CHAPTER

3 Identification of Debt Instruments

and Institutional Sectors

This chapter describes debt instruments and the flows2 of all previous periods. Net financial worth of
classifi­cation of debt according to the institutional sec- an institutional unit (or grouping of units) is the total
tor of the creditors. The terminology of the 2008 SNA value of its financial assets minus the total value of
is followed. its outstanding liabilities.3
3.4  Only economic assets are recorded in the mac­
roeconomic statistical systems. Economic assets are
A. Introduction entities (i) over which economic ownership rights4
are enforced by institutional units, individu­ally or
3.1  Debt is a subset of liabilities in the balance collectively, and (ii) from which economic benefits
sheet. This chapter gives a brief overview of the bal­ may be derived by their owners by holding them or
ance sheet and its components, and shows the relation­ using them over a period of time.
ship between debt and the rest of the balance sheet. It
also discusses the classification of debt instru­ments in
detail. Lastly, this chapter discusses the clas­sification of 1.  Liabilities and financial assets
debt instruments according to the institu­tional sector of
the counterparty to the instrument.
3.5  A liability is established when one unit (the
debtor) is obliged, under specific circumstances, to
provide funds or other resources to another unit (the
creditor). Normally, a liability is established through
B.  Overview of a Balance Sheet a legally binding contract that specifies the terms and
conditions of the payment(s) to be made, and payment
3.2  A balance sheet is a statement of the values of according to the contract is unconditional. As men­
the stocks of assets owned and of the liabilities owed tioned in Chapter 2, paragraph 2.8, liabilities can also
by an institutional unit or group of units, drawn up be created by the force of law, and by events that require
in respect of a particular point in time.1 A balance future transfer payments.
sheet is typically compiled at the end of each account­
ing period, which is also the beginning of the next 3.6  Whenever a liability exists, the creditor has a
accounting period. In macroeconomic statistics bal­ corresponding financial claim on the debtor. A finan­
ance sheets, a distinction is made between non­financial cial claim is an asset that typically entitles the owner
assets, financial assets, liabilities, and net worth. of the asset (the creditor) to receive funds or other
resources from another unit, under the terms of a
3.3  Net worth of an institutional unit (or group­ing liability. Like liabilities, financial claims are uncondi­
of units) is the total value of its assets minus the total
value of its outstanding liabilities and is an indi­cator
of wealth. Net worth can also be viewed as a stock posi­ 2Other economic flows are flows other than transactions. There
are two types of other economic flows: holding gains/losses
tion resulting from the transactions and other economic (re­valuations), and other changes in the volume of assets and lia­
bilities. See Appendix 2 for more details.
3If calculated the other way around, i.e., as the total value of
outstanding liabilities minus the total value of financial assets, the
result may be referred to as net financial liabilities.
1Balance sheets can be compiled for the public sector, the general 4Economic ownership rights entitle the institutional unit to claim
government sector, a subsector of the general govern­ment sector, or the benefits associated with the use of the asset in the course of an
any other public sector unit or grouping of units. economic activity by virtue of accepting the associated risk.

