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What is the purpose of fiscal accounts?
To provide a systematic summary of revenues, expenditures, and financing of the public sector during a specific time period.
Which of the following accounting rules records transactions when payment is made?
Fiscal accounts are traditionally recorded on an accrual basis.
False
What entities are included in the consolidated public sector?
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The ______ public corporations include publicly owned financial corporations.
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What is one purpose of the IMF Government Finance Statistics Manuals?
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What figures are often presented in fiscal accounts?
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What is included in non-tax revenue?
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What does net borrowing indicate in a government's fiscal balance?
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Crowding out is most likely to occur when financing is sourced from which of the following?
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Which of the following is a possible effect of relying heavily on external debt financing?
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Arrears in government financing can lead to which of the following outcomes?
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What trend has been observed in Vietnam's fiscal situation recently?
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What are fiscal accounts primarily used for?
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Which of the following is included in the definition of central government activities?
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Which segment of the public sector consists of publicly owned financial corporations?
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Which document provides an internationally accepted framework for fiscal accounts?
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Which level of government is not considered part of the central government?
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What type of public sector entities include operations such as social security agencies?
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In terms of fiscal accounts, how is financial data often presented?
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What type of operations do quasi-fiscal activities involve?
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What differentiates the cash basis from the accrual basis in accounting?
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Which fiscal operation is excluded from expenditures according to GFSM 2001 and 2014?
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Which components are included in the definition of general government?
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What is the primary purpose of fiscal accounts?
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What distinguishes financing from expenditures in fiscal operations?
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Which of the following is a characteristic of tax revenue?
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In the context of public sector accounting, what do FPCs and NFPCs signify?
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What does the overall balance (OB) measure?
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Which balance is primarily used to assess government savings?
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What does the primary balance (PB) exclude from its calculation?
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Which of the following balances measures the budget's impact after adjusting for the business cycle?
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How is the government's financing requirement derived from the overall balance?
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What is the relationship between the current account balance (CAB) and the overall balance (OB)?
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Which metric is useful for analyzing public debt sustainability?
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What is the formula for calculating government net worth?
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Study Notes
Fiscal Sector Analysis
- Fiscal Sector Analysis is the study of public sector finances and how they affect the economy.
- The text focuses on the Vietnam fiscal situation.
- Vietnam has seen a decline in fiscal deficits, except during the COVID-19 pandemic.
- Vietnam has also experienced a decline in the revenue-to-GDP ratio.
Fiscal Accounts
- Fiscal accounts provide a systematic summary of government revenues, expenditures, and financing over a specific period.
- The International Monetary Fund (IMF) Government Finance Statistics Manuals (GFSM) provide an internationally accepted framework for fiscal accounts.
- Fiscal accounts data are often reported as a percentage of GDP.
Public Sector Definitions
- Central Government (CG): Includes the central authority, extra-budgetary funds, and autonomous agencies under central control.
- Sub-national Government (SG): Includes decentralized governments at regional, state, and local levels.
- Financial Public Corporations (FPCs): Publicly owned financial institutions, including the Monetary Authority (MA).
- Non-financial Public Corporations (NFPCs): Non-financial publicly owned corporations.
- Quasi-fiscal Operations (QFs): Activities of the MA or other agencies affecting the fiscal balance, like exchange rate guarantees.
- General Government (GG): Comprises CG + SG.
- Public Corporations: Includes FPCs + NFPCs.
- Non-financial Public Sector: Comprises GG + NFPCs.
- Consolidated Public Sector: Includes GG + NFPCs + FPCs.
Accounting Rules
- Cash basis: Transactions are recorded when payment is made.
- Accrual basis: Transactions are recorded when a claim or liability is incurred, regardless of payment timing.
- Gross vs. Net: Revenue and outlays are typically reported on a gross basis; net lending is an exception.
- Fiscal accounts traditionally used a cash basis (GFSM 1986), but newer approaches (GFSM 2001 & 2014) use an accrual basis.
Summary of Fiscal Operations
- Fiscal accounts summarize:
- Revenues
- Expenditures
- Net acquisition of non-financial assets
- Net acquisition of financial assets
- Financing
- Net incurrence of liabilities
- GFSM 2001 and 2014 exclude Net Lending from expenditures and therefore have different balances.
Fiscal Accounts
- These are a systematic summary of revenues, expenditures, and financing of the public sector.
- They are compiled for a specific period of time.
- The IMF's Government Finance Statistics Manuals (GFSM) provide the internationally recognized framework for fiscal accounts.
- Data is commonly displayed as a percentage of GDP.
Fiscal Accounts: Coverage
- Public sector activities are categorized:
- General Government: Central Government and Sub-national Government
- Non-Financial Public Corporations (NFPCs): Non-financial corporations owned by the public
- Financial Public Corporations (FPCs): Publicly owned financial corporations including the Monetary Authority (MA)
- Consolidated Public Sector: Includes all the above categories.
