Definition: Withdrawals of equity in kind

National accounts

The case of payments in kind to government is difficult because of the conflicting desire to be consistent with both the treatment of the indirect sale of non-financial assets (treat as F.5) and the desire for symmetry with payments in kind by government to the public corporation (see D.9 below).  Two treatments are relevant:
- when the transfer of assets between public corporations and government is associated with other restructuring and changes in functions and responsibilities, it is appropriate to record the transfers in kind as a change in classification and structures account (K.12), in the other changes in volume of assets account.
-when there is a straightforward transfer of asset, the solution is to record the payment in kind as a withdrawal of equity, with a counterpart in government capital formation, recording both transactions at the market value of the asset.  This increases government net borrowing.  If government were to sell the asset, net borrowing would be reduced, leaving net borrowing unchanged over the whole set of transactions.  The whole set of transactions gives the same result on net borrowing and balance sheet as if the corporation had sold the asset and given the proceeds to government.
Source:
Eurostat, "ESA 95 manual on government deficit and debt, 2002 Edition", Office for Official Publications of the European Communities, Luxembourg, 2002, Chapter II.1
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