35
PUBLIC SECTOR DEBT STATISTICS: GUIDE FOR COMPILERS AND USERS

tional.5 A financial claim provides benefits to the cred­ govern­ment or other unit that owns them. If a public
itor, such as by acting as a store of value, or by possi­bly corpo­ration has not issued any type of shares, then
generating interest, other property income, or holding the existence of other equity is imputed, reflecting the
gains. Financial claims consist of equity and investment claim of the public sector unit on the residual value of
fund shares, debt instruments, financial derivatives and the public corporation.
employee stock options, and monetary gold in the form
3.11  Only actual liabilities (and assets) are in­cluded
of unallocated gold accounts. Financial assets consist
in the balance sheet7:
of financial claims plus gold bullion held by mon­
etary authorities as a reserve asset. • Contingent assets and liabilities are not recog­
nized as financial assets and liabilities prior to the
3.7  Debt instruments and equity and investment
con­dition(s) being fulfilled.
fund shares are financial instruments that are created
when one unit provides funds or other resources (for • Amounts set aside in business accounting as provi­
example, goods in the case of trade credit) to a second sions to provide for a unit’s future liabilities, either
unit and the second unit agrees to provide a return in the certain or contingent, or for a unit’s future expen­
future. In contrast, financial derivatives are finan­cial ditures, are not recognized in the macroeconomic
instruments of which the underlying contracts in­volve statistical systems.
risk transfer. Thus, rather than supplying funds or other
• No liability is recognized for government prom­
resources, a derivative contract shifts the ex­posure to
ises to pay social security benefits, such as retire­
the effect of a change in the value of an item between
ment pensions and health care, in the future (see
the parties, without a change in ownership of that item.
para­graph 2.80).8
3.8  In many cases, liabilities (and their corres­
• Lines of credit, letters of credit, and loan commit­
ponding financial claims) are explicitly identified by
ments assure funds will be made available in the
formal documents expressing the debtor-creditor rela­
future, but no financial asset (and liability) in the
tionship. In other cases, liabilities are imputed to re­f lect
form of a loan is created until funds are actually
the underlying economic reality of a transaction, such
advanced.
as the creation of a notional loan when an asset is
acquired under a financial lease. Regardless of how a • Uncalled share capital is contingent unless there is
liability is created, it is extinguished when the debtor an obligation to pay the amount.
pays the sum agreed in the contract.6
• Environmental liabilities, which are probable and
3.9  Equity and investment fund shares issued by measureable estimates of future environmental
corporations and similar legal forms of organization cleanup, closure, and disposal costs, are not recog­
are treated as liabilities of the issuing units even though nized.
the holders of the claims do not have a fixed or prede­
3.12  Monetary gold in the form of bullion is not a
termined monetary claim on the corporation. Equity
financial claim, which means that it is not the liability
and investment fund shares do, however, en­title their
of any other unit. Monetary gold does, however, pro­
owners to benefits in the form of dividends and other
vide economic benefits by serving as a store of value
ownership distributions, and they often are held with
and can be used as a means of payment to settle finan­
the expectation of receiving holding gains. In the event
cial claims and finance other types of transactions. As
the issuing unit is liquidated, shares and other equities
a result, monetary gold in the form of bullion is, by
become claims on the residual value of the unit after the
convention, treated as a financial asset. Monetary gold
claims of all creditors have been met.
in the form of unallocated gold accounts is a financial
3.10  If a public corporation has formally issued claim and, therefore, a liability of another unit in the
shares or another form of equity, then the shares form of currency and deposits (see paragraph 3.26).9
are a liability of that corporation and an asset of the
7Also see the discussion of contingent liabilities in Chapter 4,
paragraphs 4.3–4.26.
5In addition, a financial claim may exist that entitles the credi­tor 8However, social security benefits due for payment and not yet
to demand payment from the debtor. However, whereas the payment paid are included in the balance sheet as accounts payable.
by the debtor is unconditional if demanded, the de­mand itself is 9As mentioned in Chapter 2, in principle, the gold bullion ele­
discretionary on the part of the creditor. ment of monetary gold should be excluded from the calculation of
6A liability can be extinguished in other ways, such as can­ net debt. However, in practice, the total amount for monetary gold
cellation by the creditor. may have to be used in the net debt calculation because compilers

36
Chapter 3  ♦  Identification of Debt Instruments and Institutional Sectors

3.13  Nonfinancial assets are economic assets C.  Classification of Debt Instruments
other than financial assets.10 Typically, the follow­
ing main categories of nonfinancial assets exist: pro­ 3.17  Based on the definition of debt, the following
duced assets (such as fixed assets, inventories, and are debt instruments:
valu­ables),11 and nonproduced assets (such as natural • Special drawing rights (SDRs);
re­sources, contracts, leases, and licenses, and goodwill
and marketing assets). Nonfinancial assets are stores of • Currency and deposits;
value and provide benefits either through their use in • Debt securities;
the production of goods and services, or in the form of
property income. • Loans;
• Insurance, pension, and standardized guarantee
schemes; and
2.  Relationship between a balance sheet
and debt • Other accounts payable/receivable.
3.14  Paragraph 2.3 defines debt as all liabilities that 3.18  The classification of debt instruments, like
require payment(s) of interest and/or principal by the the classifications of all financial assets and liabilities,
debtor to the creditor at a date, or dates, in the future. is based primarily on the degree of liquidity and the
In the macroeconomic statistical systems, all liabilities legal characteristics of the instruments that describe the
in the balance sheet are debt, except for equity and un­derlying creditor-debtor relationships. The liquidity
investment fund shares and financial de­rivatives and of a financial instrument embraces characteristics such
employee stock options.12 Contingent liabilities are not as negotiability, transferability, marketability, and con­
debt of the guarantor unless and until a certain set of vertibility.
conditions are fulfilled. Debt liabilities consist of debt
instruments which are dis­cussed, in turn, below. 3.19  In addition to classifying debt instruments by
the characteristics of the financial instrument, they are
3.15  Table 3.1 shows the structure of a balance sheet also classified according to the residence of the other
in the GFS system.13 The debt instruments, and their party to the instrument (the debtors for financial assets
counterparts under financial assets, are under­lined and and the creditors for liabilities). Residence is defined in
in bold font. paragraphs 2.94–2.102.
3.16  Because a given financial instrument gives rise 3.20  The classification of Islamic financial instru­
to a financial asset and a liability, the same de­scriptions ments is discussed in the Monetary and Financial
of instruments can be used for both. For simplicity, Statistics Manual, 2000, Appendix 2, Islamic Bank­
the descriptions in this chapter will refer only to “debt ing, and Handbook on Securities Statistics—Debt
instruments,” unless there is a specific need to refer to Se­curities Issues, Annex 2, Islamic Debt Securities.
financial assets or liabilities.

