72 Government Finance Statistics Manual 2014
Whether to consider the acquisition of a fi nancial asset or assumption of a liability as being for public policy purposes,
for liquidity management, or for other purposes rests largely on an assessment of the particular purpose for acquiring
the instrument.^1
Some fi scal policies that may lead to the ownership of fi nancial claims include fostering new industries, assisting ailing
government corporations, or helping particular businesses that are experiencing economic adversity. For example, a gov-
ernment unit may provide loans at favorable rates to particular economic sectors, acquire shares in a corporation active
in a particular geographical region or in a function that the government wishes to promote, or sell shares in a public
corporation for less than their market value.
Liquidity management, on the other hand, refers to actions taken to ensure the availability of fi nancial assets to fulfi ll
requirements for short-term funds and to ensure that such funds earn the best available rate of return. Prudent fi nan-
cial management requires that government units acquire and dispose of fi nancial assets in the process of their fi nancing
operations. The motive underlying these transactions is the effective management of fi nances.
Other purposes for acquiring fi nancial assets, and perhaps incurring related liabilities, include the need to make a long-
term provision for society, such as acquiring fi nancial assets derived from the sale of natural resource assets to hold in a
special-purpose government fund.
Some factors that should be considered when identifying policy-related fi nancial instruments are as follows:- Nonnegotiable fi nancial assets are usually held for policy-related purposes, as are negotiable fi nancial claims
issued by a lower level of government and held by a higher level of government. - Financial assets issued by a public corporation—for example, shares and other equity, debt securities, or
loans—and held by government are typically held for public policy purposes. - A government statement about the acquisition of a fi nancial asset may indicate that the purpose is
policy-related. - Noncommercial terms favoring the borrower generally indicate a policy-related purpose, such as concessional
interest rates on loans or arrangements for repayment that do not meet normal commercial standards. - Assets acquired as a result of government units acting as guarantors are likely to be policy-related.
- Assets acquired through nationalization are policy-related.
- Holdings of monetary gold, SDRs, currency, and nonlife insurance technical reserves are always
liquidity-related. - Deposits may be acquired for policy or liquidity purposes.
(^1) As explained in paragraph 6.91 and Box 6.3, under some circumstances, “capital or equity injections” are considered to be expense
(i.e., when they do not result in an effective fi nancial claim on the debtor).
Box 4.1 Policy Lending
guarantee schemes; fi nancial derivatives and employee
stock options; and other accounts receivable/payable
(see Table 9.1). Th e second classifi cation is based on
the sector of the counterparty of the transactions in
fi nancial instruments. Th at is, transactions in liabili-
ties are classifi ed according to the sector of the institu-
tional unit conducting the counterpart transaction in
fi nancial assets, such as fi nancial corporations, nonfi -
nancial corporations, households, and nonprofi t insti-
tutions serving households (see Table 9.2).
4.29 Another possible classifi cation of transactions
in fi nancial assets and liabilities is whether they were
acquired or disposed of for the purpose of public pol-
icy or liquidity management. Th is distinction is not
included in the Statement of Operations, but is used
to defi ne the overall fi scal balance, as described in the
annex to Chapter 4, Table 4A.2.
4.30 Public policy-related assets or liabilities (also
called policy lending—see Box 4.1) may be acquired
for a variety of reasons, such as fostering new indus-
tries, assisting ailing government corporations, or
helping particular businesses suff ering economic ad-
versity. Such transactions can take a variety of forms,
including loans, equity securities, and debt securi-
ties. Given that there is oft en a concessional element
to such transactions, it is useful to identify them in a