Definition: Capital injection

Category: National accounts

Analysts in the media commonly refer to "capital injections" made by the government in a public corporation, when some financial support is provided.  The notion of "capital injection" as such is not defined in the SNA93 and in the ESA95.  In the media, it may cover any payment from government to a public corporation having the characteristics of either a capital transfer or a financial transaction in national accounts.  

For example, it includes transactions that could be described in public accounts as investment grants, capital grants, commutation grants, loans, equity injections, acquisition of share capital or public dividend capital.  Such injections are more often made in cash, but can also be made in kind.  The latter case is subject of a specific CODED-definition ("Capital injections in kind").  

Should the payment from the government (commonly referred to as "capital injection") be recorded in the national accounts as:

 - a financial transaction: it could be, in the most common example, an increase of the government equity, assuming that this payment has an automatic effect on the government's assets (of the same amount)

- a non-financial transaction: the payment would be a capital transfer, assuming that this is an unrequited payment, having no automatic effect on the government equity (of the same amount).

The principle is the following:

 -- when the government, acting for public policy purposes , provides funds to a corporation without receiving financial assets and without expecting property income, the capital injection is to be recorded as a capital transfer;
 -- when the government, acting as a shareholder, provides funds receiving financial assets and expecting dividends in return, the capital injection is to be recorded as a financial transaction in shares and other equity. http://ec.europa.eu/eurostat/ramon/statmanuals/files/KS-42-02-585-__-N-EN.pdf ESA95 manual on government deficit and debt - Capital injections