1.  Special drawing rights (SDRs)

3.21  Special drawing rights (SDRs) are inter­
of public sector debt statistics may not be able to ex­clude the gold national reserve assets created by the International
bullion element. Monetary Fund (IMF) and allocated to its members
10By implication, nonfinancial assets do not represent claims on
other units and, thus, do not have a corresponding liability. For to supplement reserve assets. The Special Drawing
example, commodities may be traded on organized markets similar Rights Department of the IMF allocates SDRs among
to those of traded financial assets, but do not have a cor­responding member countries of the IMF (collectively known as
liability.
11Examples of fixed assets are buildings, machinery and equip­ the participants). The allocation of SDRs is a liability
ment, weapons systems, cultivated biological resources, compu­ter of the member country and interest accrues on this
software, and databases. Examples of inventories are mate­r ials and liability.
supplies, works in progress, and strategic stocks such as grain and
rice. Examples of valuables are precious metals and stones, antiques, 3.22  SDR holdings represent each holder’s uncon­
and other art objects that are held primarily as stores of value.
12Monetary gold in the form of bullion (a reserve asset) is the only ditional right to obtain foreign exchange or other
financial asset with no corresponding liability. Other monetary gold reserve assets from other IMF members. These
as a liability is in the form of currency and depo­sits and, thus, debt. finan­cial assets, on which interest accrues, repre­
13The classifications of financial assets and liabilities by finan­cial
instrument follow the 2008 SNA. sent claims on the participants collectively and not

37
PUBLIC SECTOR DEBT STATISTICS: GUIDE FOR COMPILERS AND USERS

Table 3.1.  A Government Finance Statistics Balance Sheet

Opening Balance Sheet Closing Balance Sheet
Nonfinancial assets  789  845
Financial assets  396  392
Monetary gold and SDRs   80   81
Currency and deposits  150  128
Debt securities    0    6
Loans  115  118
Equity and investment fund shares   12   13
Insurance, pension, and standardized guarantee schemes   20   21
Financial derivatives and employee stock options    0    0
Other accounts receivable   19   25
Liabilities  687  780
SDRs    0    0
Currency and deposits  102  139
Debt securities  212  253
Loans  328  333
Equity and investment fund shares    4    4
Insurance, pension, and standardized guarantee schemes   19   19
Financial derivatives and employee stock options    0    0
Other accounts payable   22   32
Net worth (total assets minus total liabilities)  498   457
Some memorandum items:
Net financial worth (total financial assets minus total liabilities) –291 –388
Gross debt (debt liabilities)  683   776
Net debt  299   397
Items underlined and in bold are debt instruments and corresponding assets in debt instruments.
Notes:
• In this example, total liabilities are 780 in the closing balance sheet. (Gross) debt is 776 in the closing balance sheet, and is equal to total liabilities, excluding
equity and investment fund shares and financial derivatives and employee stock options [780 – 4 – 0].
• Financial net worth is –388 in the closing balance sheet. Net debt is 397 in the closing balance sheet, and is equal to gross debt of 776 minus the cor-
responding financial assets of 379 (392 – 13 – 0).
• The numbers used in this example are taken from the 2008 SNA numerical example for the general government sector.

on the IMF. A participant may sell some or all of 3.24  In addition to SDRs as a type of financial
its SDR holdings to another participant and receive in­strument, SDRs may also be used as a unit of account
other reserve assets, particularly foreign exchange, in which other debt instruments can be expressed.
in return. Participants may also use SDRs to meet
liabilities.
2.  Currency and deposits
3.23  The creation of SDRs (referred to as alloca­ 3.25  Currency consists of notes and coins that are
tions of SDRs) and the extinction of SDRs (cancel­ of fixed nominal values and are issued or autho­
lations of SDRs) are treated as transactions. These rized by the central bank or government. All sectors
transactions, and resulting stock positions, are may hold currency as assets, but normally only central
record­ed at the gross amount of the allocation. SDRs banks and government may issue currency. In some
are transferable among participants and other offi­ countries, commercial banks are able to issue currency
cial holders. Other methodological issues relating to under the authorization of the central bank or govern­
SDRs—such as in which public sector unit’s finan­ ment. Currency constitutes a liability of the issuing
cial accounts to record the SDR holdings and alloca­ units. Unissued currency held by a public sector unit is
tions—are discussed in Chapter 4. not treated as a financial asset of the public sector or

