308 Government Finance Statistics Manual 2014
On-Lending of Borrowed Funds
A3.72 On-lending of borrowed funds refers to a
resident institutional unit, A (usually central govern-
ment), borrowing from another institutional unit(s),
B (usually a nonresident unit), and then on-lending
the proceeds from this borrowing to a third institu-
tional unit(s), C (usually state or local governments,
or public corporation (s)), where it is understood that
unit A obtains an eff ective fi nancial claim on unit C.
On-lending of borrowed funds is motivated by several
factors—for example:- Institutional unit A may be able to borrow from
unit B at more favorable terms than unit C could
borrow from unit B - Institutional unit C’s borrowing powers are lim-
ited by factors such as foreign exchange regula-
tions; only unit A can borrow from nonresidents.
A3.73 On-lending results in (at least) two sepa-
rate fi nancial claims. Th ese claims should not be
off set against each other in government fi nance and
public sector debt statistics; institutional unit B has
a debt claim on unit(s) A, and unit(s) A has a debt
claim on unit C, which may be consolidated (see
paragraph A3.76). Depending on the residence of in-
stitutional unit(s) B and C, respectively, these debt li-
abilities (and the corresponding fi nancial claims) are
classifi ed as domestic or external.
A3.74 Th e statistical treatment of the two claims to
be recorded if the resident institutional unit (A), which
on-lends the borrowed funds to unit(s) C, obtains an
eff ective fi nancial claim on unit(s) C, depends on: - Th e residence of the creditor(s) from which unit
A is borrowing (i.e., unit(s) B) - Th e residence of unit(s) C to which unit A is on-
lending the borrowed funds (see Table A3.1).
A3.75 Th e classifi cation of the debt liability of in-
stitutional unit A to unit(s) B depends on the type of
instrument(s) involved: typically, such borrowing is
in the form of loans and/or debt securities. In such
cases, institutional unit A’s debt liabilities in the form
of loans and/or debt securities increase (credit) as a
result of the borrowing from unit(s) B, with a corre-
sponding increase (debit) in unit A’s fi nancial assets in
the form of currency and deposits. Th ese events result
in an increase in the gross debt position of unit A, but
no change in its net debt position.
A3.76 Th e debt liability of institutional unit(s) C
to unit A, as a result of the on-lending of the bor-
rowed funds, is typically in the form of a loan. In
other words, institutional unit C’s debt liabilities in-
crease (credit) as a result of the borrowing from unit
A, with a corresponding increase (debit) in unit C’s
fi nancial assets in the form of currency and deposits.
Institutional unit A’s fi nancial assets (e.g., loans) will
increase (debit) as a result of the on-lending to unit
C and its fi nancial assets in the form of currency
and deposits will decrease (credit). If institutional
unit(s) C is classifi ed to the same sector, subsec-
tor, or group of units as unit A, this debt liability
(and corresponding fi nancial claim) is eliminated in
consolidation.
A3.77 Th e amortization of each of the debt liabili-
ties (and corresponding fi nancial assets) is recorded
in the books of the unit in whose balance sheet the
debt liability appears. Th us, if institutional unit A has
a debt liability to unit B, the amortization of this (usu-
ally external) liability (debit) is recorded in the books
of unit A, even if these borrowed funds were on-lent
to unit C.
A3.78 Similarly, the amortization of institutional
unit C’s (usually domestic) debt liability (debit) to unit
A is recorded in the books of unit C. Unit A would
record a decrease (credit) in its (domestic) fi nancial
claims on unit C. Th e amortization of institutional
unit C’s debt liability to unit A improves unit C’s gross
debt position, while its net debt position remains the
same.Table A3.1 Summary of the Statistical
Treatment of On-Lending of
Borrowed Funds by Institutional
Unit A- Unit A borrows
from unit(s) B
Depending on the residence of
institutional unit(s) B, unit A has
a domestic/external debt liability
to unit(s) B. (Institutional unit(s) B
has a domestic/external fi nancial
claim on unit A.)- Unit A on-lends
to unit(s) C
Depending on the residence of
institutional unit(s) C, unit A has
a domestic/external fi nancial
claim on unit(s) C. (Institutional
unit(s) C has a domestic/ external
liability to unit A.)