Institutional Sector Accounts Non-Financial and Financial 2013

Introduction

Sector accounts present a coherent overview of all economic processes and the roles played by the various sectors.  Each economic process is described in a separate account.  The accounts describe successively production, generation of income, primary and secondary income distribution, final consumption, redistribution by means of capital transfers, capital formation and financing and end with the financial balance sheets of each sector.  

The accounts record economic transactions, distinguishing between uses and resources, (e.g. the resources side of the transaction category D.41 interest records the amounts of interest receivable by the different sectors of the economy and the uses side shows interest payable) with a special item to balance the two sides of each account.  By passing on the balancing item from one account to the next a connection is created between successive accounts.

These accounts are compiled for the total economy and include accounts for separate domestic sectors and the rest of the world sector.  In this way the sector accounts describe:

• for each economic process the role of each sector, for instance general government in income and redistribution and credit institutions in financing.
• for each sector all economic transactions and their relation with other domestic sectors and the rest of the world.

The successive accounts are explained in more detail below.

Non-financial Accounts:

Current Accounts

1.1 Production Account

The production account shows the transactions that are related to the production process.  The output is recorded as a resource, the intermediate consumption as a use.  The balance of these two items for the individual sectors is B.1g gross value added at basic prices.  The production account of the total economy is the total of the production accounts of the sectors together with the transactions for which there is no sectoral distribution available (taxes and subsidies on products).  The balancing item of the production account for the total economy is B.1*g gross domestic product at market prices.

1.2 Generation of Income Account

This account displays the transactions through which gross domestic product at market prices is distributed to labour (compensation of employees), capital (operating surplus) and government (the balance of taxes and subsidies on production).  The balancing item for the household and NPISH sector in this account is called mixed income because, apart from operating surplus, it also contains compensation for work by self-employed persons and their family members. B.2g/B.3g gross operating surplus / gross mixed income is the balancing item for the entire account.

1.3 Allocation of Primary Income Account

This account records, as resources, the income from direct participation in the production process as well as property income received in exchange for the use of land, financial resources and other intangible assets.  In addition, this account records the taxes on production and imports received by the government.  On the uses side property income paid is recorded as well as the subsidies paid by the government.

On this account the interest paid and received are recorded excluding imputed bank services (Financial Intermediation Services Indirectly Measured - FISIM¹.  In the National Accounts insurance technical reserves are seen as a liability of insurance enterprises and pension funds to policyholders.  Therefore, the receipts from investing these reserves are recorded as payments from insurance enterprises and pension funds to households, under D.44 other investment income.  The balancing item of this account for each sector is B.5g gross national income; the primary income for the total economy is the national income.

1.4 Memorandum - Entrepreneurial Income Account

This memorandum account is included for the financial corporations and non-financial corporations sectors.  In addition to gross operating surplus the account records all the property income transactions involving these two sectors.  B.4g entrepreneurial income presents a more comprehensive measure of corporate profitability.

1.5 Secondary Distribution of Income Account

The secondary distribution of income account shows how primary income is redistributed by means of current taxes on income and wealth, social contributions (including contributions to pension schemes), social benefits (including pension benefits) and other current transfers.  The balancing item of this account is B.6g gross disposable income. For the consuming sectors (households, NPISH and general government) this item is passed on to 1.6 use of disposable income account.  For the other sectors the disposable income is generally equal to saving. This is then passed on to the capital account.

1.6 Use of Disposable Income Account

This account shows the element of disposable income that is spent on final consumption and also the element which is saved. As mentioned above, final consumption only exists for households, NPISH and general government.  The net equity of households in pension funds is seen as a financial asset that belongs to households.  Changes in pension entitlements need to be included in the saving of households.  However, contributions to pension schemes and pension benefits have already been recorded on 1.5 secondary distribution of income account (as social contributions and social benefits).  Therefore, an adjustment is needed to include in the saving of households the change in pension funds reserves on which they have a definite claim.  This adjustment is called ‘adjustment for the change in pension entitlements’.  There is no need for a similar adjustment concerning life insurance because life insurance premiums and benefits are not recorded as current transactions.  The balancing item is B.8g gross saving.

1.7 External Account

This account records the summarised transactions of S.2 the rest of the world sector, including, on the uses side, exports of goods and services, primary incomes and current transfers receivable.  The resources side of this account includes imports of goods and services together with primary incomes and transfers payable.  The balancing item is B.12 current external balance which records the net position with the rest of the world.

Capital Accounts

1.8 Change in Net Worth due to Saving and Capital Transfers

On this account the capital transfers are recorded and combined with gross saving and the current external balance.  The resulting balancing item is B.10.1 changes in net worth due to saving and capital transfers.

1.9 Acquisition of Non-financial Assets Account

On this account gross fixed capital formation, changes in inventories, acquisitions less disposals of valuables and non-produced non-financial assets are recorded among the uses.  The decline in the value of fixed capital goods caused by consumption of fixed capital goods is recorded among the resources.  The balancing item is B.9 net lending (+) or borrowing (-).  It shows the amount a sector can lend / invest or has to borrow as a result of its current and capital transactions.  It is consistent with the current and capital account balance in the Balance of International Payments.

Financial Accounts:

Table 2 Financial Transactions Account (non-consolidated)

The financial transactions account of a sector provides a detailed review of the change in the financial relations with other sectors of the economy and with the rest of the world. It is therefore a logical extension of the current and capital transactions in the non-financial accounts. This account shows the transactions in assets and liabilities of each sector broken down by type of financial instrument.  In the context of the preceding non-financial accounts, the amount a sector can either lend/invest or has to borrow (see balancing item B.9 in 1.9) can be tracked in the financial transactions account.  For example, a sector which has a negative B.9 is a net borrower and such borrowings may be financed by reducing financial assets or increasing liabilities, or by some combination of both.  Similarly, a sector with a positive B.9, a net lender, may decide to increase financial assets or reduce liabilities, or some combination of both.

The B.9F is the difference between a sector’s transactions in financial assets and liabilities.  This is conceptually equivalent to the B.9 shown in the capital account but, due to the statistical discrepancy, referred to as the ‘net errors and omissions’ in the Balance of Payments statistics, these indicators will differ for certain sectors.

Table 3 Financial Balance Sheet (non-consolidated)

This account shows the stock at the end of each year of the financial assets and liabilities of the sector.  A change in balance sheet position from year to year can be explained in part by the net transactions during that year.  In addition, valuation changes, exchange rate changes and reclassifications can impact on the balance sheet position.  Note however that estimates are not available of the stock of non-financial assets (property, equipment, valuables, intangible non-financial assets) and it is not therefore possible to estimate the net worth of each sector or of the total economy.

Table 4 Financial Transactions Account (consolidated)

The consolidated financial transactions for each sector appear in Table 4. Consolidation refers to the elimination of transactions which occur between units within the same sector of the economy.

Table 5 Financial Balance Sheet (consolidated)

Table 5 shows the consolidated balance sheet positions for each sector. The end of year stock of financial assets and liabilities is shown excluding stock positions which exist between units within the same sector. This view of the accounts can be very useful when analysing financial instruments such as loan liabilities since the consolidated view removes inter-sectoral balances.