38
Chapter 3  ♦  Identification of Debt Instruments and Institutional Sectors

a liability of the central bank. Gold and commemora­ and principal repayments. Examples of debt securities
tive coins that are not in circulation as legal tender, or are:
as monetary gold, are classified as nonfinancial assets
• Bills;
rather than currency.
3.26  Deposits are all claims, represented by evi­ • Banker’s acceptances;
dence of deposit, on the deposit-taking corporations • Commercial paper;
(including the central bank) and, in some cases,
general government and other institutional units. A • Negotiable certificates of deposit;
deposit is usually a standard contract, open to the public • Bonds and debentures, including bonds that are
at large, that allows the placement of a variable amount convertible into shares;
of money. Public sector units may hold a variety of
deposits as assets, including deposits in foreign curren­ • Loans that have become negotiable from one
cies. It is also possible for a government unit to incur holder to another;
liabilities in the form of deposits. For example, a court
• Nonparticipating preferred stocks or shares;
or tax authority may hold a security deposit pending
resolution of a dispute. Public finan­cial corporations • Asset-backed securities and collateralized debt
(for example the central bank) typi­cally incur liabilities obligations; and
in the form of deposits, including to government units.
It may be useful to further classi­fy deposits accord­ • Similar instruments normally traded in the finan­
ing to whether they are denominated in the domestic cial markets.
currency or a foreign currency. Un­allocated accounts 3.29  Bills are defined as securities (usually short
for precious metals are also deposits, except for unal­ term) that give holders the unconditional rights to
located gold accounts held by monetary authorities receive stated fixed sums on a specified date. Bills are
for reserves purposes, for which the asset holding is issued and usually traded in organized markets at dis­
included in monetary gold, with the counterpart liabil­ counts to face value that depend on the rate of interest
ity being recorded as a deposit (see also paragraph and the time to maturity. Examples of bills are Trea­
3.12).14 Deposits may be transfer­able or nontransfer­ sury bills, negotiable certificates of deposit, bankers’
able. acceptances, promissory notes, and commercial paper.
3.27  Transferable deposits comprise all deposits 3.30  A banker’s acceptance is created when a
that are (i) exchangeable (without penalty or restric­ financial corporation endorses, in return for a fee,
tion) on demand at par, and (ii) directly usable for a draft or bill of exchange and the unconditional
making third-party payments by check, draft, giro promise to pay a specific amount at a specified date.
order, direct debit/credit, or other direct payment Much international trade is financed this way. Bank­
facility. Nontransferable deposits comprise all other ers’ acceptances are classified under the category of
financial claims, other than transferable deposits, debt securities. The banker’s acceptance represents
represented by evidence of deposit.15 an unconditional claim on the part of the holder and
an unconditional liability on the part of the accept­
ing financial corporation; the financial corporation’s
3.  Debt securities
coun­terpart asset is a claim on its customer. Bankers’
3.28  Debt securities are negotiable financial ac­ceptances are treated as financial assets from the
in­struments serving as evidence of a debt. The secu­ time of acceptance, even though funds may not be
rity normally specifies a schedule for interest payments ex­changed until a later stage.
3.31  Bonds and debentures are securities that give
the holders the unconditional right to fixed pay­ments
14See BPM6 paragraphs 5.74–5.77, for a detailed discussion of
monetary gold and gold accounts.
or contractually determined variable payments on a
15 Examples of other deposits are sight deposits that permit specified date or dates. The earning of interest is not
im­mediate cash withdrawals but not direct third-party transfers, dependent on earnings of the debtors.
savings and fixed-term deposits, overnight and very short-term
repurchase agreements that are included in the national mea­sures of 3.32  Zero-coupon bonds are long-term securities
broad money, foreign currency deposits that are block­ed because of
the rationing of foreign exchange as a matter of national policy, and that do not involve periodic payments during the life
the reserve position in the IMF. of the bond. Similar to short-term securities, zero-cou­