- Quasi-fiscal operations (QFs) can be consolidated within these categories and affect the fiscal balance.
Public Sector Definitions
- Central Government (CG): Includes the central authority of the country, extra-budgetary funds, and autonomous agencies under its control.
- Sub-national Government (SG): Represents activities of decentralized governments across regions, states, and localities.
- Financial Public Corporations (FPCs): Publicly owned financial institutions, including the Monetary Authority.
- Non-financial Public Corporations (NFPCs): Government-owned non-financial corporations.
- Quasi-fiscal Operations (QFs): Activities of the Monetary Authority or other agencies impacting the fiscal balance, such as exchange rate guarantees.
Accounting Rules
- Cash basis: Transactions recorded when payment is received or made.
- Accrual basis: Transactions recorded when a claim or liability is incurred, regardless of payment timing.
- Fiscal accounts are traditionally based on the cash basis, but newer approaches (GFSM 2001 and 2014) utilize the accrual basis to capture the full scope of fiscal activities.
- Gross vs. Net: Most revenue and outlays are presented gross, except Net Lending. Financing is presented on a net basis.
Summary of Fiscal Operations
- Revenues: Receipts including grants.
- Expenditures: All expenses, both current and capital.
- Net Lending/Borrowing: Indicates whether the government is reducing (repaying) or increasing its outstanding debt.
- Net acquisition of non-financial assets: Represents the government’s investment in tangible assets.
- Net acquisition of financial assets: Changes in the government's financial holdings.
- Net Incurrence of liabilities: Change in the government's outstanding debt.
Revenue and Grants
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Revenue: All receipts including grants:
- Tax revenue: Mandatory collections by the government.
- Non-tax revenue: Surpluses from public enterprises, administrative fees, and property income.
- Grants: Receipts from other governments or international organizations.
Expenditure
- Current/Expense: Involves wages, salaries, goods, services, transfers, subsidies, interest payments, and other expenses.
- Capital/Net acquisition of non-financial assets: Investment in land, buildings, and physical capital, used for longer than one year.
- Net lending/borrowing: Measures the government’s overall fiscal balance.
Effects of Different Types of Budget Financing
- Central Bank: Monetization can lead to inflation or balance of payments pressure.
- Commercial banks: Refinancing by the central bank leads to monetization, while non-refinanced commercial bank financing can crowd out private investment.
- Non-bank domestic: Crowding out and higher interest rates.
- External: External debt service obligations and exchange rate risk.
- Foreign exchange reserves: Can lead to an exchange rate crisis if reserves fall too low.
- Arrears: Damages credibility and can raise costs for contractors.
Fiscal Analysis: Indicators
- Fiscal position analysis involves examining both flow and stock indicators.
-
Flow indicators: Assess the fiscal balance over time, considering factors like:
- Overall balance: Takes into account all revenues and expenditures.
- Primary balance: Measures the impact of new fiscal activity excluding interest payments.
- Current balance: Focuses on government savings.
- Cyclically adjusted balance: Examines the budget balance after accounting for the business cycle.
- Structural balance: Reflects the underlying fiscal position.
- Public sector borrowing requirement: Represents the total borrowing needed by the public sector, including state-owned enterprises.
- Stock indicators: Gauge the government's financial position at a specific point in time, focusing on the government net worth and net indebtedness (assets minus liabilities).
Overall Balance (“OB”)
- OB is calculated as: [Total revenue and grants] – [Total expenditure plus net lending].
- OB is closely linked to the current account balance (CAB) of the balance of payments (BOP).
- OB also directly relates to the government's financing needs.
Primary Balance (“PB”)
- PB measures: [Total revenue and grants] – [Total expenditure, excluding interest].
- It focuses on the impact of new fiscal activity on the budget balance, assuming no debt.
- Important for public debt sustainability assessment.
Other Useful Balances
- Current Balance (CB): Measures government savings and can help preserve capital outlays during fiscal consolidation.
- Cyclically Adjusted Budget Balance: Evaluates the budget balance after accounting for the business cycle.
- Public Sector Borrowing Requirement: Indicates the total borrowing required by the public sector, including state-owned enterprises.
- These balances provide a more complex and insightful view of the government's fiscal position.
Revenue Analysis
- Structure: Examines the composition of taxes and other revenue sources.
-
General Performance:
- Revenue/GDP ratio: Measures government revenue as a percentage of GDP.
- Tax/GDP ratio: Gauge the amount of tax revenue collected as a percentage of GDP.
- Buoyancy: Analyses the sensitivity of revenue to changes in economic activity.
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Description
This quiz explores the fiscal sector analysis focusing on Vietnam's public sector finances and their economic implications. It covers key concepts such as fiscal accounts, government revenue and expenditure, and definitions of central and sub-national government. Test your knowledge on Vietnam's fiscal situation and its trends.
