Government Financial Accounts

 Government Finance Account records government's revenues and expenditures. One can ascertain the flow of payment between a govt. and rest of the economy during a given period of time out of this account. In other words, this account shows the activities of govt. likely to affect the rest of the economy.

 Classification of Govt. Transactions: Govt. transactions are summarized into five groups: revenue, grants, expenditure, net lending and financing.

 

§    Revenue includes all non-repayable receipts, requited and unrequited, other than grants from other governments and international institutions. Revenues can be divided into current and capital; the latter includes only receipts from the sale of capital assets. Current revenue embraces all tax revenue and current non-tax revenue. Taxes are compulsory, unrequited, non-repayable contributions exacted for public purposes.  Non-tax revenue includes receipts from property income, fees and charges, non-industrial sales, and the operating surpluses of departmental enterprises.

 

§    Grants   are   defined   as   unrequited,   non-repayable,   non-compulsory   receipts from   other governments or international institutions.

 

 

§    Expenditure  consists  of  all  non-repayable  payments  by  government,  whether  requited  or unrequited  and  whether  for  current  or  capital  purposes.  Only  requited  payments  contribute directly to production, consumption and capital formation, while unrequited expenditures or transfers  redistribute the  effective  demand  among  the  different  sectors  of  the  economy. A distinction between current and capital expenditure is necessary to measure government capital formation and savings.

 §    Net Lending (or lending minus repayments) consists of all transactions in claims upon other sectors that are undertaken for purposes of public policy other than financial management. It consists of loans by government and their repayment as well as purchase and sale of equity.

 §    Financing is equal to the balance of revenue, grants expenditure and net lending. It covers all transactions involving government's holding or currency and deposits, government liabilities, and any financial assets held by the government for the purpose of financial management rather

Than public policy.  Financing is divided into financing obtained from residents and financing obtained from non-residents. It is further classified by type of debt holder (e.g. commercial banks) any by type of debt instrument (e.g. treasury bills).

  Performance of Govt. Financial Account:

 The performances of GFA may be reflected by two measures: Overall Balance and Current Account

Balance.

 

§    Overall Balance is defined as the balance of revenue, grants, expenditure and net lending:

 Overall  Deficit/Surplus  =  (Current  Revenue  +  Capital Revenue  +  Grants)  -  (Current

Expenditure

+ Capital Expenditure + Net Lending)

 

The overall budget balance is often used as a summary measure of the stance of fiscal policy: an overall deficit indicative of an expansionary fiscal policy, while an overall surplus is indicative of a contractionary impact.

 

§    the second concept of balance is current account surplus / deficit, defined as the difference between current revenue and current expenditure. With some qualifications, this concept can be used as a measure of Govt. sector savings.