39
PUBLIC SECTOR DEBT STATISTICS: GUIDE FOR COMPILERS AND USERS

pon bonds are sold at a discount and a single pay­ment, 3.37  Stripped securities are securities that have
that includes accrued interest, is made at matur­ity. been transformed from a principal amount with cou­
Deep-discount bonds are long-term securities that pon payments into a series of zero-coupon bonds,
require periodic coupon payments during the life of with a range of maturities matching the coupon pay­
the instrument, but the amount is substantially below ment date(s) and the redemption date of the principal
the market rate of interest at issuance. amount(s). The function of stripping is that investor
preferences for particular cash flows can be met in
3.33  Instruments with embedded derivatives are not
ways different from the mix of cash flows of the origi­
classified as financial derivatives. If a primary instru­
nal security. There are two cases of stripped securities:
ment, such as a security or loan, contains an embed­
ded derivative, the instrument is valued and classified • When a third party acquires the original securities
according to its primary characteristics—even though and uses them to back the issue of the stripped
the value of that security or loan may well differ from securities. Then new funds have been raised and
the values of comparable securities and loans because there is a new financial instrument.
of the embedded derivative. Exam­ples are corporate
• When no new funds are raised and the payments
bonds that are convertible into shares of the same cor­
on the original securities are stripped and mar­
poration at the option of the bondholder. If the con­
keted separately by the issuer or through agents
version option is traded sepa­rately, then the option is
(such as strip dealers) acting with the issuer’s con­
treated as a separate instru­ment, classified as a finan­
sent. In this case, there is no new instrument.
cial derivative, and it is not debt.
3.38  Index-linked securities are instruments for
3.34  Loans (see paragraph 3.39) that have become
which either the coupon payments (interest) or the
negotiable from one holder to another are to be
principal or both are linked to another item, such as a
re­classified from loans to debt securities under certain
price index or the price of a commodity. These securi­
circumstances. For such reclassification, there needs to
ties are classified as variable-rate instruments. Issues in
be evidence of secondary market trading, including the
the measurement of interest on index-linked securities
existence of market makers, and frequent quota­tions of
are discussed in the annex to Chapter 2.
the instrument, such as provided by bid-offer spreads.16
3.35  Nonparticipating preferred stocks or shares
are those that pay a fixed income but do not provide 4. Loans
for participation in the distribution of the residual 3.39  A loan is a financial instrument that is cre­
value of an incorporated enterprise on dissolution. ated when a creditor lends funds directly to a debtor
These shares are classified as debt securities. Bonds and receives a nonnegotiable document as evidence
that are convertible into equity should also be clas­ of the asset.17 This category includes overdrafts, mort­
sified in this category prior to the time that they are gage loans, loans to finance trade credit and advances,
converted. repurchase agreements, financial assets and liabilities
3.36  Asset-backed securities and collateralized created by financial leases, and claims on or liabili­
debt obligations are arrangements under which pay­ ties to the IMF in the form of loans. Trade credit and
ments of interest and principal are backed by pay­ ad­vances and similar accounts payable/receivable are
ments on specified assets or income streams. This not loans (see paragraphs 3.64–3.65). Loans that have
process is also described as “securitization” (for more be­come marketable in secondary markets should be
details, see Chapter 4). Asset-backed securities are reclassified under debt securities (see paragraph 3.34).
backed by various types of financial assets, for exam­ However, if only traded occasionally, the loan is not
ple, mortgages and credit card loans, or government’s reclassified under debt securities.
future revenue streams. Some future revenues are not 3.40  A financial lease involves imputing a loan.18
recognized as an economic asset in macroeconomic When goods are acquired under a financial lease, the
statistics. lessee is deemed to be the owner, even though legally

16An example is a syndicated loan, which is provided by a group 17A loan is distinguished from a deposit on the basis of the
of lenders and is structured, arranged, and administered by one or re­presentation in the documents that evidence them.
several commercial or investment banks. If parts of a syndicated 18 A financial lease is a contract under which the lessor as legal
loan become widely traded, the loan may meet the requirements to owner of an asset conveys substantially all risks and rewards of
be reclassified as a security. ownership of the asset to the lessee.

