Through the 1990’s and into the 2000’s a vigorous discussion was conducted among the international statistical community about the appropriate way to record interest – particularly interest on securities such as bonds – in the SNA.  Two general approaches were identified in the discussion, the so-called ‘debtor’ and ‘creditor’ approaches.  At the heart of the issue is the interpretation of paragraphs 7.93  and 7.100 in the 1993 SNA  – what do these paragraphs mean, and is the meaning they convey the ‘correct’ treatment of interest ?

Under the debtor approach, the stream of interest payments is considered to be fixed at the time the security is issued – in other words, the future interest payments, both coupon and in the form of the ‘unwinding’ of any discount, are known with certainty.  It is known as the debtor approach because it views the accrual of interest from the perspective of the issuer of the debt.

Under the creditor approach, which views the accrual of interest from the perspective of the holder of the debt, interest is determined by the current market rate of interest.  As this rate may change from period to period, so may the interest payments.  Importantly, as future interest rates are not known, then future interest payments are also not known.  As a consequence, this approach draws a clear distinction between interest and the contractually agreed cash flows (which are known into the future).

In order to progress discussion, the ISWGNA established an Electronic Discussion Group (EDG) in 1999 to obtain the views of a broad group of users and compilers on how macroeconomic statistics should record the accrual of interest on bonds and other tradable debt securities. The EDG was hosted by the IMF (see www.imf.org/external/np/sta/na/interest/index.htm).  The EDG was closed in September 2002.  The moderator of the EDG provided a report in October 2002.  The conclusion of the moderator was:

“Although participants to the EDG remained strongly divided on how the 1993 SNA should have treated the accrual of interest on debt securities given its overall framework, the moderator is of the opinion that a majority would accept that the present text probably recommends that the amount of interest on debt securities and the time path of its accrual are determined at inception of the instrument.”

The ISWGNA meeting in April 2002 reached a similar conclusion. The meeting also noted that no new economic situation had emerged that would importantly change the arguments used at the time the 1993 SNA was drafted. In view of the importance of the issue, the ISWGNA invited the UN Statistical Commission to approve this "no change" interpretation. Twenty-one out of the 24 members of the Statistical Commission supported the ISWGNA recommendation. Two members disagreed, and one member pointed out that, although it considered the ISWGNA interpretation correct, the creditor approach would be conceptually preferable.

Because the Statistical Commission had recently considered the issue, it was not included on the initial list of issues for consideration for the update of the 1993 SNA.  Some countries suggested it be added, as did the IMF’s Committee on Balance of Payments Statistics.  However, the AEG decided at its meeting in Washington in February 2004 not to add the issue.

Notwithstanding this, there remains a strong view among certain national accountants and balance of payments statisticians that the issue has not been fully dealt with and that further consideration of the issue is warranted.  Furthermore, discussion of certain update issues -- such as the treatment of concessional loans, non-performing loans, interest on index-linked debt securities and interest in arrears -- showed that the debtor/creditor debate has implications beyond the recording of interest on securities.  It is for these reasons that the topic is being placed on the SNA Rev. 1 research agenda.

The IMF EDG mentioned above contains a range of papers relating to the issue, including the moderators report.  The papers linked to the EDG under the ‘reactions of others’ link contains a number of papers in which the proponents of the both approaches argue their position.

A report to the 2004 IMF Committee on Balance of Payments Statistics from the Balance of Payments Technical Expert Group on the topic ‘Interest on Debt Securities’ provides further information on the issue -- see www.imf.org/external/pubs/ft/bop/2004/04-6.pdf.

The ISWGNA report to the 2003 Statistical Commission meeting, which inter alia discusses the issue, can be found at http://unstats.un.org/unsd/statcom/doc03/2003-9e.pdf.