Transcript Accrual of Interest Costs - Homepage

Malik Bani Hani
International Transactions Reporting System Workshop
Amman – Jordan
April 7-9, 2014
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IMF’s Balance of Payments and International
Investment Position Manual (BPM6)
IMF’s Balance of Payments and International
Investment Position Compilation Guide
(BPM6CG)
The International accounts for an economy summarize
the economic relationships between residents of that
economy and the rest of the world. They comprise:
The international investment position (IIP), the stock
of financial assets and liabilities compiled on a
specific date;
The balance of payments, a statement that
systematically summarizes economic transactions for
a specific time period; and
The other changes in financial assets and liabilities
account covering other flows, such as valuation
changes that reconciles the balance of payments and
the IIP for a specific period.
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International accounts are generally compiled
for individual countries but could be
constructed in respect of a group of
economies, e.g., Euro Area, BCEAO, BEAC,
and the ECCB as well as regions within a
country.
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The international investment position (IIP) is a statistical
statement that shows at a point in time the value of
financial assets of residents of an economy that are
claims on nonresidents or are gold bullion held as
reserve assets; and the liabilities of an economy to
nonresidents.
The difference between the assets and liabilities is the
net position in the IIP and represents either net claims
on or net liabilities to the rest of the world.
The consolidated balance sheet for the nation includes
the stock of nonfinancial assets in addition to the IIP.
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The unconsolidated balance sheet includes, in addition
to nonfinancial assets and the IIP, financial assets and
liability positions between residents.
The IIP relates to different points in time, and has an
opening value (beginning of the period) and a closing
value (or end of the period).
The integrated IIP statement reconciles the opening and
closing value of the IIP through transactions in financial
items and other changes (other volume changes and
revaluations).
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The balance of payments is a statistical statement in
double entry format that summarizes transactions in
goods, services, primary and secondary income, and
financial items between residents and nonresidents.
Since each transaction in the balance of payments is
recorded as consisting of two entries of equal and
opposite sign, the sum of the entries is conceptually
zero, that is the accounts as a whole are in balance.
BOP Transactions
Credit Debit
Current
account
- goods
- services
- income
- current
transfers
Capital acct
Opening IIP Financial
account
Assets
Assets
FDI
FDI
Portf. inv.
Portf. inv.
Oth. invest.
Oth. invest.
Reserves
Reserves
Liabilities
Liabilities
FDI
FDI
Portf. inv.
Portf. inv.
Oth. invest.
Oth. invest.
E&O
Price changes Exch. rate
chges
Other
changes
Closing IIP
Assets
FDI
Portf. inv.
Oth. invest.
Reserves
Liabilities
FDI
Portf. inv.
Oth. invest.
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Suppose a investor purchases 10 units of foreign bonds at a
unit price of US$5 million. Suppose at the time this
transaction took place, the exchange rate between the U.S.
dollar and the domestic currency was US$1=1.2 domestic
currency units. Let us also assume that at the beginning of
the period the exchange rate was US$1 = 1 domestic
currency units. At the end of the period, the price of the
foreign bonds increase to 7 million dollars per unit and the
exchange rate moves to US$ = 1.5 domestic currency units.
The IIP expressed in domestic currency units would appear as
follows:
Foreign Assets
Opening
Balance
Transactions
Price
Revaluations
Exchange Rate
Closing
Balance
1. Currency
and Deposits
100
-60
-
+35
75
-
+60
+27
+18
105
2. Foreign
Bonds
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The basic accounting convention for an economy’s BOP
statement is that every recorded transaction is
represented by two entries with exactly equal values.
Each transaction is reflected as a credit and a debit
entry.
In conformity with business and national accounting, in
the balance of payments, the term:
◦ Credit is used to denote a reduction in assets or an
increase in liabilities, and
◦ Debit is used to denote a reduction in liabilities or an
increase in assets.
Sum of all transactions = 0
Credit (CR) entries for:
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exports of goods
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provision of services
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provision of the factors of production to another
economy
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financial items reflecting a reduction in the
economy’s external assets, or
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an increase in external liabilities
Debit entries (DR) for:
 imports of goods,
 acquisition of services, use of production factors
provided by another economy,
 financial items reflecting an increase in assets or a
decrease in liabilities.
N.B. The financial account records net acquisitions of
assets and net incurrence of liabilities but their
interpretation in relation to the rest of the BOP follows
the accounting convention.