40
Chapter 3  ♦  Identification of Debt Instruments and Institutional Sectors

the leased good remains the property of the lessor. This 3.44  An off-market swap is a swap21 which has a
is because the risks and rewards of ownership have nonzero value at inception as a result of having refer­
been, de facto, transferred to the lessee. This change ence rates priced different from current market val­
in ownership is deemed to have been financed by an ues (i.e., “off-the-market”). Such a swap results in a
imputed loan, which is an asset of the lessor and a lump-sum being paid, usually at inception, by one par­
liability of the lessee. ty to the other. The economic nature of an off-market
swap is equivalent to a combination of borrowing (i.e.,
3.41  A securities repurchase agreement (repo) is
the lump sum), in the form of a loan, and an on-market
an arrangement involving the sale of securities for
swap (financial derivative). The loan compo­nent of an
cash, at a specified price, with a commitment to repur­
off-market swap is debt and, if a public sector unit
chase the same or similar securities at a fixed price
receives the lump-sum payment, this loan will be part
either on a specified future date (often one or a few
of public sector debt. For more details, see Chapter 4,
days hence) or with an open maturity.19 The eco­nomic
paragraphs 4.127–4.131.
nature of the transaction is that of a collateral­ized loan
(or a deposit20) because the risks and re­wards of own­
ership of the securities remain with the original owner 5.  Insurance, pension, and standardized
(security provider). Thus, the funds advanced by the guarantee schemes
security taker (cash provider) to the security provider
(cash taker) are treated as a loan and the underlying 3.45  Insurance, pension, and standardized guar­
securities remain on the balance sheet of the security antee schemes comprise:
provider, despite the legal change in ownership. • Nonlife insurance technical reserves;
3.42  Securities lending is an arrangement where­by • Life insurance and annuities entitlements;
a security holder transfers securities to another party
(security taker), subject to the stipulation that the • Pension entitlements;
same or similar securities be returned on a speci­fied • Claims of pension funds on pension manager; and
date or on demand. As with a securities repur­chase
agreement, the risks and rewards of ownership remain • Provisions for calls under standardized guarantee
with the original owner. If the security taker provides schemes.
cash as collateral, then the arrangement is a repo (see 3.46  These reserves, entitlements, and provisions
paragraph 3.41). If the security taker pro­vides noncash represent liabilities of a public sector unit as the insur­er,
collateral, then no transaction is record­ed. In either pension fund, or issuer of standardized guarantees,
case, the securities involved remain on the balance and a corresponding asset of the policyholder or bene­
sheet of the original owner. ficiaries. It is usually public financial corporations that
3.43  A gold swap involves an exchange of gold for engage in insurance schemes. General government
foreign exchange deposits with an agreement that the units may incur liabilities for these reserves, entitle­
transaction be reversed at an agreed future date at an ments, and provisions and operators of nonlife insur­
agreed gold price. The gold taker (cash provider) usu­ ance schemes, nonautonomous or unfunded pension
ally will not record the gold on its bal­ance sheet, while schemes, and standardized guarantee schemes.22
the gold provider (cash taker) usual­ly will not remove 3.47  The following paragraphs briefly define the
the gold from its balance sheet. In this manner, the types of reserves, entitlements, and provisions applic­
transaction is analogous to a repur­chase agreement and able to insurance, pension, and standardized guarantee
should be recorded as a collate­ralized loan or deposit. schemes. These issues are discussed in detail in 2008
Gold swaps are similar to securities repurchase agree­ SNA Chapter 17 and their valuation is discussed in
ments except that the col­lateral is gold. Gold loans Chapter 2, paragraphs 2.135–2.138, of this Guide.
occur in the same form as securities lending and should
be treated in the same way.

19An open maturity exists when both parties agree daily to re­new 21 A swap contract involves the counterparties exchanging, in
or terminate the agreement. accordance with prearranged terms, cash flows based on the ref­
20Repurchase agreements that are included in the national defi­ erence prices of the underlying items.
nition of broad money should be classified as nontransferable depos­ 22It is unlikely that a general government unit would incur lia­
its. All other securities repurchase agreements should be classified bilities with respect to life insurance and annuities, unless it provides
under loans. such schemes to its employees.

41
PUBLIC SECTOR DEBT STATISTICS: GUIDE FOR COMPILERS AND USERS

a.  Nonlife insurance technical reserves c.  Pension entitlements

3.48  Nonlife insurance technical reserves consist 3.53  Pension entitlements are financial claims
of (i) prepayments of net nonlife insurance pre­miums that existing and future pensioners hold against either
and (ii) reserves to meet outstanding nonlife insur­ their employer, or a fund designated by the employer,
ance claims. In other words, nonlife insurance techni­ to pay pensions earned as part of a com­pensation
cal reserves consist of premiums paid but not yet earned agreement between the employer and em­ployee. The
(called unearned premiums) and claims in­curred but nature of these claims, and the corres­ponding liabilities
not yet settled.23 of the units operating the pension funds, depends on the
type of benefits promised.
3.49  Premiums are usually paid at the beginning of
the period covered by the policy. On an accrual basis, 3.54  The two main types of pension schemes are
the premiums are earned through the policy period, defined-benefit schemes and defined-contribution
so that the initial payment involves a prepayment or schemes.24 In a defined-benefit scheme, the level of
ad­vance. It also includes reserves for unexpired risks. pension benefits promised by the employer to partici­
pating employees and other family members is guar­
3.50  Reserves against outstanding insurance claims
anteed and usually is determined by a formula based on
are amounts identified by insurance corporations to
participants’ length of service and salary. In a defined-
cover what they expect to pay out arising from events
contribution scheme, the level of contribu­tions to the
that have occurred but for which the claims are not yet
fund by the employer is guaranteed, but the benefits
settled. Other reserves, such as equalization reserves,
that will be paid depend on the assets of the fund.
may be identified by insurers. However, these are
re­cognized as liabilities (and corresponding assets) 3.55  A pension fund for public sector employees
only when there is an event that gives rise to a liability. can be managed on behalf of the public sector unit
Otherwise, equalization reserves are internal account­ by a public or private insurance corporation, or it can
ing entries by the insurer that represent saving to cover be organized and managed by the public sector unit
irregularly occurring catastrophes, and thus do not as an autonomous or nonautonomous pension fund.
re­present any existing corresponding claims for policy­ A pen­sion scheme operated by an insurance corpora­
holders. tion or as an autonomous pension fund can have a net
worth, positive or negative, if the assets of the fund
exceed or fall short of the fund’s liability for the retire­
b.  Life insurance and annuities entitlements ment benefits. As with other public corporations, this
3.51  Life insurance and annuities entitlements net worth is owned by the employer or employers that
are financial claims policyholders have against an established the fund. A nonautonomous pension fund
enterprise offering life insurance or providing annu­ is not a separate unit and the assets of the fund belong
ities. to the employer. The employees, however, have a claim
against the employer who operates the nonauto­nomous
3.52  This category consists of reserves of life fund, and the employer has a liability equal to the pres­
in­surance companies and annuity providers for prepaid ent value of the promised benefits.
premiums and accrued liabilities to life insurance poli­
cyholders and beneficiaries of annuities. Life insur­ance 3.56  In addition to liabilities of pension funds, lia­
and annuity entitlements are used to provide benefits to bilities of unfunded pension schemes are included in
policyholders upon the expiry of the policy, or to com­ this category. By its nature, an unfunded scheme must
pensate beneficiaries upon the death of poli­cyholders, be organized and managed by the employer, which may
and thus are kept separate from share­holders’ funds. be a general government unit or a public corpo­ration.
These entitlements are regarded as lia­bilities of the 3.57  With respect to social security schemes,25 no
insurance companies and assets of the policyholders liability is recognized in the macroeconomic statisti­
and beneficiaries. Annuities entitle­ments are the actu­ cal systems for government promises to pay retirement
arial calculation of the present value of the obligations pensions and other benefits in the future, regardless
to pay future income until the death of the beneficiaries.

