Statement of Other Economic Flows

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There are two types of flows within the government finance statistics framework—transactions and other economic flows. The statement of operations concerns itself with the recording of transactions within the government finance statistics framework. The net or gross operating balance shows the change these transactions have on the net worth of the government. The statement of other economic flows represents those flows that change the government’s net worth but are not transactions.

There are two types of other economic flows recorded in the government finance statistics framework:

• holding gains or losses
• other changes in the volume of assets or liabilities

Holding gains or losses reflect changes in the value of an asset (financial or non-financial) or liability due to a change in its price or market value. For example, if a government entity owns property which appreciates in value over time, the appreciation in its price would be recorded as a holding gain. Similarly, if a government holds foreign currency deposits and the foreign currency appreciates relative to the domestic currency, this appreciation would be recorded as a holding gain on foreign currency holdings in the statement of other economic flows. If a government unit holds shares in a publicly traded company, any increase in the value of the shares (as determined by the market) would be treated as a holding gain while any decline in the value of the shares would be treated as a holding loss.

Other changes in the volume of assets represent changes in the value of an asset that are not due to transactions or holding gains or losses. The government finance statistics categorizes the other changes in the volume of assets into three broad categories:

• recognition and derecognition of economic assets
• other changes in the quantity or quality of economic assets
• changes in classification

The recognition and derecognition of economic assets represent assets that come into existence or exit from the asset boundary because circumstances change, such that the asset has economic use or no longer has economic use. Other changes in the quantity or quality of existing economic assets arise when events that impact the volume of the asset occur. The following examples provide a more intuitive picture of other changes in the volume of assets:

• The recognition of a deposit of subsoil minerals that becomes economically viable due to technological progress or a change in relative prices.
• Earthquakes or other natural disasters destroy assets and significantly alter their value.
• The quality of financial assets change when a debtor defaults on loan repayments and the creditor writes off the loan (unilateral decision).
• Natural resources can deplete over time and this depletion needs to be reflected on the balance sheet. This is done through the other changes in the volume of assets in the statement of other economic flows.
• The creation of an asset such as the electromagnetic spectrum. Although the electromagnetic spectrum has always existed, it only recently became an asset. Before the advent of cellular communication there was no economic use for electromagnetic spectrum. Once cellular communications came into existence, the electromagnetic spectrum became an asset of the government, which could sell spectrum to telecommunication companies who require it for cellular phone services. The electromagnetic spectrum comes onto the government balance sheet through the other changes in the volume of assets in the statement of other economic flows.
• Governments may choose to seize an asset or unilaterally exert ownership rights over an asset. Since the government is doing this unilaterally this flow would be recorded in the statement of other economic flows rather than the statement of operations.

Finally, the volume of assets may change on the government’s balance sheet due to changes in the way institutional units or assets or liabilities are classified. For example, a government may gradually change the amount of control it exercises over a private corporation. If it increases the control there would come a point where the entity is no longer a private corporation. At such time, the assets and liabilities associated with the corporation would need to be recorded on the government unit’s balance sheet. The other changes in the volume of assets account would be used to record the flows necessary to record this change.

Currently Statistics Canada does not publish a statement of other economic flows for the public sector.