The Government Finance Statistics

Analytic Framework

4

Th is chapter introduces the government fi nance statis-
tics analytic framework^1 and describes the relationships
among its elements and use of government fi nance sta-
tistics in fi scal analysis.

Introduction.

4.1 Government units and public corporations
carry out a multitude of activities. To manage the
internal operations of government and assess their
impact on the economy, these activities—resulting
in transactions and other economic fl ows—must be
organized into a framework within which they can
be summarized and analyzed. For accountability
purposes, these activities may be organized accord-
ing to the government unit that carries them out. For
managerial or planning purposes, these activities may
be organized by the kind of item purchased/sold or
service provided/acquired. For billing or control pur-
poses, these activities may be organized by the par-
ticular transactors with whom the government deals.
Th e GFS framework, on the other hand, is designed to
facilitate fi scal analysis in a broader macroeconomic
context. While there is clearly a close link between ac-
counting data and macroeconomic statistics, they do
not serve the same objectives and may diff er in the
treatment of particular items.^2

4.2 Traditionally, governments have recorded their
activities on a cash basis; this is refl ected in the ana-
lytic framework of the GFSM  1986. Including only
cash revenue and expenditure has the advantage of
focusing the government’s attention on its fi nancing/

(^1) Th e GFS analytic framework refers to the structure of accounts
and their relationships as a body of thought, while the term GFS
framework more generally refers to the framework for the compi-
lation and dissemination of GFS data.
(^2) See Appendix 6 for a detailed description of the linkages
between GFS and international accounting standards, and see
Appendix 7 for linkages between GFS and other macroeconomic
statistics.
liquidity constraint, which has traditionally been
viewed as its most binding priority. However, gov-
ernments have become less liquidity-constrained
in carrying out fi scal policy and have become more
adept at separating the time of a fi scal action from
the time it is paid for, so that cash transactions do
not adequately capture either the timing of activities
or their economic impact. In consequence, there has
been increasing recognition worldwide of the need to
adopt the accrual system of recording, which includes
a cash-fl ow statement for assessing fi scal policy.^3
4.3 Th e GFS analytic framework introduced in the
GFSM  2001, and as updated in this Manual, refl ects
these developments and is presented in the form of
a set of interrelated accrual-based statements. Th ese
statements are harmonized with the 2008  SNA, that
integrate fl ows and stock positions, and are supple-
mented with a cash-fl ow statement. Th e GFS analytic
framework facilitates a more comprehensive assess-
ment of the economic impact of government activity
and the resulting changes on liquidity and the im-
plications for the sustainability of fi scal policy. More
specifi cally, the use of accrual-based statements and
the integration of balance sheets with fl ows are con-
sistent with the need for government behavior to be
determined in the context of its intertemporal bud-
get constraint. For example, a government’s policies
will not be sustainable if they signifi cantly reduce its
net worth. Th e framework also provides an improved
basis for monitoring effi ciency in the allocation and
use of all government resources. Th e analytic frame-
work set out in this Manual encompasses the tradi-
tional cash-based fi scal reporting, to support liquidity
analysis.
(^3) For example, see Study 11, Part III of International Federation of
Accountants, Government Financial Reporting: Accounting Issues
and Practices (New York, 2000), and IFAC Recommendations to
G-20 meeting, New York, 2010 and 2012.