Part of “balance sheet approach” – trend to look at
positions to analyze economic problems, not just flows.
Off-balance sheet obligations.
Important for assessing vulnerability (can hide debt).
Examples of Guarantees
Guarantor and Debtor are related entities:
Government and government-owned enterprises.
Companies and their subsidiaries.
Guarantor and Debtor are at arm’s length:
Banker’s acceptances and other guarantees on a fee
Government support for worthy private projects.
Time of recognition
Granting of guarantee?
Activation of guarantee?
After default by guaranteed party.
On the activation of a guarantee, if Debtor still exists, three
Creditor’s liability to Debtor is eliminated.
Guarantor’s liability to Creditor is created.
Debtor’s liability to Guarantor is (usually) created.
More complex than usual transactions, because three
(a) Before activation, guarantees are contingent assets
and therefore outside the system.
(b) No specific guidance on classification of flows on
activation in BPM5 or SNA. However:
• GFSM has injection of equity for continuing
subsidiaries and capital transfer otherwise; and
• ESA95 has injection of equity and capital transfer
cases; also mentions other volume changes when the
original debtor disappears.
• For bank guarantees, from general practice, it
appears that service charge when issued; other
volume changes if not recovered.
External Debt Statistics Guide suggests show expected liabilities
under guarantees as a supplementary item.
AEG didn’t want to change asset boundary to include guarantees in
general as assets, except when they:
Amount to a financial derivative; or
Are standardized guarantees (e.g., on student loans) – considered
to be similar to insurance.
Details still being discussed.
Attempt to have single solution, but evidence suggests different
(some capital transfer, sometimes financial account transaction).
Are guarantees important issues in your country?
How should they be recorded?