The balance of payments registers transactions between an
economy’s residents and residents of the rest of the world.
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A transaction is an interaction between two institutional units
that occur by mutual agreement or through the operation of
the law and involves an exchange of value.
Mutual agreement means that there is prior knowledge and
consent by the institutional units.
Transactions imposed by force of law are applicable mainly to
certain distributive transactions such as the payment of
taxes, fines, and penalties.
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Although taxes or penalties are imposed on individual
units by administrative or judicial decisions, there is
collective recognition and acceptance by the community
to pay taxes and penalties.
Transactions reflect the creation, transformation,
exchange, transfer, or extinction of economic value.
By the nature of international accounts, internal (i.e.,
intra-unit) transactions are not recorded. However,
following the residency criteria, transactions between a
branch and its parent enterprise are shown as
interactions between institutional units, with a branch
recognized as a separate institutional unit (i.e. a quasi
corporation).
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When a notional enterprise is created for holding land and
associated buildings by nonresident owners, transactions
between the nonresident owners and the notional enterprise
are considered interactions between institutional units.
Transactions between two resident institutional units in a
transferable external asset are domestic transactions and
therefore excluded from the coverage of the BOP.
The sectoral change in the holdings of external assets
resulting from domestic transactions are nonetheless shown
in the IIP. The changes in positions are attributable to other
changes in volume of assets (OCVA).
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Most transaction can be clearly observed as the way they take
place also reflects the underlying economic relationship.
However, some transactions (as they appear to the
institutional units) do not reflect the underlying economic
relationships, hence need to be rearranged so that the
accounts portray economic reality.
Rerouting (e.g. social security contributions paid by
employers directly to a retirement scheme) and partioning
(e.g. interest received from or paid to financial intermediaries)
are the two types of rearrangements employed in the
international accounts.
Transactions of agents―transactions in the underlying items
are attributed to the principals concerned.
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Many international transactions recorded in
the BOP do not involve payments of money.
The inclusion of transactions other than those
involving money payments constitute the
principal difference between a BOP statement
and an exchange record.
Exchanges: provision and acquisition of economic
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values is two-sided.
Exchanges of goods and services for financial
items.
Payments for, or receipt of primary income on, the
factors of production.
Barter (exchange of goods and services for other
goods and services).
Exchanges of financial items for other financial
items.
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Secondary income and capital transfers:
Transactions involving secondary income and
capital transfers differ from exchanges in that one
transactor provides an economic value to another
transactor but does not receive an equivalent value
in return.
The lack of economic value on the one side must
be balanced by an entry referred to in BOP and
national accounts as secondary income or capital
transfers.
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Imputation of transactions refers to constructing
entries in the accounts when no separate
transactions are identified by the parties involved.
As a general rule transactions are to be imputed
only in specific cases:
Retained earnings of direct investment enterprises
are attributed to direct investors as if the retained
earnings had been distributed in proportion to
direct investors’ ownership of the equity and then
reinvested by them in the direct investment
enterprise.
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Investment income earned on technical reserves
held by insurance corporations is deemed to be
payable to policyholders who are then deemed to
pay this income back to insurance corporations as
premium supplements even though in terms of
actual cash flows the property income is retained
by the insurance corporations.
Retained earnings of investment funds are treated
as if they were distributed to shareholders who are
then deemed to reinvest in the investment fund.
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When a government has a nonresident entity to
undertake fiscal functions related to government
borrowing and/or incurring government outlays
abroad with no or incomplete economic flows
between the government and the nonresident
entity related to these fiscal activities, transactions
are imputed in the accounts of both the
government and the nonresident entity to reflect
the fiscal activities of the government.
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This an important attribute of an institutional unit or individual in
the balance of payments because the identification of transactions
between residents and nonresidents underpins the system. The
concept of residence is based on transactor’s center of economic
interest. An institutional unit or individual has a center of
economic interest and is a resident unit of a country when from
some location, dwelling, place of production, or other premises
within the economic territory of country, the unit engages and
intends to continue engaging, either indefinitely or over a finite
period usually a year, in economic activities and transactions on a
significant scale. The one-year period is suggested only as a
guideline and not as an inflexible rule. However, the armed forces
deployed out of the economic territory, students, patients,
ambassadors are among exemptions.
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Compatibility with BOP concepts
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Timeliness with which data are provided
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Quality of data coverage
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Respondent burden to the data provider
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Legal authority of the compiler
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Cost to the compiler
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