24Defined-contribution schemes are also referred to as “money-

23This includes cases where the amount is in dispute or the event purchase schemes.”
leading to the claim has occurred but has not yet been reported 25Social security schemes are defined in Chapter 2, paragraphs
(called claims outstanding). 2.44–2.45.

42
Chapter 3  ♦  Identification of Debt Instruments and Institutional Sectors

of the level of assets in a social security fund or other responsibility for any deficit, or claims on any excess,
segregated accounts.26 Liabilities for the payment of rest with the pension manager, the claim of the pen­
benefits that were due to be paid but have not yet been sion fund on the pension manager is shown under this
paid are classified as other accounts payable. If a social heading. (If the pension fund makes more invest­ment
security fund also acts as a pension scheme (as is income from the pension entitlements it holds than is
sometimes the case for benefits for present and for­mer necessary to cover the increase in entitlements and the
government employees), those pension obliga­tions are difference is payable to the pension manager of the
included under pension entitlements, but not the pen­ scheme, then the pension manager has a claim on the
sion fund’s social security obligations. pension fund.)
3.58  As well as pensions, some schemes may have
other related liabilities, such as for health benefits, e.  Provisions for calls under standardized
which are included under entitlements to nonpension guarantee schemes
benefits. In addition to its pension entitlement liabili­
ties to its beneficiaries, a pension fund may sometimes 3.62  Standardized guarantees are those kinds of
have a claim on the employer, other sponsor, or some guarantees that are issued in large numbers, usu­
other party such as an administrator of the scheme. On ally for fairly small amounts, along identical lines.27
the other hand, the sponsor or some other party may There are three parties involved in these arrange­
have a claim on a surplus of the fund. Such claims ments: the borrower (debtor), the lender (creditor),
are classified as claims of pension funds on sponsors and the guarantor. Either the borrower or lender may
under insurance, pension, and standardized guarantee contract with the guarantor to repay the lender if the
schemes. borrower defaults. Examples are export credit guaran­
tees, de­posit guarantees, and student loan guarantees.
3.59  There are assumptions and different methods Al­though it is not possible to establish the probability
in the measurement of pension fund entitlements, so the of any one loan defaulting, it is standard practice to
nature of coverage and estimation should be stated in esti­mate the default rate28 of a batch of similar loans.
metadata accompanying the debt statistics. If the guarantor is working along purely commercial
lines, the expectation would be for all fees to be paid,
plus the property income earned on the fees and any
d.  Claims of pension funds on pension manager reserves, to cover the defaults on outstanding con­
3.60  An employer may contract with a third party tracts along with the costs and leave a profit. This
to administer the pension funds for their employees. is exactly the same paradigm as operates for nonlife
If the employer continues to determine the terms of insurance and a similar treatment is adopted for these
the pension schemes and retains the responsibility for “standar­d ized guarantees.” This involves including
any deficit in funding as well as the right to retain any transac­tions and balance sheet items parallel to those
excess funding, the employer is described as the pen­ for non­life insurance.
sion manager and the unit working under the direction 3.63  Standardized guarantees may be provided by
of the pension manager is described as the pension a financial institution including, but not confined to,
administrator. If the agreement between the employer insurance corporations. They may also be provided
and the third party is such that the employer passes the by government units. It is possible (but unlikely) that
risks and responsibilities for any deficit in funding to nonfinancial corporations provide these kinds of guar­
the third party in return for the right of the third party antees. When a unit offers standardized loan guaran­
to retain any excess, the third party becomes the pen­ tees, it accepts fees and incurs liabilities to meet the call
sion manager as well as the administrator. on the guarantee.
3.61  When the pension manager is a unit differ­
ent from the administrator, with the consequences that

