establish public corporations that sell

goods or services exclusively to government, without

tendering for a government contract in competition

with the private sector. Such a public corporation is

called an artifi cial subsidiary and should be classifi ed

as part of the general government sector (its parent

unit). Oft en, such government artifi cial subsidiaries

are set up as SPEs. Th ese units, which are legally cor-

porations, should be classifi ed as part of the general

government sector and their debt liabilities are thus

part of general government debt.

A3.56 A government may conduct fi scal activities

through an entity that is resident abroad. For example,

a government may fund its outlays by issuing securities

abroad through an SPE. Th is SPE is not part of the gen-

eral government sector in either home or host econ-

omy. Such entities are not treated in the same way as

embassies and other territorial enclaves because they

operate under the laws of the host economy. Govern-

ments may be direct investors in these units/entities.

However, special imputations of transactions and stock

positions between the government and the SPE abroad

must be used to ensure that any fi scal operations un-

dertaken through nonresident entities are refl ected in

the transactions and stock positions of the home gov-

ernment concerned.^15 As a result, the government will

show an actual, or imputed, debt to its SPE arising from

any debts the SPE incurs on behalf of the government.

A3.57 When an SPE entity resident in one econ-

omy borrows on behalf of the government of another

economy, and the borrowing is for fi scal purposes, the

statistical treatment in the accounts of that govern-

ment is as follows:

(^15) Th e reason for having a special approach for government enti-
ties is that, unlike in the private sector, the nonresident entity
undertakes functions at the behest of general government for
public policy, not commercial purposes. Without this approach,
a misleading picture of government expenditure and debt could
arise.