Transcript Balance of Payments Statistics And International Investment Position

Balance of Payments (BOP)
Statistics
By
SHAMSUL ARIFEEN
SENIOR JOINT DIRECTOR
STATISTICS & DWH DEPARTMENT
Definition of BOP
as per IMF’s Manual on Balance of
Payments 5th Edition(BPM5)
“ Balance of Payments in a statistical statement
that systematically summarizes for a specific
time period, economic transactions of an
economy with the rest of the world ”
 It helps monitor all international monetary transactions for a
specific time period.
 In the increasingly interdependent world economy,aspects such as
payments imbalances and inward and outward foreign investment
play leading roles in economic and other policy decisions.
The BOP records transactions between
Residents & Nonresidents
 The BOP is concerned with transactions and
thus deals with flows rather than with stocks
 A transaction involves two parties or
transactors. Sometimes, it is not clear if there
are actually two parties. (Transactions
involving branches and head offices,
migrants transfers etc.)
 A transaction is a economic flow that reflects
the creation, exchange, transfer, extinction of
economic value or changes in ownership of
goods / financial assets.
Exceptions in BOP transactions
• Transactions involving
External financial assets and two resident
parties &
External financial liabilities and two
nonresident parties are included in the BOP.
Double Entry Accounting System(1)
 The basic accounting convention for a BOP
statement is that every recorded transaction
has two entries with exactly same values.
 Each recorded transaction has as a Credit (+)
and a Debit (-) entry.
 In BOP Credit entry is used to denote an
increase in liabilities or a reduction in assets
And
 Debit entry is used to denote an increase in
assets or a decrease in liabilities
 Sum of all transactions is Zero.
Double Entry Accounting System(2)
 In the compiling economy
Credit entry is recorded for
Exports of goods and services
Financial items reflecting a reduction in
economy’s external assets or an increase in
external liabilities
And
Debit entry is recorded for
 Imports of goods and services
 Financial items reflecting an increase in assets
or a reduction in liabilities
Residency and Center of Economic
Interest(1)
• Residence is an important attribute in BOP
because the identification of transactions
between residents and nonresidents underpins
the system
• Identical concepts of residence are used in
BPM5 and the 1993 Systems of National
Accounts (SNA)
Residency and Center of Economic
Interest(2)
Concepts of residence:
• Economic connection of a unit to an economic
territory
▫ Not based on nationality or legal criteria
▫ Not based on currency used
• Expressed as an economic unit’s Center of
economic interest
Residency and Center of Economic
Interest(3)
Three Questions:
• What is the institutional unit?
• What is the economic territory?
• Which territory is the unit closely connected
with?
Residency and Center of Economic
Interest(4)
The residents of an economy comprise the following
types of institutional units:
1. Households

2.
Enterprises


3.
4.
Includes the individuals who make up a household
Financial and non-financial corporations
Unincorporated businesses
Non - profit institutions serving the households
Government
Residency and Center of Economic
Interest(5)
The economic territory of a country is the
relevant geographical area to which the concept
of residence is applied.
• A territory administrated by a Government
within this, persons, goods, and capital
circulate freely.
• Free trade zones
• Usually a country, but not necessarily
▫ Economic and monetary unions
▫ International organizations like IMF and UN
Residency and Center of Economic
Interest(6)
Center of economic interest
“Dwelling, place of production, or other
premises, within the economic territory of the
country on, or from, which the unit engages, or
intends to engage, in economic activities and
transactions on a significant scale, for an
indefinite or long period of time”
Residency and Center of Economic
Interest(7)
• Households and Individuals
▫ The BPM5 guidelines to be used for determining
residence:
“ The presence or the intention to be present for a
period of one year or more”
• Exceptions
▫
▫
▫
▫
▫
Diplomatic representatives
Member of the armed forces
Students
Medical patients
Crew members
Residency and Center of Economic
Interest(8)
• Enterprises
▫ An enterprise has a center of economic interest
and is a resident unit of a territory when the unit
is engaged in a significant amount of production
and plans to do so over an indefinite or long
period of time.
▫ One year guideline by BPM5
Residency and Center of Economic
Interest(9)
Particular types of enterprises
• Operator of mobile equipment
▫ The residency of airlines, railway, trucking and shipping will be
based on the residence of the operating unit.
• An enterprise operating in more than one economy
▫ Divide operations-identify “unincorporated branch” as
separate institutional unit
▫ Criteria used:




Separate account
Subject to income tax
Substantial physical unit
Receive funds on its own account (not as an agent)
Principles for Valuation, Time for
recording and Unit of account
 All transactions in BOP are based on Actual
Market prices agreed by willing, independent
parties.
 Both in the BOP and (System of National
Accounts) SNA, the principle of Accrual
Accounting governs the time for recoding.
 Data on BOP is normally expressed in
Domestic Currency or in a stable Unit of
account if domestic currency undergoes
major changes.
Coverage of Balance of Payments
• A number of transactions recorded in BOP do
not involve payments of money.
• The inclusion of transactions other than those
involving money forms the principal difference
between a BOP statement and Exchange
record.
Categories of Transactions(1)
1. Exchanges
 Exchanges of goods and services for
financial item.
 Payments for, or receipt of 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.
Categories of Transactions(2)
2. Transfers
 These transactions differ from exchanges in
a sense that one transactor provides an
economic value to other transactor but does
not receive an equivalent value in return.
 The lack of economic value on one side must
be balanced by an entry referred to as a
“Transfer ” in BOP and National Accounts.
Categories of Transactions(3)
3.Other Imputed Transactions
• Attribution of reinvested earning to foreign
direct investors:
 The earnings, whether distributed or
reinvested in the enterprise, are recorded as a
part of direct investment income.
 An offsetting entry, with the opposite sign, is
made in the financial account under direct
investment.
BOP-Standard Presentation
I. Current Account




Goods
Services
Income
Current transfers


Capital Account
Financial Account
II. Capital and Financial Account





Direct investment
Portfolio investment
Financial derivatives
Other investment
Reserve Assets
III. Errors and omissions
BOP Statement SBP Website
Classification of Goods
1.
2.
3.
4.
5.
General merchandise
Goods for processing
Repairs on goods
Goods procured in ports by carriers
Nonmonetary gold
Classification of Services
 Services organized by production
1.
2.
3.
4.
5.
6.
7.
8.
9.
Transportation services
Communication services
Construction services
Insurance services
Financial services
Computer and information services
Royalties and license fees
Other business services
Personal, cultural and recreation services
Classification of Services
•
Services organized by function
1.
2.
Travel services
Government services n.i.e.
Classification of Income
•
•
Compensation of Employees
Investment Income
1. Direct Investment Income


On equity
On debt
2. Portfolio Investment Income


On equity
On debt
3. Other Investment Income
Classification of Current Transfers
• General Government
• Other Sectors
▫ Workers’ remittances
▫ Other current transfers
Classification of Capital Account
• Capital Transfers
▫ General government
 Debt forgiveness
 Other
▫ Other Sectors
 Migrants’ transfers
 Debt forgiveness
 Other
• Acquisition / Disposal of non-produced
non- financial assets
Classification in the Financial Account(1)
 Functional Subdivision:





Direct Investment
Portfolio Investment
Financial derivatives
Other Investment &
Reserve Assets
 Direction of Investment
 Outward Investment
 Inward Investment
Classification in the Financial Account(2)
 Type on Instrument:
▫
▫
Equity
Debt Instruments
 Institutional Sector:
▫
▫
▫
▫
Monetary Sector
General Government
Banks
Other sectors
 Maturity
▫
▫
Short-term
Long-term
Classification of Direct Investment
• Direct Investment Abroad:
▫ Equity Capital
▫ Reinvested Earnings
▫ Other Capital
• Direct Investment in the Reporting
Economy:
▫ Equity Capital
▫ Reinvested Earnings
▫ Other Capital
Classification of Portfolio Investment
• Assets
▫ Equity Securities
▫ Debt Securities
 Bonds and notes
 Money Market Instruments
• Liabilities
▫ Equity Securities
▫ Debt Securities
 Bonds and notes
 Money Market Instruments
Classification of Financial Derivatives
 Assets
Monetary Authorities
General Government
Banks
Other Sectors
 Liabilities
Monetary Authorities
General Government
Banks
Other Sectors
Classification of Other Investment:
Assets / Liabilities
1.
2.
3.
4.
Trade Credits
Loans
Currency and Deposits
Other Assets
Reserve Assets
1.
2.
3.
4.
Monetary Gold
Special Drawing Rights (SDRs)
Reserve Position in the Fund
Foreign Exchange
▫
▫
Currency and Deposits
Securities
5. Other claims
Net errors and omissions
• They arise because unlike business
accounting, the two sides of the transactions
are measured independently.
• It is a balancing item.
• It reflects under / overestimation of recorded
transaction and / or the existence of
unrecorded transactions.
• The size of the net errors and omissions is an
indicator of the quality.
If the size is large, BOP analysis is limited
Recent Developments
Following release of sixth edition of the IMF’s Manual on
Balance of Payments and International Investment Position
(BPM6) in 2009 &
 Submission of implementation plan survey by IMF’s
member countries ,where some advanced economies are
expected to implement BPM6 in 2012.Majority of European
countries would however, convert their presentations to
BPM6 by 2014.
Statistics and DWH of State Bank of Pakistan has planned
to implement BPM6 in three phases starting from fiscal year
2011 and by 2013.
Thank You