27In contrast, one-off guarantees are individual, and guarantors

26The GFSM includes obligations for social security benefits as cannot reliably estimate the risk of calls. As a result, in most cases,
a memorandum item in the balance sheet. The present value of the one-off guarantees are not considered debt of the guaran­tor (unless
social security benefits that have already been earned according to and until such guarantees are called). See Chapter 4, paragraphs
the existing laws and regulations but are payable in the future should 4.15–4.16.
be calculated in a manner similar to the liabilities of an employer 28This default rate establishes the debt liability arising from stan­
pension scheme. dardized guarantees.

43
PUBLIC SECTOR DEBT STATISTICS: GUIDE FOR COMPILERS AND USERS

6.  Other accounts payable/receivable of debt instruments used. Debtor-creditor relationships

between subsectors are key for proper consolidation
3.64  Other accounts payable/receivable consist of
of public sector debt statistics. A classification of debt
trade credits and advances and miscellaneous other
according to whether the coun­terparty is a public or
items due to be paid or received. Trade credit and
private nonfinancial or financial corporation, respec­
advances (supplier’s credit) include (1) trade credit
tively, will be necessary to compile accurate consoli­
extended directly to purchasers of goods and services
dated public sector debt statistics.
and (2) advances for work that is in progress or to be
undertaken, such as progress payments made during 3.68  For debt instruments that are claims of resi­dent
construction in advance for work being done, or for institutional units, the second party to the instru­ments
prepayments of goods and services. Such credit arises can be classified to the following institutional sectors:
both from nor­mal delays in receiving payment and from
• General government;
deliberate extensions of vendor credit to finance sales.
Trade credit extended by the seller of goods and ser­ • Central bank;
vices does not include loans, debt securities, or other
• Deposit-taking corporations except the central
lia­bilities that are provided by third parties to finance
bank;
trade. If a government unit issues a promissory note or
other security to consolidate the payment due on sev­ • Public deposit-taking corporations except the
eral trade credits, then the note or security is classified central bank
as a debt security.
• Private deposit-taking corporations except the
3.65  Miscellaneous other accounts payable/receiv­ central bank
able include accrued but unpaid taxes, dividends, pur­
• Other financial corporations30 ;
chases and sales of securities, rent, wages and salaries,
social contributions, social benefits, and simi­lar items. • Other public financial corporations
It also includes payments that have not yet accrued,
• Other private financial corporations
such as prepayments of taxes. In principle, accrued but
unpaid interest should be added to the principal of the • Nonfinancial corporations;
underlying asset rather than included in this category.
• Public nonfinancial corporations
Taxes receivable and/or wages pay­able should be sepa­
rately indicated if the amounts are substantial. • Private nonfinancial corporations
3.66  By definition, accounts payable/receivable are • Households and nonprofit institutions serving
accrual concepts and do not exist in an accounting sys­ households.
tem that uses a pure cash basis of recording.
3.69  For debt instruments that are claims by non­
residents, the second party to the instruments can be:

D.  Classification of the Counterparty • General government;

by Institutional Sector • Central banks;
3.67  The preceding section discussed the classifi­ • International organizations;
cations of debt instruments based on the characteris­tics
• Financial corporations not elsewhere classified; or
of the instrument underlying the claim. For a fuller
understanding of general government or public sector • Other nonresidents.
debt, the counterparties to these financial re­lationships
3.70  The definitions of institutional sectors are pro­
(i.e., the holders) are also relevant.29 An analysis of
vided in Chapter 2 of this Guide, and are discussed
the economic sectors providing the finan­cing (i.e., the
more extensively in Chapter 2 of the GFSM and Chap­
sources of funding) for general govern­ment or public
ter 4 of the 2008 SNA. Issues in identification of coun­
sector operations complements an analysis of the type
terparties of traded debt securities are discussed in
Chapter 7 of this Guide.
29Two parties are associated with all debt instruments. As a result,
it is possible to cross-classify the issuers of the debt instruments with
the counterparty creditor. This should be com­piled separately for 30In other words, financial corporations other than deposit-taking
financial assets and liabilities. corporations.

44
Chapter 3  ♦  Identification of Debt Instruments and Institutional Sectors

3.71  Securities repurchase agreements (repos) and of the security does not change. In this situation it is
securities lending are defined in paragraphs 3.41–3.42. important to know how the data source records the
In many economies, high proportions of gov­ernment- ownership—by economic owner or the legal owner—
issued securities are subject to such arrange­ments. In so as to help ensure that the counter­party is correctly
both cases, the legal title is conveyed to another party identified.
under these arrangements, but the eco­nomic ownership

45