Financial Programming and Policy : The Case of Sri Lanka

John Karlik, Michael Bell, M. Martin, S. Rajcoomar, and Charles Sisson

• Publisher: INTERNATIONAL MONETARY FUND
• eBook ISBN:
  9781557755797
• Year: 1996

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II. The Macroeconomic Accounts and Their Interrelations

1. Introduction

Macroeconomic statistics provide the basic information used to determine a country’s level of economic activity, assess the economy’s performance, and forecast future developments. A reliable set of statistics is thus indispensable to policymakers. Typically, four distinct but closely related statistical systems provide the core of the needed information: the national income and product accounts, the balance of payments, the government finance statistics, and consolidated banking system accounts.¹ For countries where the state owns a considerable number of business operations, it is useful to supplement these data with the accounts of the state enterprises in order to determine the influence these enterprises have on the economy, but comprehensive data are not always available.

The four different systems of macroeconomic accounts are based on the same general concepts and are thus interconnected and internally consistent. The fiscal, monetary, and balance of payments accounts provide details of aggregate economic activity measured by the national income and product accounts. This workshop focuses first on the most important concepts underlying the different sets of accounts and then on the interconnections among the accounts.

2. Common Features of Macroeconomic Accounts

The macroeconomic accounts represent a summary record of economic transactions. An economic transaction takes place when ownership of a real or financial asset is transferred between two economic units or when one economic unit provides a service for another. In most cases, economic transactions involve a quid pro quo: goods and services may be exchanged for financial assets (for example, they may be sold for money) or financial assets may be exchanged for other financial assets (for example, a security may be sold for money). However, in some cases, goods, services, and financial assets may be transferred without an exchange taking place. Such transfers occur when emergency food or medical supplies are provided free to the population of an area hit by a natural disaster. To ensure that such transactions are treated uniformly, they are also treated as having two sides: the value of the goods, services, or financial assets, and an offsetting bookkeeping entry (in the form of an unrequited transfer) on the payment side to indicate that the transaction involves a gift and not a sale.

Box 2.1. Changes in the 1993 SNA

The data in this workshop were compiled on the basis of the standard accounting systems then being used, principally A System of National Accounts (SNA) (United Nations, 1968). This accounting framework has been extensively revised in the System of National Accounts, 1993, to include the following:

• The accounting structure now provides for a more integrated presentation. The 1968 SNA used a dual presentation that measured the production account on the basis of producing units (and industries) and the rest of the system by institutional sectors (such as the private sector and government). The 1993 system measures the production account on the basis of both producing units and institutional sectors. It provides an integrated sequence of accounts, based on institutional sectors, in the form of current accounts, accumulation accounts, and (new in 1993) balance sheets. The 1993 system also records, as far as possible, gross flows rather than net flows, with a view to providing more details of sectoral transactions.
• Although GDP is still an important measure in the 1993 system, more emphasis has been given to the identification of other key economic aggregates and balancing items. For example, more attention has been given to providing details of income flows. Whereas the 1968 system presented a single account focusing on the difference between sources and uses of income, the 1993 system presents a series of income accounts that provide greater insight into the generation, distribution, and use of incomes.
• In keeping with the development of more sophisticated financial instruments and derivatives, the 1993 accounts provide more information on the types of assets and liabilities employed by each institutional sector.
• There has been a concerted effort to ensure that, as far as possible, the SNA and related international statistical standards—for example the IMF’s Balance of Payments Manual (see Box 2.4)—are consistent. Future revisions of the manuals related to monetary statistics and government finance statistics can be expected to aim for maximum consistency with the 1993 SNA.
• The 1993 system specifically recognizes the development of satellite accounts that augment the SNA accounts, such as those that record environmental statistics. For a more complete description of the changes made since the 1968 SNA, reference should be made to Annex I in the 1993 SNA.
• In the future, national authorities are expected to convert their national accounts to conform to the new system of presentation.

The four sets of macroeconomic accounts record the economic activity of all residents of a geographic territory, usually a country. Residents are those economic units (including individuals) that have a closer tie with the country for which the accounts are being prepared than with any other. The distinction between residents and nonresidents is not based on nationality: a resident of one country may be a national of another.²

In the national income accounts, the concept of economic transactions is broadened to include certain transactions within the same economic unit: farmers may produce food for their own consumption, and homeowners occupying their own houses may be the recipients of housing services, for instance. Although no money changes hands and consumer and producer are identical, such transactions must be recorded if the national income aggregates for production and consumption are to be comprehensive and comparable across countries. In their capacity as producers, farmers are thus assumed to have sold their production to themselves in their capacity as consumers, and the implicit rent of owner-occupied dwellings is included in both production and consumption.

If the transactions of an economic agent or a group of agents for a particular period are added together, the resulting quantity measures a flow, i.e., an amount per unit of time. In contrast to a flow, a stock measures an amount existing at a single point in time. The monthly expenditures of a household constitute a flow, while the checking account balance at a particular moment is a stock. Flows are normally classified as either financial or nonfinancial (real). Financial flows involve changes in holdings of financial assets and liabilities, while nonfinancial flows refer to transactions that occur in the process of producing or acquiring goods and services. Taken together, real and financial flows record all the receipts and expenditures of an economic sector (household, enterprise, or government). For any given sector, the balance of nonfinancial transactions is, apart from statistical errors, equal to the change in its financial claims on and liabilities to the other domestic sectors and the rest of the world. For example, if a household spends more than its income in a particular period, the difference must be matched by dissaving or borrowing, drawing resources from other sectors.

With respect to the timing of transactions, in the national income accounts and balance of payments they are recorded when an obligation is incurred (typically, when the legal ownership of an asset changes) rather than when it is settled; transactions defined in this way are said to be on an accrual basis. Government finance statistics, on the other ha...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Preface
• I An Overview of Economic Developments in Sri Lanka
• II. The Macroeconomic Accounts and their Interrelations
• III. Introduction to Financial Programming
• IV. Output, Expenditure, and Prices
• V. Balance of Payments
• VI. Fiscal and Public Sector
• VII. Monetary Sector
• VIII. A Medium-Term Macroeconomic Projection
• IX. An Exercise in Financial Programming: The Program Scenario
• Tables
• Footnotes