Recording Government Actions Recording Government Actions Taken in Response to the GFSTaken in Response to the GFSOECD National Accounts Working Party Meeting

Paris December Paris December 20102010

Contact: nadim.ahmad@oecd.org

• NAWP 2009• Request for countries to provide information on

measures related to the GFS.

• Unfortunately, little information is readily available on national websites. Eurostat has provided detailed assessment by way of impact on debt/deficits.

• NAWP 2010• Paper categorises transactions and makes

recommendations on SNA treatment

• Delegates asked to consider recommendations (and possibility of survey in non EU countries)

SPEs • Recommendation 1: If they act independently and

carry the risks and rewards associated with the assets and liabilities they hold then they should be treated as publicly-owned financial institutions. If they fail this criterion then they should be treated as part of general government.

• (Paragraph 22.52 of the 2008 SNA)

Quantitative Easing • Recommendation (2): The first step – the appearance

of money – recorded in the other changes in volume of assets account.

• Recommendation (3): The second step is simply a trade in financial assets that should be recorded in the financial account.

Liquidity Support• Domestic Currency: Recommendation (4): Unless

evidence to the contrary, assumed that CB expects to be repaid for loan and no capital transfer takes place.– If a part, or all, of the loan is later forgiven then a capital

transfer should be recorded at that time.– If it is written off as a bad debt it is recorded in the other

changes in the volume of assets account.

• Foreign currency: Recommendation (5): Lower interest rates implies a subsidy from CG to the commercial bank and current transfer from CB to CG. Paragraph 7.126 of the 2008 SNA.

Impaired Financial Asset Purchases

• Recommendation (6): purchases of impaired assets, other than loans, should be recorded at fair value. If a significant difference exist between actual price paid & fair value this should be recorded as a capital transfer.

• (Annex to the paper provides detailed guidance developed by Eurostat to determine fair value)

Impaired Financial Asset Purchases (Loans)

• Recommendation (7) – Purchases of loans are recorded at nominal value unless they become

tradable with an established market value. – Non-performing loans should also be recorded at their fair value as

memorandum items. – If a market for the loans develops and they are regularly traded they

are reclassified as securities, recorded at market value. – If nominal value is much greater than fair value, no capital transfer is

recorded when government purchases the loan. But if loans are irrecoverable, their value is reduced to zero as an other volume change in the balance sheet of the corporation & a capital transfer recorded from government . If there is some possibility that some part of the loan may be recoverable in the future then the loans are reclassified (at their zero value) from the balance sheet of the corporation to government at the time the capital transfer is recorded. Any increases in value are a revaluation item in the government’s balance sheet.

Liability Guarantees• Standardised and one-off guarantees. • Standardised:

– Possible to estimate expected risk of default . Like non-life insurance output, output of the guarantor=fees + fees supplements minus expected value of defaults.

• One-off– Less easy to calculate expected value of defaults. By

convention output=fee charged.

• Recommendation 8 – treat temporary guarantees introduced after the GFC began as

one-off guarantees

Recapitalisation• Recommendation (9): Paper and Eurostat Guidance

recommends that if a government makes a capital injection into a financial corporation that has incurred losses for more than one accounting period the injection should be recorded as a capital transfer. But if some prospects of future returns, the injection should be partitioned into a financial asset acquisition and a capital transfer.

Car scrappage schemesCredit provided to customers via dealers: Recommendation (11.1): The

credit is a subsidy on a product.

Credit direct to purchaser: Recommendation (11.2): The payment is recorded as a current transfer for households (consumption expenditure), and a capital transfer for business/ government.

Credit to purchaser as a tax credit. Recommendation (11.3):If the credit is payable it is recorded as a transfer. If it is non-payable it is recorded as a reduction in the income tax liability of the purchaser.

Credit provided to owners via scrapper without the need to purchase a new vehicle. Recommendation (11.4 ) :Credit is applied by scrapper to increase payment made to the owner of the vehicle & scrapper claims a reimbursement from the government. - recorded as a subsidy on a product

A payment is made directly to owners who scrap a used qualifying vehicle: Recommendation (11.5): If cash is paid directly to owner it is recorded as a transfer. If the payment is via a non-payable tax credit it is recorded as a reduction in the income tax liability of the owner.

QuestionsCountries invited to comment on recommendations: • do countries agree with them, if not what do they

propose?• are there variations of actions that need to be

addressed, if so what do they propose?• are there issues that have not been addressed at all, if

so could they be described?

Are countries willing to participate in a questionnaire?

Provide more information on-line?