Balance Sheet Accounts

The balance sheet represents the value of the stock of assets and liabilities of a government unit and the government’s resulting net worth. Government assets represent those instruments for which governments can exercise ownership rights and from which the government can derive economic benefits. The benefits of an asset can be obtained in one of two ways—the using up of the asset in the production of goods and services or the income (interest, dividends and rents) received by owners of an asset that is lent to another institutional unit. In principle, all assets on the balance sheet should be valued at market price. However, for debt instruments other than debt securities (special drawing rights, currency and deposits, loans, insurance, pensions, standardized guarantee schemes, and other accounts receivable or payable), the lack of generally available market values means that these values are estimated by using their nominal value.

The classification of assets on the government balance sheet follows the same classification of assets as found in the statement of operations and statement of other economic flows. At a high level, assets are classified into one of two categories—non-financial assets and financial assets. Non-financial assets are stores of value which are generally used up in the production of goods and services. Non-financial assets come into existence by means of a production process, are naturally occurring, such as natural resources, or are constructs of society, such as patents and leases. Non-financial assets are subsequently divided into the following categories:

• fixed assets
• inventories
• valuables
• non-produced assets

Within the Canadian System of Macroeconomic Accounts, valuables are not included in the asset boundary and therefore are not recorded on the government finance statistics’ balance sheet.

Financial assets and liabilities are first divided by residency of the counterparty—meaning if the government holds securities of another country it would be classified first as a foreign security, second by sector of the counterparty (corporations, households, etc.) and third by type of instrument. The main instrument categories include:

• monetary gold and special drawing rights
• currency and deposits
• debt securities
• loans
• equity and investment fund shares
• insurance technical reserves
• insurance, pension and standardized guarantee schemes
• other accounts receivable/payable (including financial derivatives).

Furthermore, the liabilities in the government finance statistics are classified based on the original maturity (and by type of debt instrument) as follows:

• short-term, by original maturity (1)
• long-term, by original maturity with payment due in one year or less (2)
• long-term, by original maturity with payment due in more than one year (3)

This information can alternatively be presented on a remaining maturity basis where short-term is defined as (1) + (2) and long-term as (3). Such information permits an assessment of liquidity risk by indicating when public sector debt payments will fall due.

The current presentation of the balance sheet within the Canadian government finance statistics program does not provide a split by residency, sector of the counterparty or maturity. As such, all assets and liabilities represent the stock, regardless of whether the counterparty is a resident or non-resident. At a future date the government finance statistics program will release data by counterparty and maturity (liabilities), increasing the overall analytical capability of the product.

Each financial asset on the balance sheet has a counterpart liability, except monetary gold. The financial asset represents the financial claim one unit has on another unit. Viewed from the debtor—a liability represents the obligation the debtor has to the unit holding the financial claim. Across the entire economy the sum of all financial claims must match the sum of all obligations or liabilities.

The net worth of a given sector represents the difference between the sector's assets (non-financial and financial) and their liabilities. Net worth can also be viewed as stock position resulting from the transactions and other economic flows of all previous periods. While the concept of net worth for a given government sector is important—given that the non-financial assets are not always marketable, a more useful stability indicator is net financial worth, which represents the difference between the sector’s financial assets and their liabilities.